Nextech3D.AI Corporation (NEXCF) Earnings Call Transcript & Summary

Well, good morning or good afternoon, depending on where you are. I'm Steve Darling with Proactive, on a beautiful day in Vancouver, British Columbia, our worldwide studios here at Proactive, as we present another live stream event, this time bringing you another update on Nextech3D.ai. And we're going to talk about a lot of different things about the company, most specifically is the work that they're doing with Amazon and why that is so key for the company, not only now but into the future as well. Joining us later on in the broadcast will be the Chief Operating Officer, Reza Davariar, who is really responsible for that account with Amazon and works with them on a daily basis. And as always, joining us will be the CEO, Evan Gappelberg, to talk more about what's going on with the company. We're glad you're with us. If you'd like to participate, we invite you to do that just by simply adding you to the Chat feature, ask any questions you like, and we'll pass those along to our guests. And there you see Evan Gappelberg, CEO, of, of course, Nextech3D.ai. And Evan, welcome back, good to see you again.

Thanks, Steve. Great to be back with you.

Yes. So it's -- I know that you really wanted to come on to talk a bit about the partnership between your company and Amazon and just how significant this is. So before we get into that part of it, let's take a step back here and talk about getting in the doors of the mighty Amazon because Amazon obviously is a major company. They do a lot of business around the world, and they do things in a certain way. And you have to adapt to them, they do not adapt to you.

Yes. Look, Amazon -- I think it's just very, very important for our investor base to understand the NexTech story and how important Amazon is to our story. So if you go back, remember, we used to own and operate a bunch of e-commerce sites ourselves, while we were waiting for the 3D megatrend to kick into gear. We were owning and operating a vacuum cleaner website, selling high-end Dyson and Miele vacuum cleaners. We also had a pet supplement business at one point. And guess what, Steve, 70% of our revenue for those businesses was generated through our Amazon site. We had Shopify sites. We had other websites, but 70% with Amazon. We learned all the way back in 2019, 2020 that Amazon was the key to our business success. We could not survive as an e-com site without Amazon. Let's be clear about that. Now when we -- in 2019, 2020, we were just selling product, we were dreaming about being able to make 3D models for Amazon. That was the goal, that was part of the vision. Today, that vision is a reality. But I don't think our investors fully understand how big a deal it is, which is why we're having this live stream today, to take our investors deeper into the Amazon world to understand how big Amazon is, how important they are to have as a customer. As an e-com 3D model supplier, having Amazon is transformational. It has transformed our company, and we'll have Reza kind of explain some more about what he deals with when he's -- he's basically managing, as you said, the Amazon account for NexTech.

Yes. What were the initial conversations like with Amazon or initial work that you did with Amazon? Was it a lot of like let's see what you can do first, testing and things like that? Is that was a big part of this?

