Remark Holdings Inc (MARK) 2021 Q1 法說會逐字稿

Welcome to the Remark Holdings First Quarter 2021 Financial Results Conference Call. My name is Jenny, and I'll be the operator today, and will handle the Q&A. As a reminder, this conference is being recorded.

Now I'd like to turn the call over to Brian Harvey.

Thank you, Jenny. Good afternoon, and welcome to Remark Holdings Fiscal First Quarter 2021 Financial Results Conference Call. I'm Brian Harvey, Senior Vice President of Capital Markets, 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 business, and I will recap our first 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 such 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 us. We recently had an earnings call where I went over Q4 activities and talked about what we're doing for Q1. For this call, I will focus on the new deals initiated that have come to fruition after working on it over the last 18 months.

Our Q1 continues what we have been saying all along. Number one, our business in China is strong, and only going stronger as our reputation in market is getting more well known. Number two, our U.S. business will be a significant contributor to our 2021 revenue and beyond. And number three, our balance sheet issues in the past will be fixed imminently as the shared care deal is almost complete and will give us ample liquidity to fulfill our current demand and our ever-growing pipeline of new opportunities globally.

I have always emphasized the breadth and depth of our built from the bottom up Remark AI platform. And as we move into Q2 and beyond, this is becoming very evident. In China, I will highlight 3 significant growth engines to our Remark AI platform. More importantly, we are able to take our unique technology and transport it to the U.S. and Europe. We are one of the handful of companies whose products are not just tested but are live in real-time real-life situations.

We are making strong transformational moves into the ESG market. By way of background, by 2060, President Xi Jinping has mandated a net 0 carbon emissions and has made sustainability mandatory.

We are working with one of the world's largest cement companies with over 2,000 production lines and 1,000-plus mines globally, providing them Remark AI solutions to improve safety measures on their production lines and make equipment maintenance more efficient, which not only improves the quality of cement products but also help lower the carbon and dust emissions as well. And we are well positioned to participate in the new initiatives on upgrading their power source to solar power on all mines in changing thousands of diesel cement transportation trucks to electric and autonomous trucks. While the TAM is clearly large in this specific industry, we are focusing on approximately 30 to 50 cement factories to start.

We are also in the final stages and confident of winning our first significant smart traffic highway contract in China. Our partner is one of the largest operators in China in the highway, ports and subway segment.

The test was not easy as it consisted of 17 different scenarios, mostly for hazard detection. Examples of the tests would be: one, to detect slow traffic. And by using our computer vision and cameras, this creates significant savings using our technology versus using sensors. Number two, using our computer vision for the detection of hazardous objects on the road. This could be humans, bicycles, accidents and even suitcases that fall onto the road. And number three, a legal parking on emergency lanes; and lastly, number four, hazardous weather or road conditions like fog, icy roads, heavy rain and snowstorms.

And finally, we have begun working with one of the main resort operators of the Winter Olympics in 2022, happening almost 8 months away. We not only provided hotel management AI products but also provide AI solutions to COVID-19 pandemic prevention, along with energy saving initiatives.

As you can imagine, the energy consumption in operating a massive resort is tremendous. The resort has to transform water to snow on over 38 slopes. In this case, the resort spends roughly USD 1 million a month just on electricity. Our Remark AI smart power platform is expected to help them save 30% a month and over time up to 50%.

These case studies are good examples how we are building our use cases in China and then transporting them to other parts of the world. With cement, construction activity is at an all-time high, and companies globally are looking for same solutions to help them with better efficiencies, safety, security and lower power consumption while achieving the same or better results.

With President Biden's massive infrastructure bill, we are poised to be well positioned to take advantage of this. Our smart traffic platform will be well received here with the government upgrading our highways through the use of technology. Our AI platform is more effective and cost-efficient than what we see currently out there in the market.

And three, we are actively in discussions to taking our security and safety platform technology to the World Cup in Doha in 2022. This is in addition to the obvious applications of our energy savings technology for the hotel resort industry around the world. Our experience with the upcoming winter Olympics puts us in a prime position to do the same for the World Cup in 2022.

Moving domestically to the U.S., in Q1, we began deploying our AI user optimization marketing platform with SuperDraft in partnership with Caesars Entertainment. The daily Fantasy sports market along with online sports betting has seen customer acquisition costs skyrocket, as each of the land-based casinos seek an online partner to aggressively pursue customers leveraging their player databases and thereby increasing the customer acquisition cost with generous incentives and cash promotions.

