Remark Holdings Inc (MARK) 2021 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Remark Holdings, Inc. Third Quarter 2021 Financial Results Conference Call. My name is Noraset. I'll be the operator today and will handle the Q&A. As a reminder, this conference is being recorded.

Now I would like to turn the call over to Brian Harvey, Director of Capital Markets and Investor Relations. Please go ahead.

Thank you, Nora. Good afternoon, everybody, and welcome to Remark Holdings fiscal third quarter 2021 financial results conference call. I'm Brian Harvey, Senior Vice President of Capital Markets and Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark's Chairman and Chief Executive Officer. In just a moment, Mr. Tao will provide an update on our businesses, and I will recap our third quarter financial results. Following those remarks, we will open the call to questions.

But before I turn the call over to Mr. Tao, I would like to take this opportunity to remind you that some of the statements made today may be forward-looking statements. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements reflect Remark Holdings' current views, and Remark Holdings expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof. This disclaimer is only a summary of Remark Holdings' statutory forward-looking statements disclaimer, which is included in full in its filings with the SEC.

I will now turn the call over to Remark's Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional color on Remark's business and recent developments. Shing?

Good afternoon and thank you for joining the Remark Holdings third quarter '21 financial results conference call. In 2009, we made an initial investment of $1 million into Sharecare, which was an early pioneer in capturing the digital health care market. In the third quarter of 2021, 12 years later, we are pleased to recognize a gain of $78 million, which reflects an annualized return of nearly 50%.

To put things in perspective, we only began attacking the AI markets in 2018, and have seen our revenues grow from $5 million in 2019 to $10 million in 2020, and now in 2021, expect to finish the year above $15 million. We are attacking large total addressable markets that will be shaping the future for the next decade. The seeds that we have planted in building our Remark AI platform over the last 4 years have created a path to our future prosperity and monetization.

Last week, we attended the American Public Transportation Association, known as APTA, their biannual conference focused on public transit, where we had lunch with representative Peter DeFazio, the Chairman of the Transportation and Infrastructure Committee in the House of Representatives, who led the passing of the once-in-a-lifetime $1.2 trillion infrastructure bill, which President Biden is in the process of signing as we speak. The infrastructure in the United States has not been modernized in over 40 years, and this is the first real effort in doing so. This bill was approved in a rare moment of bipartisan accord and will help address a very long list of public work projects. Simply put, the opportunities and funding allocated in the infrastructure bill here are massive, and we could have not written a better bill to reflect our core competencies and products to pursue and capture the specific growth markets allocated by the bill.

The AI platform that we've built and operated successfully in Asia has put us in a leading position to capture market share in providing those solutions for public transit and many of the highway and road projects already allocated for public spending in the infrastructure bill. For example, out of the $1.25 trillion, $110 billion has been allocated to roads and bridges, $73 billion allocated to power grid infrastructure, $66 billion for passenger and freight rail, $39 billion for public transit, and $11 billion for passenger and traveler safety to prevent road accidents and fatalities. Just local to the New York City tri-state region, the Metropolitan Transportation Authority, which operates the New York subways, buses and 2 commuter rail networks, expects to receive $10 billion. Amtrak is set to receive $27 billion. So as you can see, the numbers here are massive.

Our products and relationships tap each of the specific areas targeted by the infrastructure bill, giving us multiple buckets for us to get funding from. This morning's press release detailing our working partnership with Brightline continues to show the power and the credibility of our AI rail safety platform. We have received tremendous interest from similar transit CEOs and transportation agencies and have already begun discussions with them regarding their specific needs. Brightline, which is the only provider of modern eco-friendly high-speed intercity rail in the United States, will use Remark AI's smart safety platform to initially monitor the 67-mile traffic corridor with the challenge of protecting 188 traffic corridors.

Intrusion detection is a necessary part of a first-class safety program and requires more than the human eye alone to function at a level that will significantly reduce risk. Remark's sophisticated AI-powered cameras and smart safety platform provides detailed computer vision coverage to detect intrusions and track anomalies, providing real-time actionable predictive analysis from data collected, while monitoring long stretches of track in rail yard areas for unusual behavior.

We have already identified talented leaders with the relevant experiences to help grow and build our rail safety and infrastructure team with us and expect more announcements to come as we roll out our products and onboard new customers. Each successful reference opportunity leads to a natural pipeline of interested customers as words spread quickly among this tight collegial industry. In short, our ability to bring our proven AI platform to the U.S. from Asia has given us the leading opportunity to capture this business, where technology helps augment the effectiveness of the infrastructure bill.

