Remark Holdings, Inc.
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Welcome to the Remark Holdings' Third Quarter 2020 Preliminary Revenue Conference Call. My name is Shirley. I will be the operator for today’s call and will handle the question-and-answer session. As a reminder, this conference is being recorded. Now, I’d like to turn the call over to Brian Harvey, Director of Capital Markets and Investor Relations. Please go ahead.

[Brian Harvey:]

Thank you, Shirley. Good afternoon, everybody and welcome to Remark Holdings third quarter 2020 preliminary revenue 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 provide information on our preliminary revenue. Following those remarks, we will open the call to questions.

[Kai-Shing Tao:]

Good afternoon. We are pleased to update you on third quarter results. Globally, we've been dealing with COVID for 11 months. It's been a challenging time and our thoughts and prayers are with those families that have been affected. Our thermal scanning solution have been a great tool for organizations to better deal with this pandemic. We are proud of our team's tireless work to make sure our partners get the best monitoring products as soon as possible. There are three major factors to our strong Q3 performance, China's economy has come back with strong demand for our AI platform. We expect our Remark AI's China's business to be profitable within the next six months. Our global pipeline has dramatically expanded in the last six months. And unlike other companies, Remark AI is a true AI platform, not just the point solution that we built from the ground up and owned in its entirety. In this case, we do not just provide superior thermal-imaging. Temperature detection is the tip of the spear. We are seeing customer adding on additional services. And now it's become a land and expand strategy which will increase our ARPU or average revenue per user and LTV or lifetime value. In China, we recognized in Q3, 2020, roughly US$2 million. We had a sequential 100% growth from Q2, 2020 and approximately 300% growth year-over-year. We are expecting another 100% sequential growth in Q4 by doubling our revenue in Q3. We expect to achieve profitability in our China business sometime within the next six months. The majority of our revenue came from our execution of contracts signed with China Mobile for their smart stores. Thanks for their smart retail outlets and schools for smart school systems.

[Brian Harvey:]

Thank you, Shing. The company's financial statements for the three and nine months ended September 30, 2020 are not yet complete. Accordingly, the company is presenting the following preliminary estimates. Due to the timing of these estimates the company has not completed its customary financial closings and review procedures and as a result, the estimates are subject to change. I’ll now provide a brief overview of the preliminary revenue range for our third quarter ended September 30, 2020. Revenue for the third quarter of 2020 is expected to be in a range of $2.5 million to $2.7 million up from $700,000 during the third quarter of 2019, an overall more than tripling of revenue. Revenue from our China business specifically, is expected to sequentially double to $2.2 million, compared with $1 million in our second quarter and nearly quadrupled compared with our third quarter in 2019. As China emerged from COVID-19 quarantines in the second quarter, our personnel in China were able to resume rollouts, and project testing and customization work on projects including China Mobile, banks and school installation. Moving forward, we expect revenue from China to double to over $4 million in our fourth quarter, and show continued significant growth again in our first quarter. Revenue from our U.S. based biosafety business is projected between $0.3 million and $0.5 million. Our thermal-imaging products were delivered to casinos, hotels, medical centers, office buildings, and other industries throughout the United States. Finally, as you know, we are asking for an increase in our authorized share, we will have our special adjourn meeting, special meeting in adjournment resume on Wednesday. And I'd like to take this opportunity to again remind people why we're asking for the authorized shares.

[Operator:]

The first question comes from Darren Aftahi, ROTH Capital Partners. Please go ahead.

[Darren Aftahi:]

First, could you talk a little bit about the China business so - I appreciate your business doubled and your expenses diving to another doubling - at least doubling in the fourth quarter. There is some language in the release that says the China Mobile you're in 200 stores - Hebei province, and that's going to 5,000 by the end of the year? I think its 25 fold increase so as to maybe 24, could you just help me logistically understand how feasible that is, how much of that work is done halfway through the quarter and then what that kind of looks like post 4Q?

