Remark Holdings, Inc. (MARK) on Q4 2022 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Remark Holdings Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Fay Tian. Thank you, Fay. You may begin.
Fay Tian: Thank you, Alicia. Good afternoon, everyone, and welcome to Remark Holdings' fiscal year 2022 financial results conference call. I am Fay Tian, Vice President of Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark's Chairman and Chief Executive Officer; and Mr. Todd Brown, Vice President of Finance. In just a moment, Mr. Tao will provide an update on our businesses and Mr. Brown will recap our fiscal year 2022 financial results. Following these 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 information on Remark's businesses and recent developments. Please go ahead, Shing?
Kai-Shing Tao: Thank you, Fay. Thank you for taking the time to listen to our quarter four update as we have much to update on. In Q4, we've continued to execute on our plan to continue to build a foundation to scale our Remark AI platform globally. The legendary investor, Warren Buffett, once said, “someone sitting in the shade today, because someone planted a tree a long time ago” We are that tree as it stands today and will continue to watch it grow and reap all the benefits from the foundation, we have put in place over the last eight years. Simply put 2022 was a year where we were able to successfully diversify our businesses to other parts of the world. Most specifically the U.S. and United Kingdom. In 2023, you will not only see the announcements of major wins in both the U.S. and the U.K., but also our expansion into the Middle East and Latin America, and to achieve the goal of profitability by the end of 2023. With all the excitement surrounding Open AI ChatGPT launch at the end of last year, which has sparked a fervor of interest in AI companies. We strongly believe we are only just scratching the surface for what AI can do for you, me, and the rest of the world. We have already launched our own ChatGPT service to augment our offerings to our customers. For example, as you know, we already have a growing business dealing with construction companies and using our AI to help manage their workforce and the daily intricacies of project management. By now adding Remark AI's generated AI capabilities to our product offerings, we will be able to offer AI-based design services as well. In our last quarter call, we were accurate in our prediction that China would be loosening their COVID rules by the next time we spoke. We are excited to see all businesses rushing to bring their businesses back to pre-pandemic growth numbers, and we certainly expect to be a beneficiary of this. In Q4 2022, here are some updates on previously announced wins. One, we deployed our smart campus products to now over a 100 schools, which makes our total deployment over 600 schools and serving and protecting 1.2 million students daily. Two, we finished 11 smart construction projects in Q4 ‘22, which brings us a total of 97 construction project deployments in ‘22. We are anticipating another 100 construction projects in ‘23 as the COVID pandemic has ended now. Each initial construction project generates approximately $100,000 in revenue and the pace of Remarks installations are expected to grow as China opens up. Three, our previously announced wins using Remark AI's retail platform for both China Mobile and Bank of China's retail branches are now set to resume as the stores are now back open. And four, with China Mobile smart communities, we've now begun to resume deployment and we anticipate to be installed in a 100 of these communities by the end of 2023. As I mentioned in the past, Remark AI is able to differentiate ourselves from competitors. Because, one, we offer a platform not a point solution. No customer wants to handle 15 different vendors. Two, our platform has tried and tested, no customer wants to be the guinea pig. For example, in the fourth quarter Remark AI was able to demonstrate the uniqueness of our large crowd scale people counting solution, which differentiates from individualized people counting that is limited in the quantity measure. This tool was effectively applied during the 2022 New Year's Eve celebrations in both the densely populated cities of Edinburgh Scotland and Seoul, Korea, giving us the credibility in working globally with large metropolitan cities. Due to this live and real world success, we are now close to quickly expanding this product to governments around the world. And three, the quote secret sauce of our AI platform is the ability to train our algorithms 3 times as fast as our competitors, while only using a limited amount of datasets. This means we are able to our customer needs quickly and provide a new solution if not readily available in the market. The well-known thing, great things happen when preparation meets opportunity applies for Remark AI. Since we began building our platform almost eight years ago, we have now created a system which can provide the tools for businesses to run more efficiently and effectively and to provide an immediate ROI. And coming out of COVID, we are seeing unprecedented need for our AI platform in many different industries. Due to the strength of our core technology, we are unable to compete to win the business and in addition, create solutions that have never been introduced before in the industry. For example, as I've mentioned in the past, we have introduced the first global AI-based aviation platform, where both airline and airport operators can use to run their business in a much more effective manner. For example, in the past, it took one hour with a crew of 10 people to check the plane engine blades for wear and tear like burnt spots that can affect the plane's safety and energy usage. With Remark AI, the airline operator now needs only 10 minutes and one person to do the same thing. Or traditionally, when a plane lands, the airport operator has problems tracking all the different vendors and how much time it takes each one to service the plane. Again, with Remark AI, we are able to help them keep track in the airplane's honest -- airplane vendor's honest. And finally, when the airplane engine goes through general inspection, could be with Rolls Royce or Whitney Pratt