On our last earnings call, we announced our intention into entering the NFT Metaverse space by leveraging Remark Entertainment's platform to create proprietary content from leading influencers, entertainers and artists, and building a non-fungible token business known as NFT in the U.S. and Asia with a targeted fourth quarter launch, anchored by a very well-known global celebrity with substantial valuable intellectual property and assets.

Again, for those unfamiliar with what an NFT is, a non-fungible token is a unit of data stored on a digital ledger called the blockchain that certifies a digital asset to be unique and, therefore, not interchangeable. NFTs can be used to represent items such as photos, videos, audio and other types of digital files. We are on track for our fourth quarter launch in conjunction with Miami NFT Week in Art Basel.

While many of you were confused by the prospects of the NFT Metaverse opportunity, we have seen many announcements recently that have only validated our commitment to this new area of growth. Facebook just renamed itself Meta to reflect the new focus of their company in its embracement of Web 3.0. Nike, Louis Vuitton, Gucci and all major global brands have now entered into this market in an aggressive manner. In that remark, we are very well positioned to do so as our AI platform allows us to enter this market in a fast and efficient manner.

Inspired by the vision of global leading companies like Epic Games, who created Fortnite, Facebook, Roblox and NVIDIA, we will pivot and leverage our Bikini.com brand equity and IP asset to create a beach lifestyle metaverse, where we can integrate the digital and physical world together. With the launch of Bikini verse, our trademark pending Bikini.com metaverse, we are creating a full-fledged economy in offering unprecedented interoperability. Users have the ability to take their avatars and goods from one place in the metaverse to another, no matter who runs it. And with Bikini.com, we will capitalize on our name being recognized around the world as it means the same in every language.

Our core strengths in artificial intelligence gave us the market intelligence to make early investments to develop and support the NFT and Metaverse version, and we believe we are well positioned to prosper in this fast-growing industry. The recent pandemic has changed both lifestyle and work habits, advancing technology trends that would have taken decades to adopt instead of taking place in years. Human beings continue to crave social interaction, while keeping a form of unique identity. The virtual world has mirrored the physical world with owners desiring to own unique branded status symbols to show off the same way customers of Chanel and Hermes probably wear their brands to reflect social status.

Finally, we expect to announce a powerful partnership in the near future using our NFT platform in the entertainment and arts world. But while all these opportunities are exciting and present massive opportunities, this only happened because we were able to properly build an AI platform from the ground up. Remark AI's platform strength is its ability to be multi-dimensional, while others are not.

As I mentioned last quarter, our consistent and continued leadership in AI innovation and practical execution has given us a strong advantage to beating our much larger and capitalized competitors in this space. To this point, during the third quarter, we introduced an exciting new school campus management platform and were named by the U.S. National Institute of Standards as a Top 5 Company in the area of facial recognition vendor test, ahead of many multi-billion-dollar unicorns.

2021 is turning out to be a transformative year for us. We've already nearly surpassed our 2020 revenue number, and expect our fourth quarter to be strong, setting us up in a perfect position to continue to win new businesses, continue to capitalize on in-sell opportunities, and expand into new verticals.

Our current pipeline and future potential wins remain very strong, and we'll continue to commercialize our industry-leading AI technology around the world. With Brightline being our first major U.S. customer win, using our Remark AI smart safety platform, here are some of the highlights in other parts of the world.

In Asia, starting off with China Mobile, because of the sporadic COVID-19 cases, smart store development is very slow due to the safety concerns. However, we have completed 21 stores in Q3. China Mobile is very optimistic in resuming the store deployment when COVID-19 situation turn to normal in 2022. There are 16,000 stores to be completed according to the contracts we have signed before COVID.

Other areas of retail with Lotus supermarkets, we've completed the Lotus Xi'an smart store improvement project. The upgraded facial ID membership system, theft prevention system, product planning system and shelf replenishment system have been in their day-to-day operation and helping Lotus Xi'an increase membership conversion and sales from day one. We've also deployed our Smart Campus system to 60-plus more schools in Q3 and have quickly expanded our sales into the Shaanxi province. Our facial check-in and checkout system have been widely adopted due to its accuracy and easy-to-use features.

Our AI running and falling prevention system has now become a must-have safety system in many schools. Our system has been running in over 400 schools, and we are expecting faster growth in Q4 and in 2022, due to the educational reform being conducted across the nation. We plan on launching 2 more AI products for schools and education and will be released in online in the fourth quarter.

Smart banking. We are in the process of deploying our smart self-service system for China Construction Bank in Yunnan, which covers over 318 branches for the current phase. And with these same products, we've now deployed to 54 branches for China Construction Bank, 66 branches for Bank of China, 31 branches for China Agricultural Bank, 47 branches for the Agricultural Credit Union, and these are all in the Sichuan Province. In addition, 49 branches for China -- Bank of China Yunnan and 82 branches for the Bank of China in Guangdong.