[Brian Harvey:]

Sure, so this is Brian. We are currently installed in over 2,000 for our queue management system. And that's what's going to 5,000 by year-end. The kiosk system we installed our first 200 recently, and that program will become - completed in our fiscal 2021. So it should read that there are 2,000 stores have the queue management software going to 5,000 and it's currently in 200 kiosk - smart kiosk.

[Kai-Shing Tao:]

Two different products.

[Brian Harvey:]

But it’s all part of Phase 1.

[Kai-Shing Tao:]

It's all part of Phase 1.

[Darren Aftahi:]

So your visibility and confidence in the doubling like I guess with Hebei halfway through the quarter is what?

[Brian Harvey:]

It’s very good, very strong.

[Darren Aftahi:]

Got it. And then I think I heard you say, growth in Q1, in relation to the China business. So does that mean growth over the $4 million or better number in the fourth quarter?

[Brian Harvey:]

Yes.

[Darren Aftahi:]

Okay. And then if I'm doing the math, right, it looks like your preliminary implied U.S. business kind of fell quarter-on-quarter, I appreciate there may have been some knee jerk business on the U.S. side such as COVID. But can you kind of help me understand what the pipeline looks like for the U.S. business. And what types of companies are looking at this - at multi various platform as opposed to partnership?

[Kai-Shing Tao:]

Yes, so I would say we are very well representative of all those different in smart store industries from the hospitality and travel sector, to the sports sector to the industrial sector. And one thing you realize is when first COVID hit, the fever detection, which represents 80% of the symptoms for COVID. It was exactly what people were looking for as a as a quick way to figure out, who can come in or not. Now six months later, the customers simply want more and that really comes to our benefit, because they're not just looking at temperature testing, they're looking at how do we integrate the test results? How do we make sure that the people that are in the building know and are able to follow the protocol. Now we're in a new environment, where all these different protocols that are being put in, you have to hire a lot of people to be able to keep track of all of this, because you will get fined - very in a punitive way. Say for example with the , they lost their draft pick, and they got fined a lot for not following some of the protocol. So, we are finding that a lot of different kinds of approaches that can you provide this platform strategy, that includes not just the temperature checking, but the testing, the compliance with the PPE, the compliance with how you keep the records. And do it in a way where you can lower our operational costs, and also protect us from the liability. So this is something that is the common denominator across all industries. And certainly with the announcement of these - we're very hopeful that the vaccines will prove out to be what they are. But the demand for our products will only increase with that because people now look at health security, as important as cybersecurity so all these measures need to be placed. We're very well positioned to take advantage of that. A lot of that comes from the last six months where we have proved the most difficult of tying all these different - these centers establishing who we are and doing it in a contactless way. And so, we're very excited on what's coming for us over the next, I'd say three to six months in the U.S.

[Darren Aftahi:]

So maybe if I could just indulge a little bit 2021 assuming we don't have any sort of anomalous event next year, is your mix of business still going to be very much skewed towards China just given kind of contracts and then what's actually being installed today?

[Kai-Shing Tao:]

Yes, I mean there's no question. I mean, it doesn't matter what business you're in, I think in the world China, just because of the amount of people the numbers are just massive. The bad news is that it’s a - there is a lot of sales cycle but we've gone through that. And we've gone through the long sales cycle, we've proven our technology works, we've proven that we've been able to deploy, fast and according to the schedule. And so for right now, it's a very blocking and tackling kind of methodology. As U.S. we’re obviously a very strong market, but I think we're still trying to figure out what the direction is over here. In China, the directions been set, divisions been set, the budgets been set and now - we're trying to move as fast to capture, that market share. Two of the areas that we bought out outside of China Mobile is as it relates to the banks, right, there are 20,000 branches or bank retail that are being upgraded every year, roughly 100,000 per store. And that works out to be a $2 billion annual AI IT upgrade cycle. There are about 200,000 plus banks throughout the country, they're not going to upgrade them all at once, but it becomes a very stable business for us. And we are very well positioned because of the success that we've had with China Mobile. And I mentioned about the smart community same thing. In China, everything works as a five year plan right. There are over 160,000 smart communities in China, and they're going through a five year upgraded plan, where they earmark $70 billion to this upgrade. Now that sounds like a big number, but when you split it across 160,000 smart communities, it works out to be under or right around 400,000 U.S. per smart community okay. So that's something that we certainly feel that even with an external shock, it's not going to shake things up. And right now, because we have proven ourselves with not just the largest retail operator in China Mobile in China, but also now we've been able to integrate our solutions. We're one of the largest real estate and smart community developers in BRC International. So we are very well positioned there as well.

