Welcome to the Remark Holdings' Third Quarter 2019 Financial Results Conference Call. My name is James, and I will be the operator today and will handle the Q&A. As a reminder, this conference is being recorded. Now, I would like to turn the call over to Brian Harvey. .

Thank you, James. Good afternoon everyone and welcome to Remark Holdings’ third quarter 2019 financial results conference call. I am Brian Harvey, Director of Capital Markets and Investor Relations for Remark. On the call with me this afternoon is, Kai-Shing Tao, Remark’s Chairman and Chief Executive Officer.

In just a moment, I will recap our third quarter 2019 financial results and Mr. Tao will then provide an update on our business. Following his remarks, we will open the call to questions. I would like to take this opportunity to remind you that some of the statements made today may contain 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 its full filing 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 the financial performance of these 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 would now like to provide a brief overview of our financial results for the third quarter ended September 30, 2019.

Revenue from continuing operations for the third quarter of 2019 was $686,000, down from $1.8 million during the comparable period of last year.

Regulatory changes in China's financial services market caused us to discontinue our FinTech business in 2018 resulting in no FinTech revenue this year compared to reporting $363,000 of FinTech revenue in the last year’s third quarter.

Our advertising and other revenue decreased approximately $600,000 when compared to the third quarter of 2018, which was almost entirely a decline in revenue from our Remark Entertainment business due to contracts that ended in the prior year. Our AI-based product and services revenue showed a slight decline of approximately $100,000.

Revenue growth was constrained primarily by working capital shortfalls that prevented us from purchasing equipment that would have led to significantly greater revenue.

As this is not a demand issue, we believe that such shortfalls are temporary in nature and will be reflected in further future revenue as we actively work to monetize our investment in share care, while we explore additional financing options with working capital partners to finance our equipment purchases.

Total cost and expense for the third quarter of 2019 was $5 million, a decrease from the $8.1 million reported in the third quarter of 2018.

The decrease is primarily attributable to decreases in cost of sales as a result of the discontinuation of the FinTech services, headcount reductions and the timing on vesting of stock options awarded under our equity incentive plans.

Operating loss declined to $4.3 million in the third quarter of 2019 from $6.4 million commensurate with the cost and expense declines.

During the three months ended September 30 2019, adjusted EBITDA was a negative $4 million from continuing operations, including losses from forgiveness on intercompany balances as compared to an adjusted EBITDA loss of $5.1 million during the three months ended September 30, 2018.

Our net loss from continuing operations totaled $4.9 million or $0.11 per diluted share in the third quarter ended September 30, 2019, compared to a net loss from continuing operations of $3.8 million, or $0.08 per diluted share in the comparable period a year ago.

At September 30, 2019, the cash and cash equivalents balance was $656,000, compared to a cash position of $1.4 million at December 31, 2018. Cash decrease is primarily due to ongoing operating losses that were offset by the issuance of common stock share. I would now like to turn the call over to Remark’s CEO Mr.

Tao, so he can provide additional color on Remark’s business.

Shing?.

Thank you, Brian, and thank you to everyone joining us on this afternoon’s call. The third quarter of 2019 saw Remark Holdings continuing its transformation into a pure play artificial intelligence, and data intelligence platform.

We successfully partnered with Hanvon Technology, a publicly-listed Chinese systems integrator to win the master retail contract to transform China Mobile's 17,800 corporate stores into smart retail stores. The first phase of this partnership with Hanvon is expected to bring $50 million of revenue to the Company over the three-year deployment period.

This contract took over 18 months to win as our technology needed to be tested and proven for both our dual metrics with increased sales and cost savings. As this is new for both parties, we are creating the playbook as we deploy and implement real-time making it more important that we set aside the time to make sure we do it right.

For perspective, China Mobile is the largest mobile telecommunications corporation by market capitalization in the world, trading on both the New York Stock Exchange and Hong Kong Exchange and it’s the world’s largest mobile network operator by total number of subscribers with over 900 million subscribers at last estimate, nearly triple the number of AT&T and Verizon’s subscribers combined.

Remark’s AI terminal is the first point of contact for customers entering a China Mobile store where customer information is captured and relayed to the in-house sales staff.

VIP customers are immediately identified along with personalized recommendations, based upon prior visits, purchase history, which allows the staff to directly service the customer with their individualized requirements, increasing sales conversions, while cutting service costs.

