Shing Tao - Chairman & CEO Doug Osrow - CFO.

Darren Aftahi - ROTH Capital Partners George Kafkarkou - Private Investor Ron Nash - Nash Partners.

Good morning. Welcome to Remark Holdings First Quarter 2018 Earnings Conference Call. My name is Paul and I will be your operator this morning. Joining us for today's presentation are Remark Holding's Chairman and CEO, Shing Tao; and CFO, Douglas Osrow.

Following the remarks, we will open the call for questions from the Company's institutional investors and analysts. 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.

Also, please note that the company uses financial measures not in accordance with generally accepted accounting principles commonly known as GAAP to monitor this financial performance of operations.

Non-GAAP financial measures should be viewed in addition to and not as an alternative for the reported financial results as determined in accordance with the GAAP.

To support the company's views of adjusted EBITDA later in this call, a reconciling table is provided at www.remarkholdings.com and the similar reconciling table will be included in the company's Form 10-Q filed with the SEC. I will now turn the call over to Chairman and CEO, Shing Tao. Sir, please proceed..

Thank you, Operator. Good morning, everyone from Asia, and thank you for joining us today. Before the market opened, we issued a press release announcing our results for the first quarter ended March 31, 2018. A copy of which is available in the Investor Relations section of our website.

Our first quarter financial and operating results were in-line with our plans and we remain well on-track in laying the groundwork to achieve our forecast for consolidated net revenue and excess of $120 million for the full year.

Our 2018 outlook reflects the solid progress we're making in driving adaption and deployment of our AI technology across multiple sectors in China and Southeast Asia and our ongoing success in driving conversion and transaction revenues at Vegas.com.

Our robust revenue forecast for KanKan in 2018 is directly based on the agreements in contracts we signed and the actual deployment steps we've currently taken in conjunction with our clients on the ground.

Depending on the sector, it can take three to nine months for deployment of our products to commence following the signing of an agreement with the client. We believe our $50 million revenue guidance for our AI business is attainable based on our installed plants for the full year.

For perspective in the retail sector, to-date, we have secured agreements to install our AI technology in over 20,000 retail stores in over 50 bar scales supermarket. There's an upfront deployment fee in each store and a separate annual license fee.

We would need to install only a small amount of the contracted installs in 2018 to achieve our AI business guidance. And this did not take into account the revenue from our other AI businesses, visibly our FinTech and safety products. Our second quarter revenues were showing improvement over the first quarter both sequentially and year-over-year.

The bulk of our top line KanKan growth starting to advance in the third quarter as the install volume accelerates. To recap, our primary goal is to efficiently leverage our advanced AI technology to enable a broad range of application across multiple sectors.

We're initially focusing our efforts on the financial services, retail and workplace and public safety arenas and we're gaining traction in each segment. Our business plan was designed to quickly support a stream of recurring, predictable and growing revenue as our products are installed.

In addition, our reoccurring license fee model coupled with only modest incremental expenses will allow us to generate profitable cash flows as we achieved scale. As I noted, we're working closely with our partners in setting the stage for deployment and the process is moving forward on-plan.

We developed a very practical, accessible and easy-to-install solutions aimed at addressing our clients' needs to a combination of our computer vision, demand [ph] cognitive and perceptual computing platform that we've been building for the past four years.

We believe no other company in the market can provide the level of AI solutions that we've developed, coupled with the simplicity, ease of deployment and price points that we are offering to our clients. Now, let me briefly walk you through our progress during first quarter beginning with our FinTech business.

We continue to build on our partnerships with the top techs we announced last year while expanding the number of financial institutions, utilizing our credit risk analysis and lead acquisition products. Our FinTech performance during the first quarter was impacted by a temporary sector-wide shut down in China within their lending industry.

The shutdown is directly related to an audit being conducted industry-wide by the Chinese Banking Regulatory Commission. We are ready to resume and well-positioned to ramp up our operations when the audit is complete, which we expect will be soon.

