Becky Herrick - IR Kai-Shing Tao - Chairman & CEO Douglas Osrow - CFO Michael Reichartz - Co-Founder, Roomlia.

Analysts:.

Good day everyone and welcome to the Remark Media Third Quarter 2016 Financial Results Conference. Just a reminder, today’s call is being recorded. And at this time, I would like to turn the conference over to Becky Herrick of LHA. Please go ahead..

Thank you, Laurie. And thank you all for joining us today for the Remark Media third quarter 2016 financial results conference call. On the call today are Chairman and CEO, Shing Tao and CFO, Doug Osrow. After the prepared remarks, we will open the call to questions. A webcast replay of today's call will be available at www.RemarkMedia.com for 90 days.

Some of the statements made today may be forward-looking statements. These statements involve risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements reflect Remark Media's current views and Remark Media expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof. This disclaimer is only a summary of Remark Media's statutory forward-looking statements disclaimer which is included in its filings with the SEC.

Also please note the Company uses financial measures not in accordance with Generally Accepted Accounting Principles commonly known as GAAP to monitor the financial performance of operations. Non-GAAP financial measures should be viewed in addition to and not as alternative for the reported financial result as determined in accordance with GAAP.

To support the Company's use of adjusted EBITDA later in this call, our reconciling table's provided at www.remarkmedia.com, and a similar reconciling table will be included in the Company's Form 10-Q, filed with the SEC today. It's now my pleasure to turn the call over to CEO, Shing Tao. Please go ahead..

Welcome and thank you for joining us. We continued our topline growth in the third quarter as net revenue increased to $15.1 million up from $800,000 in the same period last year. This of course reflects the addition of Vegas.com to our digital media portfolio as well as enhancements we have made to the asset over the last year.

Over the last 14 plus months, we have established a formidable set of synergistic assets most notably with the acquisition of Vegas.com in September of last year and the addition of FansTang in September this year. Regarding Vegas.com we have made significant progress in growing our share of the show ticketing market.

Overall, our conversion rate during the third quarter of 2016 increased 16% compared to the same quarter last year. Now the conversion rate for the year-to-date period of 2016 increased 11% over the same period last year.

The hotel conversion rate during the third quarter of 2016 increased 20% compared to the same quarter last year while year-to-date it increased 16% over the 2015 period. Sharper conversion in general was up on all devices during the third quarter of 2016 compared to the same quarter of last year.

However, the mobile shopping conversion rate during the third quarter of 2016 increased 32% compared to the same quarter last year and increased 22% for the year-to-date period of 2016 compared to 2015.

The mobile show ticket shopper conversion rate during the third quarter of 2016 increased 35% compared to the same quarter last year and increased 24% during the year-to-date period of 2016 compared to last year.

Vegas.com ran more than 50 AB tests during the third quarter of 2016, up 15% over the same period last year and more than 150 AB tests during the first nine months of 2016. In the third quarter, Vegas.com added approximately [30 front] end functionality and product enhancements and additional 25 back end enhancements.

Enhancements included an updated look and feel on mobile pages, residency functionality for all devices and improvements to the actual AB testing tool. We are also integrating new content specifics to the Las Vegas nightlife including a digital calendar event and event descriptions which will be embedded in to the site.

In the future we were building out content to include Las Vegas centric teams such as food, sports, gaming, comedy and dating. We are very excited about our recent acquisition of FansTang which is part of the China branding group. Since the acquisition is temporary, we are largely being focusing on extensive sales related activities in both the U.S.

and China and including the further build out of our sales team and refocusing on FansTang’s management on sales after an intensive transaction process. Over the last several weeks, we have worked on some of the early integration aspects of the acquisition.

While we are still in the early stages of integrating this asset, we are seeing very positive sales momentum from the integrated sales team and expect to begin rolling out Vegas.com branded content and integrated branded media campaigns in the first half of 2017 leveraging both FansTang’s sales and business development team.

FansTang remains very busy in China with its exclusive broadcast in Chinese language shoulder programming of the American music awards in November and Dick Clark's New Year's Rockin' Eve on December 31, as well as [Indiscernible] Ford Content marketing campaigns launching in the fourth quarter.