Our proprietary e-map highlights where customers are gravitating to allowing for optimal product placements. Our store manager dashboard summarizes store activities for managers so that they can understand the customer flow in metrics behind daily sales numbers.

We have uploaded a video of what a smart China Mobile retail will look like upon conversion to our YouTube Channel Remark AI one word. In addition, we have recently won a contract with a bank to design and implement the traditional bank branches into smart branches.

The financial institution sector is exciting for us as financial institutions have actively set aside allocated budget for AI spending as they are focused solely on cost savings and return on investment provided by our AI platform. Again, please refer to our YouTube channel view this implementation.

Design and deployments on this project are expected early in 2020 and discussions are underway with several additional large Chinese banks. We continue to grow our urban lifecycle business by expanding on our school safety and attendance management system.

Parents are willing to spend money to give their students an edge in the competition for higher education. Our AI platform automates the attendance record-keeping of students while providing access control to restricted areas.

Parents are able to authorize guardians who can remove their child from the campus while communicating with their children via a private social channel.

During the quarter, KanKan AI School Solutions teamed with Tongyue’s recent launch of its Kindergarten Medical Robot, which is a simple version of the health robot in the movie Big Hero 6, which identifies the student’s health condition, weight, height and body temperature within 10 seconds to determine whether student is suspected of contracting hand, foot, and mouth disease or other potentially infectious diseases.

Our AI robot replaces the previously time-consuming process of a medical professional individually measuring each student’s health metrics. Initial plans are to launch in Hangzhou with 30 kindergartens representing 12,000 students with a longer term goal to deploy over 500 kindergartens in the Hangzhou province representing 200,000 students.

As part of our agricultural effort, a year ago, we started working with our partner CP Group, the world’s largest animal feed producer and largest hog producer in China on ways to promote biosafety on farm. It took a year of development to get it right and now we are ready for the initial deployment at a farm with over 1 million pigs.

African swine disease has caused farmers to decimated nearly 30% of their swine livestock. Our solution monitors people working on the farms, health of the livestock, cleanliness of the property and provides updated status on the pigs including elevated temperatures, which could be a sign of disease in that station.

With the high profile win of China Mobile, this has allowed us to pursue additional opportunities, similar opportunities in Japan, Southeast Asia, and the United States. In light of this, we recently hired a senior project manager to oversee the roll up of our U.S. business.

We are currently in a paid POC test with a hospitality management company, as well as an urban shopping center. It is important to note that what we have built over the last few years is a platform with scalability. We will not have to hire additional workforce to handle all this new deal flow.

Brian and I receive a lot of calls and questions about our previously discussed plans for the monetization of our Sharecare ownership. As of our last financial results conference call, we have identified several potential buyers for all or a portion of our investment in Sharecare.

Since our ownership stake includes board rights, per our shareholders’ agreement, Sharecare’s Board has the right of first refusal and must approve any transaction.

Recent developments at Sharecare, which include a strategic investment led by Quest Diagnostics, a partnership with Walmart to open up health clinics and most recently, an investment from Aflac Corporate Ventures, continues to build upon the value that has been created.

Additionally, these events and the recent progress made by other digital healthcare companies like Livongo and Health Catalyst have brought attention to Sharecare. As a result, we are receiving new requests and indications of interest regarding our ownership stake.

We are actively working with both Sharecare and interested parties to facilitate the due diligence necessary for timely monetization transactions and we will update shareholders as soon as we can. The other question we get has to do with the progress on hiring a new CFO.

Three candidates have been identified and we are working to finalize a deal with one. As soon as we come to an agreement, we will be sure to issue a press release to let everyone know. In the interim, our financial operations continue to run smoothly.

I continue to believe Remark Holdings provides investors with both value due to our stake in Sharecare and optionality based on the on the growth opportunities in AI that are in front of us. With that, I'd like to turn the call back to Brian..

Thank you, Shing. James, we’d like to start the queue process for taking questions and answers. .

[Operator Instructions] And we'll take our first question today from Darren Aftahi with Roth Capital Partners. .

Hey guys. Good afternoon and thanks for taking my questions. Just couple if I may, Shing, I think you said in the press release it was quoted that the Sharecare monetization is close. I know the last time on the call when you said 6 to 12 weeks, I appreciate this is in a perfect sign.

