Good afternoon, everyone. Welcome to Remark Holdings' First Quarter 2019 Earnings Conference Call. My name is Ebony, and I will be your operator today. Joining us for today's presentation are Remark Holdings' Chairman and CEO, Shing Tao; and Interim CFO, Alison Davidson.
Following their 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 SEC.
Also please note, that 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 an alternative for, the reported financial results as determined in accordance with 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 Chairman and CEO, Shing Tao. Sir, please proceed..
number one, we have expanded our food safety program to a new district within Shanghai and are currently piloting the kitchen monitoring system in Xian, the first major city and link in China as part of the One Belt One Road initiative, two, we are currently completing a few construction safety systems in Beijing and Shenzhen and expect this number to grow significantly in 2019 and the years to come; and three, we are piloting a school safety system in Hangzhou and Beijing and expect to roll out in the near future.
This product helps ensure children safety in matching them with their parents or legal guardian. Facial recognition for children is quite difficult.
However, it's a problem our AI solution has had success in solving; and finally, we're continuing to execute on a major test of our agricultural AI system as it relates to pig farming and targeting the issue of biosafety, especially in the light of the African swine disease.
This viral disease, as you probably have read in the papers, has been catastrophic to not only China's pork industry but now threatens the world.
We expect these testing and deployment activities to continue in early 2019 and beyond as many major companies recognize the validity of our technology and the ability to cost efficiently deliver AI solutions tailored to their need.
Given the scope and diversity of the applications we are pursuing, the stature of the customers we are working with, and our ongoing deployment efforts, we believe we remain well positioned to build on our revenue growth in the months ahead.
Finally, we continue to believe there is significant untapped value in our digital media assets, principally a minority ownership in Sharecare. We believe this stake will ultimately be monetized to the benefit of our shareholders. And now, let me turn the call over to Alison for the financial review..
Thank you, Shing, and good afternoon, everyone. Turning to our financial results for the first quarter ended March 31, 2019. Our revenue for the first quarter of 2019 was approximately $19.5 million compared to $16.7 million last year.
The increase was driven by a $3.4 million increase in revenue resulting from transaction growth in the Travel & Entertainment segment, offset by a $0.6 million decrease in revenue from our other business units. Our Technology & Data Intelligence segment contributed $0.4 million from the deployment of our AI-based retail and safety solution.
A further $0.9 million was delivered for our AI-based safety and risk management solution, but the revenue recognition will be deferred until such time as we collect the amounts due from the customer. We will begin recognizing this revenue in the second quarter of 2019.
Turning to our expenses; our total cost and expense for the first quarter of 2019 was $25.3 million compared to $37.9 million in 2018, driven primarily by a reduction in stock-based compensation expense to $0.3 million from $11.6 million in 2018, which resulted because the prior year period included an $11.6 million stock option grant to our CEO.
First quarter of 2019 had no individual grants of a similar scale. Our cost and expense for the first quarter of 2018 also included $2.3 million of rent expense related to a liability we recorded when we abandoned certain leased property prior to the end of the lease contract.
The decreases in stock-based compensation expense and rent expense at the corporate level were partially offset by an increase of $0.8 million in paid search marketing cost in our Travel & Entertainment segment, resulting from the competitive nature of the paid search marketplace and by an increase of $0.5 million in stock-based compensation in our Technology & Data Intelligence segment as a result of changes in a liability related to awards we granted to employees in China.
Operating loss was $5.8 million compared to $21.2 million due to the combined effect of the revenue increase and decrease in total cost and expense. Net loss was $8.9 million or $0.23 per diluted share compared to a net loss of $14 million or $0.43 per diluted share.
Net loss for the first quarter of 2019 included a noncash loss of $1.4 million related to a change in the fair value of our warrant liability, which occurred due to the increase in our stock price during the period.
The same period of 2018 included a noncash gain of $8.6 million related to a change in the fair value of our warrant liability, which occurred due to the decrease in our stock price during that period.
