Remark Holdings Inc (MARK) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Remark Holdings Third Quarter 2020 Financial Results Conference Call. My name is Keith. I will be the operator today, and will handle the Q&A. As a reminder, this conference is being recorded. I would now like to turn the call to Brian Harvey. Please go ahead.

Thank you, Keith. Good afternoon, and welcome to Remark Holdings Fiscal Year 2020 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 fiscal year 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 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 development. Shing?

Thank you for joining us on our call today. We hope everyone is safe, and I'm encouraged to see the progress that we're making in getting the global economy back on its feet. With the vaccine, we're excited with what lies ahead as things begin to open up.

For Remark Holdings, 2020 was a transformational year. Artificial intelligence, AI, has been widely acknowledged as transformational technology to invest in during the current decade and beyond, especially in the COVID-19 era.

AI is the only and best way to achieve a dual goal of growing revenue while lowering costs. Fortunately, over the past 7 years, Remark Holdings has built a proprietary end-to-end AI platform solution that allows us to capitalize on this instant global need for AI.

Our award-winning computer vision and object recognition algorithms, as recognized by the National Institute for Standards, otherwise known as NIST, and the European Conference on Computer Vision, or ECCV, combined with the swift processing of proprietary data sets, which is rapidly analyzed via deep learning and machine learning to detect repeatable and unrecognizable patterns, making us perfectly positioned to meet the needs of businesses worldwide.

Unlike most of our U.S. domestic competitors, Remark has enjoyed the benefit of having built our AI platform from the ground up, owning our IP and having applied our solutions in real-time conditions and live environments versus laboratory case studies by initially weighing the businesses of future companies like China Mobile and Bank of China.

This robust platform has allowed us to enter companies with health safety and unlike many of our competitors that are only able to sell one product solution, we are then able to offer robust add-on AI services, like safety and security, marketing, data intelligence, power management and others. This is what separates us from the waterfront of AI charlottes. We are a scalable and extensible solution across entire businesses and workflows.

Remark AI has created a technology mode, a data moat and a platform where customers are looking for a complete solution. We set out to build a complete end-to-end solution in various industries.

While most transformational industries like the cloud industry before us has taken a longer time frame to execute and implement. We are confident that the time it has taken to get here will pay off intently as customers have vendor fatigue and do not want to deal with 16 different vendors.

China was the first market that we launched in as AI technology adoption was a years ahead of other countries. With this experience, we have continued to refine our AI platform to scale globally.

COVID-19 provides the spark to substantially grow our Remark AI platform into the U.S. and beyond, with the practical and real-life knowledge gained from our commercial deployments. At Remark, we believe that great things happen when preparation meets opportunity.

We have built our platform and prepared ourselves in the past 7 years for this opportunity standing in front of us. Now is our time. The second half of 2020, we saw our main growth engine in China reopened its markets as travel between provinces reopened and allowed us to continue our deployment over Remark AI platform to customers such as China Mobile, Bank of China and the Hangzhou school systems.

China Mobile is on track to complete their deployment of 17,800 stores as part of Phase 1, while taking account the delays from the first half 2020 COVID-19 lockdowns.

As previously announced, we have begun winning deployment of projects for Phase 2 and 3, which will continue to increase the total spend per store. We are well positioned here as we will continue to win further phases as our businesses now moves, which was initially a roughly 50-50 split between hardware and software to predominantly software, as China Mobile continues to incorporate our AI platform into their retail store network.

A strong testament to our credibility was China Mobile. It is where our initial contract was done in partnership with another local technology company. We now deal with China Mobile directly, and that will be the case in the future.

For 2020, with the successful implementation of our ad platform with China Mobile, we are able to take advantage of the dramatic increase in opportunities into the banking sector.

Bank of China chose us to initially transform 150 Bank of China branches into smart branches and to use our digital management platform first in the Sichuan province. These branches service 1.8 million banking customers, and we expect to grow this product through the rest of the Bank of China's retail branch network.

We also expect to significantly grow our business with other banks such as China Construction Bank and the Agricultural Bank of China.

In 2020, we completed roughly 1,000 branch installations, and we expect to double that number this year. As a sense of scale, Bank of China alone has more than 20,000 branches.

Clearly, the total addressable market in this industry is massive, and we are only in the beginning of rapid deployment.