Yes. So with Amazon, you have to go through a process. They have to approve you as a corporation. You have to be in business for at least 3 years, they really prefer 5 years. And really, Amazon put us through a whole series of tests where they gave us 10 3D models to make for them within an allotted period of time, and they had to meet a very, very high standard. They had to be photorealistic. All the materials have to be 4K, which means they have to be super bright, and everything had to be turned around in a very, very short amount of time. And then that was just like 1 bar. Then they sent us hundreds of models and had us go through another series of tests. And we passed with flying colors, which is why we're continuing to work with them and why they turned us into not just a 3D model supplier but a preferred 3D model supplier. Now I do want to go a little deeper into Amazon. And I want our investors to kind of, again, understand how big it is to have a supply agreement; it's not like any company can just get a supply agreement with Amazon. As I said, you have to go through the ringer and they consistently test us. It doesn't end. They're constantly raising the bar, they're constantly testing our capabilities and they constantly tell us that we're the top company that they work with for 3D models. If you think about today, I can't imagine living in a world where we can't have anything we need get delivered right to our door by Amazon. I mean every day, the Amazon guy is bringing something to my door. And they are the largest e-com market in the U.S. It's just a huge, huge company. And I just want to go into some stats. So I'm just going to kind of go through some statistics that I think our investors should be thinking about when they think about NexTech and you think about the next wave of growth for our business. Amazon, the app, which is what our 3D models really live in. They're not really on their website. Amazon uses their 3D models, I think, exclusively at this point for their app. They have over 200 million monthly active users. They have about 70% of the U.S. market, which is coincidentally about 70% of our sales when we had the e-com sites was Amazon. But basically 70% of the U.S. shops on Amazon. They have 12 million products. Their total sales has exceeded $0.5 trillion. It's just a monster, monster number. And Amazon wouldn't be as big as they are today if people didn't actually choose to shop there. Why do we shop at Amazon? I know I do it because it's just insanely easy. You go to Amazon, you search for a product. Their AI algorithm brings you to the product that you're searching for, you add it to your cart, you click Purchase, and it sends the goods. You know they're going to get delivered. It's a virtual guarantee within 1 to 3 days. They're always on time. There's always an Amazon delivery showing up. It's like the FedEx of packages. Whenever lawyers send documents out, they always use FedEx, they never use UPS because it's like a guarantee that the product -- the package shows up. Same thing with Amazon. They have over 2.7 billion unique monthly visitors that come to their site. That's double what eBay has with 885 million. And if you look at Walmart, it's not even close. Walmart only has something like 400 million compared to Amazon's 2.7 billion. So landing Walmart, landing Target, landing all these other e-com sites, which, of course, we've talked about, it's not as big, it's not even close to as big as landing Amazon. And so 9 out of 10 Americans buy product from Amazon. And think about that in relation to NexTech supplying Amazon with 3D models. Do we actually even need another account? I would argue no, but we do. We do have other accounts. But I honestly don't think we need another account because when Amazon opens up Seller Central, which they will, it's just going to be kind of an all-you-can-eat for NexTech in terms of making 3D models. They ship something like 18 orders per second. They have 150 warehouses, and this is a statistic that kind of blew my mind as I was doing all this research for you. 1.5 million employees. That's right. Amazon has 1.5 million employees. That is just a massive, massive number of people that work as delivery drivers, factory workers. That even accounts for the guys that we deal with the 3D modeling. And if you think about Amazon, there's about 340 million products that are sold on the Amazon website. That is, again, just a massive, massive number. If you look at the growth of Amazon, and this is a key piece to the puzzle, from 2005 to 2020, Amazon's annual revenue grew by 45x. Think about that. That is explosive growth for a big company. And that is not stopping. It isn't stopping. It is continuing to grow at an explosive rate. In fact, today, this is a shocker. I mean this is -- these are the facts. Less than 20% of all sales are done online. E-commerce only represents about 16% of all commerce. In the next decade, maybe 1.5 decades, that number is going to move to 95%. Everything is going online, everything, which means Amazon is just going to get bigger and bigger and bigger. So why is having Amazon as a customer is so critical for NexTech? I'm going to try and make it super simple for our investors: revenue and profitability. Amazon's large scale and customer base can provide NexTech with a significant ramp to grow our 3D modeling business and become just a juggernaut ourselves, where we're basically jumping on the coattails of Amazon where they're now pivoting from 2D to 3D. The thing is that they haven't publicly announced this. We're serving as a supplier. We're a partner. We know what we're -- every day, we're making 3D models. But Amazon, you try and find a press release that says that Amazon is converting products from 2D to 3D; it's not in the public domain yet. You guys know because you're an investor in NexTech, so the volume of our orders is consistent and can grow quite substantially as Amazon goes public with the news that they're all in on 3D, which again I've mentioned a few times, I believe, is imminent, meaning Q3. If you think about the market reach, Amazon, they have this vast customer base, a global presence. So partnering -- being their partner, it provides us access to millions of potential customers, literally millions. It also allows us brand validation. When you go to NexTech's website and you're trying to learn like -- should I hire NexTech to make 3D models or should I hire somebody else? Well, being associated with a reputable and globally recognized brand like Amazon has enhanced our company's credibility and reputation. No doubt about it. We get inbound calls, and they see the Amazon logo on our site, they see that we're a 3D model supplier, and they know that's the gold standard. They know it. They know it's a stamp of approval. And so it instills confidence, and we really don't lose business. When someone comes in our front door, we have like 100% close ratio. It's really that significant. It didn't used to be that, but it is that today. If you look at other partnerships and other opportunities, working closely with Amazon can open doors to further business opportunities, further partnerships. I mean they have a vast ecosystem. And we're constantly developing new technologies. We constantly are looking for ways to leverage into Amazon. And then the last piece is really, it gives us a competitive advantage. Having Amazon as a customer provides us with a competitive edge over rivals who don't have a relationship with Amazon. And it acts as a barrier for entry for competitors, as partners partnering with Amazon really demonstrates a level of trust and reliability that the bigger brands look for and that will make it very challenging for new entrants to overcome when it comes to supplying other e-commerce sites. Really having Amazon as a customer sets us head and shoulders above the rest. And so that's kind of the bull case for Amazon, like actually investing in Amazon [indiscernible] thinking maybe I got to buy some stock in Amazon. But you could also own NexTech and participate in the growth because we are going to grow with the Amazon ecosystem.

