Remark Holdings, Inc. (MARK) on Q1 2021 Results - Earnings Call Transcript
Operator: 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.
Brian Harvey: Thank you, Jenny. Good afternoon, and welcome to Remark Holdings fiscal first quarter 2021 financial results conference call. I am 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 first quarter financial results. Following those remarks, we will open the call to questions.
Kai-Shing Tao: 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 as 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 Sharecare 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 three 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 apart our 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 zero carbon emissions and as main sustainability mandatory. We are working with one of the world's largest cement companies with over 2,000 production lines and thousand plus mines, globally, providing them Remark AI solutions to improve safety measures on the production lines and making equipment maintenance more efficient, which not only improves the quality of cement products, but also help lower the carbon in 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.
Brian Harvey: 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 10 times 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 biosafety 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 in revenue and technology and development expenses.
Operator: And we will go first to Darren Aftahi of ROTH Capital Partners.
Darren Aftahi: Hey guys, good afternoon and thanks for taking my question. Three, if I may. First, how big was the SuperDraft in terms of revenue contribution in the quarter? And then, I think Shing, last call you talked about quantifying the impact is like $15 million to $20 million of revenue this year. Is that still the case?
Kai-Shing Tao: Hey, Darren. I would say for Q1 it will be a few hundred thousand. Q2, I'd say right view as I just mentioned on the call, we expect to see the ramp-up during football season, so our projection still stands where it is today. Q2, what you will see the few hundred thousand dollars of revenue, and we expect that to jump to seven figures.
Darren Aftahi: 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?
Kai-Shing Tao: 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.
Darren Aftahi: Great. And then just last from 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? Any update there would be great. Thank you.
Kai-Shing Tao: There is no update there but certainly, you know, 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, not until on their own front. And so, I think you'll begin to see that as well as we get closer to the close.
Darren Aftahi: Great. Thank you.
Operator: And we'll go next to Ron Nash of NASH Partners.
Ron Nash: Yes, good afternoon. I think 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 in energy up fits right now in the industries in the United States?
Kai-Shing Tao: Sure. So just like - so we mentioned before is, we're going off of two areas; primarily one is certainly the - like, 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 a power management platform where we think that given our past experience that they are able to significant lower their costs, almost probably starting off at 30%, and overtime 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 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 zero 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 part of that process, we will be managing the solar panels that are installed on top of the factories in mines to help them lower the cost of electricity. And with this particular company, they will be - they have about 2,000 diesel trucks that they are 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.
Ron Nash: Is this - would you say this is going to be relatively new business to you or on top of your existing business?
Kai-Shing Tao: This is all additional business. We haven't - certainly the revenue guidance, the overall revenue guidance that we have given, we haven't - we haven't included this in any other numbers.
Ron Nash: Great. Thank you very much. Appreciate it.
Operator: And we'll go next to Rob Mountain of Mountain Capital Management.
Rob Mountain: Hi Shing. It's Rob here. How are you?
Kai-Shing Tao: Hi, Rob. How are you?
Rob Mountain: Good. 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?
Kai-Shing Tao: Well, I'm not sure about that. I think it will be more mid-July - 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 - once that gets approved by the SEC, then it will be sent out to the shareholders and get their approval. But I think right now at this point we're certainly pretty comfortable with where everything is. The pipe was very well over subscribed; so certainly this number is far greater than what the number was needed to close the deal. And most importantly, beyond all of that, is the Sharecare 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.
Rob Mountain: I like to hear that. That's great news. Can we say - with our shares, Remark shares, are there any restrictions on those shares that we have?
Kai-Shing Tao: We're - yes, seeing that we're an insider - there is a 6-month a lock-up, 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 off of certain amount of shares that we're able to sell into the market.
Rob Mountain: Okay, thank you. 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?
Kai-Shing Tao: I think there are number of things in terms of our options. I think our shareholder base is more educated, frankly now, and more long-term focused 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, if we were to have a loan facility generate against these - generate against our Sharecare stake, we - we had previously announced we would use that to buy or use a significant portion of it to buyback our shares. So I think there is a number of different options for us.
Rob Mountain: Okay. Well, I will stay tuned for that. And I do appreciate it. And thank you for taking my call.
Kai-Shing Tao: Thank you, Rob.
Operator: And we'll go next to .
Unidentified Analyst: Hi guys, I - first, I'm just going to say congratulations on your success so far and hoping for continued success. At the begin of the year, in January, you had made a note in your pre-announced earnings that you felt the current share value was less than what you felt it was worth. I know, I understand that there are certain obligations for certain warrants and you kind of have - you kind of had a pick on till you get those shares. But what do you plan to do to increase shareholder value in the short-term following today, for example?
Kai-Shing Tao: Our - I think it's - 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 is 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 valued at much greater valuation; we certainly feel very strong about where our business is heading and all that. So, there are lot of things that we are trying to consider how we kind of close that gap. But we - I think a big part of it is that as the Sharecare stake gets monetized, as we mentioned before, we'll look to buyback a significant portion of our shares. Number two, there are a number of groups, I think in the U.S. that - 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 where we - we stand by our technology, we're winning a lot of these deals, but the actual implementation is slower; and if we're to team up with a large channel partner, it will just make us go even faster. So, I think those are the two 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 will in time as - as we begin to see the revenue flow through as they begin to add on more services to the ones that they've 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 - as 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 seven-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.
Unidentified Analyst: 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?
Kai-Shing Tao: No. I don't think so. I mean, our target is to show profitability this year. So, you know, if you're looking at our competitors, whether they're public or private, they are growing a lot but taking a lot of significant losses to grow that revenue. We are 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 began - we can begin to show profits. And so, I'm pretty confident by end of this year or early next year we can begin to show that.
Unidentified Analyst: All right. Thank you very much.
Operator: And with no other questions in the queue, I'll now turn the call back to our presenters.
Brian Harvey: Okay, thank you everyone for participating in Remark Holdings first quarter 2021 financial results call. A replay will be available in approximately four hours through the same link issued in our May 5 press release. Thank you and have a good afternoon.
Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.