FansTang has been using certain of its remnant advertising inventory to provide low cost marketing of the KanKan consumer application. We also expect to have new meaningful contracts to discuss with you in early 2017.

Now I would like to review our digital media technology that supports the acceleration of our monetization opportunities across our entire portfolio KanKan. Today, KanKan has amassed billions of active user profile, images, social media post and comments, reviews or likes on the platform.

This provides us with a significant volume of valuable data related to user behavior. We have recently released the [latest iteration] of our KanKan social media platform version 2.3, which enhances the features and functionality of the mobile application.

KanKan has become an influential content platform among Chinese millennial as it presents western lifestyle content including stories, images and videos to over 1.3 billion users. Our relationship with Alibaba continues to strengthen. Earlier this year, Alibaba began providing KanKan with access to its dedicated internet gateway.

Since that time Alibaba chooses to be its partner in its big data research unit, which enables us to model our own data through Alibaba’s shopping, Wi-Fi, retail and healthcare data. With our mobile apps present, Alibaba has expanded the use of KanKan within its platform.

We recently earned 5 lifestyle content channels from the new Alipay app, which has over 300 million daily active users. Set to be released in the near term, the five channels include travel, food, movies, fitness and celebrities.

We also have an additional channel on Toutiao representing the first western social content offered on their platform which we received at [Indiscernible]. Toutiao, for those who don’t know is a popular news aggregation app in China, recently rumored to do the next round or go public at a $10 billion evaluation.

This company has made huge progress as it was only worth and I say this in “500 million” in 2014. Toutiao aggregates personalized third party content based on user interest by analyzing data on social networking accounts and then selling targeted advertising against it.

Users can also browse and shop directly from the app through a partnership with Chinese e-commerce website JD.com. And in terms of visitation, they have about 150 million unique visitors per month.

While KanKan’s user profile are growing every minute, our KanKan data collection platform is focusing more on data sources such as Wi-Fi, browser and off line services enabling us to access better quality data for analysis and targeting.

In addition to our existing partnership, we are in the process of working with Alibaba on a more open data modeling approach that will further enhance the data models that we’ve been building together and potentially including addition of verticals.

This past October we were again invited to the Ali Cloud Conference in Hangzhou where we presented our KanKan app and KanKan data intelligence platform. This was a highly successful event that led to several potential business deals and which we are actively following up.

KanKan enables retailers around the world to leverage the intelligence gathered across an endless list of consumer activity, including shopping, streaming and payment to improve the effectiveness of their marketing and advertising. In essence, KanKan is reinventing the traditional business model.

What was business to consumer is now consumer to business as big data enables shoppers to tell retailers what they want to buy and enables them to influence the product conception to design to manufacturing process.

While our partnership with Alibaba is an important part of our effort to expand our global consumer data’s intelligence platform and monetize on the opportunities it presents, we continue to actively pursue other strategic partnerships to help in our efforts.

We are pleased to announce that we have started a partnership with Tencent, the largest social media company in China. We are working together to build data products for customers and verticals such as travel, retail and entertainment.

We are in the process of launching this new product in -- we are in the process of launching a new product in China’s consumer lending market place on our social -- our social credit security product is targeted at bringing affordable credit to consumer, emerging middle class known as the [Indiscernible].

The [Indiscernible] population is unique and the majority of them having no credit history, learning their borrowing capabilities from traditional financial organization. As this population is estimated at around 500 million people in China, it represents the world’s largest untapped consumer credit market.

This typically young urban educated and internet savvy group is expected to become the consumer mainstream in China in the coming year, via our KanKan and data intelligence platform, we can gather and analyze data from the digital footprint of this population which can help retailers and others establish credit scores and expand their axis to this important consumer market.

As a reference point at the end of 2014 the Chinese Central Bank data base covered over 9000 million consumers of which roughly 300 million had credit records.

The consulting firm [Indiscernible] and Chinese peer-to-peer market to be worth ¥5.4 trillion or approximately $800 billion by 2020 up from the estimated ¥400 billion or approximately $60 billion last year. These numbers are staggering as we believe we are very well positioned to begin taking advantage of this enormous opportunity.

As such we are pleased to announce we have a ready kind of five companies in the micro and quick financing industry for our social credit and security product.