[Darren Aftahi:]

So it is awesome for me, when can data final financials and I think it's been over - two years now that a CFO I am just kind of curious why there's no hiring the CFO, and what's kind of delay that being form the numbers being up?

[Brian Harvey:]

I can address the financials, they are scheduled to be out within a week by next Monday, the 23rd we will file.

[Kai-Shing Tao:]

And then as it relates to the CFO, we are always looking for a CFO. So that's someone that we will look to bring on when the right candidate is found.

[Operator:]

Our next question comes from . Please go ahead.

[Unidentified Analyst:]

Just a couple of quick questions. First of all, do you foresee your business improving as far as the thermal AI side do you feel like most people in this industry at this point have picked their scanning board or do you feel like there's still a lot room in that sector?

[Kai-Shing Tao:]

I can't speak for the other businesses but - or for the other competitors for us, we certainly feel we're only in the first inning. I think we've made it very clear that temperature scanning is really just a small part of what we do. Every casino because they're dealing with so many points of entry, so many different customers that are coming in and out, so many back of the house employees that come through there are a lot of requirements, that just being a one-trick pony in doing temperature detection, can't solve right. So we've always said that the temperature detection for us is the tip of the spear. And when we go in after we get our foot in the door, we are able to sell additional services to them. It could be PPE detection, it could be people counting, it could be - being able to index any type of violent behavior. You probably read in Vegas, there has been some of the highest number of violent acts right on the Las Vegas strip. But there hasn't been a way to document them, to track the people down. We have a solution for that. So we certainly feel that our initial partner in Las Vegas, who we consider take security as the highest level used our solution and used it because we have the ability to expand our platform. We believe that the other casinos, not just in Vegas, but around the world will take that lead and that certainly a market that we see as very attractive for us in the next few months.

[Unidentified Analyst:]

I noticed that the majority of sports things that you're working with everything seems to be in or around your area, which is obviously the best place to start. But you get to feel that you're spreading out further than that right now at least in talks with anybody?

[Kai-Shing Tao:]

Absolutely, Vegas obviously, because they're less than 10 minutes from our office is the natural example. If you can't win your backyard, then how are you expected to expand anywhere else. But we have relationships really across the U.S. with - I would say the majority of the sports teams we have very strong relationship with the league. But let's be realistic too. A lot of these stadiums and teams aren't ready to fully rollout until there's better clarity on when they can bring the audience back, right being at 20% or 10% capacity is not something that where it's not going to be the spark. But we are - certainly as we mentioned in the call, very well positioned to do that, as soon as things begin to loosen up.

[Unidentified Analyst:]

And one final question and just in regards going back to the CFO question is one of the reasons that's holding you back right now, because you guys don't have the authorized shares to really offer much of an incentive to pick somebody up, is that one of the issues then?

[Kai-Shing Tao:]

I think that's part of it, that's certainly part of it. I think we have certain qualities in the CFO that we're looking for, given our presence globally and the state of where our company is and in terms of its growth trajectory and the strategic opportunities. The other aspect is exactly what you mentioned. In general - the basis for the company are low, and we incentivize through equity comm. And we don't have that available right now. I think some of the candidates that we've talked to want to wait till we get that approved before we take the next step.

[Operator:]

Thank you. There are no further questions at this time. Mr. Tao, I'd like to turn the conference back to you for any additional or closing remarks.

[Kai-Shing Tao:]

Thank you. We just want to leave with the key takeaway that it is finally a new day for Remark AI. We've narrowed our focused to become the only true publicly listed AI company. The demand for AI is super strong and runway wise we will be profitable in China by the end of Q2. Our pipeline is really strong. All of our long cycle sales work has paid off and 2021 will be a strong year. Thank you.

[Operator:]

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