there always is a difficulty to keep track of the 500-plus distinctive parts that make up the engine. Using our computer vision technologies, we are able to make sure every nut and bolts and tags are properly installed and secured and had no missing pieces before the engine is installed to the airplane. Our solutions had never been offered before, until Remark AI has introduced it. Remark is pursuing recurring revenue streams that leverage our AI powered solutions for the public and private sectors that include any large gatherings of people that require safety; such as sporting events, and tiering locations, as well as the education, public safety, retail and transportation markets. We focus on large total addressable markets that can scale quickly and benefit from our AI powered software to improve our customers’ operations and generating immediate return on investment from increased safety, reducing incidents, as well as cost savings from efficient teamwork. We are solutions provider that sells the well-funded programs, which already have the budgets pre-allocated. As part of their security, and infrastructure investments, thereby providing more visibility than a cyclical, economically dependent business. We actively partner with existing sales and solutions partners, whose sales of a $100 million plus will accelerate with our product capabilities and have the current distribution and customer relationships in the markets we are pursuing. An example of this partnership is with Netwatch, a security company that's been built -- that has built a proactive company to provide 24/7 real time security monitoring, augmenting an organization's existing security force. When a trespasser enters a property illegally, Netwatch's monitoring center broadcast a real time warning to the trespasser, while notifying the appropriate security personnel. Like Remark, Netwatch has successfully deployed internationally is now seeking to grow that U.S. business. And they were looking for an effective AI power solution to enhance their product offerings, which led them to Remark. One of the first markets we looked at in the public sector was the Yellow School Bus market, helping operators with safety and security solutions by counting the students on and off the bus to make sure they arrive at their destination safely. Remark AI power solutions now enables Netwatch to offer bus occupancy account, real time rules based notification for parents and teachers via SMS, email, or GPS location tracking with map views of all active bus drivers, student attendance via a digital register roll call. And batch uploads of student information for the student database. To provide some numerical perspective, there are currently 480,000 school buses in operation in the U.S. We are conducting or currently conducting a pilot test with one of the largest school buses with a fleet of 55,000 buses. The typical school bus requires three video streams, front, middle, and back. And we charge based upon a suggested recurring subscription of $50 per month, which represents a total addressable market size of up to $860 million of recurring annual revenue and $99 million of recurring annual revenue, if we are only to include the fleet size of our current pilot customer. Public transportation is another opportunity as there are additional 500,000 buses that serve the commercial sector. We are in active negotiations to provide similar services that also include bus driver and passenger safety, a vital concern in restoring the confidence of customers by providing accountability and peace of mind. Public and venue safety, any large gathering of people requires a security solution that is dependable. Highly accurate and most importantly helps provide safety. Our security solutions are currently being marketed and deployed in places like airports, arenas, parks, schools, stadiums. Through our strategic integration partners, like Minuteman Security Technologies, and established video management systems such as Genentech, and Milestone. We are providing AI powered solutions that help with people counting, smoke and fire detection, intrusion detection, and weapons detection through our Century and Mobile platform. The State of Nevada and Clark County has granted over $700 million to be spent upgrading school security as part of the Biden Infrastructure bill, and we're excited to be actively be a participant of those programs. To the current pilot test, we are running along with our partner's Milestone Systems, which we expect to start turning into revenue for the second-half of 2023. And going into the Health Club space, this is another market that we are targeting. Health Clubs require accountability and safety solutions for customers in real time. Currently, Health Clubs experience a potential liability whenever someone falls or gets injured while they're on the premises. For Health Clubs with pools, a lifeguard is always required to be on duty to reduce the risk of any accidental drownings. Remark AI's powered solution provides an additional layer of protection by actively monitoring for falls and abnormal activities, including potential drowning, identifying and reporting those events on a real time basis in order to help save lives. This is critical spending, not discretionary spending. We are focused on the mutual goals of positive cash flow generation and growth. Our business model is built upon annual multi-year recurring subscription revenue that provides a total turnkey AI powered platform for our customers and partners. Just these three opportunities mentioned below, alone, potentially represent over a $100 million of recurring domestic revenue, capture over the next 18-months starting July 1st. There are many opportunities that we are at [Indiscernible] upon completion that we did not mention. This earnings call was meant to give you a case of the numerous and diverse businesses that we are in the prime position to win and it only emphasizes the incredible opportunity of artificial intelligence and how well Remark is positioned to benefit from this. We always welcome serious current and potential shareholders to reach out to understand the full picture of our opportunities and why we are so bullish over the next 18-months. With that, I pass this over to Todd Brown.