These initial concepts represents approximately a base case of 3 million of bookings which we expect to recognize as revenue in 2017 and we expect to continue adding between one and two customers per month.

With thousands more companies in this place alone, as well as additional opportunities and industries such as online travel, agency, online group buying and shopping platforms, online gaming companies, online e-commerce platforms and payment service providers, we are excited about the opportunity to further build our footprint in the area.

As you can see KanKan provides Remark Media with significant future revenue potential. With our first product, the social credit and security program is launching by the end of this year and we expect our first revenues to begin in 2017. Now back to Tencent and Remark Media.

We are pleased to announce that our partnership that we will be focusing on the following area. Similarly to our partnership with Alibaba, we will be working with Tencent using their respected data and integrating it with ours to build artificial intelligence base predictive analysis models for various verticals based on data from both sides.

We will start with travel and entertainment. What makes our AI base predictive analysis model so innovated, are that our new models will replace the older aggressive analysis versus statistical based predicted models that will acquire almost no human intervention after they are trained.

The models and theory can be used for all different types of verticals with reinforced learning or migrated learning with self improving capabilities. This may change the way internet; social network marketing is conducted in the near future.

We are building these models to travel as it relates to destination, popularity, spending, transportation prediction. For retail as it relates to branding offline location, consumer behavior prediction and as it relates to entertainment business, as it relates to movies, box offices, music popularity, celebrity popularity prediction.

We will be able to connect data from both sides to enhance the existing social listening related services. The work with Tencent on social listening will include listening to in the past, current, or future predicted from targeted demographic groups.

These opinions can include targeted events such as sports, movies, commercial campaigns, celebrities as well as brands and products which can be expanded to anything that's spreads on social basis. We will also explore our commercial data service models within the Tencent ecosystem.

Here are some examples, for AI based predictive analysis, an example to be made for movie box office prediction in China before, during or after the movie is made. Another example is demographic spending on a particular travel destination what they spend on.

For social residence cases we can help brands to quickly determine to populate their product, offline location selection, personalize CRM and preventive damage control, i.e. get ahead of product liability issue.

And from an infrastructure point of view, our partnership with Tencent will allow us to win, build to enhance our data processing power and further our AI machine learning ability by leveraging upon Tencent – by allowing us to leverage upon Tencent's back end.

Second we will able to – that we'll be have access to Tencent's dedicated internet line for us to use. With Tencent's dedicated line we have now both Ali and Tencent line that can be back to each other. We can also use in anyway as we want and still obviously we have to be compliant with government laws.

Currently the main purpose of this lines to enhance data synchronization in and out of China especially for real time content or content analysis and is to the backbone to call [it cluster] as a big chunk of callers are deployed outside of China.

In conclusion our KanKan artificial intelligence platform is the base for all of our KanKan data services and products. With over two petabytes of data collected over the past two years we're able to build a machine learning base AI platform that can and will change the way business individual utilize today's data.

This methodology has been approved by internet giants like Google, Facebook and Microsoft. With that, I'll turn the call over to Doug for a review of our financial..

Thank you, Shing. Please note that our third quarter 2016 financials reflect the Vegas.com acquisition, which closed on September 24, 2015.

Also note that we will not providing pro forma financial information related to our most recent acquisition of certain asset of China branding group including FansTang because China branding group was a private enterprise and the financial information is not readily available in conformity with GAAP.

For the third quarter of 2016 compared to the same period in 2015 net revenue was $15.1 million compared to $800,000, total cost and expense was $19.3 million compared to $10.1 million. Operating loss was $4.2 million compared to $9.3 million.

During the third quarter we entered into an amendment of the financing terms related to our acquisition of FansTang on September 30, 2016 which resulted in a lost on extinguishment of debt of $9.2 million. For further detail please refer to our 10-Q being filed with the SEC today.

Including these non-cash items, net loss was $15.3 million or $0.75 per diluted share compared to $11.1 million or $0.75 coincidentally per diluted share. In our travel segment, our adjusted EBITDA was $1.8 million for the third quarter of 2016 which again exceeded 10% of net revenue.