Now turning to the balance sheet; our cash balance is $16.5 million with an additional $11.2 million of restricted cash, bringing our combined cash position to $27.7 million at quarter end. This compares to a total combined cash position of $25.5 million at December 31, 2018.
Cash increased primarily due to timing of payments related to elements of working capital. As discussed in our last call, on March 19, we announced our agreement to sell Vegas.com to VDC-MGG Holdings LLC, an affiliate of our senior lending group, for an anticipated enterprise value of approximately $45 million.
The cash proceeds of the transaction will be used to pay amounts due to our senior lenders, leaving only approximately $10 million of remaining debt owed to the senior lenders. The transaction remains subject to certain closing conditions, including approval of the transaction by our stockholders.
We will hold a special meeting of stockholders to obtain their approval for the transaction on May 14. The closing of the transaction is expected to take place during this second quarter. As part of our agreement to sell Vegas.com, our lenders have agreed to forbear from taking enforcement actions against us through up to June 4, 2019.
Also, in connection with our agreement to sell Vegas.com, we are in discussions with our lenders regarding an amendment to the financing agreement anticipated to be entered into as the closing of the Vegas.com sale transaction. I will now turn the call over to the operator for the Q&A session..
[Operator Instructions] We will take our first question from Darren Aftahi with ROTH Capital Partners..
This is Dillon [ph] on for Darren. First, could you talk a little bit about what you're seeing with your AI product rollout? I know there is a lot of moving parts in a lot of different verticals.
Where are you seeing some of the most traction that's giving you some confidence going forward? And with some of those rollouts of the various kiosks in 2019, what's sort of the time frame that you expect to start seeing those not only ramp but actually book the revenue? And then I have a few follow-ups..
Yes. Dillon, couple things, and just let me know where I'm -- if I don't answer your question. We're -- clearly, China is the undisputed kind of leader, right, because not only do they accept AI but many of the companies have already set aside a large budget for further deployment. So we're seeing a very strong growth in China as anticipated.
Southeast Asia is an area that we see will be a strong growth area for us. And I think primarily is the countries down there don't have the internal capability to create AI products, so they are looking for AI solutions primarily that are being implemented in China, where they could use it for their own business.
So as we talked about in retail as it relates to smart communities, as it relates to construction safety, these are all needs that are global needs, but certainly in Southeast Asia, where most people -- they argue is one of the fastest-growing regions in the world.
And with the U.S, as we mentioned in the last quarter's call, we're really now beginning to see much more aggressive movements of companies beginning to have the budget to actually implement the AI solution. In the past, it would be a lot of talk but not a lot of action.
And certainly with the acquisition of the AI company that McDonald's made, this is now beginning to, I think, create the spark for other large companies to follow. As it relates to the kiosks; we took the conservative approach. We expect the rest of the deployment to happen in 2019.
As we finish the deployment, that's when we recognize it as deferred revenue, but when we recognize it as revenue, it's when, we took the conservative approach, as when we collected -- when we collect the cash..
Got it.
And then, I guess, as a follow-up; which of the products are -- do you think you are gaining the most traction in? Are you seeing a lot more in some of the supermarket in retail or on the safety side as far as ramping goes?.
Yes. I think there is -- all of them we're experiencing very strong inbound demand. This is the products that we are offering, our solutions that everybody is looking for in their own respective industry. So there is not really one industry or another, but I think every industry has their need for AI.
Everyone's trying to cut costs while getting higher profitability, while growing their top line. And as far as I think, most of the companies agree AI is the only way to go to achieving that..
Got it.
And then compared to 1Q of '18, was that -- the AI revenue mostly FinTech I assume?.
That's correct..
[Operator Instructions] We'll move next to [indiscernible]..
As I understand it -- I'm trying to understand the quarters are clearly very lumpy for Remark AI. Q4, the total bookings, if you like, was around $7.5 million, of which the company recognized $2.7 million, and $4.7 million was deferred to Q2 onwards.
