Q2 2022 Nextech Ar Solutions Corp Earnings Call
Good evening, ladies and gentlemen, and welcome to the next take Air Solutions Corporation 2022 second quarter results conference call. All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there'll be a question and answer session instructions will be provided at that time for you to queue up for questions.
I'd like to remind everyone that this call is being recorded today Thursday August 18 to 2022, and I would now like to turn the call over to Julia Violette Investor Relations that next day Air Solutions Corporation.
Hello, and welcome to the next Tech Q2, 2022 earnings call.
With me on the call are even GAAP Oberg, Chief Executive Officer, and Andrew Chang Chief Financial Officer.
Today after market close next tick a our solutions Corp, released its financial results for the second quarter ended June 30, 2022.
Copy of the earnings disclosure is available on our website and on SEDAR.
Some of the information discussed on this call is based on information as of today August 18, 2022 and contains forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well as in our SEDAR filings.
During this call we will discuss ifr S results and key performance indicators.
A detailed description of our key performance indicators is available in our MD&A, which can be found on SEDAR.
Neither this call nor the webcast archives, maybe recorded or otherwise reproduced or distributed without prior written permission from next tech.
To begin our call Evan Gothenburg C. E O will discuss 2022 Q2 highlights as well as recent business developments, followed by Andrew Chen CFO , who will review our financial results and outlook. Finally, Evan will provide closing remarks before opening up the line for a question and answer period I'll now turn the call over to CEO .
And founder of next taking our solutions Evan Goldberg.
Thank you Julia.
Good afternoon, and good evening, everyone. Thank you for joining us from around the globe today.
In 2022, we have emphasized over and over again the rapidly growing demand.
For our three D modeling and Edr solutions really for the transformation to web three point out, especially in E. Commerce. This demand we've been talking about is evident to our regular announcements disclosing a multitude of new deals closed in Q1 and Q2.
Of 2022, all related to three D modeling the new deal flow is continually aim to Q3.
Serves to reinforce the narrative, we've been public about which is there is a rapid acceleration.
There is a massive new.
Urgency and new demand.
We are seeing for three D models in e-commerce across various industries and product categories, which include but arent limited to furniture sports equipment clothing, and accessories artwork appliances lighting auto parts and much more now.
Now looking past looking back.
It gives it gives me some sense of what to expect as I look forward, it's been board a half years.
Since the founding of next tech.
In 2018 with $3 billion.
And a dream of becoming the first pure play <unk> a public company during that time, we navigate it in and out of a number of businesses that in hindsight acted as bridges and test beds.
Our resilience and ability to pivot.
At this time however, we.
We were always.
Danny this momentous moment in history, making calculated decisions about our in house development.
Our <unk> technology, as well as picking and choosing the best strategic acquisitions that would position us for the three the tidal wave that we believed was coming some time in the future.
Many years ago, we have been steadily working towards this moment.
Making acquisitions, we have made 10 acquisitions to date.
Testing, our technology in the real world and developing our technology to prepare for the digital transformation and web three pointed out.
Well, ladies and gentlemen.
Pleased to announce that the time is here now.
How can I be so sure how can I make such a bold statement. It's because we have been closing three D modeling contracts at the fastest pace in our company's history.
Because Google is now index H <unk> models higher inorganic church, it'll be close the largest prime marketplace. Amazon has gone three D. It's because shopify has gone three D is because Walmart.
Target Kohl's naphtha or companies that we either currently have contracts with or talking to have all gone in three D. <unk>.
The World has now pivoted three D. So make no mistake about it three D is here and it's here to stay and it will be a big part.
A multi trillion dollar multi decade mega trend that is now being called the meta versus who enter the merdivorous. However.
You need a three D model.
And that is what next tech mix Caribe models, which we are now scaling that production for the first time, we are hearing from our customers that they're either.
Old Tobias <unk> models from leadership or planning on buying three D models in the near future impact.