During the quarter, we have served six vendors, up from two vendor's year-over-year and our credit risk analysis product helped several large institution successfully issue over four million credit cards.

Adapting to the strength of our credit risk analysis product and supporting our ongoing sales strategies, we closed the first quarter with a default rate of 0.58%.

This is an exceptional outcome that supports our expectations to grow the total loan amount attributable to our solution by up to $1 billion RMB or $107 million for all of 2018, which will represent a year-over-year increase exceeding 1000%.

These products are off to a very good start as we continue to demonstrate the efficiency and effectiveness of our AI technology in reducing credit risk and enabling financial institutions to identify attractive loan candidates.

Turning now to our retail business; during the quarter, we've also continue to delay the groundwork to introduce our AI technology within the retail sector.

Through the combination of our computer vision technology and our strong intelligent data analysis capability provided by our KanKan data platform, we are able to provide a broad range of services aimed at improving customer interaction and satisfaction in driving sales.

To-date, we've entered into agreement with four major retail organizations, selling fresh food stores, supermarket, convenience stores, super brand malls and fast food chains. As I mentioned, these agreements cover an excess of 20,000 retail locations.

Our intelligent retail solutions are designed to embed with each of our clients' franchises and deliver the most relevant data that will allow them to drive a more personalized experience and engage in the one-on-one relationships with each of the customers.

This approach is relevant because the on-site retail model has largely moved to a one-to-many environment where brick and mortar businesses has become increasingly personalized and the quest to pursue cost savings in the face of intent competition from ecommerce and mobile shopping.

Comparing to other so-called AI technologies in the market which focused only on computer vision or facial recognition, our KanKan intelligent system with strong semantic perception and cognitive computing capability can connect physical data, internet data, social data and convert them into actionable smart data, which gives business the deeper insight and intelligence predictions.

Our technology represents a simple and easy-to-install solution that arms the store's front line and back office staff with the insight and targeting features that comes from our intelligence system so they can create a much-better shopping experience for their customers with much lower cost and higher conversion rate.

The moment a consumer walks into the store, the on-site team [indiscernible] is entitled with personalized recommendation system, aiding the sales in service effort in a very direct and efficient way.

The ongoing data we use to train the models will continually adjust and strengthen the store's product marketing approaches to the benefit of the store operators and the customer.

From a business model standpoint, each of the deals we ventured into varies in terms of contractual arrangement, but each include an upfront fee upon location's appointment as well as an ongoing licensing fee or revenue share model throughout the term.

As I noted, this is a model characterized by rapid revenue ramp as installs are cheap, combined with low ongoing capital requirement.

Turning to public safety and surveillance; products that combine with computer vision, intelligent behavioral analysis and intention analysis model are also being rolled out into institutional and public safety arenas where our platform can be utilized to determine when there are violation or safety risk has to occur, fostering a highly-compliant environment.

We continue to move forward in executing against the number of agreement; mainly construction sites, college campuses, restaurant, and traffic monitoring and enforcement. With over 200,000 eating establishments in Shanghai alone, the restaurant business represents the particularly attractive market of our technology.

At the close of the year, based on current agreement with local government agencies, we expect our intelligent food safety products will be utilized in over 10,000 restaurant locations. We will be testing our intelligent construction safety product in two large construction sites, in Beijing and Tianjin respectively, starting in the third quarter.

Our total target market in the sector amounts to 7,000 construction sites annually. Our revenue model in this segments includes a fixed-implementation fee based on the number of cameras installed, plus an annual service fee for each site. Turning to Vegas.com; we continue to generate a significant improvement in our financial and operating metrics.

We delivered a strong first quarter performance, which is capped off with record-ticket sales in March. Our conversion improved 29% year-over-year during the quarter as we continue to leverage the improvements we made to this site in the past year and deliver a better customer experience.

Attesting to the quality of our site, we continue to receive solid trust core ranking with our Google seller rating recently achieving a 4.5, added Expedia, Hotels.com and Kayak.com.

Vegas.com has evolved into a premier destination site that consistently attracts the growing audience that increasingly utilize the site to purchase suites in [ph] hotels.

Looking at the year ahead, we continue to expect Vegas.com to generate net revenue of $70 million to $80 million with EBITDA margins between 12% to 15%, making it one of the most successful entertaining ecommerce site on the web.

I should also note that we are closely monitoring the news on the Supreme Court, anticipate a ruling with regard to legalizing online sports betting in New Jersey.

Right now, legal sports bet are primarily combined to Nevada, but the New Jersey case could invalidate the Professional and Amateur Sports Protection Act, a 1992 law that bans sports betting in most states. Should this occur, legal sports betting could be launched in New Jersey as well as the additional states such as New York and Pennsylvania.

For perspective, a legal sports betting is estimated to exceed $100 billion nationally every year. Looking ahead, we have two of the best URLs with the potential legalization of online gaming in Vegas.com and Lasvegas.com. A notable amount of our traffic to our site is already related to customers who are interested in sports and betting.

While several events need to occur and timing is unpredictable and ultimately may not happen; we are optimistic about the effects of how legalization of online gaming could significantly help BBC's results.

With regard to the remaining businesses in our portfolio, these assets are operated at a net minimal cost and represent a source of significant untapped value that we believe is not reflected in our equity valuation and we continue to work with our advisers on various strategies to work this value [ph].

I'm often asked by investors how to establish the valuation of our stake in shared care, given that it's a private company. One of them I can point to is the recent IPO in Hong Kong by Ping An Good Doctor. This is China's largest online healthcare platform, which is owned by China's largest insurance company and one of the worlds largest.

The IPO raised over $1.1 billion, valued the company at approximately $10 billion a year. This equated to approximately 9x projected sales in 2019. Good Doctors' revenue was $275 million in 2017 and they lost $158 million during the same period.

Given shared care has a more favorable financial performance, this gives you some indication of a potential value of our stake. In summary, our first quarter results were in-line with our plan and will remain on-track in executing our strategy and working towards our financial and operating goals in 2018.

We're driving initial deployment of our AI technology across multiple sectors in China and we are progressing well in executing our retail roll out. Based on our progress and working directly with clients on the ground to an advanced installed process; we believe our 2018 revenue forecast is attainable and we're excited about the year ahead.

Our second quarter revenue as shown and proven sequentially and year-over-year followed by a significant ramp beginning in the third quarter as install volume accelerates.

Our AI business model is centered on rapidly building a diverse mix of sustainable, predictable and growing revenue streams combined with the benefit of modest ongoing capital requirements.

We're also continuing to generate increased conversion and transaction revenues at Vegas.com as we leverage our investments in this premier digital platform to build on this visibility and growing audience. We look forward to continuing to keep you abreast of our strategic progress in the year ahead.

Finally, as we announced today, Doug will be stepping down from the company as CFO to pursue other interests, but will remain as a senior consultant as we continue our search for Remark's next CFO. In addition, we established a Board CFO Search Committee to help accelerate and manage the process.

Before turning the call over to Doug, I would like to take the minute to thank him for his years of service to our company. He has played an integral role in elevating Remark to its current position strength today and we are grateful for his many efforts in contributions.

Doug will still be meeting with investors on our behalf and will be at the Cowen Conference in New York on May 30 and LD Micro Conference in LA on June 5. Now before we turn the call over to questions, I would like to hand the call over to Doug who will walk us through the financial results for the quarter end-year..

Thanks, Shing, and good morning, everyone. First, I want to thank Shing and the entire team in Remark and many of you in this call. I very much enjoy my nearly five years here and look forward to working together on a smooth transition. And with that, turning to the financial results for the quarter ended March 31, 2018.

Our net revenue for the first quarter of 2018 increased 9% to $16.7 million from $15.3 million in Q1 of last year. Of this revenue from our artificial intelligence subsidiary KanKan accounted for $1.2 million in the first quarter of 2018 as compared to $100,000 for the same period in 2017.

As an additional note, KanKan's top line was impacted in the first quarter of this year due to a temporary sector-wide shut down in China within their lending industry. The shutdown is directly related to an audit being conducted, as Shing mentioned earlier, industry-wide by the Chinese Banking Regulatory Commission.

We are ready to resume and ramp up our operations when the audit is complete, which we expect will be soon. Turning to our expenses; our total cost and expense for the quarter of 2018 was $37.9 million, which was up from $20.7 million in Q1 of last year.

The increase is primarily due to non-cash charges related to early lease termination and Employees.com initiation. The increase in expense partially offset by the increased revenue resulted in operating loss for the first quarter of 2018 with $21.2 million, compared to $5.4 million in the first quarter of last year.

Our net loss for the first quarter of 2018 totaled $14.1 million or $0.43 per diluted share. This compares to a net loss of $25,000 or $0.00 per diluted share in Q1 of last year.

Net loss for the first quarter of 2018 included an $8.6 million non-cash gain related to a change in the fair value of our warrant liability, which occurred as a result of the decrease in our stock price during the period.

For the first quarter of 2017, we recorded a $6.6 million gain related to the change in the fair value of the company's warrant liability during the period. Although it is a non-GAAP measure, I thought it might be helpful to address our cash burn.

As our press release earlier today stated, adjusted EBITDA for the first quarter of 2018 was negative $6.9 million which includes an early lease termination of approximately $2.3 million, bringing our quarterly cash burn to $4.6 million.

Don't forget however, that the first quarter is consistently by far the weakest quarter for adjusted EBITDA for Vegas.com and is also the quarter in which we spend the most on paid search related to our Vegas.com offerings.

Therefore as we've consistently explained, Remark's cash burn on average is approximately $1 million per month and we expect this to mitigate throughout this year. Now, turning to our balance sheet.

Our cash position remains strong at $21.9 million with an additional $11.7 million in restricted cash, bringing our combined cash position to $33.5 million at quarter end. This compares to a combined cash balance of $34.3 million at December 31, 2017.

Improving the balance sheet, we were able to amend the finance agreement with our lenders on April 30. Among other changes, the result is 150 basis point decrease in the interest rate and the maturity date extended to September 2020 for the majority of the principal amount. Shifting gears to our financial outlook for 2018.

Starting with our travel and entertainment segment, Vegas.com or VGC [ph] continues to demonstrate significant improvement in our financial and operating metrics. We are reiterating our expectations for Vegas.com to generate gross bookings of more than $375 million and net revenue between approximately $70 million to $80 million.

We also anticipate that our EBITDA margin for this segment will range between 12% and 15% of revenue for fiscal 2018. Based on our performance date and outlook for 2018, we believe Vegas.com to be one of the most successful entertainment ecommerce sites.

For KanKan or our technology and data intelligence segment, we expect to generate more than $50 million in revenue for fiscal 2018. Our forecast for KanKan is directly based in the agreements in contracts we've signed and the actual deployment steps we're currently taking in conjunction with our clients on the ground.

Looking ahead, we currently anticipate our total consolidated revenues for the second quarter to improve both sequentially and year-over-year, followed by a more-pronounced uptake starting in the third quarter as we increase our AI deployments and installation.

In total, we expect to generate consolidated revenue in excess of $120 million with KanKan's artificial intelligence platform as the primary driver of the growth as its revenue rapidly increases during the course of 2018.

Our outlook for 2018 reflects the solid progress we're making in driving adoption and deployment of our AI technology across multiple sectors in China and Southeast Asia as well as our ongoing success in driving conversion and transaction revenues at Vegas.com. And then a few housekeeping items I just wanted to briefly discuss.

Given the confusion on the last call regarding on warrant liability, it is worth noting what transpired this quarter.

As you can see in the balance sheet in the press release, Remark's warrant liability decreased from $89 million at year-end to roughly $21 million at March 31, which leaves to my next point that investors often ask regarding the number of our outstanding shares and potential effect that our outstanding options and warrants could have on that number.

For context, using this past Friday's closed price of $6.17, if all in the money options and warrants were exercised on a net basis, the number of outstanding shares would only increase by approximately $4.2 million. I will now turn the call over to the operator for our Q&A session. Operator, please go ahead..

[Operator Instructions] Our first question comes from Darren Aftahi from Roth Capital..

Good morning. Thanks for taking my question and best of luck, Doug. It was great to work with you.

Just first on the revenue in the quarter, the $1.2 million, can you just talk about the mix of what was financial services versus other verticals?.

Hi, Darren. It's Shing.

How are you?.

Good..

For the first quarter, I would say the focus is primarily the FinTech revenue. For the second, third and fourth quarter is when you'll see the revenue recognition from our other businesses..

Got it. We're sort of thinking about that $50 million in the ramp. I appreciate things will go up in the second quarter and then kind of ramp significantly in the second half of the year.

But can you just give us kind of a directional understanding of how much revenue you expect to generate in the first half of the year? And then some of these larger deployments in retail, where are you in terms of being ready to kind of implement? Just any kind of color on that would be helpful..

Sure. I think first of all, it's important to note that these companies that we've been able to cross the finish line in getting these deals signed, AI is something new, really true to everyone. This happened over the last couple of years.

When you're deploying the AI technology across such a large base, careful strategy in terms of how we implement it, the process of doing this is very important. So we believe that that will begin by the second quarter and that's when you'll first begin to test in a subsection of all the stores.

Just as I would say we are booked to a test under 5% of the base and then as we begin to show the success of the eventual roll out into the third and fourth quarter..

Great. And maybe one for Doug. Just given the EBITDA burn, with the cash drawn sequentially was pretty flat.

Was there anything in terms of cash inflow in the quarter that maybe didn't call out? And then the lease termination fee, can you explain what that was related to?.

Absolutely, Darren. The first part was there any cash inflow that came in, given that there were some cash burn and then the second piece was regarding the lease termination.

On the first piece, there was no cash inflow other than the normal timing of our cash flow and you'll see, our 10-Q should be filed after the market today and you'll be able to see that in the 10-Q clearly, that there was no additional cash inflow in the quarter from raises or anything of that nature.

Does that answer the first part of your question?.

Yes, Doug..

Okay. And then in the lease termination as many of you know and some of you have actually been out to the original Vegas.com site out by Green Valley. The lease actually took a fact when we sublet the factors out the sectors out this quarter and you're hit with a one-time charge where we no longer use that space.

The $2.3 million is the loss that we'll take, but it is a one-time charge. But you take it all within a given quarter. Now in cash..

Got it. That's fair. Two more for me.

What was the comment or statement EBITDA in the quarter? And then Shing, could you give us just a sense of finding on the new CFO search?.

Shing, I'm going to go first. Travel entertainment sector, and again, this will be in our Q later on was $167,000 which was the EBITDA for the first quarter. What you'll also note is though when the Q comes out later today, is that bookings for future dates are up significantly.

As Shing mentioned on a call, March is one of the best months we've ever had. But the bookings were equivalently through April, May and June are also quite strong so we have deferred revenue..

Darren, as far as your question, I think clearly we're going to look to bring on and then recruit the best candidate as fast as possible. But to finding a replacement in terms of as a CFO, in terms of our next stage of growth, doing business in the U.S.

and in China across the multitude of different industries is not the easiest search out there, but we're certainly moving as fast as possible and we expect to find somebody over the course of the next few months..

Great. Thank you..

Our next question comes from George Kafkarkou who is a Private Investor..

Thank you for taking my calls on.

Can you hear me?.

Yes..

Yes. Hey, George..

Okay, great. Doug, thanks for your good work and best of luck in the future. Guys, there was an article fairly recently published, whereby the author claimed to have spoken to I think it was Doug, about jewel listing in the Asian market.

Can you guys talk to that on what you guys think of jewel listing? Is that a possibility that you guys are researching?.

George, this is Shing. Clearly, the markets in Asia, given that the valuations are one, significantly higher; and number two, more importantly there's a much greater understanding and appreciation for AI companies. That's certainly a route that we're looking at.

I think there has been a number of rules that have relaxed in terms of listing in Hong Kong and in mainland China. So when the right time and opportunity comes up, we are certainly looking to take advantage of that. But yes, it's something that we are looking at very seriously..

Okay, thank you.

Has that required a lot of internal administrative work to prepare for that? Has is that work being done?.

That requires I think right now, as in general, we look at all the possibilities, but the time, the type, the actual constant rules hasn't exactly been established yet on the exchanges. It's hard for us to move in any particular direction and so that has been established..

Okay. One final question. In the past, Shing, you've mentioned that -- I think I can almost quote verbatim that [ph] -- the only thing that's not sacred is KanKan.

Does that mean Vegas.com with its growing strength and improvement? Is that an asset that you guys will consider releasing on the right terms going forward if the conditions were conducive?.

If the conditions are right, I think we'd look at internally it's our fiduciary duty to look at everything. The Vegas business is very solid and growing pretty fast right now. If the right opportunity exist, we'll certainly take advantage of that..

Okay, guys..

And George if you....

Go ahead..

George, I just wanted to add just one little piece. Structurally, our VIE structure was set up for a possible listing in mind. I'm not sure if that was where you're going forward before, but I wanted to make sure that that was noted..

Yes. It's not unreasonable for me to take away, but structurally, we'll set this question of timing now and conditions being appropriate. Okay, good. Thanks for taking my call, guys..

Yes, George..

[Operator Instructions] Our next question comes from Ron Nash from Nash Partners..

Good morning. As George referred to recently, a number of AI companies have taken listings on the Hong Kong Exchange.

Do you need and have you compared the number of these companies that are in the AI field?.

Hi, Ron. I would look at it from a couple of different ways. First of all is when the company says that they're AI, you obviously got to kind of understand what kind of AI that they do. Most of the companies that we've seen operating in China are primarily either FinTech-based or just facial recognition-based.

And many of those companies have invested and lost a lot of money over the last couple of years. Our stock form I think is very different in the sense that we do much more than just facial recognition.

The ability to understand what's happening and to be the cognitive understanding of what's happening in a particular video feed, or a picture, or what's happening real time is really what's giving us a what we believe an edge versus our competitors.

We certainly feel that number one, we're doing more, we're doing it with a lot less money invested and the third part is I think the more important, is that results are best..

Thank you..

[Operator Instructions] Our next question comes from Paul [ph], who is a private investor..

Yes. Thanks for taking my call. My question is since you are focusing heavily on AI.

I was curious whether you will be part of representing the AI World Conference which will happen in Boston in December this year?.

I'm sorry. I just heard then December and AI conference.

Are you referring to the World Internet Conference that we presented last December and whether we're pursuing that this year?.

This year there is an AI World conference and expo which will be held in Boston in December this year..

Right now, we don't have any plans on participating in that expo..

Okay, thank you..

Thank you..

We will now take a follow-up question from George Kafkarkou who is a private investor..

Hey guys. I'm sorry, I think I hit the wrong key. I've already asked my questions. But as I'm on, can I ask one question? Are you guys considering more investments in the company like the CP Group did? I can't remember exactly when the CP Group -- I think they invested $10 million at a $12 valuation.

Will you guys continue looking at investments like that?.

George, I think that a number of different groups like CP Group would be. Now, if we are able to come to an agreement, we'll certainly welcome an investment from a group that is able to bring us the type of pipeline of deals just as CP has done. That has been a great partnership and a strategic partnership so far.

So we are certainly open to discussions with other groups in the future..

Thank you..

This concludes today's Q&A session. I'd now like to turn the call back over to management for any further or closing remarks..

Thank you very much for joining the call and we look forward to updating you on the next conference call..

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