Richard Hantke: Hello everyone, my name is Richard Hantke. I'm with Zacks Small-Cap Research. I am here with Evan Gappelberg, who is the founder and CEO of NexTech AR Solutions, which is, trades on the OTCQB in the US, and also trades in Canada on the CSC and the NEO. How are you Evan?
Evan Gappelberg: I'm doing great, how are you Richard?
Richard Hantke: Good, good, good. Thanks for giving us few minutes here. Evan, I've got maybe a handful of topics I want to cover, but first, maybe you just want to give me a little bit about, you know, what are you trying to accomplish at NexTech?
Evan Gappelberg: So, I've always thought about augmented reality and 3D as the next iteration of technology you know, just like the internet, the birth of the internet, when you look at new technologies like smartphones, even digital cameras, they really transformed industries and transformed people's lives. And I see NexTech as a pioneer, one of the early companies that have gone public in this space, trying to transform the industry, which ultimately will transform our lives as we shop and we get used to shopping in 3D and augmented reality, and as the metaverse becomes a bigger part of the fabric of society, NexTech's goal is to be there, is to be part of that journey that investors and just everyday people take. And so that was our goal from the beginning to be an augmented reality company, and it's now finally playing out, as you know, Richard, meta went meta in Q4, and that really did change the world and change everybody's opinion about 3D and the metaverse.
Richard Hantke: Excellent. All right, thank you for that intro. Okay, let's get into the handful of questions. Lisa Thompson, our analyst, feels that over the past few months NexTech has moved back to, as she calls it, your roots, and is refocusing on AR for e-commerce, because you now have the technology to scale. How do you think 2022 is going to play out product-wise versus maybe how 2021 shaped up?
Evan Gappelberg: I think 2022 is going to be an absolute historic year, not just for NexTech but for the entire 3D ecosystem. I think that 2021 was really just the beginning. It was just a foundational year, as I mentioned earlier meta went meta, and the whole world kind of took notice and the metaverse really took hold. And so if you think of the metaverse, the metaverse is really... You could define it as Internet 3.0, but I think of it really as a catchphrase that you could tuck in augmented reality under the Metaverse umbrella, virtual reality under the Metaverse umbrella, 3D, AI, it all kind of lives in the Metaverse, even gaming.
Evan Gappelberg: And so when I look at 2022, Richard, we've spent the better part of four years building our tech stack, waiting for the moment for the market to catch up, for the market to really be ready to embrace 3D models and augmented reality and specifically shopping online using these tools where you could try before you buy, you could take a model of a couch and put it in your room as a hologram and see what it looks like, see the size, see the color, see the shape, and make sure it fits, and it's exactly what you want, and this way, it cuts back on returns and ultimately increases the consumer's experience, so that online shopping really is becoming the de facto way of shopping. And I think as time goes on, more and more people are going to shop online, and 3D is the future of e-commerce, and that's not Evan Gappelberg CEO of NexTech talking; that's the CEO of Shopify, that's the CEO of Google, they're all talking about 3D being the future of e-commerce and we agree.
Richard Hantke: Let's drill down on the 3D. Are customers coming to you now, primarily for 3D models, or are there other products that are still generating some meaningful revenue for you?
Evan Gappelberg: So, we have a number of... I'm calling them legacy businesses, but businesses that we acquired when we founded NexTech. Back in 2019, we acquired a couple of e-commerce websites essentially to use as our test bed. The market wasn't really ready for 3D models, so we acquired vacuumcleanermarket.com and infinitepets.com, these are e-commerce sites that we've used over the last three years to test out our technology. And an interesting thing happened along the way, Richard. Those businesses grew by 500%. So, we acquired them... We acquired them in 2019, and they were doing under $3 million in revenue and... And for 2021, those businesses are clocking in at around 15 million, and so they've had a tremendous, tremendous move.
Evan Gappelberg: But the future growth of the business, the growth in Q4 of our 3D modeling business, far exceeds the future growth of those e-com business, that's why I'm calling them legacy businesses. So if you look at our renewable software business, the software business grew over 300% in 2021, and we see that continuing really for the next decade. A decade's a long time, but we're in the first inning of what I believe is a multidecade, multitrillion dollar mega-trend. And if you think about it, Richard, it's pretty easy to wrap your head around it. The whole world wants 3D models, the problem is that there aren't enough ways to produce the 3D models at scale. So think of an Amazon, how many 3D models does Amazon need? A billion? You know how many models they have currently? One half of one percent of what they need.
Richard Hantke: Wow.