Call yesterday from a major customer of ours that was talking about a three year plan.
To purchase over 100003 D models.
This has never happened before in the history of next tech and it signals to me that the market is here. The demand has shown up the demand for three D models in my view will only accelerate throughout the second half of 2022 and I believe that in 'twenty.
'twenty three we will see demand shift into high gear similar to what happened with our virtual events business. During the pandemic in 2020, which had a significant impact on our valuation.
I believe it can and will happen again.
If you look at our major customers, we're signing major customers, but we're also signing small.
Midsize ecommerce customers for three D models as well in Q to Q.
Even into Q3, we're experiencing a rapid expansion of major three D modeling customers with some of the biggest retailers. These include new contracts with brand new customers as well as bigger add on contracts, but more <unk> models with existing customers, including.
In Napa auto parts coal CB, two Kmart, Australia, just to name a few of our major customers but.
The biggest.
H in the e-commerce Ocean by far.
Is the prime marketplace. It is Amazon by far it's not even close.
Amazon is the biggest fish in the e-commerce marketplace and represents.
At least for the business that we do.
We used to own and operate our e-commerce business about 70% of sales and I've seen that number over and over again about 70% of our.
A company that's in the ecommerce space about 70% of the sales.
Happens on Amazon.
We announced on July 12, we began supplying the worlds largest prime marketplace with three D models now that's in Q3 not Q2.
This represented a <unk>.
Significant significant new development.
And it does represent potentially massive growth for next tech for many years to come signing a deal with Amazon. However, it does demonstrate next tax technical proficiency and leadership in the three D modeling E Commerce space.
Believe me Amazon only works with best in breed, if you look at Amazon there.
As over one 1 billion and a half registered active Amazon sellers.
With hundreds or thousands of models for each one of those sellers. There is an average of 1800 new sellers.
That are signing up on Amazon every single day, they have about a quarter of a billion.
Product Skus.
A massive massive opportunity for next tech.
And it's just getting started.
In Q3, so no revenue in Q2, the numbers just release did.
Did not include any revenue from this in Q3, we anticipate a few hundred thousand dollars in revenue as we start to scale with Amazon and we expect we will quickly grow to one <unk>.
And in revenue.
Through Q4 of 2022 as we enter 2023, we are gearing up.
Our production for the possibility of doing a million dollars a month in Amazon revenue alone. Amazon. However is clearly not the.
The only customer we have although they are significant and the potential revenue over the coming years. We have other customers that are also quite significant.
We're currently in talks with some of the world's largest brands to supply hundreds of thousands of <unk> models.
Kohls Wal Mart Jacuzzi Fortune brands just to name a few the more contracts, we signed with major players. The more next tech cements itself as the worlds leading supplier for three D models and the more companies.
<unk> see us as such and come knocking on our door.
The business opportunity and demand for next step to produce three D models and our experiences for retail.
And the E Commerce has never been greater and we are extremely excited for what the future holds we will take full advantage of this opportunity E. Commerce is over five trillion dollar global industry expected to grow by another trillion dollars in the next.
Year or two and three new models are fundamentally transforming online shopping why it's comes down to one thing Roy.
40% reduction in returns, 93% higher click through rate and up to a 250% increase in conversions nothing else comes close to this ROI and ecommerce now video not direct messaging not next day delivery with our <unk> technology.
We are perfectly positioned to ride this mega trend.
For the foreseeable future.
The onramp or web three point O and we have achieved a perfect product market fit with three D models in e-commerce consumers.
Which really drive the bus they prefer retailers, who have three D and E are experiences three D models are also enabling virtual product.
<unk> fee.
Which is a huge new business opportunity for US we are launching this very soon it will place.
Photography for web and E Commerce site saving companies millions of dollars and generating significant revenue for next deck. We offer all of these solutions in one integrated platform. One end to end solution, which we believe is very very Val.
<unk> and becoming more valuable every quarter.