Moving on to smart community. In Q3, we have started the deployment of 523 communities, which comprises over 1 million families and over 300 million residents, with our smart community system for facial access control, temperature, plus mask, plus health co-check, and safety monitoring, which are expected to be completed before Q1 of '22.

Into construction, in Q3, we won a $5 million U.S. deal with our construction partners on smart workplace system for construction, which covers worker check-in, check-out system, worker PPE monitoring system, smart helmets, fire smoke detection systems, falling prevention system, crane safety system. and construction site surveillance system. We have begun the deployment in Q4 and we'll complete the deployment by Q2 of '22.

And finally, we've also started several new POC projects with one of the largest airlines in China. The POC projects will cover from autonomous plane towing and positioning to AI-assisted plane checkups.

In conclusion, our Remark Holdings continues to grow and transform into a business that's, number one, either recurring or repetitive in nature, 2, AI-based platform with proprietary services attached to it, 3, business and earnings model that will lead to increased margins, and 4, significant cross-channel selling opportunities.

I'd now like to turn the call back to Brian for a review of the third quarter '21 financial results.

Thank you, Shing. Third quarter revenue fell $1.2 million as China's 0 COVID policy led to a draconian citywide lockdowns that impacted our ability to roll out our DMP, banking, school and retail projects. Additionally, in the U.S., our principal customer for our data analytics slowed their rollout due to technical issues with onboarding customers we brought them. Our value proposition in this space was proven, however, with lower customer acquisition costs and higher customer conversion rates. In the next few months, we expect to bring on additional customers for these services.

Our gross profit fell to $0.4 million from $1 million, commensurate with the decline in revenue. We incurred an operating loss of $6.7 million in the third quarter of 2021, compared to an operating loss of $3.1 million in the third quarter of 2020. The primary drivers of the increase were lower gross profits, and a $3.2 million increase to share-based compensation related to the recognition of stock options originally issued in July 2020, and $0.5 million of issuance costs related to a private placement that was completed towards the end of the quarter.

The company recorded net income of $72.2 million (sic) [$72.7 million] or $0.72 per diluted share in the third quarter of 2021, which compared favorably to net income of $4.4 million, or $0.04 per diluted share in the third quarter of 2020. The increase primarily resulted from the gain on the company's investment in Sharecare of $78.9 million. A decrease in the company's stock price between December 30, 2020, and September 30, 2021, led to a $0.4 million non-cash gain in the change in fair value of our warrant liability, compared to a $5.6 million non-cash gain for the same category in the same period of last year. We also recorded a $0.4 million gain on the extinguishment of debt, which offset $0.4 million of interest expense.

At September 30, 2021, our cash balance totaled $3.1 million, compared to a cash balance of $0.9 million at December 31, 2020. Proceeds of $4.8 million from a debt issuance, $800,000 from stock option exercises, $2.3 million in proceeds from the Sharecare transaction, and $5 million from a private placement were offset by $10.1 million of cash used in operations.

With that, I will turn the call back to the operator, and we will now open the conference call to questions. We encourage callers with questions to queue up with the operator as soon as possible, so that there will be minimal lag time between each caller. Nora, could you please instruct the callers how to queue up with their questions?

(Operator Instructions) We'll take our first question from Stephen Wagner from Integrity Wealth Advisors.

All right. So question, Shing, it seems like every quarter, we're entering into a new business, which is fantastic, and it's very, very exciting. Now this quarter, we're talking about infrastructure, NFT, the Metaverse, all that good stuff. Help me understand where, I mean, how are we positioned really to take advantage of that? And how do these all tie together for the future of Remark?

Yes. I think it's a great question because there's been some confusion there. Our core business is in AI, is in artificial intelligence. And that's the foundation to all these different areas that we're moving into. And I think it speaks to the strength of our platform that we built. And as you know, it's taken us almost over 5 years to build this from the ground up. And it allows us now to be able to go into these different businesses where there are large TAMs. So it's not so much for us to -- it's not a lot of work for us to be able to go into it. And when we're presented with a new contract or a new relationship, we're fine, we're able to train our models, retrain our models to be able to handle the task of the hand.

When we go and compete for different businesses, the fact that we are able to provide a platform versus a point solution really puts us in the lead right from the beginning. And then it just becomes a point of convincing the customer why and what are the use cases of using of adopting our platform. But certainly, with the NFT and the Metaverse opportunity, this is a very real opportunity. It certainly where the world is going. And in general, with this, you need AI or blockchain. Blockchain is fairly a commodity, and the unique part is the artificial intelligence aspect, which we provide.