Okay. A lot there. A lot of things. I want to unpack a bit of it because, obviously, there's a lot of questions coming in from people. First off, just -- I want to take you back to what you said earlier about Amazon and their shift and how they publicly have not announced that they're planning to do that because you can say, Hey, we work with Amazon till you're blue in the face, but if Amazon were to say the opposite, that could be significant for the company. So do you think that that is a step that may come in the future, that they would acknowledge that, hey, here's one of the partners we're working with? Do they do that?

They have told us and my COO, who is going to come on in a little bit, can confirm, they've told us that when they open up -- so let's be clear, Steve. We are part of Seller Central's build-out. NexTech's technology is being implemented on Amazon Seller Central so that when they open up Seller Central, remember, there's 10 million merchants, 340 million products. They can't manage all that manually. It has to be automated. We have automation. We're using AI, that's kind of our secret sauce. But we have automation where we can load thousands of 3D models onto their site. But they currently check visually the 3D models. There's some automation, but it's not fully automated. I'm talking about quality assurance. So for them to get to the point where NexTech is loading 3D models on to Seller Central for these 10 million merchants where you could be talking about thousands of models a day, it has to be automated on their end where there's no human because there's just too many bits of information flying around, right? So all of that is what they're building with NexTech. Right. So the point is that we have an insider's view as to what's happening there. But we don't know everything, obviously. We're not Amazon. So what we can say, though, definitively is that it's being built, that this is happening. What we cannot say definitively is exactly when it's going to be built.

Sorry, Evan. I don't mean to interrupt you there. So right now, talk to me a little bit about the increase in model building and what you've been doing this year. Because I know you put out some statistics recently about how many you've been able to do for Amazon so far. Is that going to be an ever-increasing number for the rest of this year? And with that, does that connection come to more revenue as well?

It does. So let's be clear. Amazon is a steady customer. They provide us -- they have a couple of million SKUs themselves, and they are converting those couple of million SKUs. Now they are -- NexTech is one of the preferred suppliers. We're not the only one. They've told us there's a handful of companies, but they have told us that we are their like favorite, let's say. Now having said that, to get the real explosion in business, which we all want, we're all kind of posturing for it, they need to open up Seller Central, right? So they know that, they've told us that. They say like, look, when we open up Seller Central, like get ready. So that's kind of the moment, in my view, when NexTech starts to really see the exponential growth that all of our investors are working for -- waiting for, including us. Until then, we are growing, and we're seeing the Amazon business steady as she grows. But again, like most of the SKUs on Amazon's site are not Amazon's SKUs. They're actually part of these 10 million merchants' SKUs. And so until they open that up, I mean, that's demand that's literally sitting on the sidelines that's not in this whole 3D transformation. If you remember how big Amazon is, they're so big that when they open Seller Central, it is like a tidal wave of new demand that comes on to the market essentially when they come out with that press release. And so that's kind of what we are positioned for as a company. That's what our AI is positioned for to be able to allow us to scale. That's what we work on every day to get positioned for that. And in the meantime, our business is growing, as Reza will talk about. We have other sites that are continuing to order. We just put out a press release, I think, last week about new customers and new orders. And we're working with the biggest brands around the globe, not just in North America. But, I'm just going to repeat over and over, they are small potatoes compared to the Amazon king. The king is the king for a reason. And so when they open up their Seller Central, there will be we believe, at least I believe firmly and my team does, an absolute explosion in business for us. And until then, it's growing -- listen, I mean you saw our quarterly report in Q1, which was kind of a signal that 3D modeling has arrived. But the key here is Amazon and Seller Central.

Okay. Just on that Seller Central, so you don't -- they haven't given you any idea about when that's going to happen, but do you expect it to happen this year. Because they -- I think you remember they were supposed to open it recently. So are you expecting it this year?