In the fourth quarter, we've continued to grow our business with school systems. After launching with attendance management and health security applications initially, we've expanded our school offering to 6 applications, including intelligent power management, behavior detections such as running in the hallways, access control and others. We are in the process to expand our sales channel and plan to add 10 new local distributors in China during the year.

With 150 schools up and running with our software, we're looking to expand to over 600 schools in 2021. We also continue to grow our smart community business. Adding on to our initial success with working with China Mobile's retail store network, we have expanded our businesses with them in charging smart communities.

Working with China Mobile, we have begun installations of our smart community offerings delivering Phase 1 applications, which include access control for vehicles, residents and delivery personnel. We expect to begin Phase 2 later this year with additional applications, including elderly and child safety, elevator access control, restricted area access control, behavioral analysis, and messaging via communication screens. We have currently completed 400 communities and are looking to double that number in 2020.

As you can see, our core business, China, is growing, and we will continue to only grow faster as we continue to deploy our platform across various industries.

Going into 2021, we will soon announce the launch of our Remark AI ESG platform. Our customer will be one of China's largest cement operators, where our AI platform will be used to help their factories operate more efficiently, while burning less coal and gas. As part of China's net zero-emission plan, our Remark AI platform is well positioned to help factories reduce pollution.

Within a decade, China will have over 800 gigawatts of installed solar and wind generated capacity, which will help lower the China's reliance on coal. Currently at 57% of China's energy mix compared with the world's average of 25%, we are well positioned to go after this market and grow with it.

As China's automated market will be mostly electric, our ESG platform will be used by this industry to initially help with managing charging stations. More specifically in the bus, large truck market as they are beginning their transition from gas and diesel to electric and hydrogen. Our platform will be used to help efficiently manage the charging process, growing a 10 hour charging cycle time and managing the safety for each station.

In 2020, we also laid the groundwork for the U.S. initially, when COVID-19 hit, companies were more focused on their immediate needs and emphasize pricing over functionality. Now almost a year later, when COVID first shut down the U.S., many businesses have come to their utilization that the decision is shortsighted.

We now have the secondary opportunity to expand our business far beyond the initial scope of map temperature detection. Our customers, which represented the best-in-class in their own respective industries has the vision to use our platform initially for accurate and fast mass temperature skin.

Now they are looking to add additional solutions that our platform offers, like crowd protection, VIP customer identification, blacklisted customers banned by security by prior or premise misbehavior, and access control authentication through biometric identification.

Going into 2021, here are some examples of our diverse pipeline that we are currently working on. High-speed railway from Miami to Atlanta and plans to build from the Las Vegas to LA. Our AI safety technology that we have built and implemented in parts of China is needed to handle security needs that encompass passenger safety (inaudible) rail road track safety and train station safety.

Two, our construction AI will be used with one of the world's largest private health construction engineering companies. Three, Remark AI's health, safety and marketing platform, we'll be working in partnership with one of the world's largest airport operators.

With presences in the U.S., Europe and Asia, we are confident that this will be a great launch path for us into Europe and India. Remark AI will also be launching its platform into the cannabis industry. At one of the fastest-growing cannabis brands in the U.S. with over 40-plus retail locations, which allow us our first breakthrough into this fast-growing space, especially as stores are highly regulated and are looking to operate more efficiently.

Initial opportunity to us will be to help their retail operations be managed and expand into crop growing using our remark AI agricultural platform. We are also partnering with one of the largest brands in music in their hotel business with the launch of 3 hotels in the U.S. and a pipeline of 10 hotels in 2022.

As you know, we've also been accepted as the silver technology partner for Hewlett-Packard, which certifies our performance and compatibility and leads to a joint marketing offering for our cameras and software solutions to run on their software.

Sharecare and IntraNova. We will be partnering with Sharecare and IntraNova in their health security rollout across 50,000 hotels around the world.

We are excited and have strong conviction exponential growth of our business in 2021 and 2022 as a robust type one gives us strong visibility into capturing our fair share of the TAM.

One area where we've had an unexpected large win most recently is using our AI marketing intelligence platform. Some of you may recall that we launched the lending business back in 2017. While our initial efforts in helping generate special needs for banks were very successful, it was unfortunately shut down by the government. We have always had strong conviction of the power and effectiveness of our AI models, working with customer data and taking the fund.

Our Remark AI marketing intelligence platform has won us a transformational deal with SuperDraft and Caesars Entertainment and has created a new growth engine for Remark AI. Adding to this win, we expect to shortly announce our first deal working with mortgage companies in fine-tuning their marketing operations using our platform.