Remark AI's user optimization platform lowers the client's customer acquisition costs by intelligently targeting a prospective customer with a customized offer, leveraging Remark AI's own proprietary data sources to cost optimizing customers' existing user database.

We are excited to demonstrate our value-add proposition going into the seasonally active start of the football season. Our initial client success has allowed Remark to expand our platform to the mortgage financing industry and the live streaming industry. Both industries are looking for innovative ways to significantly lower the user acquisition costs below the industry average, choosing Remark to be that solution, which gives them the marketing edge over their competitors.

And on the health care side, we achieved tremendous success with our partnership with the Springfield Clinic, a $2 billion a year revenue health care organization based in Illinois with over 30 locations. Springfield Clinic's elected to utilize Remark's healthcare safety platform to provide temperature monitoring for the safety of its patients and employees. Remark's partnership with Springfield achieved a 10x return on investment, allowing Springfield to deploy its professional employees to perform higher value-added services and tasks, while increasing customer satisfaction and service. As a result of the success of this partnership, Springfield is currently exploring with Remark on how to expand this partnership to include other AI services such as emotion and sentiment analysis, VIP customer check-in, on-premise security and access control. We are excited to share these experiences with other health care clinics and expect this to be a strong source of growth in 2021.

On the infrastructure and transportation side, we are currently working with a high-speed privately operated railroad company, headquartered in Florida, which is currently building a high-speed track that connects from Orlando to Palm Beach to Miami, as well as building that long overhead high-speed track between Las Vegas and Los Angeles.

On the hospitality side, we are partnering with one of the largest media companies in the world as they expand into hospitality, when they open their 3 locations in the U.S. over the next 12 months. Currently, it is estimated that over 10% of the hotel's capital expenditure is spent on technology, infrastructure and services. We are partnering with them to deploy our AI platform for access control, check-in, VIP customer service as well as our proven line of health safety products as part of the hotel's technology buildup.

And finally, on the retail side, as we recently announced our entry into the cannabis industry, with the largest cannabis company in California. We are working with other leading cannabis retailers to help enhance the customer experience through our smart retail platform.

We are able to enhance the operator security protocols through our intrusion and perimeter detection as well as identify blacklisted customers as well as speed through the customer check-in process. In addition, our smart shelf inventory control provides alerts when items need to be restocked.

As you can see, we have a lot on our plate over the next few years. Our technology has been well received in China, and you see it through the blue-chip customers that we have been able to win.

More importantly, our technology is now being adopted globally in the U.S. and in Europe. And finally, on prior issues when our balance sheet will soon be behind us.

Thank you, Shing. I'd now like to provide a brief overview of the financial results for our fiscal first quarter ended March 31, 2021. Revenue in the first quarter totaled $4.4 million, more than 10x the $0.4 million recorded during the first quarter of 2020. The increase was primarily the result of the easing of COVID restrictions in China and the new business lines in the U.S. ramping up. U.S. revenue was $0.7 million compared to $0.1 million in last year's first quarter with significant contributions coming from our new health safety business as thermal imaging products were delivered to the Springfield Clinics more than 30 locations, and we began executing on our daily fantasy sports partnership with Caesars and SuperDraft.

Revenue from China grew to $3.7 million from $0.3 million due to the ramped-up execution of projects with China Mobile and the recognition of revenue from ongoing projects with school districts, banks and smart communities. Total operating expense for the quarter were $8.1 million, more than twice the $3.9 million reported in the first quarter of 2020, driven by an increase of $2.7 million and the cost of revenue associated with the increased sales and $0.9 million increase in the technology and development costs primarily attributable to improvements and upgrades to our bio-safety product line.

Our operating loss increased slightly to $3.7 million in the first quarter of 2021 from an operating loss of $3.5 million in the first quarter of 2020 due to the aforementioned increases in our cost and revenue and technology and development expenses.

Our net loss totaled $5.5 million or $0.05 per diluted share in the fiscal first quarter ended March 31, 2021, compared to a net loss of $2.4 million or $0.05 per diluted share in the fiscal first quarter ended March 31, 2020. Our net loss was negatively impacted by a $1.6 million noncash charge with a change in fair value of our warrant liability that resulted from the increase in our common stock price between December 31, 2020, and March 31, 2021.

At March 31, 2021, our cash and cash equivalents balance was $0.9 million, essentially unchanged with the balance at December 31, 2020. Cash operating losses of $5.5 million were offset by a short-term debt issuance of $4.8 million and $0.8 million of stock issuances associated with options exercises.