We continue to expect we will maintain or increase this level through the remainder of 2016 and in 2017. For the first nine months of 2016 compared to the same period of 2015 net revenue was $44.4 million compared to $2.4 million, total cost and expense was $57.2 million compared to $17.8 million.

Operating loss was $12.9 million compared to $15.4 million. Net loss was $23.1 million or $1.15 per diluted share compared to $17.4 million or $1.25 per diluted share. For the first nine months of 2016, in our travel segment adjusted EBITDA was $4.9 million which again represents margins north of 10% of net revenue.

At September 30, 2016 cash and cash equivalent was $5.3 million compared to $5.4 million at December 31, 2015. Restricted cash at both September 30 of this year and end of last year was $11.7 million compared to $17.1 million at the end of last year.

As such our combined cash position at September 30, 2016 was $17 million compared to $17.1 million at December 31, 2015. Subsequent to the end of the quarter we announced, we signed $20 million Stock Purchase Agreement with Aspire Capital at favorable terms to the company.

In fact Aspire purchase an initial 1 million in our common stock at roughly of 14% premium through our closing price at the time of the transaction. This financing option ensures stability in our capital structure as we are able to control the timing and amount of future purchases.

This agreement provides us for the stronger more flexible balance sheet further supporting the execution of our growth strategy. Now I'd like to turn the call back to Shing..

Thanks, Doug. The Mark Media has undergone significant growth in the last year. We've expand our leadership position in digital media technology market by building a formable set of synergistic asset.

Over that time frame we have, one, significant improved Vegas.com both in terms of content and technology, two, made significant progress in growing and developing KanKan into unique and powerful source of consumer data with near term monetization opportunity.

And three, we've completed the acquisitions of FansTang which provide a synergistic complement to all of our assets and further expands our sales and monetization capability. As we look ahead we remain committed to the following strategic initiatives.

First, continuing to enhance Vegas.com through technology upgrades, feature edition and improving conversion. Second, leveraging KanKan's data intelligence platform with Alibaba and Tencent to establish new revenue streams. Third, fully integrating FansTang and rolling out new campaigns reflecting the synergies within our businesses.

Fourth, enhancing our lifestyle vertical to enhanced brand awareness and expand strategic alternatives for the finance vertical. And fifth, we will continue to monitor the markets for acquisitions candidates within our core focus on the millennial demographic and accelerate our revenue growth. Operator, we are now ready to begin the Q&A session..

[Operator Instructions] And we'll go first to George [Indiscernible]. Please go ahead, sir. And sir your line is open.

Did you have a question?.

George?.

Hi, guys.

Can you hear me?.

We can..

Sorry, the lines just went dead there. Congratulations guys, very impressive quarter. If I understood it correctly, how do you guys think about -- its pretty clear that I think you're going in terms of Vegas.com, the goal is to grow the revenue profitably, but it seems as though it will at least 10% EBITDA on the net revenue.

Is that the stated goal or do you see that even potentially increasing?.

Hey, George, thanks for the question. so when we originally acquired Vegas.com we told the Street was that we would had at least a 10% margins – 10% EBITDA margin through the first nine months of the year were 11.4%.

As we go into next year we expect that margin will improve as we continue to make improvements and gain some of the synergies and scale..

Okay. I think Shing you were very clear in the prepared remarks in terms of the gains and the improvements you have made in Vegas.com and that's a very impressive. If I could I like to ask a couple of questions on KanKan. How do you guys think – what motivated Tencent.

I think Tencent is the largest company in China right now in terms of market cap?.

Probably, they kind of go neck-to-neck..

Yes. What motivated Tencent to do the deal with us that Remark Media for KanKan.

How do you guys think about that?.

I think one is – I think there are couple of factors, in the case where Ali, where we approach them. With Tencent they've been, they approached, they're being watching us kind of build out our tech platform over the last couple of years, I think it help that their data team is based where our data team is located.

And we thought as an opportunity where as long as we are able to keep their respective data just between, obviously there are competitors in China kind of isolated from each other than that could begin the discussion of where we are working together. The other part is that in terms of our reach with a lot of the U.S.

brands with something that Tencent was looking to tap into. So I think it was – I don't think there was one, there was probably one thing that led to it was probably a number of different factors..