With COVID, every business is looking for ways to grow their business while warrant costs. We are confident AI is the only way to achieve these goals.

And finally, Sharecare. Sharecare announced it was going public via its back, the stocking capital back, in early March. The sponsors were led by the same sponsor that led to successful listing or trackings.

The pipe was well subscribed by most blue-chip investors in the health fix, including Anthem, and the expected close will be in May. With the proceeds, we are looking to fund our strong organic growth, buyback stock has looked to acquire companies that can help speed our path to market. With COVID hopefully behind us, we will benefit from the reopening of the world economy in all parts of the world.

In conclusion, 2020 has been a transformative year for Remark. Going into 2021, our core China business is strong and will only get stronger. Our ESG initiatives will launch soon to be another significant growth driver for us. Our business in the U.S. is expected to grow significantly this year in the multitude of ways. And finally, we now have the balance sheet to support our growth.

Thank you, Shing. I will now provide a brief overview of the financial results for our fiscal year ended December 31 of 2020. Revenue for fiscal 2020 was $10.1 million, double the $5 million recorded during 2019. The increase was primarily the result of revenue from our new health safety business which totaled $1.7 million as thermal imaging products were delivered to casinos, restaurants, hotels, law enforcement agencies, medical centers, office buildings and other industries throughout the United States.

Revenue from China more than doubled in 2020 to $7.9 million due to ramp up execution of larger projects such as China Mobile and the recognition of revenue from ongoing projects with school districts and bankers. The increases in revenue from project acceleration in China and our new health safety business were offset by a decrease in revenue of $0.6 million in our Remark Entertainment business due to contracts that ended in 2019 that were not renewed and a decrease in e-commerce revenue of $0.3 million due to our decision to liquidate certain inventory at lower cost.

As Shing noted, we are particularly excited about the Remark Entertainment's prospects in 2021 as our AI driven targeted marketing solution was recently named the exclusive marketing partner for SuperDraft. The innovative online daily fantasy sports platform, which is co-owned by Caesars.

For Mark Entertainment will be responsible for developing a brand identity by managing and leading the digital and off-line marketing efforts on super draft to half. And we are working on additional opportunities in the AI-driven target marketing industries such as mortgage originations. As we collect more and more big data, whether it's from retail stores, bank branches or daily fancy sports, our learning models become more and more valuable.

Overall, our gross margins improved to 37% from 30% from better utilization and more AI software projects. Total operating expense for fiscal 2020 was $18 million, a decrease from the $24.3 million reported in fiscal 2019, driven by a $4.8 million decline in G&A costs attributable to lower bad debt expense, lower lease costs and a headcount reduction. Sales and marketing expense increased by $400,000, primarily as a result of a $1.5 million payment to a third-party computer hardware manufacturer for joint marketing of AI projects.

Technology and development expenses increased by about $600,000, mostly due to a $500,000 increase in share-based compensation due to the increase in our common stock price over 2020. Our operating loss declined $14.2 million in 2020 from $22.8 million in 2019, commensurate with the declines in G&A.

Our loss from continuing operations totaled $13.7 million or $0.16 per diluted share in the fiscal year ended December 31, 2020, compared to a net loss from continuing operations of $23 million or $0.52 per diluted share in the fiscal year ended December 31, 2019. At December 31, 2020, our cash and cash equivalents balance was $0.9 million, compared to a cash position of $0.3 million at December 31, 2019.

The cash increased primarily due to $32.1 million of proceeds from common Stock issuances. These proceeds were offset by operating losses, the payments of certain liabilities and a net repayment of $12.4 million of debt. We would now like to open up the conference call to questions.

(Operator Instructions)

Keith, please start the call about how to queue up with their questions.

(Operator Instructions)

Our first question from Darren Aftahi with ROTH Capital Partners.

A couple from me. First, on Sharecare. How are you guys planning on monetizing it? Are you going to lever your position up in terms of selling the stake of debt? Or just any kind of color on that would be helpful.

Dane, do you repeat the question? You came in kind of garbled.

Yes. Just kind of curious about how you're going to monetize your Sharecare stake without debt or selling it outright?

