Remark Holdings, Inc.
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Good day, ladies and gentlemen. Welcome to the Remark Holdings' (sic) 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'd now like to turn the call over to Brian Harvey. Please go ahead.

[Brian Harvey:]

Thank you, Keith. Good afternoon, and welcome to Remark Holdings fiscal year 2020 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 your fiscal year financial results. Following those remarks, we will open the call to questions.

[Kai-Shing Tao:]

Thank you for joining us on our call today. We hope everyone is safe, and are encouraged to see the progress that we're making, and again the global economy back on its feet. With the vaccine, we are excited with what lies ahead, as things begin to open up. For Remark Holdings, 2020 was a transformational year. Artificial intelligence, AI, had 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 the dual goal of growing revenue while lowering costs. Fortunately, over the past seven years Remark Holdings has built up a proprietary end-to-end AI platform solution that allowed 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 datasets, 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 benefits of having built our AI platform from the ground up, owning our IP, and having applied our solutions in real-time conditions in live environments versus laboratory case studies by initially winning 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 charlatans. We are a scalable and extensible solution across entire businesses and workflows. Remark AI has created a technology mode, a data mode, and a platform mode where customers are looking for a complete solution we set out to build a complete end-to-end solution in various industries.

[Brian Harvey:]

Thank you, Shing. I'll now provide a brief overview of the financial results for our fiscal year-ended December 31 2020. Revenue for fiscal 2020 was $10.1 million double the $5 million reported 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 ramped-up execution of larger projects, such as China Mobile, and the recognition of revenue from ongoing projects with school districts and banks. 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 costs.

[Operator:]

Thank you. We'll take our first question from Darren Aftahi with ROTH Capital Partners. Please go ahead.

[Darren Aftahi:]

Good afternoon. Thanks for taking my questions. Couple if I may, first on Sharecare, how you guys are planning on monetizing, you know, position in terms of selling the space, usually or just any kind of color on that would be helpful.

[Kai-Shing Tao:]

Darren, could you repeat the question? You came in kind of garbled.

[Darren Aftahi:]

Yes, just kind of curious about how you're going to monetize your Sharecare space debt or selling it outright?

[Kai-Shing Tao:]

Yes, I mean we're looking at both options, but our first choice there, as you can imagine, with the probably right around May there, or 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 very strong in '21. So, it's definitely up to our interest to keep as much of the position as possible. So, we're definitely exploring our options on that.

[Darren Aftahi:]

And then on SuperDraft, can you just give a sense for how much of that business, one, I guess is the scope of how big that deal is maybe relative to some other business you've won in the past? And then how much of that is kind of the AI agency versus just traditional AI for ?

[Kai-Shing Tao:]

Well, I think the opportunity for us 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.

[Darren Aftahi:]

Got it. And two 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?

[Kai-Shing Tao:]

With that, it is still the case, a big decision, as we've always said, is just that how fast do we want to grow. Our core business is going strong. I think we will be able to look towards opened up new financing options for us. There are a lot of new opportunities that we've been 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 year, year-and-a-half. It's almost ready to go launch. And I think we've all seen what's happened in that industry. So, we want to be able to be well positioned to capitalize on that.

[Darren Aftahi:]

Well, and then this last one for me. As you looking to 2021, how much of the year revenue composition is going to come from either existing customers or expansion of existing versus new business?

[Kai-Shing Tao:]

We're expecting 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, to establish a foothold in new industries, and continue to grab market share in the ones that we've already broken into.

[Darren Aftahi:]

Great, thank you.

[Kai-Shing Tao:]

Thank you.

[Operator:]

We'll take our next question from with Summit River Investments. Please go ahead.

[Unidentified Analyst:]

Yes, hi, guys. Congratulations on the great quarter.

[Kai-Shing Tao:]

Thank you.

[Unidentified Analyst:]

And then main question was how much, if any, of your revenue in the fourth quarter was -- deferred revenue from 2019, I believe, that may have been recognized during the quarter?

[Kai-Shing Tao:]

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?

[Unidentified Analyst:]

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

[Kai-Shing Tao:]

And I think it's roughly $500,000, we'll double-check and get back to you, but we don't think it's -- it's probably right around that number.

[Unidentified Analyst:]

Okay. And looking at the financial statements, I see, for example, $177,000 of your accounts receivable are actually held in the U.S. by Remark, about 3.5%, the rest being held by your VIE. And that's essentially the case with the majority of your assets, but not the liabilities, those Remark 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 KanKan through 'trust me' approach.

[Kai-Shing Tao:]

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

[Unidentified Analyst:]

Yes, well, as this common practice with other companies in the U.S. who use this VIE structure, are you planning on disclosing the VIE contracts within your KanKan?

[Kai-Shing Tao:]

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

[Brian Harvey:]

Yes, I think it would give investors a lot more confidence in the balance sheet and the income statement too considering the large portions of your assets and revenues that come in through the VIE, and we'd like to -- you know, that VIE structure is out.

[Unidentified Analyst:]

Understood. Thank you. Thank you very much.

[Operator:]

We'll take our next question with FSA Investments. Please go ahead.

[Unidentified Analyst:]

Yes, Shing, two questions on SuperDraft, did you say 15 million to 20 million, would that all be in 2021?

[Kai-Shing Tao:]

Yes, it would be.

[Unidentified Analyst:]

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

[Kai-Shing Tao:]

We'll get back to you on that number, but it will be roughly around 4%.

[Unidentified Analyst:]

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

[Kai-Shing Tao:]

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

[Unidentified Analyst:]

Okay. Thank you.

[Kai-Shing Tao:]

Thank you.

[Operator:]

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

[Kai-Shing Tao:]

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

[Operator:]

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