So it's already kind of overdue, right? So in other words, they told us Q4 2022, Q1, Q2, we're in Q3. I can't see them opening it up in Q4 because that's their busy season, right, because that would be total chaos for them. So I'm predicting that it happens in Q3. I mean the train has left the station. They're already making 3D models with NexTech. They're already populating. If you go into the Amazon app, you'll see a whole bunch of 3D models in there. It's already happening. So that -- it's already happening. But as far as like an actual day and a date, I don't have that.

Yes. Okay. We're going to bring Reza in here in just a second, but I just want to ask you just one more question, that is, you mentioned obviously how significant Amazon is and we get that. What about outside of Amazon? You mentioned they're small potatoes, but there is large markets in Asia, in Europe and other places as well. Is that a big part of the scenario as well? Because...

So until Amazon opens up Seller Central, we continue to sign up new customers, new deals. We do expect, though, that when they -- when Amazon does open up Seller Central, that we are going to be inundated with business. But between now and then, we continue to sign up new customers in Asia. In Europe, I think we signed up last week, the second largest furniture company in all of Europe. I know that we have Wesfarmers Group in Australia. They control the biggest brands in Australia. And I know that they continue to order thousands of 3D models from us. I know CB2, we've supplied them with thousands of 3D models, and they continue to renew. I mean, business is growing, business is growing. But again, you're talking about -- like it's hard -- I've explained how big Amazon is, $500 billion Goliath versus these other companies. It's just -- they're just towering over everybody else at 70% market share. And so everybody else is important to us. There's no customer that's not important to us. But in terms of the exponential growth that we're all looking for, where revenue goes to $50 million or $100 million, I just don't see that happening until Amazon opens up Seller Central.

Okay. And lastly, just before we bring in Reza, last question on this part is, are you at a place right now within the company and the way that you have designed the system to be able to handle the potential for Seller Central? Because right now, you can -- you made 20,000, 30,000 whatever model. But what you're talking about is way more than that capacity to be able to do that, my question?

Yes. I think we're the only ones actually that can deliver on that. I think that our generative AI technology gives us that leg-up on anybody else within the Amazon ecosystem. I think when it comes to large-scale production, NexTech is the best positioned. Are we fully built? No. As discussed, we expect that we will be fully built by the end of 2023. Fully built means our AI is doing the vast majority of the production. So right now, the AI is continuing to get stronger, continuing to do more and more of the 3D model production. But until the AI is doing like the vast majority of it, like 90%, it's going -- nobody is going to be able to compete with us. But in terms of getting to like massive scale, it really is about the AI.

Okay. Let's bring in Reza Davariar. He is the Chief Operating Officer for NexTech and joining us now for the first time on one of our live stream events. Reza, nice to meet you. How are you?

Hi, Steve. Nice to meet you, too. I'm here for the first time.

Yes, it's exciting to have you and to talk a bit more about Amazon. So Evan is the one who sort of paints the picture but you're the one that brings them the ink because you're the one who talks to Amazon on a daily basis. So in your assessment, tell me where you're at with Amazon?