A follow-up question on the Metaverse, the Bikini verse, which sounds interesting. What are we talking about in terms of investment and time frame that you see going forward to have that become a reality?

We're planning on launching this just a full launch within the next 3 months. We'll be doing our initial launch at the end of the month at the Miami NFT Week.

Okay, interesting.

So it's fairly fast. And the actual commitment in terms of resources, like I said, it's very -- it was very easy to move into this because we already have an existing foundation. So we could move into it, not just fast, but in a very efficient manner. And we wanted to figure out how to take advantage of our brand equity. And so we're very excited about this.

All right. Good. Moving on to Sharecare, obviously, you had the nice paper gain on that. Obviously, that's still in Sharecare stock. Where is Remark right now in terms of monetizing that, though, to get it into an account where you can start to invest in some of these things, fund operations to a certain extent. Where are we there?

Yes. So we're trying to figure we're -- I'd say we're in the final stages. We've been approached, as you can imagine, by a number of different funds and banks that want to present us a monetization opportunity given the strength of Sharecare's business. And right now, we're just trying to find the right partner to work with. So it's not just about terms, it's more importantly to find the right partner who understands our long-term vision and can grow with us.

Okay. So we'll look forward to, obviously, more detail on that in the coming weeks and months. But is it true that you're able to actually physically liquidate some of your shares in Sharecare after the first of the year?

Yes.

Okay. Is that something you plan on doing? Or are you still going to look at the loan thing or a combination of the 2?

We're going to -- we have a number of different options, and we're just going to do -- obviously, do what's best for the company. We are strong believers in Sharecare's prospects, but we just -- so we're certainly long-term supporters, but of course, we would want to take things off -- take some money off the table and look to reposition.

Looking at the quarter and the year, the -- I know ROTH, the analyst there had a -- I think it was a $27 million or $21 million revenue number. So we came in well under that. Is that all attributable to the lockdowns in China? Is that mainly a result of China Mobile?

It's not just China Mobile. It's actually all of China. I mean, it's not an easy environment working within this -- it's a 0 tolerance, 0 COVID policy in China. So I mean, we've probably had on so many occasions where a team of ours goes to a particular site and then there's some person in the city that they came from that tested positive for COVID. And it's an immediate lockdown and they're sent back to the -- the city doesn't let anyone that come from that city that had the COVID case. So this is an issue that's happening all over China. It's very well documented, and it's not easy. So we're doing the best that we can to navigate this, but it's been obviously a big issue. And -- but we're adapting like we always do. And I'd say the second part is with the fantasy sports business that they've -- as they are a start-up as well, they've been going through their different issues as it relates to technology onboarding. And -- but they're smart guys, and we're very confident that once they solve those issues that we'll experience some form of a catch-up in the fourth quarter.

Well, that would be really good to hear. And obviously, it takes a lot to bring all these things together. Are you now looking at -- I mean, again, you've got some cash in the bank as of September 31, (sic) [September, 30] $3 million for the report. I mean, how do you see that holding you guys going forward? I mean are you good for the next couple of months, quarter? Where do you think we are? And the reason I ask that question, Shing, is that, obviously, one of the challenges for a lot of businesses today, I'm sure yours as well is hiring folks. All of these things you're talking about requires people to build. And so I'm just wondering, where are we there in terms of the balance sheet going forward? What is your confidence level that you're going to be able to bring and onboard people that is going to be able to take care of all these commitments and hopefully, obviously, larger book of business going forward?

Yes. I mean we're comfortable -- we're very comfortable with our capital going not just till the end of the year, but certainly into the first quarter. We're very comfortable with where our talks with our financing partners are. Certainly, the lockup that -- some part of the lockup that results that we'll end at the end of the year with Sharecare will certainly help. Look, recruiting, even when you have money is difficult, right. So it's a constant challenge. And -- but I'd say, most people that we are recruiting believe in the long-term vision that we're doing. They've seen how we've built this company from the ground up. We didn't throw money at the problem. And we have a pretty tight knit group here. So I think it's been very attractive and successful in being able to recruit additional personnel, not just in the U.S., but in China and in Europe.

All right. Well, Shing, I really appreciate it. Keep up the good work, and we'll continue to look forward to these deals you're talking about, these partnerships and collaborations should be interesting times.

Yes. Thank you. Stay tuned.

(Operator Instructions) It appears we have no further questions. I will hand over the call back to Brian for any additional closing remarks. Please go ahead.

Thank you, Nora, and thank you, everyone, for participating in Remark Holdings third quarter 2021 financial results conference call. A replay will be available in approximately 4 hours through the same link issued in our November 8 press release. Thank you all. Have a good afternoon.

Ladies and gentlemen, that concludes today's call. Thank you, everyone, for your participation.