We will now open up 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.

Jenny, could you please instruct the callers how to queue up with their questions?

(Operator Instructions) And we will go first to Darren Aftahi of ROTH Capital Partners

Three, if I may. First, how big was SuperDraft in terms of revenue contribution in the quarter? And then I think, Shing, last call, you talked about quantifying the impact of like $15 million to $20 million of revenue this year. Is that still the case?

Darren, I would say for Q1, it would be a few hundred thousand. Q2 too, I'd say, right, as I just mentioned on the call, we expect to see the ramp-up during football season. So our projections still stand where it is today. Q2, you'll see the few hundred thousand dollars of revenue, we expect that to jump to seven figures.

Got it. And then on your ESG partner in China, is that going to be skewed towards the third and fourth quarter? Or will you see revenue in the second quarter?

We're not sure exactly. I think we are targeting, obviously, Q2, but depending on how our accountants allow us to recognize the revenue. But we're in the process of implementing, we're obviously trying to move as fast as possible. So I'd say it's a Q2, Q3 kind of thing.

Great. And then just last for me. If and when Sharecare closes, which I think is still expected to be this month, any kind of update in terms of kind of monetization? Are you going to take a loan against your position? And any update there would be great.

There's no update there. But certainly, we expect the Sharecare deal to close imminently. I think there are a number of groups that have approached us to offer attractive terms. And right now, we're just trying to figure out what's our next best step. So I think we're in a pretty good position where we are right now.

And I think Sharecare has a lot of good things to share (inaudible) on their own front. And so I think you'll begin to see that as well as we get closer to the close.

And we'll go next to Ron Nash of Nash Partners.

Shing, you mentioned that you're going to be coming more to the United States with some of the smart technology. Can you tell me how that plays in, in the ESG technology and the energy effects right now in the industries in the United States?

Sure. Just like -- so we mentioned before is we're going off of 2 areas primarily. One is certainly the -- like -- so, for example, the deals that we win in China, say, for example, with these large ski resorts that will be hosting the Winter Olympics. We're helping them save massive electricity costs.

And many -- as you can imagine, many of the hotels in the U.S. and Europe and really around the world as the pandemic is ending and people begin to travel are looking for ways to operate more efficiently.

So outside of the health security platform that we look to sell to hotels, we also look to sell them a power management platform, where we think that given our past experience, that they are able to significantly lower their costs, almost -- probably starting off at 30% and over time, will grow to 50%.

As it relates to the cement industry, we all know about President Biden's infrastructure plan that he has proposed. But it's very clear around the world that, that will be a great way for -- that will be on the top of a lot of people's minds.

In China, we've been working with the largest cement producer, not just in China, but actually in the world. They have over 1,200 mines just in China alone. And a big part of becoming kind of the net 0 carbon emissions company, they need to significantly lower their output while being able to maintain the efficiency.

So how that affects the end product that's built is really important. How the raw materials are transported to the factories is important. And we're a part of that process. We will be managing the solar panels that are installed on top of the factories and mines to help them lower the cost of electricity. And with this particular company, they will be -- they have about 200,000 diesel trucks that they're looking to change into electric and/or autonomous vehicle, and we'll be helping with that transformation as well.

So I think it's a massive opportunity, obviously, with just this customer alone, but these are the same needs that you're seeing in the U.S., in the Middle East, in Europe. So we're pretty excited about the ability to transport this technology to other parts of the world.

Shing, is this -- would you say this is going to be probably new business to you or on top of your existing business?

This is all additional business. We haven't -- certainly, the revenue guidance, the overall revenue guidance that we have given. We haven't included this in any of the numbers.

And we'll go next to Rob Mountain of Mountain Capital Management.

Listen, thank you for the update. Just a couple of questions, particularly on the spec. When you mentioned that you felt that the process going forward is we're going to close by the end of May, you think?

Well, I'm not sure about that. I think it will be more around mid-July, Jeff -- I mean, not July, June. The -- Jeff Arnold, the CEO recently went on -- I forgot which forum but he expected to happen around early June. And so I think it will happen sometime between early June to mid-June. And I think they just filed Falcon acquisition, just filed with the SEC a few days ago. So once that's gets approved by the SEC, then it will be sent out to the shareholders and to get approval.

But I think, right now at this point, we're certainly pretty comfortable where everything is. The pipe was very well oversubscribed.