Sure, sure. Well, as a matter of fact, Evan did the whole picture, everything from end to end. But just going what Evan said regarding Amazon, yes, it is true. It is our #1 customer, but I have to extend that, that is not just a customer, it's a partner because of the nature of the business that we are doing with Amazon right now. Before they open their Seller Central, there are -- a lot of work needs to be done to deliver the customer expectation. Now I just want to reemphasize again what Evan says about hundreds of millions of products are going to the 3D models, merchants are pivoting from 2D flat photos to 3D experiences in e-commerce world, and he talked about the AI power, which we are continuously improving internally by our AI associates and engineering team to enable the e-commerce business to showcase their products and in the ecosystem of the 3D modeling. And Amazon being the one who is leading in the market right now, as Evan mentioned, there are more than 10 million merchants, and that is amazing. And you can see and have to -- I have to say that there are a lot of other e-commerce, I know they are very small, but they are following where Amazon is going right now because they have to be able to convert their website, their models that they are presenting to the customer to be more interactive and to be able to increase the conversion. And ultimately, whether they are e-commerce on the site only or they are retail brick and mortars, they have to be able to take advantage of this showcasing for the customer to decrease returns and get other ROI. And of course, NexTech, we are in that channel. We are not trying to go to the next level based upon what we've done last year, including onboarding with Amazon, we are at that level. And in order for us to get to Amazon Seller Central, it's all about timing and when Amazon is ready. Again, I have to say, based upon my communication with Amazon, there is a lot of work needs to be done on their dev side, on their website and including them be able to take care of their customers that they're going to provide their product on the Seller Central to be supported by 3D model supplier like us. Yes, they do have other 3D model supplier, but we are preferred, we are top choice. The reason we are top choice or we are preferred is not by accident; we deliver. There are many performance metrics that needs to be met by us. We don't even meet, we exceed the expectation as well. And Amazon's on a daily communication, weekly and even monthly communication that we have as a team, it proves that internally we are very much in tune and locked in operationally with our staffing, with the engineering team, with management, supervision, everybody that works through the Amazon's workflow and continuously we are improving. But improving it every day will not cut it for us, not with Amazon. Amazon's expectation is very high. We have to not even continue our improvement every day, but we have to organizationally refine our process, our product delivery, our services. We have to grow that every day, every week, and we evaluate that by the end of the month. If we don't meet that operationally, we're going to fall behind. And that's one of the criteria for us to be chosen as a top choice preferred 3D model supplier and be able to take on the challenge of Amazon Seller Central. 10 million merchants? How do you count the 10 million merchants? And those merchants, the product that they're bringing in is automatically not their product, maybe through the manufacturer, the brand product. Now we are going to go ahead and emphasize on their brand in Amazon Marketplace. And others are joining the same line because they have their marketplace, the other e-commerce they have their marketplace. They're waiting to see what happens, what happens with Amazon.

Reza, I just want to let our investors know that you manage a pretty significant team. And so how many people are on just the Amazon team ballpark?

With the ballpark going down on a team of the factory and operation, overall we're looking about 25 to 30.

Okay. Yes, 25 to 30 plus, that's just in North America. And then if you add -- globally, it probably doubles that.

Absolutely. The North America here, we are looking at about 25. But again, it's -- Evan, it's not just about the number of the people, but having the AI tool internally, be able to deliver those 3D models for Amazon, that's a huge improvement for us.

And what kind of cadence do you have in terms of communication with Amazon, like the team? And like how many times do we communicate, like a week?

My team, they have daily communication with Amazon's team on the delivery portion of it.

Daily communication? So when you think about that...

We have an open channel with Amazon daily.

Who do you -- who does -- like I -- sometimes, I don't even talk to my wife daily. Daily communication is quite significant. It kind of -- and this is my point is I want to explain to our investors a bit that Reza operates a global team, roughly 50 people, 25 North America, 25 outside of the country. And he's -- the team is communicating and interacting with Amazon every single day. We don't interact -- is there anyone else that we interact with that often, Reza?

Well, no, of course, not because if you look at the numbers, we managed to deliver more than 20,000 3D models to Amazon. And those 20-plus thousand, it just doesn't represent the quantity of the model, it represents the investment that Amazon put in us.

Right. It's not a one-way street.

It's not. They invested in us. Amazon invested in -- yes.

Yes. They're not just saying, Just give us the 3D models, and we don't care -- you guys. No, no.

Yes. The 3D model supplier that they're currently dealing with -- and many times, again, as in management and a high level, we have a once-a-month monthly business review. And on the management level, lower than the kind of regional is the weekly review and associates on a factory and operationally to be able to deliver all of these models on a daily basis is a daily communication that they have. You can see the investment that Amazon did in us. And many other customers besides Amazon, they did -- they have the same investment, but the investment of Amazon is huge because you just don't become Amazon 3D model supplier just putting a name on your memo. There are 1,000 suppliers worldwide globally. Why did they choose us? They handpick their supplier. And many times during their monthly business review, they did tell me that we are their preferred and top choice. Why? Not just because the name Nextech3D.ai looks good. Because we deliver in a high-quality, AR, 3D in high quality, not just for Amazon because as we both know, they are testing it. Before they open the Seller Central, can we take care of their customers who invested in them? I can see the investment of Amazon in us, it is huge based upon our performance, based upon where we came from, from last year up to now, models more than -- as a matter of, I have to say, more than 20,000 because we mentioned more than 20,000; in fact, it's more than [ 24,000 ].