Is this something you feel like you will have wrapped up by end of this fiscal year?.

Yes, yes. I mean, we - I have every confidence in doing that. We need to do that. The – when we – just to give a little bit more color, when we had our last call, we had already identified a buyer for a portion of our stake. With the recent developments as I just mentioned in my remarks, it brought on a number of new interest.

We needed to vet out the new interest as well. And with that, we are now past that stage and looking to finalize the monetization event. So, it’s – yes, so there is a process moving forward..

Great.

On the Hanvon deal with China Mobile, can you kind of explain what exactly your role will be? How you are going to get paid? When this is going to be implemented? Is this going to be kind of a staged rollout of 100 stores, 1000 stores, what have you? And then, I think as a derivative of that question, you say the first sort of days of a $50 million kind of rollout, I am curious if you could expand on – if there is more to this deal beyond just the smart terminal?.

Yes, I mean, the smart terminal, as we said was just the first phase. I think, as you can imagine, when you are transforming, these guys have a large footprint and as you are making them into a smart retail store, there is a lot of different, I guess, elements that you need to do to change it. So, we are kind of just at the first step.

I don’t think as we win kind of each step along the way, we’ll certainly issue a press release to talk about it. Right now, probably isn’t the right time. But I would say, it’s in transforming an old style store into a smart retail. There are about ten different steps that are hard to make it most efficient. So, that’s a lot of opportunity for us.

As it relates to Hanvon right now, they’ve been a great partner to us. And they brought us in on this deal frankly because they didn’t – they were looking for a technology partner that had the sort of the skill sets that we brought to the table.

There was – after we launched the live store with a CP Lotus back in September and it – it was able to convince the senior management that we were the right partner. That was back towards the fourth quarter of last year. It took a number of months this year to basically create the right product for what they need for their stores.

And now, we are moving right along. Having said that, this is not even after we sign the contract. This is not something that you flip the switch. It still takes very careful planning to deploy across such a wide base. We are in about over 100 stores right now and we are looking to certainly increase that and move faster.

Certainly, China Mobile wants us to move fast as well, and - but we first need to make sure that we get the first few steps right, first. .

Great.

So, as you scale this, is there anything on your end that would capital constrain you, i.e., do you need implementation personnel that you’d be on the hook forward is it something where Hanvon, yourselves and China Mobile are kind of all committing to? I guess that another way, is your balance sheet limiting your ability to scale a transaction like this?.

It definitely affects us. So having said that, we are in talks with different groups to help us with our working capital situation. They do working capital financing. So, even after we monetize our Sharecare stake, we will be still going down this path because it is kind of a win-win for both sides. .

But I – use - just last.

I am sorry, what I was going to say was just to be clear, of course it definitely has an effect on us certainly in our first phase because what we are selling to China Mobile is a integrated product of both hardware and software. .

Got it. And then just last one on that.

Is it going to be a recurring component to the terminal initially? Or will there be a 12-month lag? Or this is a hardware and software sale and then 12 months later, there is a recurring fees going forward?.

Yes, we expect that it will be a 12-month lag. We expect to charge the software services after the first year. .

Got it.

And then just last one from me, how much common stock have you raised in the quarter or issued?.

That’s going to be – yes, we raised a little bit of money from a very large investment fund. And that would be detailed in the Q after the call. .

Great. Thank you. .

Thank you, Darren. .

Next we will hear from George [Indiscernible] a private investor. One moment..

Hi, guys. Thank you for taking my call. .

Thanks, George. .

Couple of questions.

Shing, from your comments about Sharecare, it sounds like, I want to be sure I heard this right, because of the increased interest, because of the increased activity and investment in Sharecare, does that mean the value of our asset has increased? And you now expect more from the monetization? That for example, before Walmart going to evolve or before Quest going to evolve? Is that fair to assume?.

No, I don’t like to assume anything, George. I think the way would be, what’s just important is that, we have to follow a process for obviously – for Remark shareholders, but also there is a very specific shareholders agreement that we need to follow, as well.

So, when we were looking to sell our stake, there were certainly with the new investment from the different groups, as well as the Walmart activity, it did bring on a bunch of new interest to our duty to make sure that we know – that each one up, especially if they are serious in their financing set.