So certainly, is a number far greater than what the number was needed to close the deal. And most importantly, beyond all that, is the shared care business is doing fantastic. It's growing ahead of expectations. And I think investors that participate in the deal will be very happy to see what comes out of it.

I like to hear that. That's great news. Company shares -- with our shares -- Remark shares, are there any restrictions on those shares that we have once the deal is done?

Yes. Being that we're an insider, there's a 6-month of, I believe. And then since I'm on the Board, it may extend a little bit further. We're still working through that. There are some clauses in there that if the stock trades ahead of $12, that releases us up certain amount of shares that we're able to sell into the market.

$12. Okay. And the last thing, I've gotten a lot of notices and voted a lot of times. I think you have a meeting coming up at the end of May for additional shares in the marketplace which you've done a couple of times unsuccessfully. If we find that on the end of May that it is not passed, what are you going to do?

I think there are a number of things in terms of our options. I think our shareholder base is more educated, frankly now and more long-term focus on what we're doing and believe in what -- and sort of the path that we're going. So it could be a number of things. It could be us extending the date one more time. It could be us using the proceeds from -- for example, we were to have a loan facility generated against these -- generated against our Sharecare stake, we have previously announced, we do use that to use a significant portion of it to buy back our shares. So I think there's a number of different options for us.

Okay. Well, I will stay tuned for that.

And we'll go next to Jacob Lawler of Lazarus Naturals.

First, I just want to say congratulations on your success so far and hoping for continued success. At the beginning of the year, in January, you had made a note in your preannounced earnings that you felt the current share value was less than what you felt it was worth. I now understand that there are certain obligations for certain warrants, and you're kind of going to pickle until you get those shares.

But what do you plan to do to increase shareholder value in the short-term following today, for example?

Our -- I think it's a great point. I think really, everything obviously comes down to us continuing to print our revenue numbers, show that we continue to win new contracts and show recurring revenue. I think with the most recent -- I'm not sure if you saw the -- there's another AI company called Scale AI that raised money at a $7 billion valuation, and they have a revenue -- the revenue is similar to ours.

And so clearly, they were valid at much greater valuation. We certainly feel very strong on where our business is heading and all that. So there are a lot of things that we are trying to consider how we kind of close that gap.

We -- I think a big part of it is that as the Sharecare stake gets monetized, as we mentioned before, we'll look to buy back a significant portion of our shares. Number two, there are a number of groups, I think, in the U.S. that you see in the papers that are doing their due diligence on us, to help us increase the partnership and the speed that we can move here in the U.S.

I mean we are still a company that -- we're -- we stand by our technology. We're winning a lot of these deals, but the actual implementation is slower. And if we were to team up with a large channel partner, it will just make us go even faster.

So I think those are the 2 areas where we're going to continue to focus on. We're winning large deals in China. We'll continue to do that. And I think a lot of our investors in the U.S. aren't as familiar as to kind of the size of these customers that we have in China, but they were on time. as we begin to see the revenue flow-through, as they begin to add on more services to the ones that they initially purchased to kind of the new verticals that we've gone into.

I think we are close to signing one of our biggest deals in the banking industry doing what we talked about, which was the digital marketing platform and we're close to signing one of our largest deals. And that was very a similar situation where we first came in, sold our kiosk with our initial kind of AI capabilities.

They like what they saw and we are close to winning a high single-digit 7-figure number, and that's pretty much all -- that's all profit. So you'll continue to see that. And I think as investors, as we begin to graduate from kind of retail investors into institutional investors, you'll begin to see that share value increase significantly.

Are you able to speak in terms of when you guys anticipate showing a profit? Or is that too far down the line to anticipate?

No, I don't think so. I mean our target is to show profitability this year. So if you're looking at our competitors, whether they're public or private, they're growing a lot, but taking a lot of significant losses to grow that revenue. We're growing very fast right now. But we've been public for a long time.

So we have to make money on what we do. So we've always said that once we achieve over $25 million of revenue, that's when we begin -- we can begin to show profits. And so I'm pretty confident by this, end of this year or early next year, we can begin to show that.

And with no other questions in the queue, I'll now turn the call back to our presenters.

Okay. Thank you, everyone for participating in Remark Holdings First Quarter 2021 Financial Results Call. A replay will be available in approximately 4 hours through the same link issued in our May 5 press release. Thank you, and have a good afternoon.

And this concludes today's call. Thank you for your participation. You may now disconnect.