Mixed tech is creating tremendous value for the E com.
<unk> system and it's just getting started with this transition.
Three D models, it's only a matter of time.
It's going to happen in Q4 of 2020.
To win.
When the breakout for everything <unk> happens, where there's a.
At Bald mountain.
Where companies are going to feel pressure to adopt.
Three D models, if they don't they will feel like they are going to be left behind by their competitors.
Everything today is perfectly aligned for next tax.
Variance dramatic growth over the coming year Google.
Is even come out and they're supporting US as mentioned before they're now ranking <unk> models higher than <unk>.
Two the images imagine if your product that you sell gets ranked higher by Google.
That's the wind at your back.
That's the position that next tech is in if an ecommerce site has three D models on their site.
Those three D models will organically show up higher in search results over an ecommerce site that just has <unk> images, giving them a huge competitive advantage and again, creating this promo this massive amount of new demand for <unk> models, and we are here to supply that demand.
As we improve our AI.
And three D model production capabilities.
We expect to be able to grow our three D modeling capabilities buyouts much as are the hours in percent in 2023.
Now if you look at what we've done to date, we've set ourselves up with a SaaS platform strategically integrating with all the third party platforms.
Which we've talked about previously this SaaS integration with.
All of our product lines really has quite significant input implications for our scalability and our revenue growth, which is why we made them a priority.
Earlier this year.
Setting ourselves up.
Sure.
Higher annual recurring revenue year over year, driven by our monthly recurring revenue streams months over months and as reported in our Q2 results today, we're up to almost $1 billion already in Q2 of 2012.
To.
This growth is a huge validation of our efforts to disrupt the emerging multibillion dollar <unk> model market as we've previously indicated three remodels for E Commerce.
<unk> annual recurring revenue going to be the area of business that we believe can scale quite quickly annual recurring revenues is what investors should pay close attention to in order to measure the health and.
And the growth really of our company Shopify another big player in the E. Commerce ecosystem believes as we do the future of E. Commerce is three D. We've integrated with Shopify, we continue to pick up customers off of Shopify.
Integrated with wound Commerce, Big Commerce, and we basically put our <unk> model, making solution called <unk> in front of the millions of merchants that are out there globally, which again positions us in this in front of this massive <unk> model for e-commerce opportunity, which is estimated.
To be worth $200 billion started to emerge really at the end of 2021.
And now it's continuing through the first half and now into the second half of 2022, and we continue to believe that we're going to win more and more business and as time goes on capture more and more market share.
We believe that our competitors will not be able to compete for long just because we have such a vast array of solutions. If you look at our solutions, we keep adding more we're going to soon be adding our CAD to poly studio, which again is going to be a three D.
Essentially production studio for the creation of three D models from CAD files, you can change the colors in the studio you could change the the mesh you could change.
The textures.
It's a full on creation studio and it'll have the virtual photography built in as well.
Now apart from <unk> three D.
And three D modeling.
<unk> also owns a portfolio of quite valuable companies.
That contained breakthrough technology and industry disrupting products, we are working towards unlocking the value of these assets and businesses and that really brings us to our spatial computing platform.
Our way, which is getting stronger and stronger every single day.
Our way is being spun out as previously announced.
Are we really is a next generation computing platform for the real world metaphors and it drives new revenue with out of the box augmented reality mapping solutions, it's a no code platform.
He can use it.
And we've already launched the mobile app.
Suggests you're interested you can download it it's just a way in the App stores, its a Google and <unk> and.
IOS and we have an SDK that.
Also as recently launched we also have a studio.
You can go into a web based studio and edit maps and create.
Excluding our experiences.
Are we really opens next tech.
<unk> technology solutions to new substantial markets for used by creators brands and companies are really extends our reach much much further beyond just e-commerce, even though thats huge.
We actually think that there's even more.
Tangible with AAR way, we've always been focused since day, one on increasing shareholder value.