Todd Brown: Thank you, Shing. As we have talked about in the past 2022 has been a challenging year for our teams, especially in China as we -- alright my apologies for the interruption. So 2022 has been a challenging year for our teams. However, the good news is that despite the COVID lockdowns that have caused us to have these problems with our operations. The good news is that China has ended at zero COVID policy, and we are working to resume our deployment that China mobile retail branches, Bank of China's consumer banking branches, which have been closed since the visitors -- closed two visitors since the onset of COVID and at construction sites and school campuses. Despite the difficulties, the team was able to complete a number of projects, including construction projects and smart campus deployment at schools that prevented more of a decline of revenue during ‘22, when compared to ‘21. Revenue for 2022 totaled $11.7 million, reflecting a 27% decrease from the $16 million during ‘21. First of all, we'll address the U.S. revenue, which declined primarily, because in the prior year, we performed $2.8 million worth of AI data intelligence services and advertising services related to a daily fantasy sports project during 2021, but did not repeat such a project in 2022. We also experience of decline in demand for thermal imaging products that reduced our revenue from the U.S. by approximately $0.4 million in comparison to 2021. And of course from China, revenue decreased $11.4 million was the number in 2022, compared $12.12 million in 2021, and of course as COVID restrictions that we've discussed, that were implemented and continued in many cities across China, well under the fourth quarter of 2022 was the main cause. Those measures prevented our teams from being able to get out to many of the projects size and those implementations that were not able to be completed in the current year, we expect we'll start to pick up in the second quarter of 2023. Our operating loss of $21.3 million during 2022 reflected an increase of $7.4 million from an operating loss of $13.9 million during ‘21. Several large drivers caused that increase in operating loss, including the fact that the prior year 2021 included a $1.5 million recovery of marketing cost from our China business partner, while we had no similar activity in 2022. Also an increase of $2.6 billion in our provision for bad debt related to the COVID restrictions that affected us and an increase of approximately $1.5 million in expenses related to our focused effort on business development, which has resulted in the expected business Shing has just described earlier. Net loss totaled $55.5 million or $5.22 per diluted share during 2022, compared to net income of $27.5 million or $2.70 per diluted share during fiscal ‘21. The prior fiscal year included a $43.6 million non-operating gain on the revaluation of the company's investment in the common stock of Sharecare. The value of that investment since declined significantly and that was primarily a result of macroeconomic and stock market conditions such that when we disposed of the investment through sales and in partial settlement of our debt, a $26.4 million loss on investment resulted. Our interest expense increased to approximately $6 million during 2022 from an amount of $2.3 million in 2021, and that was primarily due to an increase in our debt principal outstanding, as well as debt discount on the new debt. Cash at December 31, 2022 totaled approximately $500,000, compared to a cash balance of $14.2 million at December 20, ’21 -- December 31, 2021. Net cash used in operating activities during 2022 was $16.6 million. As previously disclosed, on October 6, 2022, we obtained an equity line of credit pursuant to which, after certain conditions are met, we can sell our common stock to Ionic Ventures LLC in exchange for as much as $50 million. And finally, a reminder that we affected a one for 10 reverse stock split on December 21, 2022 and our disclosures in our 10-K will retroactively reflect that reverse stock split. And with that, I will turn the call back over to Fay Tian.
Fay Tian: Thank you, Todd. We can open the floor now for the Q&A. Alicia, could you please tell the instructions for the Q&A for our participants? Thank you.
Operator: Of course. No problem. We will now be conducting a question-answer-session. [Operator Instructions] Thank you. Our first question is from Steve Wagner with Integrity Wealth. Please proceed with your question.
Operator: There are no further questions at this time. I would like to turn the floor back over to Fay Tian for closing comments.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
