Good day, ladies and gentlemen. Welcome to the Remark Holdings' [Third] (sic) Quarter 2020 Financial Results Conference Call. My name is Keith. I will be the operator today and will handle the Q&A. As a reminder, this conference is being recorded. I'd now like to turn the call over to Brian Harvey. Please go ahead..

Thank you, Keith. Good afternoon, and welcome to Remark Holdings fiscal year 2020 financial results conference call. I am Brian Harvey, Senior Vice President 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, Mr.

Tao will provide an update on our businesses, and I will recap your fiscal year financial results. Following those remarks, we will open the call to questions. But before I turn the call over to Mr. Tao, I would like to take this opportunity to remind you that some of the statements made today maybe 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. I will now turn the call over to Remark's Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional color on Remark's business and recent developments.

Shing?.

Thank you for joining us on our call today. We hope everyone is safe, and are encouraged to see the progress that we're making, and again the global economy back on its feet. With the vaccine, we are excited with what lies ahead, as things begin to open up. For Remark Holdings, 2020 was a transformational year.

Artificial intelligence, AI, had been widely acknowledged as transformational technology to invest in during the current decade and beyond, especially in the COVID-19 era. AI is the only and best way to achieve the dual goal of growing revenue while lowering costs.

Fortunately, over the past seven years Remark Holdings has built up a proprietary end-to-end AI platform solution that allowed us to capitalize on this instant global need for AI.

Our award-winning computer vision and object recognition algorithms, as recognized by the National Institute for Standards, otherwise known as NIST, and the European Conference on Computer Vision, or ECCV, combined with the swift processing of proprietary datasets, which is rapidly analyzed via deep learning and machine learning to detect repeatable and unrecognizable patterns, making us perfectly positioned to meet the needs of businesses worldwide.

Unlike most of our U.S. domestic competitors, Remark has enjoyed the benefits of having built our AI platform from the ground up, owning our IP, and having applied our solutions in real-time conditions in live environments versus laboratory case studies by initially winning the businesses of future companies like China Mobile and Bank of China.

This robust platform has allowed us to enter companies with health safety, and unlike many of our competitors that are only able to sell one product solution, we are then able to offer robust add-on AI services like safety and security, marketing, data intelligence, power management, and others.

This is what separates us from the waterfront of AI charlatans. We are a scalable and extensible solution across entire businesses and workflows. Remark AI has created a technology mode, a data mode, and a platform mode where customers are looking for a complete solution we set out to build a complete end-to-end solution in various industries.

While most transformational industries, like the cloud industry before us, have taken a longer timeframe to execute and implement, we are confident that the time it has taken to get here will pay off handsomely as customers have vendor fatigue and do not want to deal with 16 different vendors.

China was the first market that we launched in, as AI technology adoption was years ahead of other countries. With this experience, we have continued to refine our AI platform to scale globally. COVID-19 provided the spark to substantially grow our Remark AI platform into the U.S.

and beyond, with the practical and real life knowledge gained from our commercial deployments. At Remark, we believe that great things happen when preparation meets opportunity. We have built our platform and prepared ourselves in the past seven years for this opportunity standing in front of us; now is our time.

The second-half of 2020, we saw our main growth engine in China reopen its markets as travel between provinces reopened and allowed us to continue our deployment of Remark AI's platform to customers such as China Mobile, Bank of China, and the Hangzhou School Systems.

China Mobile is on track to complete their deployment of 17,800 stores as part of phase 1, while taking account the delays from the first-half 2020 COVID-19 lockdowns. As previously announced, we have begun winning deployment projects for phase 2 and 3, which will continue to increase the total spend per store.

We are well-positioned here as we will continue to win further phases as our businesses now moves, which what was an initially a roughly 50-50 split between hardware and software to predominantly software as China Mobile continues to incorporate our AI platform into their retail store network.

A strong testament to our credibility with China Mobile is where our initial contract was done in partnership with another local technology company. We now deal with China Mobile directly, and that will be the case in the future.

For 2020, with the successful implementation of our AI platform with China Mobile, we are able to take advantage with the dramatic increase in opportunities into the banking sector. Bank of China chose us to initially transform 150 Bank of China branches into smart branches, and to use our digital management platform first in the Szechuan province.

These branches service 1.8 million banking customers, and we expect to grow this product through the rest of the Bank of China's retail branch network. We also expect to significantly grow our business with other banks, such as China Construction Bank and the Agricultural Bank of CHINA.

In 2020, we completed roughly 1000 branch installations, and we expect to double that number this year. As a sense of scale, Bank of China alone has more than 20,000 branches. Clearly, the total addressable market in this industry is massive, and we are only in the beginning of rapid deployment.

In the fourth quarter, we've continued to grow our business with school systems. After launching with attendance management and health security applications initially, we've expanded our school offering to six applications, including intelligent power management, behavior detection, such as running in the hallways, access control and others.

We are in the process to expand our sales channel, and plan to add 10 new local distributors in China during the year. With 150 schools up and running with our software, we're looking to expand to over 600 schools in 2021. We also continue to grow our smart community business.

Adding on to our initial success with working with China Mobile's retail store network, we've expanded our businesses with them in targeting smart communities.

Working with China Mobile, we have begun installations of our smart community offerings during Phase 1 applications, which include access control for vehicles, for residents and delivery personnel.