So, - but that’s really all I am prepared to say at this point. .

Okay. Very good. Thank you. I think it was in May of this year, we announced a $6 million deal with a pharmacy patient terminal that we will – that was going to be deployed $6 million worth in 2019.

Is that still on track? Or is the lack of our working capital going to defer that?.

That defer that. We had - as we announced that deal, that – okay, just to be clear, while that’s been deferred that will come back. We – as this China Mobile deal began to really catch-up steam and as we are about to cross the finish line, this was such a large deal that we needed to focus all of our resources on winning this particular deal..

Okay..

Because obviously, it’s many times larger. .

Yes, of course, of course. And profitable, I would hope. There was some deferred revenue between $6.8 million and $7 million in Q4 that we collected this fiscal year.

How are we doing against that?.

We – the clients that we work with are very large government companies. So, we don’t see that the payment to be an issue. The timing might be an issue sometimes. So, we don’t see that as a problem moving forward. .

Okay. And the last question. You mentioned just now about working capital. I think you said that, even after we raise money from the sale of the Sharecare assets, be that in part or in whole, we would still work with companies that can provide us or raise us additional working capital. So, do I think that….

Well, I want to be clear - I want to be clear, when I say that even after the Sharecare deal, there are working capital financier versus – I think what you are alluding to is, are we going to raise additional equity for working capital which is no, we would be seeking out working financing options because, there is a very good market for that.

We think that certainly the deal that we have struck with our partners allow us to seek that working capital financing, while choosing profitability and scalability..

Okay. All right. Obviously, the company is under some kind of constraint given the pullback, the working capital need.

How would you describe morale in the team, Shing?.

I mean, we are fighters. I mean, we’ve never – just to be clear, we’ve never had an IPO where we had a lot of cash to work with. Everything has been built really from – right from the bottom and we’ve built that through different twists and turns. But now here we are today.

We’ve – just over the last couple years, we’ve entered a partnership with one of the largest agricultural companies/financial companies. We just won this deal of China Mobile bidding out much larger and better finance companies than we are.

And with all the different troubles that we might have encountered or road blocked, we continue to win deals and so the demand is there definitely for our technology. Now we are – but it’s a battle that we are fighting battles on all fronts and we are fighting each one, one-by-one. .

All right. Thank you so much. Good luck with the Sharecare monetization. Good luck. Thank you. .

Thank you, George. .

Thanks, George. .

[Operator Instructions] We have a question from Barry Fitzgerald with Longbow. .

Good afternoon, Shing. Thanks for taking the question. As it relates to the Sharecare monetization process, I wonder if you wouldn’t mind expanding on it a little further.

Specifically, who would you describe as being in charge of the Sharecare monetization process? Is it’s Sharecare or is it Remark?.

I would answer that by in two ways. The first fashion is, if we were to sell a direct stake in Sharecare, that process would need to be approved by the Sharecare shareholders in terms of the right of first refusal.

If we were to sell the stake in our – in an FPV that holds our interest in Sharecare in terms of the minority interest, then that’s something that we would not have to go through that process. .

Okay, great.

Second question is, how many potential investors that you’ve been speaking with has Sharecare permitted to examine their financial statements thus far?.

I can’t answer that, Barry. Sorry. .

The third question is, does MCC still have a lien on your Sharecare possession?.

Yes, MGG. Yes. .

MGG, excuse me. And, fourth question as it relates to Sharecare is, the method of monetization. At one point, and I think it was on the last call, there had been some discussion about you pursuing a strategy which involved pledging the shares. It’s now strikes me that the conversation today is more oriented around sale of shares.

Can you help us, sort of think about how you are evaluating the two? And what strategy is likely to be the prevailing strategy based on the information that you have available to you at this juncture?.

Yes, I think, right now, certainly – it seems to us that the shareholders do not like the debt on our balance sheet. We certainly do not either.

And so, instead of incurring more debt, even if it’s at better rates or better terms, going through a sale where we can eliminate the debt from our balance sheet is the best course of action, because it allows us to have much more flexibility in other options as well.

Having the debt on our balance sheet, certainly constricts us from doing different things. .

That’s – we would all concur with that. Great. A final question relates to the Hanvon contract and I apologize for asking for precision. But there is certain defined terms, capitalized references to company without any specific tiebacks to whether it’s Remark or Hanvon that we are talking about.