Q1, it sounds like it's $1.3 million with $0.4 million recognized and $0.9 million deferred to Q2 and onwards. So if I look at the, if you like, at bookings, as it were, Q4 was $7.5 million, and Q1 was $1.3 million. And clearly, from the call, you guys give the clear impression that the volume activity and deployment activity is increasing.
So how should we think about the lumpiness giving the increase in activity and customer engagement?.
George, thanks for your question. I think with the different projects that we -- as we receive, the -- when we start talking about bookings and revenue recognition, we obviously have to complete it. During that period, we -- a lot of the -- I think for Q1, you generally have a little bit of a slower ramp-up due to Chinese New Year.
So a lot of the projects that we begin to see happen in Q2 and Q3, so there is always that process of after you signing the contract -- the actual -- and then there is the actual deployment. And once that's done, well, that's when we'll be able to recognize it as deferred revenue.
And then when we collect the cash, we can recognize it as proper revenue..
And I accept the company is not offering guidance necessarily, but should one infer, therefore, now the Chinese New Year has come and gone, I mean, and with increased activity, Q2, 3, Q4 revenues will be a ramp from -- clearly from Q1 and maybe even Q4, and even Q4 maybe?.
I think it's -- we're comfortable that there will be a revenue ramp-up through the course of 2019..
Okay. So in Q -- in 2018, I can't remember what the total revenue was for AI, but we should grow from there. Okay.
The pharmacy deal, was that -- what were the characteristics? Was that 40 million customers, did you say?.
The pharmacy that....
Yes. I missed the numbers on the pharmacy deal..
40 million patients, meaning, a person that's using this, using our kiosk..
Okay.
And without obviously showing the detailed numbers, how do the economics work in a deal like that?.
Generally, it's a hardware and software deal. The client pays us. In this case, it would be the pharmacy company. And as we've always said that it's very important for us to establish our position and then, over the course of the following years, begin to charge more for the different software services that we provide as we show more value with that..
Okay, interesting. And on the last earnings calls, you spoke about some activity in the United States. And I think you mentioned that your -- the company was in, if I recall properly, negotiations with some American fast food chains, I think.
Can you talk to the status of that? Is that still in play?.
That still in play, and once we conclude that deal, we'll make a formal announcement on that..
And more generally, I mean, there appears to be no shortage of interest in the AI solution you guys have. And over the last 18 months or so or two years, we've mentioned group deals with CP Group, with 7-Eleven, the Beijing Hualian Group with, I don't know, the China Energy Company and many more.
Have any of those big deals -- are they still in play? Have we lost any of those big deals?.
We haven't lost any of those deals, but the problem has been the rollout plan and the pricing, right? So it's -- we're not just going to -- right now, there are plenty of opportunities where the budgets are high where there is a margin for us to make money.
And we're not just going to chase revenue for the sake of chasing revenue, and that's just spinning your wheels. So that's not our plan. So there are plenty of other companies out there that the projects are immediate and profitable for us..
Okay, got it. And one final one. The Allinone entertainment deal. I think we vested in the company. They standardized on Remark AI technologies.
Can you give a status on that, if there is one?.
I'm sorry, you just didn't come in correctly. Just repeat that question one more time..
Yes. The company announced the deal with Allinone, whereby the company invested I think $1 million in Allinone, and they standardized on Remark AI. AI, I think, is the abbreviation.
Can you give a status of that?.
Yes. So our cash investment is actually $500,000 so far. We have been working with them to establish our foray into the entertainment industry in China and that can -- there will be some updates to come over the course of the next few months on that..
And there are no further telephone questions at this time. I'd like to turn the conference back over to management for any additional or closing remarks. Again, I'd like to turn the conference back over to management for any additional or closing remarks..
Thank you for your interest in Remark Holdings. As always, if you have any questions, please feel free to reach out to myself or Alison. Thanks..
This does conclude today's conference. Thank you for your participation. You may now disconnect..