NEXCF: The Move to Model Building in India Causes a Q3 Hiccup
OTC:NEXCF
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After consecutive quarters of sequentially ramping revenues, Nextech3d.ai (OTC:NEXCF) hit a speed bump as it rehomed its model development from Canada to India to reduce costs. It established Nextech3D Solutions India Private Limited, which is anticipated to increase profitability and reduce labor costs starting in Q4, 2023. During Q3 it had to hire, set up an office, and take on redundant costs as it made the transition. Currently, models can rely on about 20% of the effort to come from automation while humans complete the rest. The company is avidly working to improve its algorithm and use of AI to increase that percentage and reduce the cost of goods. It now has access to all of Amazon's models to use to teach its system and speed up model generation. In addition, the company took steps to prioritize large enterprise clients who demand thousands of models and high-scale production and transition away from small e-commerce clients that require a limited number of 3D models.
Nextech3D.ai is now back on track and management expects sequentially higher Q4 revenues and lower expenses. After the quarter closed it raised cash to keep it funded for the next year based on its current expectations. It expects the move to India will save it as much as $4 million per year in operating expenses. Much of its growth is predicated on the timing of Amazon opening 3D model makers to its customers on Seller Central and how well it fares against competitors on that platform. It plans to differentiate its offering with flat fee pricing rather than the tiered pricing it expects from other competitors on the platform.
The company also announced that it is currently considering the spinout of an interest in its 3D modeling platform. There are various options possible ranging from licensing, to a strategic investment, to a joint venture partnership carving out different geographic territories No definitive agreement has been reached about any such matter and the company continues to consider various alternatives to maximize shareholder value. Given its current valuation, there are several possibilities attractive to both investors and other technology companies. We believe Nextech’s IP alone should be worth more than the entire enterprise value of the company. It currently trades at an enterprise value of US$9.1 million or 2.4xs projected 2023 sales.
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