Which is why we announced the spin out of our way in June .
The spin out will result.
In Iowa, being a standalone public company and we believe it will be the first publicly traded pure play spatial computing platform, which is quite exciting for our shareholders.
I am pleased to update that we are working diligently to bring this transaction to market. It is quickly moving forward.
And it is anticipated to start trading in October .
Canadian Securities Exchange and shortly after that on a U S exchange when the spin out is completed next tech will receive about 20 million shares that will be issued.
$4 million of those will be distributed to next tech shareholders on a pro rata basis. So if you own shares in next tech today.
And you own shares in next tech.
When we spin out.
You will get.
Sure.
Free in the new public company called airway.
This will give <unk> shareholders ownership in yet another exciting public company with the spatial computing platform, which I believe is perfectly positioned for growth and again the rapidly emerging web three point O World. There also be zero dilution to the holdings of <unk> shareholder.
As a result of the spin out I believe the true value of <unk> business and technology will get the recognition it deserves.
<unk>, a positive revaluation, which will benefit <unk> shareholders.
Which will continue either through their indirect ownership through next Tex Mex Tech will remain the largest single shareholder of Norway or through the shares they get through the dividend.
I'm quite confident.
Net.
The spatial computing is the technology of the future. It's the next big thing that possibly even bigger than three D modeling and.
I think it could be the most important technology breakthrough in the 20 <unk> century, because spatial computing essentially merges many disruptive technologies, including three D models augmented reality VR AI and all the web three point O technologies it expands the concept.
Traditional computing by adding a three D objects location in space in relation to other objects or locations.
And so when we look at that we look at our three D models and so we've integrated.
Our solutions, where you can now be in a spatial map and populate that spatial map with the three D models that we make for our e-commerce customers setting the stage for additional business from our E. Com customers that had also a brick and mortar stores.
So again, we continue to combine tech integrate tech and create net new tech.
Through those integrations and ultimately, creating our moat with this end to end solution for creators and brands, that's really unseen anywhere else.
If you look at.
Our future.
<unk> is only one of many assets that next tech has incubated with the potential for the development into commercial stage businesses and so as.
After a already get spun out.
There is a.
Plan to repeat the business model with some of our other assets continuing to increase shareholder value that is the key.
Map dynamics is another one of our portfolio companies that we are steadily growing the sell serve event management software solution.
It creates floor plans you could have ticketing.
And if you have an event a live event.
You could buy tickets on map dynamics, you could buy a booth a Mac dynamics that we're seeing.
Rapid growth in that business and obviously, one mapping technology.
<unk> with the other mapping technology creates.
Synergies synergies that create value. So we have integrated airwave finding into map D. So that we now have over 800 customers that we can sell our way finding to four live events we've already.
<unk> done this for restaurants, Canada for the restaurants in Canada, our sheet RC showed back in May of 2022.
So we're already have a contract with restaurants, Canada, we've already mapped out.
Quite a large event the largest restaurant.
Gathering events in Canada, and we were able to do that.
By combining our technology, so quite an exciting time for map dynamics <unk>.
Moving right along.
We are transforming and.
Moving to become a pure play technology company, we've announced.
Earlier this summer back in June that we are positioning the company to the next level level of growth.
Stuff that I've been talking about transforming our operations with the renewed laser focus on web three <unk> in our SaaS business and with that we have been winding down our legacy vacuum cleaner market E Commerce business.
This transformation is the next logical step it does also.
Represent.
When you look at our quarterly numbers, you do see the numbers going down but that is strictly because we are getting out of.
The E comm business.
And knocked we've taken our foot off the gas and we're exiting that and so if you think about that youre going to see a reduction in our product sales business, but you will see a growth.
Extremely rapid growth in our three D modeling business. So it's important that everybody understand that they're not related.
And so as we continue to gain traction signing new deals winding down our legacy E. Commerce business, we're now solely focused on our fast growing.