Very impressive, compared to Alibaba and Tencent, Remark Media is a very small company and incredibly exciting of course, but for those guys who want to deal with us, I think that's – I use to think I kind of be surprised but that's taken me back.

And I would imagine, I noted with interest your comment showing about its no longer B2C, it’s now C2B, right, where the consumers is driving, the suppliers as if were the provider, clearly with both Baba and Tencent data then that can be even more productive and more efficient I imagine.

Is that fair to say?.

Yes. I mean, our data doesn't begin nor end with Alibaba or Tencent, I mean it was the fact that we've been able to plug into so many different kind of data repositories from so many different, and it wasn't just with social kind of networking sites, right.

So, the fact we live in a world of big data where you don't make a decision unless you have the evidence to prove it. So and obviously times have changed, back then was more based off of punches and all that stuff, but we're lucky to been successful in creating this platform to begin doing that..

Yes. And one final question, I don't wish to take up too much time, although and I'm great for the opportunity. In my modeling for KanKan I kind of look at it to vectors. I call vector horizontal and one vector vertical.

In the horizontal vector its KanKan being offered on a subscription basis or licensing basis or revenue sharing basis for big brands to maximize marketing efficiency, routes to market into China and even into America ultimately.

And the other vector vertical applications, the great example of which is credit score program that you guys have build and they're launching this quarter if I read the press release properly. So I think of two vectors.

How do you think? Is that a good way of thinking about it guys?.

Hey, George, this is Doug. I'll start and Shing may chime in. We don't use the word horizontal and vertical.

What we think of its obviously there's a significant amount of information that marketers want to have across the board and we are developing a system where they can begin to license that information to better understand global consumers, that is one piece.

The second piece is you call verticals, we call products, and our first product is a consumer credit score, consumer social credit score. That's the first product that we've come out with. They were pretty far along with and as new products come out we'll make the announcement accordingly but that's the one we're most focused on today.

But yes, you are correct in the assumption that there will future products to come.

Shing, do you want to add?.

Yes. I mean, I read in a recent financial times articles how huge that market is in China and I noticed on Shing your remarks today that you struck deal with five partners as a routes to market.

Is that correct? Can you talk about little bit more please?.

No. I mean there is not for us it’s a – obviously there's a huge problem, while at least in China there is a lot of fraud, right.

And there's obviously a huge demand for loans, really micro finance loan as I said in the remarks, people don't have their credit history to be able to get credit if they were using the typical way we get credit here in the U.S. based of the FICO score and all that.

So in China where you might have a person who might have 100 different IDs but they are fake, how do these companies get their conformability to extend the loan to them? A big part where are now, our lives are – many of our lives are based off not just social media but pretty much on the digital age.

You live footprint and the ability to match those footprint to see who you are, gives a lot of conformability to these companies that were providing a service that can help them, make that decision on rather to give the credit or not. So we've been working on this product.

I think our product will only get better as we integrate more data sources as evidence by this announcement. And so far the pipeline has been very strong especially we're so new and we don't expect momentum to slow down at all..

Okay.

And obviously not for now but I'm sure you have more "products" in the pipeline that you guys are developing on the platform?.

What always developing is not just products. We're always developing new things within I think that's if you've been following remark for last couple of years we're really transformed our company into not just a media content company, but more into a technology company. So, we're always looking to create new products.

KanKan certainly was the platform investment or platform back and its worked out to be everything we thought it was plus more and so there are lot of products that now can be developed in-house off that or through third parties as well..

Yes, right.

And certainly in my own personal valuation models I've now included fact that the Remark Media is a technology company?.

Yes..

Very good. Okay. Great, guys. Just tremendous progress. Thank you very much. Congrats..

Thank you..

[Operator Instructions] And it looks like we have no additional questions today. I'd like to turn program back over to Mr. Tao for additional or concluding remarks. Sir..

Thanks for joining us today. I just want to note that we'll be participating in the ROTH Capital Technology Corporate Access Day, that's upcoming Wednesday and we're presenting at the LD Micro Conference on December 6th.

If you're interested in the meeting please contact investor relations from LHA, whose contact information is in today's press release..

And ladies and gentlemen, once again, that does conclude today's conference. And I'd like to thank everyone for joining us today..