Evan Gappelberg: And that's just Amazon, you could go on and on. So that's really the story here, is that everybody wants 3D models. And the real question that we're being asked when we're talking to big box retailers and the Amazons of the world is, "How many 3D models can you guys make, and how fast can you make them?" Those are the questions that we're being asked today, and that did not exist in 2021, 2020, certainly not in 2019.
Richard Hantke: Just so we're clear, this metaverse mapping the holograms, the computer-assisted design, so is this a whole new customer set for you, or is it more the legacy customers taking on this kind of new activity?
Evan Gappelberg: A whole new customer set. The Metaverse mapping is a separate product offering. We have a number of products that we offer in market, one is an end-to-end solution for the creation of 3D models for e-commerce companies. We build the 3D models using AI, so basically a picture on an e-commerce site, our AI sees that picture and turns that into a 3D model. That's our secret sauce, that's what allows us to scale the production of 3D models. We are the lowest cost, highest quality, most scalable solution in the market today. And it's giving us a very big competitive edge, and we're winning business because of that. So that's one engine of growth for our company. We're in market. We launched in Q4 of 2021, and to-date we have over 100 new accounts that we signed up since then, and it's only accelerating into the end of Q1 and now almost Q2.
Evan Gappelberg: Another business that we have, another product, is the Metaverse mapping. Think of indoor wayfinding, Richard, think of Google Maps with an augmented reality 3D overlay but for indoor mapping as opposed to when you're driving from point A to point B. So we have that technology, we're in market with it right now, and what we're doing is we're sinking all of our tech so that when you log in to the NexTech Studio, it's do you want to map your environment? Do you want to create 3D models? Which way do you want to go? It's almost like the Google Suite, when you log in, you have all those... You could go into Google Maps, or you could go into Google Earth, or you could go into Google... The mail or video. And it's the same kind of concept, where you log in, and you get offered all these different products under NexTech's Metaverse Studio, and that's going to be launched in April of 2022.
Richard Hantke: Got it. Understood. Now, you mentioned e-commerce, can you be a little more specific? What sites can we go to see your product in action?
Evan Gappelberg: So, Kohl's is one of our marquee accounts. We've produced over 3000 models for Kohl's, and we're negotiating with them for an additional 3000 or 6000 or 9000 models. They have about 40,000 models, we are their sole supplier of 3D models currently. Pier 1 is another brand that people know. Kmart Australia, which is owned by the West Farmers Group, which is a major conglomerate out of Australia, they also own Target Australia, is another one of our customers. CB2, which owns the Crate & Barrel brand, we just delivered 2500 models to. We're working with Jacuzzi, Brunswick, the boating manufacturer, the list really goes on and on.
Evan Gappelberg: There's a lot of accounts that we've just signed up, and they're coming back for more. They're kind of testing the waters with us, and what we're seeing, Richard, is that 3D models... It's a very sticky product. Once you go 3D, you never go back to 2D. And the 2D experience is such a lower rung on the totem pole that you just want to convert your whole business to 3D once you see a 3D model on your site. What we're experiencing is customers sign up for a test, and then 30 days, 60 days later, they come back, and they ask for more models.
Richard Hantke: Got it. Have you talked a little bit about the fee structure? How do the customers pay? Is it a monthly model of some kind? Volume driven? How does that work?
Evan Gappelberg: It is, it is. We're disrupting the industry, because all of our competitors, and even NexTech, when we first started in 2019, it would cost us anywhere from $100 to $150 to make a model, and we'd sell them for $250 or $300, whatever the market would bear. You make a model, you sell a model. That's a bad business to be in. So we waited until we had the ability to scale the production, and we've come to market again in Q4 of 2021 with a business model where we say, "Don't pay us for a single model, buy 25 models, which is our starter pack, for $10 per model per month."
Evan Gappelberg: It's a 12-month contract, so that comes out to $250, very reasonable price per month for 25 models. And then it goes up. You want 50 models, so it'll be $9 per model per month. You want 100 models, so it'll be $8 per model per month. Y you get break points. And again, our whole business model is monthly recurring revenue, which turns into annual recurring revenue. And it's an exciting business, because when you do the math, the total addressable market is over $130 billion in annual recurring revenue. That's a big number.
Richard Hantke: Great. Thank you. All right. I've got just two more topics I want to touch on. The first is talk about your sales organization a little bit, is it set up by product or is it set up more by vertical or by geography, and why do you have it set up the way you do?
Evan Gappelberg: It's set up primarily by product. Right now, the e-com business is just turnkey, it's kind of on autopilot, right? We have it set up, product comes in, product gets shipped out, it's just on autopilot. As far as our 3D modelling for the e-commerce sites, we have a salesforce, we are global, we're seeing demand in Europe. Actually the Middle East is, believe it or not, a very strong market for us. North America is also very, very strong. And the Asia-Pacific region is just starting to come online as well.