Scalable business, which is our <unk> modeling technology in closing.
The first half of 2022 has been challenging as a shareholder we all watched small cap stocks get crushed.
We watched the market get crushed in the first half of the year, which included next tech.
Yes.
The strong companies always bounce back.
And I think we have only seen just the beginning of our bounce back.
2022 is proving to be a substantial year of growth for our key growth driver, which is three D models and augmented reality.
<unk> is fully focused on obtaining greater industry leadership and penetration and becoming the worlds leading community modeling company. If we're not out already to do this we've made cruise crucial.
Business decisions as mentioned.
Winding down our legacy Vcs business, which will result, again in short term reduction of our revenue.
But again don't be alarmed as this was all planned.
And anticipated.
We are now going to be replacing the legacy revenue with pure <unk> revenue, which we expect will eclipse.
Eclipse our vacuum cleaner revenue in 2023, we continue to integrate <unk> with third party e-commerce platforms and rollout our search SaaS self serve products to increase scalability I believe all of these decisions will pay dramatic dividends as the <unk>.
Market is finally, aligning and soon will recognize the value of NEC <unk> groundbreaking web three point O technology and solutions.
The company and I are also doing everything we can to bring shareholder value.
To increase shareholder value and this is why again, we've decided to spin out.
Our way.
Web 3.0, and the meta versus is a multi decade multitrillion dollar mega trend and our technology, which includes three D models.
I've mentioned reality and spatial mapping or the gateway.
<unk> capture of the market share within this burgeoning industry is just getting started and I've never been more excited and confident about the position our company is in and the opportunity we have before us before turning the call over I'd like to thank our experienced executive.
Leadership team for their hard work and dedication.
And thank every <unk> employee working day in and day out striving for success to achieve our company's goals.
I'd also like to personally thank Paul Duffy tore his massive contributions to <unk> as president and chairman of the board.
And I have been working together for the past four years.
We are expecting to continue working together on our way.
So that Paul could focus I've asked him to step down as chairman of the board I will fill the role and he will become the chief meta versus officer of our way, which is hugely positive for the spin out and for next tech shareholders I have full confidence in our company's direction and I am looking forward to our continued.
Growth.
In 2022, and beyond with that I am going to turn the call over to our Chief Financial Officer, Andrew Chen to provide further commentary on the quarterly financial takeaway Andrew.
Thank you Kevin and good afternoon.
As a reminder, unless otherwise noted all figures reported on today's call are in Canadian dollars under Ifr US all the preceding financial information is now available on our website and have been filed on SEDAR at the close of market today for your reference.
Total revenue in the first quarter was $3 2 million down from $6 1 million for the same quarter last year. These revenues continue to reflect our shift in business from E Commerce and virtual events to three D. A R.
Met averse and web III data.
Product sales revenue for the quarter was $2 6 million down from $4 4 million for the same quarter last year and down from $3 million in the immediate preceding quarter, reflecting the decision of winding down our e-commerce business and solely focusing purely on technology.
Renewable software license revenues were up 15% to 518000 this quarter compared to the same quarter last year, and we saw a 40% increase in three D recognized subscriptions revenue and a 1% increase in revenues related to our hybrid events platform map peak compared to Q1 2022.
This is a result of the revenue recognized from our 30% growth of <unk> to 900.
91000 this quarter.
Gross profit also came in lower at $1 6 million compared to $2 3 million for the same period last year, but on higher revenues.
While we maintained a 52% gross profit margin compared to 38%.
Gross margin compared to the last quarter.
Product sales gross margins saw an improvement from the immediate preceding quarter of Q1 2022, an increase of 55% from 42% as we focused on more profitable items. During this wind down phase.
Technology services gross profit margins increased up to 37% from 27% in Q1 2021 is the focus now has shifted towards the more profitable <unk> products. We anticipate gross profit margins to increase even more as we continue to scale the business through these products.
Operating expenses for Q2 was $7 2 million down $1 6 million from the same period last year and down 300000 from Q1 2022.
There are approximately $1 million of significant one time expenses related to acquisition bonus payments and settlement of employment contract agreement obligations that were expense this quarter, otherwise there would've been a greater reduction expenses presented.
The decrease in operating expenses in this quarter continues to be from sales and marketing and research and development expenses similar to the immediate preceding quarter.
This is a continuation of our effort to shift our growth related to spending to our <unk> business.
During the past few quarters, we have now restructured our sales force and marketing spend to a more more.
More cost effective model for new pursuits in a ourselves which resulted in a 55% decrease in sales and marketing expense compared to the same quarter last year, and a 31 and a 30% decrease from Q1 2020 to the.
The decrease in research and development costs continues from Q1 to be the result of our shifting in our product development focus to our products, resulting in overall overall lower head count in this area by 34% from the comparative quarter and a 14%.
Kris from Q1.
As previously mentioned the 1 million onetime expenses contributed to the $4 5 million of G&A costs. Excluding those costs would result in a $3 5 million expense, which would be flat against the same quarter last year and the immediate preceding quarter.
After announcing cost reductions through the latter part of last year, we have made significant progress in achieving net cash used in operating activities of $3 million during the quarter and continue to actively monitor and reduce our expenses where necessary to better align ourselves with anticipated revenues in future growth.
We had a net loss in Q2 of $8 9 million compared to $5 9 million in Q2 last year and a loss of $7 7 million in Q1, driven mainly by the $2 7 million impairment related to the wind down of the ecommerce business. Excluding the impairment charge of net loss would be $6 2 million, which is one of the lowest in recent quarters.
As of June 32022, we had cash of $7 1 million inventory of $2 4 million and a positive working capital of $7 million.
Subsequent to the quarter, our employees signed up for our shares for services compensation plan that will save us.
The company approximately one 5 million per quarter, extending our cash runway and based on our current projections of sales and cost reductions. We feel this is sufficient capital to finance our business over the next 12 months.
This quarter reflects months of hard work from the second ploys related to cost management and the refocus of our business I am very proud of each and every one of the next tech employees, and we'll look and wed like to thank him personally for contributing to and sticking with us through this exciting journey.
With that I'll turn the call back over to Evan.
Thank you Andrew.
On behalf of next tech I'd like to thank everyone for taking the time today to join US on this call.
So like to thank all of our employees all of our shareholders all of our partners for their continued support as we remain focused on providing long term value opt.
Operator, we are now ready for the Q&A.
Thank you and if you would like to ask a question at this time. Please press star and then the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again.
A reminder, star one to ask a question.
Our first question will come from Lisa Thompson with Zacks.
Please go ahead.
Hello, everyone.
I apologize in advance for not guessing vacuum cleaner sales correctly for the quarter.
Which is probably the biggest issue.
And the Mezz.
Something I don't know anything about.
You have so much going on I think I'm, just going to narrow it down to a few things and Andrew. Thank you for so much detail on the financials the answered a lot of questions already.
And then could you just talk about what needs to be done to get higher.
Higher.
Revenues and all of these orders you have coming in like what's physically do you need to do.
Physically.
Hi, Lisa.
Yeah.
So.
So this isn't a physically.
Challenging job, it's worth mental mentally challenged but I hear you.
Emails and hire people and stuff like that yeah. So so we're pretty locked in as far as head count.
We do not need to add.
Additional expenses from where we are today, we are in the process of scaling.
Our production capabilities.
Of the models for today or are the customer that's demanding the most is Amazon.
And it really is insatiable and so but theyre not the only ones. So from our standpoint, the hardest part is going to be mapping it out which we have already started to do on a calendar.
To be able to meet the demand.
That is.
That is now apparent and just continuing to meet that demand will be a challenge.
CTO is working overtime.
<unk>.
Enhanced our AI and machine learning technology I meet with him now multiple times a week and he is creating some take your breath away.
AI technology that creates <unk> models.
Want to say out of thin air but it's.
It's a whole another level.
And then what we've been able to do previously so it's really just improving our technology.
To be able to meet the coming tsunami of demand.
Okay, and then one question about the virtual product photography.
Talk about that is that.
Can be like an entire different product line or.
Revenue model or anything like that.
Yes.
So that's a very interesting new piece of technology.
We are creating a studio which.
I think we'll be launch in September October timeframe and within that studio you will be able to employ <unk> models, whether we make them from you for you or you make you have them already.
And within that studio you will be able to change the color of the <unk> model.
There'll be some textures that you can.
And it's really point and click.
It's kind of a design studio with three D modeling and within that you will have the product photography, So you could stage and create virtual showrooms.
And use that for catalogs use it for your website and it'll be a SaaS business, where you'll you'll pay to play you'll pay for usage and so that's launching.
All of this Lisa.
Puts us in a position to be that one integrated platform end to end solution, which has always been our dream, but it's now turning to reality because we have the dream team.
Alright.
Yes.
Okay.
That sounds great. So Andrew well my only question in the county is what's.
Deferred assets.
Yeah, so sometimes when we.
Because our contracts with the models are over.
So like 12 months period.
Some of the costs that we incur are kind of upfronts.
So it's really just trying to match better the costs with with.
With the revenue that's coming in over a 12 months period, if not longer depending on how long customers sign their contracts for.
Okay. So you've created a model, but youre not going to get pulled except over the 12 month period.
Exactly yes.
Okay, Alright, just checking that was new.
Thank you that's all my questions for now I'm glad to see the continued expense reduction really doing a great job there.
Thank you Lisa.
Yes.
It was a heavy lift.
Yeah.
But it's done.
Sure.
Well I'm sure you get it more with the spin off and then also as the product sales wind down.
Yes, yes exactly.
Spinoff and product sales contributed heavily to that.
Again, a lot of thought goes into.
Yes.
The strategy to meet the goals. It's a it's more mental work, it's just a complex equation.
But thanks for recognizing that Lisa.
Thank you.
Correct, yes.
And as a reminder, that is star one if you would like to ask a question. Our next question will come from Scott Buck with H C. Wainwright.
Please go ahead hi.
Hi, Good afternoon, guys. Thank you for taking my questions.
Kevin you did a really nice job laying out the revenue cadence for the remainder of the year in terms of the modeling business, but could you give us a sense of what the.
The business mix shift does to gross margin as we exit 'twenty, two and then into 'twenty three.
Yes, it's an interesting question and I had the same conversation with Andrew.
This week.
So as time goes on our gross margin is going to dramatically increase.
We do have some upfront cost as Andrew just mentioned initially.
We are creating the models and then we're charging over time.
For those models and then we're adding additional services like the virtual product photography, and so as we get.
Deeper into the relationship as time goes on the margin goes up as we start to recoup our cost and as we start to sell more software services to the customers.
The goal is to.
Be north of 70%.
In gross margins, but I don't have a timeframe as to when we will achieve that.
Great. That's helpful and then sort of as a follow up to Lisa's question.
On Opex how much.
Opex is tied up in what will be our way the separate entity curious what the cost savings. There are just removing that off of your P&L.
It's about.
It's about 100 K per month call it $1 2 million.
Okay, Great. That's helpful. And then last one from me just on the timeline for the spin it sounds like October but can you remind us what what steps needed to take place between now and then are there no approvals you're waiting for or is there a shareholder meeting I mean, what do we need to keep in the back of our mind, yes.
Yes, Andrew can you lay that out for Scott. Please yes exactly so.
There's obviously working with the CSC and so I'll have to get through that process.
This will be kind of brought forward as well.
You said shareholder approval at the AGM, which is scheduled.
I believe in early October .
And so.