Yes. I mean, we -- for -- we're looking at both options, but our first choice is very -- as you can imagine, the -- with the stack destacking, probably right around May there a lot more financing options from different funds to potentially take some debt against that. Sharecare's business is growing very strong right now. In 2020, it's growing very strong so it's definitely up to our interest to keep as much of the position as possible. So we're definitely exploring our option level.

And then on Super Draft, can you just give a sense for how much of that business -- one, I guess, is the scope of how big that maybe relative to some other business you've won in the past? And then how much of that is kind of AI agency versus just traditional AI for both (inaudible) and (inaudible)?

Look, I think the opportunity with SuperDraft is a $15 million to $20 million opportunity for us. Out of that, I would say, 70% of that number will be AI related. And then the other, the remainder will be more kind of traditional agency related.

Got it. 2 more, if I may. Then last quarter, you spoke about your China business, if I recall correctly, either being breakeven or profitable by the second quarter. Is that kind of still the case?

With that, it is still the case. Our big decision, as we've always said, is just how fast do we want to grow. Our core business is going strong. I think we will be able to -- which has opened up new financing options for us. There are a lot of new opportunities that we've been able to apply our technology platform to and now we'll just view on what's the next best step.

This announcement with our ESG product that will be coming out very soon is a massive opportunity for us that we've been working on for the last year, 1.5 years. It's almost ready to go launch. And I think we've all seen what happened in that industry. So we want to be able to be well positioned to capitalize on that.

Great. And then just last one for me. As you look into 2021, how much of the your revenue composition is going to come from either existing customers or expansion of the existing versus new business?

We're expecting all the business that we have, I think, in terms of the growth in our business coming up, 50% will probably come from existing customers that are looking to add on to their services. And then the remainder will be the new customers that we have in the -- kind of in the same industry or new industries that we are able to expand to.

We've always said that our platform is industry agnostic. So I think we have a great opportunity to capture that. And one, the steps to foothold in the new industries and continue to grab market share and the ones that we've already broken into.

We'll take our next question from Leon Solomon with Summit River Investments.

Congratulation on a good quarter. The main question, was how much, if any, of your revenue in the fourth quarter was record deferred revenue from 2019, I believe, then they have been recognized during the quarter?

I think the deferred revenue, we don't have the -- in terms of deferred revenue regarding as in China Mobile or is that what you're asking?

Yes. You had deferred revenue on your balance sheet at the end of 2019, I think there was from recognized last year and earlier in the year, and there's no cash flow statement with the 8-K. So I can't really tell if there is any improvement.

I think it's roughly $0.5 million. We'll double check and get back to you, but we don't think it's probably right around the number.

Okay. And so looking at the financial statements, I see, for example, $177,000 of your accounts receivable were actually held in the U.S. by Remark, it was about 3.5%. The rest being held higher vie in that essentially the case with the majority of your assets, but not the liability, those remarks tends to hold itself. I guess, what I'm getting at is why are you planning on disclosing the contracts that make up the VIE agreements in your 10-K to kind of calm investors earns or continue to leave us guessing at, I suppose, trust me approach.

Is the question -- just to be clear, is it the plan for us to disclose our VIE contracts?

Yes. Well, you -- as is coming practice with other companies in the U.S. who use this VIE structure. Are you planning on disclosing the VIE contracts within your 10-K?

We have no plans on doing that right now, but we'll certainly take a look at all the other companies that you disclose the vie structure and then react accordingly.

Yes. I think it would give investors a lot of -- I'm sorry, a lot more confidence in the balance sheet and the lower income, too, considering the large portions of your assets and revenues, coming through the VIE, we'd like to see that VIE structure is valid.

(Operator Instructions)

We'll take our next question from (inaudible) with FSA investments.

Shing, 2 questions. On Super Draft, did you say $15 million to $20 million, would that all be in 2021?

Yes, it would be.

Okay. And then on the Sharecare ownership on a fully diluted basis when they close, what will Remark own?

For -- we'll get back to you on that number, but we'll be roughly around 4%.

Okay. So 4% would roughly be $160 million worth of stock?

Yes, we're working through all this we right before, we're working through the calculations, but we'll come out with the number as it gets closer to the close.

And ladies and gentlemen, this will conclude today's question-and-answer session. At this time, I'd like to turn the conference back to your presenters for any additional or closing remarks.

Thank you, everybody, for participating in our fiscal Year 2020 financial results conference call. A replay will be available in approximately 4 hours through the same link issued in our March 22 press release. Thank you, and have a good afternoon.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect.