Shing Tao - Chairman & CEO Alison Davidson - interim CFO.

Darren Aftahi - ROTH Capital George Kafkarkou - Private Investor.

Good morning, and welcome to Remark Holdings Second Quarter 2018 Earnings Conference Call. My name is [Rasina] and I will be your operator this morning. Joining us for today's presentation are Remark Holding's Chairman and CEO, Shing Tao; and interim CFO, Alison Davidson.

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 a 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 the Chairman and CEO, Shing Tao. Please go ahead, sir..

Thank you, Operator. Good morning from Shanghai and thank you for joining us today. After the market opened, we issued a press release announcing our results for the second quarter ended June 30, 2018. We generated during the quarter with solid contributions from both our AI and Vegas.com businesses.

Revenue from our AI businesses grew more than three-fold over with prior year quarter and was more than four times in the first half of the year as compared to 2017. We’re continuing to make progress in working with our clients to begin initial deployment of our AI technology across multiple sectors in China and Southeast Asia.

We remain on plan and execute our strategy and rolling out our portfolio of AI solutions. Overall given the size and breadth of the AI contracts we secured and our deployment efforts underway, we remain well positioned to accelerate our revenue growth in the months ahead.

As these contracts move to the deployment stage, we will begin to gradually record both upfront fees and ongoing licensing fees, with each contract having differing fee arrangements based on the product deployed.

As previously noted depending on the sector it can take three to nine months for deployment of our product to commence following the signing of an agreement with a client. To recap, our primary goal is to efficiently leverage our advanced AI technology to enable a broad range of application across multiple sectors.

Our business plan is designed to support a stream of recurring predictable and growing revenues as the products are installed. The KanKan platform is unique and that it supports development and launch a very accessible, customizable and easy to install solution at a reasonable price points for our client.

In turn we benefit from recurring revenue streams and low capital cost. Now let me briefly walk you through our progress in executing against several contracts during the second quarter beginning with our retail business.

We’re continuing to actively work with client to lay the groundwork to deploy our AI products in a range of retail location including fresh food stores, supermarket, convenience stores, super brand malls and fast-food chain.

These deals which cover a total of 20,000 locations vary in terms of contractual arrangement with each including an upfront fee upon location deployment, as well as ongoing licensing fees or a revenue share model throughout the term. We also additionally commenced the rollout of KanKan Smart Eyes for Retail our first SaaS-based AI retail product.

Through our local partners, KanKan has secured agreements for the product in more than 10,000 stores in Shanghai, China. The product is off to a solid start and we believe we can grow our initial base of stores to over 25,000 in 2019 with a long-term installation goal for as of many as 500,000 stores.

Designed for small and medium-sized retail environments, our SaaS solution applies advanced computer-vision and data-analysis technologies to provide store operators with powerful insights, enabling them to make quicker decisions that better serve the customers, supporting more informed sales opportunities.

In addition, during the quarter we began working C.P. Lotus Corporation, one of the leading retailers in China to develop and install KanKan in their specialty supermarket. We are planning to launch the first Lotus total type store with our solution in September.

Through these initiatives, our KanKan technology is being utilized to deliver a simple and easy-to-install solution that provides retail businesses with accurate insight with the goal of supporting better shopping experiences for their customers with much lower cost and higher conversion.

Our FinTech business continues to deliver solid results in the quarter and we are in the process of developing a third product focus on loans for parking spots which represents a sizable opportunity given the density of China's urban market.

The temporary shutdown of China’s lending market due to an industry-wide regulatory of continued during the quarter. But we are starting to see signs that liquidity is beginning to loosen as we approach September.

We’re continuing to monitor the audit process and regulatory implication, determine the full impact on our FinTech operation with the goal of making the necessary adjustments to our infrastructure and product approach. The audit led to a reduction in the number of P-to-P lenders from approximately 5,000 to roughly 1,500.

Those lenders that have survived in the process will benefit from a more stable, fair and professional lending market. We’ve built our technology from scratch and have the ability to customize our solution to adapt to change and provide value to our major customers.

Given our premier banking client and proven credit analysis product, we expect to transition this unit to deliver an updated solution the best that the current state of the market in addition to rolling out of parking related product.

In the public safety and surveillance market, we’re continuing to work with our client in executing against a number of agreements, spanning construction site, college campuses, restaurant and traffic monitoring and enforcement.

During the second quarter, we also moved forward in executing against our agreement with our client in the food safety arena. We plan to deploy our solution in as many as 10,000 restaurants. Our revenue model in this segment includes a fixed implementation fee based on the number of cameras installed plus an annual service fee for each site.

As these products are deployed and begin to scale, we expect to see substantial revenue growth over time.

Turning to the education market, since our last call we've made substantial progress in executing against our project for Shanghai Education Resource Center an affiliate of Shanghai Open University which is one of the largest online educational institutions in China.

The University teaches more than 70,000 students per year and maintains approximately 1 million hours of online product content right it can distribute to various online channel.

Initially announced at the start of the year, we executed on our plan and worked with Shanghai Education Software Development Corporation to develop a multimedia search platform that employees KanKan AI technology to actually search for and retrieve structured information from a vast universe of unstructured sources spanning digital library, video-on-demand, live broadcast, digital TV, video surveillance and Internet advertising.

The search platform represents an innovative solution for the education industry, fulfilling a need for faster more convenient and more accurate active for a vast data sources. It enables teamwork access to diverse and growing universe of data sources through a highly affected easy to use navigation tool.

The platform and our speed in delivering it demonstrates the power of KanKan's AI technology and providing highly accurate and accessible solutions to complex problems.

In the entertainment market we also recently announced our partnership with Allinone otherwise known as AIO, a leading big data marketing and consulting company serving China's film market, to support the industry's first and only full-process system covering data analysis, forecasting and consulting on film performance from pre-release to post-release across China's multi-billion film market.

AIO has been authorized by China's state administration of radio and television otherwise known as SART to create a data analysis product using the root level data at China’s film market.

AIO chose to partner with us over notable competition to utilize our KanKan AI technology to support design and build-out of the data processing and analytics system. As part of the partnership, we also invested 1 million in debenture.

The Allinone solution is being developed to address the highly inefficient film forecasting environment in China which has resulted in elevated level of risk for all participants.

The AI solution will deliver a comprehensive snapshot for film sentiment and performance standing preproduction, prescreening surveys and public opinion tracking, as well as box office tracking and reporting.

In addition to tracking down accurate data from multiple sources combined with myriads of historical data, the solution will affect anomalies and box office fraud. We're excited about this partnership and the importance solution we to bring to China’s inefficient movie market.

Overall the breadth and potential scale of the contract we've entered into with major corporations and organization combined with the unique position we’re building as a provider of highly accessible and customizable AI product confirms the value of the enterprise upgrade is not reflected in our share price.

Especially when you consider the substantial valuation some of our private peers in China have attracted. Our growth trajectory is driven organic and reflects the strong execution of our business plan and our ability to grow without relying on acquisition and the related expense of doing so.

Turning to Vegas.com we continue to substantially improve our financial and most operating metrics as reflected in our strong second quarter performance. We’re capitalizing on the improvements we made to the site in the past year to elevate the customer experience and accelerate our revenue growth.

Vegas.com is a premier destination that consistently attracts the growing audience by increasing to utilize the site to purchase show ticket and hotel rooms and make reservations.

Given that recent transaction multiples in the ticketing space have been based on a range of 4 to 5 times trailing 12 months revenue we believe this asset is substantially undervalued based on our stock price.

Further we believe to the Supreme Court's recent ruling with regard to legalizing online sport betting at the state level has only increased the overall value and growth potential in vegas.com which is not reflected in our share price.

In summary, we’re continuing to make solid progress in executing on multiple sectors as we work with our significant and well-respected group of client to begin deploying our AI technology across multiple sectors in China and Southeast Asia.

KanKan has stake out a strong market position and we’re laying the groundwork to deliver substantial growth in the months ahead. I want to emphasize to all of our growth is again and is based on the technology that we built from the ground level.

Defined by rapid deployment low maintenance cost and highly accurate and actionable results we are leveraging the power of KanKan technology to deliver simple solutions to complex problems across multiple sectors. We look forward to continuing to keep you abreast of our strategic progress in the months ahead.

And now before we turn the call over to question, I like to hand the call over to Alison, who will walk us through the financial results for the second quarter..

Thanks Shing, and good afternoon everyone. Turning to our financial results for the quarter ended June 30, 2018 our net revenue for the second quarter of 2018 increased 20% to $20.7 million from $17.3 million in Q2 of last year.

The increase is primarily due to an increase in our KanKan business and an increase in show ticket revenue in our travel and entertainment segment. KanKan contributed $3.4 million to the total revenue in the second quarter of 2018 as compared to 900,000 for the same period in 2017.

Turning to our expenses, our total cost in expense for the second quarter of 2018 was 27.8 million compared to $21.9 million in Q2 of last year. The increase is primarily due to an increase in cost of revenue and payroll cost for our KanKan business and an increase in paid search cost in our travel and entertainment segment.

The increase in total cost and expense partially offset by the increased revenue resulted in a $7 million operating loss for the second quarter of 2018 compared to a 4$.7 million operating loss in the second quarter of last year.

Our net income for the second quarter of 2018 totaled $3.4 million or $0.10 per diluted share this compares to a net loss of $4.3 million or $0.19 per diluted share in Q2 last year.

Net income for the second quarter of 2018 included a $10.1 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 second quarter of 2017 we recorded a $1.8 million gain related to the change in the fair value of the company’s warrant liability during the period. Now turning to our balance sheet. Our cash balance is $7 million with an addition of $11.7 million of restricted cash bringing our combined cash position to $18.7 million at quarter end.

This compares to a combined cash position of $34.3 million at December 31, 2017. Cash increased primarily due to an increase in total expense as we grew our operations in China and engaged in multiple proof-of-concept projects.

The timing of our payments related to elements of working capital and paying security deposits related to our travel and entertainment business.

Shifting gears to our financial outlook for 2018, for the year ending December 31, 2018 we are fine tuning our outlook to reflect the impact of the lending industry regulatory audit and the company's revenue for its FinTech business. We now expect consolidated revenues of approximately 100 million in 2018.

After taking into account the impact of the lending industry regulatory audit, we now expect KanKan to generate approximately $25 million to $30 million in revenue in 2018.

The company’s forecast is directly supported by the agreement it has signed in the retail and workplace in public safety sectors and the actual deployment steps it's currently taking in conjunction with its clients.

We continue to monitor the China lending industry to determine any potential impact on our 2018 forecast and the company is working directly with its large banking clients to adjust and scale its proven AI solution as well as launch its third product covering loans for parking spots.

As the company AI contract moves to deployment stage, the company will begin to report revenue from both upfront fees and ongoing license fees with each contract having different fee arrangement based on the product deployed. I’ll now turn the call over to the operator for Q&A session. Operator, please go ahead..

[Operator Instructions] And we’ll take our first question from Darren Aftahi from ROTH Capital..

Just a few if I may.

First on the $3.4 million in KanKan in the quarter, can you talk about what the mix was between FinTech and non-FinTech?.

$2.2 million was FinTech..

And then that other $1 million or so is that related to lease sale deployment of KanKan AI?.

That was a delivery of a data platform..

Got it..

There was one product delivered to a customer at the end of June, it did not relate to any more sector..

So as we look at the $25 million to $30 million KanKan guidance now, I'm curious how much of that is assume to be FinTech and then what is the mix between say retail, restaurant and perhaps other as kind of mix for the let’s called 21 million cost for the remainder of the year?.

So we were - the way the we’ve done - that we’re looking at AI related revenue will be roughly $15 million to $20 million in revenue and the remainder being FinTech.

We know from what we are seeing going since September as I stated in the kind of just in the previous remarks that things look to be opening up but we’re still monitoring what the new environment may be but where we’re optimistic that things are beginning to turn around but we just want to make sure we know what we’re playing with.

But if things are turning out to what we hear, we think we will able to participate in the recovery and in addition with the new product targeting parking loans, I think it bodes well for us..

And then can you talk about opportunities in the pipeline outside of AsiaPac and I guess where you think KanKan has the best opportunity monetize the best Europe or the U.S.

if any non-AsiaPac opportunities are coming your way?.

Sure absolutely. Yes, I think it’s important to note that we’ve always built KanKan as the global AI is possible. And so the way we’ve trained our AI models and the attraction to the clients is that our data is global, it’s not specific in any particular region.

For me personally I given all the different rules that we seek that come up in Europe, I thought that actually that would be the last reason to begin to adopt AI. And it seems at least from our personal experience so far that might not be the case.

We see Europe as actually the next big kind of region outside of Asia for us to move into, there is a lot of interest in that area. And we think will be able to have some sort of a climb in the - and particularly in the retail industry in Europe towards the end of the year, early first quarter, next year..

Then how did you do sales transition - so, it looks like you guys used I think $14 million or $15 million of cash in the quarter, and now you call that a number of things. I'm curious how much of that was used for proof-of-concept with KanKan? And then I know in July call you had said you would tap into $5 million of the Aspire line.

I'm curious where this stands right now, how much of the Aspire line you've actually tapped and what kind of rough cash balance is going?.

So Darren, I’ll answer the kind of the big picture on that front. The proof-of-concept work we - the pipeline that we have right now is massive. And as you know, any proof-of-concept, as we're going through testing and requires capital.

So, what it's shown going into September, in two weeks away, is that the interest that we're now getting is clearly not even in the - just in the protocols that we've been focusing on. And these are very large scale opportunities that we've found during the testing that our AI models are working very well.

So, a big - I would say a strong portion of that number going on forward will all be used more towards the TOC deployment..

And then just any update on kind of how much of the Aspire line you've tapped?.

$5 million..

Yes, $5 million..

So, it hasn't changed since the July?.

No..

And then just last one from me. I think on the last earnings call, if I'm not mistaken you just talked about asset monetization, I know you shared it probably but can you just talk about any update there. I know you've talked about the trailing ticket platform multiples.

I'm just kind of curious about asset monetization, VDC as a potential opportunity in terms of turning that into cash deposit running it as an operating entity?.

So, I would say in general, the different assets that we have, hasn't been I guess valued or marked-to-market with what you’re seeing in the public and other - I mean the private market and other public companies.

Obviously, as a fiduciary, we need to explore any credible interest in any of the different businesses, but until we see something, very solid, we're not ready to comment on that yet..

[Operator Instructions] And George, your line is open..

Quick question about KanKan deployments for food and safety and all retail. Given the breakdown for Q2, it doesn't appear we've deployed anything in Q2.

Have any begun in July?.

George, the deployment, as you can imagine, are not - there is some type of deal that we find with our clients or multi factor. So, it's not just doing - for example, a simple case of tying facial recognition with the membership database. It's much more than that.

So, I'm sure we'll begin to finish all the different aspects of it, that's when you'll begin to see it in the numbers..

So, are you expecting some deployments of retail and all food safety this fiscal year?.

Yes, absolutely. And as I mentioned, we are already starting up prototype store with Lotus - C.P. Lotus in September and there are - I think a number of foul on opportunities after that..

Right. In prior earnings calls, in prepared remarks, big numbers of locations have been offered in terms of commitments.

Is that still valid for this year or does that span multiple years?.

I would say that would span multiple quarters. We're certainly very excited for the end - until the end of the second half or the third and fourth quarter of this year, and I think as we continue to have success on that lead into next year as well..

One final question.

You guys are confident to meet your - that's due that's coming by the end of September, I think it is the end of September?.

End of September, yes we are..

And that concludes today's question-and-answer session. Mr. Kai-Shing Tao, at this time I will turn it back over to you..

Thank you for taking the time and your interest in Remark. And if you have any questions, please contact our Alison or myself. Thank you..

And that concludes today's conference. Thank you for your participation. You may now disconnect..