But as I understand your headline and the substance for this document, the $50 million is a contract that would entitle Remark to $50 million in revenues over a three year period of time? Or is it $50 million is worth the combination of Hanvon and Remark might receive over the three year period of time?.

To Remark. .

To Remark. Great.

And in this instance, would you be looking to China Mobile or to Hanvon to deliver those revenues to you?.

Well, ultimately, it’s China Mobile, right, because they are the end-customer. .

Ultimately, but is there do they – because Hanvon is having a large part of the overall value and it appears that the contract may have been with Hanvon in the first instance.

Does China Mobile pay Hanvon and then, you are obligated to collect the revenues from Hanvon or is it a direct payment from China Mobile?.

No, we will then collect it from Hanvon. I mean, the Hanvon, they brought us in on this deal and we are going to continue to work with them. So, but this is like I said, this is just a first – this is just the first phase. So, this does won’t mean the second, third or fourth will have the same type of terms.

Each one will be different by at least for the first phase we will be getting paid for Hanvon. .

Okay. So the credit is Hanvon, not China Mobile. That's great and congratulations on the $50 million contract. That’s the set of my questions. Thank you. .

Thanks, Barry. .

Our final question will come from Poli Kanakara [Ph]..

Can you hear me?.

Yes, Poli, we can. .

My question is on I have read in the news that your $50 million contract with Hanvon..

So that means close to $50 million per year in a span of period right? How are they paying you, quarter-by-quarter or around $50 million per year, how are they planning to collect that money quarter-by-quarter or end of the year?.

I am not sure if I am understanding the question correctly. But, we – the $50 million over three years, the way we will recognize is, certainly will be lumpy as we deploy across such a wide group of stores. Each implementation effort will be different. So, it’s very hard for us to certainly forecast that in a straight-line.

So, each province has different conditions. So, we need to account for that. .

Since you have this contract going, so what is the urgency in selling the Sharecare investment?.

Could you repeat that, please?.

Since you got these contracts, right, what is the urgency selling the Sharecare investments?.

Oh, what’s the urgency of selling Sharecare. .

Yes. .

With this contract. Well, I think for us it is two-fold. One is, our shareholders will like us to operate with no debt on our balance sheet. We certainly do. That's number one. So the monetization of the Sharecare company, even though it’s performing very well and growing, allows us to eliminate our debt immediately.

That's number one and number two, for our core AI business, we are growing very fast right now and working capital is needed to support that. So, instead of – we've had to, in the past, dilute shareholders in order to achieve that goal. Once we monetize the Sharecare stake, we won’t have to dilute the shareholders anymore..

Okay. One last question and thank you for that. What do you have to tell to your investors who have been with you for years to give you some relief because they have been strong – awaiting for some big news on that. Personally, I was an investor in the company for a long time.

So what was relief do you - can you give to your investors?.

Yes, I think the relief is, just exactly what you just mentioned, which is our win with China Mobile. As you know, artificial intelligence is an industry that's new to everybody. It’s new to the people that are providing the solutions. It’s new to the people that are – the customers and the beneficiaries of the technologies. So, it takes time.

And we’ve set out to build this out really since 2014, and we know and believe that we were able to achieve what we’ve been able to do and we've done that. Our technology has been able to separate ourselves from our competitors and we’ve been able to win very large contracts from the biggest of names like China Mobile.

So, I think, in terms of the confidence, I think that you should take into account that the demand is not the issue. People want out products. We certainly have had balance sheet issues which we’re solving right now. And once we solve those balance sheet issues, then – and then it just becomes a sole focus on execution of our deployment. .

Thank you so much for that. I am really passionate about what you do, your company. So, and that's the reason why I am still investing – continue to invest with your company. Thank you so much. .

I appreciate your support. Thank you. .

Thank you, Poli. .

Thanks. .

And that will conclude today's question and answer session. I would now like to turn the call over to Brian Harvey for any additional or closing comments. .

Thank you everyone for participating in Remark Holdings’ Third Quarter 2019 Financial Results Conference Call. A replay will be available in approximately four hours through the same link issued on in our November 1st press release. Thank you again. Have a good night..

That does conclude today's conference. Thank you for your participation. You may now disconnect..