Those are kind of the barriers the two main areas that we have to achieve.
I have to have to go through.
Okay, that's great.
Yes, I would just say Scott.
Less barriers than checking the boxes in terms of timing.
We're pretty confident working with counsel and in constant contact with them.
And so.
This is something we've actually done before.
And we're doing it again, so we do have a playbook. So we're pretty confident with the timing going into October yes, sorry, I Didnt mean to use the word barrier.
Everything is going to plan at this point and it's just.
It's just procedures that we have to go through at this point.
Yes, I appreciate that.
And then I guess one more question when we think about the modeling business in 2023.
What do you suspect Amazon will be in terms of total revenue in that business, just trying to get a sense of customer concentration.
That's a that's a good question I don't have.
A clear answer as we stand here today.
But.
My guesstimate is that it'll be.
North of 50% of our revenue it could be a lot more there's multiple streams of opportunity with Amazon one being the three D modeling.
And there is a couple of others that are equally as lore.
We're exploring with them it truly is a partnership and so.
We're working together to try and solve some of their problems.
Which is.
Meaning demand essentially and so.
It's hard to gauge.
But it's going to be significant.
Okay I appreciate the color there and congrats on the progress guys.
Thank you Scott.
Our next question will come from Dan Stevens.
Please go ahead.
Good afternoon.
I'm wondering if you could share a little bit more information about the shares for service plan, specifically do you have any idea how many shares you're going to be issuing per year for this for this plan.
So we actually filed the shares for services plan. So it's all public information you can find the filing.
Don't have an exact number because it varies based on.
The share price. So if the share price goes up dramatically there'll be a lot less shares if the share price goes down dramatically there could be well not more but it will swing there is a limit.
Cap of about 7 million shares so that would be the cap at this stage.
So that would be $7 million per year.
Our just all together.
No no not necessarily that would be.
As we are talking today.
Program they have in place.
Laos for approximately 7 million shares to be issued over the next 12 months yes.
Okay.
Alright, Thank you very much.
Youre welcome.
And again its star one to ask a question.
Our next question will come from Michael Farah.
Please go ahead.
Hey, good afternoon everybody.
And Andrew and.
Kevin Good afternoon to you as well.
Doing good. Thank you so much for the presentation.
It was a very good very informative.
And I really like the leases question Evan you got it you got to do more physical Stefan that business Buddy.
Yeah.
Yes, let me get my shuffle.
Alright.
Okay.
Just a quick just one question.
Can you give us an update on.
The patent situation have there been any.
Any correspondence from the U S. PTO in terms of office action letters and.
Yes.
Part to that would be.
Are there any new patents that may be filed in the coming months.
So.
There's nothing new we did file form.
Four possibly five patent applications. So we.
We filed those.
And they're still we're still waiting it does take time, we are working on some new patents as well.
So.
Our way.
Has the potential to have a number of patents filed.
After that is spun out.
Okay.
Or do you know if you heard council is taking any kind of fast track with the five patents that you did file.
We always take the fast track right.
Yes, and I understand having been in that business that it indefinitely.
It will also at the speed that they rollout so.
Last question, just really really quick on the spin out.
How many shares do you anticipate.
And again of course, it's a pro rata situation, but how many shares would you anticipate say somebody owned 100000 shares how many shares of the new entity.
Is it dividend would they get.
It's approximately 4%.
What you currently have.
Correct got.
Got you.
Alright, well thank you so much.
Please tell your team as I always say two things.
For all of their dedication and.
Things are looking good let's let's keep the ball rolling.
Thank you Mark.
And with no further questions I would like to turn the call back over to Evan Kaplan for closing remarks.
Well just think thank.
Thank you all for joining today, we appreciate your questions. We appreciate.
Your.
Investing in next tech and we look forward to doing this again.
In Q3.
Have a great night.
Bye bye.
And this will conclude today's conference. Thank you for your participation and you may now disconnect.
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