Evan Gappelberg: So, for us, it's about getting integrated with Shopify, which we just accomplished last month. So now when you're a Shopify merchant, you don't actually sign up on NexTech's website, you're signing up on the Shopify platform that you already subscribe to, and you pay Shopify that $10 per model per month, and Shopify pays NexTech. We're doing the same thing next month with BigCommerce, WooCommerce and Magento. So if you think about it, Richard, that's the entire e-commerce ecosystem where every merchant lives and conducts business, we're going to have our 3D model offering available to them native to the platform that they're on. So, frictionless integration, seamless integration is a critical piece of being able to scale and having success in the market. And none of this was possible, none of this, until Q4, 2021.
Richard Hantke: Yeah, definitely an inflection point here. The final questions have to do with your cash position, your monthly burn, what revenue level you're at, where do you need to get to be... Cash flow or break even, if you will, and what would the timeline be? Can you share any of that?
Evan Gappelberg: Yeah, I can. Now that we're locked in with our product offering, where we've spent the last three, almost four years with R&D and getting to this point, the focus has been to get our expenses down and revenue up so that we could go cash flow positive. As we roll into April, we're going to be hitting sub a million in total monthly expenses. That's not necessarily burn, that's everybody's salary, all expenses all in per month. So that means if we do zero revenue to offset that number, it's rough... It's just under a million dollars per month. Our cash position, we raised $10 million in January, and in November we raised five. So we're just around $15 million in cash in the bank.
Evan Gappelberg: And so if you do the math, we have a 12-month-plus runway, assuming we generate zero revenue, which is not the case. If you think about what's happening, we're expecting that when you have monthly recurring revenue, it's a snowball, right? It starts out small, you start going, and the next thing you know, it goes from $25,000 a month to $100,000 a month to $200,000 a month to $500,000 a month, and the next thing you know is you're over a million dollars a month. We're anticipating as we roll into the second half of 2022, that we can achieve cash flow positive.
Evan Gappelberg: Now, there's no guarantees, there's a lot of things that can change, the market is dynamic. But that is what we as a company are focused on. And you know what? If it doesn't happen in 2022, it's going to happen in 2023. So, from our standpoint, it's just about getting as many 3D models in-house under our umbrella, where we attach that monthly recurring revenue to, and just keep going. And as I mentioned earlier, if you think about the number of 3D models and the total addressable market, it's huge. It's over 100 billion, and you have 400 million 3D models. If you look at the Shopify ecosystem. And so for us, I've never felt better about our business. I'm the founder, I'm the CEO, I'm the largest shareholder, and I've never slept this well.
Richard Hantke: Thank you Evan. So Evan, the final magic question is, frankly you mentioned before that market opportunity that may be, a big part of the answer, but why should people be investing in NexTech? How can you sum it up best?
Evan Gappelberg: Well, besides the fact that we're extremely oversold and undervalued and, the stock hasn't been this cheap for three years, I mean it's come all the way back down from a high of $10 Canadian to now trading around the dollar. So we're severely undervalued. If you think about the market cap relative to our revenue, so that's one reason just on evaluation basis. But putting that to the side, if you believe in the metaverse, if you believe that the future is 3D, then there's your answer.
Evan Gappelberg: NexTech is essentially a call option at this point on the metaverse, everything 3D, which includes NFTs, includes spatial mapping, it includes if you're bullish on augmented reality, Apple coming out with their augmented reality computer glasses, if you're bullish on any of that... Again, NexTech is kind of like, at this point with the price where it is, it's like a call option on that whole ecosystem. And so I'm the largest shareholder. I've bought my shares in the open market, I was buying shares higher than the current share price. And so from the standpoint of having the CEO aligned, I'm extremely aligned, in fact, I'm so aligned I take all my pay, 100% of my pay in stock, no cash. That means I'm working for free if this doesn't work out.
Richard Hantke: Evan, if they want to contact the company directly, should they just go to your IR website and there's some contact information in there?
Evan Gappelberg: Yeah, nextechar.com. We have a whole investors portal, you could download our investor deck and somebody will be in contact with you if you have the desire to learn more, I'm always available. I speak to investors pretty regularly.
Richard Hantke: Okay, good, good. That concludes the chat session. Thank you, Evan, and thank you everyone for participating. Have a good day, all right.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks Investment Awareness (ZIA) is a Zacks SCR product. This text is not a verbatim transcript. This transcript has been edited and does not reflect the video-recording exactly. You may find the video-recording in its entirety here. Full Disclaimer HERE.
