Remark Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 16 May 2022

[Operator:]

Good day, and welcome to the Remark Holdings Fiscal First Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Fay Tian. Please go ahead.

[Fay Tian:]

Thank you, Justin. Good afternoon. And welcome to Remark Holdings fiscal first quarter 2022 financial results conference call. I'm 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 Todd Brown, Remark's Vice President of Finance. In just a moment, Mr. Tao will provide an update on our businesses and Mr. Brown will recap our first quarter financial results. Following those remarks, we will open the call to questions. 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.

[Kai-Shing Tao:]

Great. Thank you for joining Remark Holdings first quarter call. We're excited by our first quarter results and the start of 2022. As everyone knows, Q1 was challenging for China due to a very strict zero-COVID policy. Having said that, we continue to adapt and build upon our existing businesses and grow new ones in the face of these strict lockdowns. Our first quarter results were driven by continued deployment of our smart campus products to 52 more schools in Q1, a 40% revenue growth compared to Q1 of '21. Our new campus products, the AI learning quality evaluation system for students and AI health condition evaluation system for students launched this past quarter have contributed over $2 million. Overall, our AI campus products are now covered in 500 plus schools, over 1 million students already nationwide. We are aiming to pass the 800 school mark in 2022 and servicing over 2 million students nationwide. Our first quarter results were also driven by our completion of deployment for 189 residence communities which brings us to close to 800 communities and over 3 million people daily. We are optimistically expecting the rest of the 200 residence communities to start as soon as the lockdowns are lifted in 2022. In the first quarter, we continued the deployment of our smart safety surveillance platform for construction sites, which covers worker check-in, checkout systems, worker PPE monitoring system, smart helmets, pollution monitoring system, fire smoke detection system, falling prevention system, crane safety system, and the construction site surveillance system. By the end of Q1, we have successfully completed 21 more construction projects with more being deployed and completed in the next few quarters. Obviously, with the lockdown, we are unable to start some projects and finish existing contracts. We expect that process to resume shortly as the lockdown is being lifted. Customers where we will resume our deployment are China Mobile; one of China's largest fast food chains using our AI platform to improve service quality, kitchen cleanliness, food processing safety and customer experiences. Due to the lockdown, our installation was suspended after 10 stores, and we will finish the remaining 20 stores as the lockdown is lifted. Third, Bank of China and other banks with large retail operations. Most of the banking branches are still closed, which has slowed us down, but we'll resume once the lockdown is over. As you can see, our numbers for China will only get stronger as the lockdown is lifted. Having said that, we are continuing to still grow and win new businesses in areas where there are no lockdowns. Now moving to the U.S. As we said in our last quarter's call, President Biden's $1.7 trillion plan offers a once-in-a-lifetime opportunity where we are well positioned to win the bids due to our leading AI technology and, more importantly, technology that has been tested over-and-over again in real life situations versus the perfect lab environment. Remark AI recently won the security and safety contract for one of the most high-profile arenas in the U.S. Located in one of the largest cities in the U.S., the arena is ground zero for many of the most high-profile sporting and music events. In addition, given its high-profile nature and placement, they are always under security threats. Our initial phase with them is to focus on outdoor security. Areas our AI will help with are in occupancy counting, loitering, unattended object detection and gunshot, bomb blasts and human scream sound detection. We are very excited about this win as our customer views us as a strategic partner and are looking to spread the word about our technology to other arenas and sports teams. The organization has a strong reputation for being at the forefront of technology, and we are excited to win this deal to help them continue to keep that reputation going. Given the rapid rise in crime and shootings in large metropolitan cities, we are in the midst of bidding for several other contracts as it pertains to subway safety. Our Remark AI smart security platform will help reshape crime prevention, investigation and safety operations. Our smart AI analytic engine monitors multiple cameras in various places like station platforms, station staff areas, train car outside the station and underground maintenance during the night. This will give us alerts on

[Todd Brown:]

All right, Shing, thank you, and I will continue with financial highlights for the first quarter. Revenue for the first quarter of 2022 totaled $4.7 million, which was up about 6% from the amount of revenue we recognized in the first quarter of 2021. That first quarter 2022 revenue was driven by a $0.6 million increase in China revenue with the total revenue of China, including $2.2 million from projects in the construction industry and $2.2 million from projects in the education sector, plus an additional $0.2 million from deployments of our smart retail systems in cities that were less affected by the ongoing lockdown. Revenue from the sales of our biosafety products in the U.S. further decreased as we adapted to post-COVID demands and shifted our focus to thermal analytical products which will provide AI-driven risk management solutions for transportation providers, construction enterprises and governmental clients. As a result of that change in product focus, we expect longer sales cycles and extended decision-making procedures. Gross profit was $0.4 million for the first quarter of 2022, which was a drop of -- drop from the $1.7 million we recorded in 2021 in the same period. The overall gross profit margin for the first quarter of 2022 was 8.5% with increased cost of revenue of $4.3 million primarily being associated with the previously mentioned completions of more projects in the construction industry and education sector. We incurred an operating loss of $4.2 million for the first quarter of 2022, which was in comparison to an operating loss of $3.7 million in the comparable quarter of 2021. In addition to the increases in revenue and cost of revenue, G&A expense increased primarily from about $0.5 million of share-based compensation, which resulted from the recognition of a 2020 stock option grant that, for accounting purposes, didn't have a grant date until July of 2021. Also contributing was an increase of $0.3 million in business development expenses as we expand our client base and $0.2 million increase in payroll and benefits. Partially offsetting those increases in cost of revenue and general and administrative expense were decreases in sales and marketing expense as well as in technology and development expense. The sales and marketing expense decreased because the prior year first quarter included approximately $0.6 million that we advanced to our China business partner in such amounts in that period were classified as marketing expense but no such activity occurred in the current year. Technology and development expense declined $0.6 million due to reduced reliance on consultants as a result of our acquisition of our U.K. entity and in a material business combination; and also by $0.3 million due to a decrease in the company's liability for China cash bonuses. Our net loss totaled 24 -- pardon me, $25.4 million or $0.24 per diluted share in the first quarter compared to a net loss of $5.5 million or $0.06 per diluted share in the quarter ended March 31, 2021. The loss on investment of $19.1 million, which consisted primarily of the change in the fair value of our investment in the common stock of Sharecare, Inc. was almost entirely responsible for the larger net loss in the first quarter of 2022. Another significant contributor to the increase in net loss was interest expense, including amortization of original issue discount and debt issuance costs, which resulted from our $30 million note payable that we executed in December 2021, that item bearing a 16.5% interest rate. The same period of the prior year included significantly less debt principal outstanding. On March 31, 2022, our cash balance totaled $2.7 million, which was compared to a cash position of $14.2 million on December 31, 2021. Cash was primarily impacted by a principal repayment on the company's note payable, which was about $3.7 million, interest payments totaling around $1.1 million on the note payable and payment of approximately $1 million for work on our metaverse project, as well as increased spending for business development. And with that summary, I will go ahead and turn over the call to the moderator to queue up questions for our Q&A session.

[Fay Tian:]

Okay. Thank you. Thank you, everyone, for participating in Remark Holdings first quarter 2022 financial results call. A replay will be available in approximately 4 hours through the same link issued on our May 3 press release. Thank you, and have a good afternoon.

[Operator:]

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day