We expect to begin Phase 2 later this year with additional applications, including elderly and child safety, elevator access control, restricted area access control, behavioral analysis, and messaging via communication screens. We have currently completed 400 communities, and are looking to double that number in 2020.

As you can see, our core business, China is growing, and we'll continue to only grow faster as we continue to deploy our platform across various industries. Going into 2021, we will soon announce the launch of Remark AI ESG platform.

Our customer will be one of China's largest cement operators, where our AI platform will be used to help their factories and operate more efficiently while burning less coal and gas. As part of China's net-zero emissions plan, our Remark AI platform is well-positioned to help the factories reduce pollution.

Within the decade, China will have over 800 gigawatts of installed solar and wind-generating capacity, which will help blow the China's reliance on coal. Currently has 57% of China's energy mix, compared with the world's average of 25%, we are well-positioned to go after this market and grow with it.

As China's automated market will be mostly electric, our ESG platform will be used by this industry to initially help managing charging stations, more specifically in the bus/large truck market.

As they're beginning their transition from gas and diesel to electric and hydrogen, our platform will be used to help efficiently manage the charging process, well under 10-hour charging cycle time, and managing the safety per each station. In 2020, we also laid the groundwork for the U.S.

Initially when COVID-19 hit, companies were more focused on their immediate needs and emphasize pricing over functionality. Now almost a year later, when COVID first shut down in the U.S., many businesses have come to the realization that the decision is shortsighted.

We now have the secondary opportunity to expand our business far beyond the initial scope of mass temperature detection. Our customers, which represented the best-in-class in their own respective industries has the vision to use our platform initially for accurate and fast mass temperature scanning.

Now, they're looking to add additional solutions that our platform offers, like crowd detection, VIP customer identification, blacklisted customers scanned by security by prior or premise misbehavior, and axle control authentication through biometric identification.

Going into 2021, here are some examples of our diverse pipeline that we are currently working on, high speed railway from Miami to Orlando, and plan to build for the Las Vegas to LA.

Our AI safety technology that we have built is implemented in parts of China is needed to handle security needs that encompass passenger safety, railroad track safety, and train station safety.

Our construction AI will be used one of the world's largest privately held construction engineering companies, three from our AI health safety and marketing platform will be working in partnership with one of the world's largest airport operators.

With presences in the U.S., Europe and Asia, we're confident that this will be a great launch pad for us into Europe and India. Remark AI will also be launching its platform into the cannabis industry, one of the fastest growing cannabis brands in the U.S.

with over 40 plus retail locations, which allows us our first breakthrough into this fast growing space, especially as stores are highly regulated and are looking to operate more efficient. Initial opportunity to us will be to help their retail operations be managed and expand into cooperating using our Remark AI agricultural platform.

We're also partnering with one of the largest brands in Music in their hotel business with the launch of three hotels in the U.S. and a pipeline with 10 hotels in 2022.

As you know, we've also been accepted as the Silver Technology Partner for Hewlett Packard, which certifies our performance and compatibility and leads to a joint marketing offering for cameras and software solutions to run on their software.

Sharecare and Internova, we'll be partnering with Sharecare and Internova in their house security rollout across 50,000 hotels around the world. We're excited and have strong conviction, exponential growth of our business in 2021 and 2022 as a robust pipeline gives us strong visibility into capturing our fair share of the plan.

One area where we've had unexpected large win most recently is using our AI marketing intelligence platform. Some of you may recall that we launched the lending business back in 2017 while our initial efforts can help generate special needs for banks was very successful. It was unfortunately shut down by the government.

We have always had strong protection of the power and effectiveness of our AI models, working with customer data and tightening the funnel. Our Remark AI Marketing Intelligence platform has one as a transformational appeal. The SuperDraft in Caesars Entertainment has created a new growth engine for Remark AI.

Adding to this win, we expect to certainly announce our first deal, working with mortgage companies to fine-tune their marketing operations using our platform. With COVID, every business is looking for ways to grow their business while lowering costs. We're confident AI is the only way to achieve these goals.

And finally, Sharecare, Sharecare analysis is going public back the stock and capital back in early March. The sponsors were led by the same sponsors that led to successful listing for DraftKings. The pipe was well-subscribed by most blue chip investors in the health mix, including Anthem, and expect to close it in May.

With the proceeds we're looking to fund our strong organic growth, buyback stock and look to acquire companies that can help speed our path to market. With COVID hopefully behind us, we'll benefit from the reopening of the world economy, all parts of the world. In conclusion, 2020 has been a transformative year for Remark.

Going into 2021, our core China business get strong will only get stronger. Our ESG initiatives will launch soon to be another significant growth driver for us. Our business in U.S. is expected to grow significantly this year in a multitude of ways. And finally, we now will have the balance sheets to support our growth..

Thank you, Shing. I'll now provide a brief overview of the financial results for our fiscal year-ended December 31 2020. Revenue for fiscal 2020 was $10.1 million double the $5 million reported during 2019.

The increase was primarily the result of revenue from our new health safety business, which totaled $1.7 million as thermal imaging products were delivered to casinos, restaurants, hotels, law enforcement agencies, medical centers, office buildings, and other industries throughout the United States.

Revenue from China more than doubled in 2020 to $7.9 million due to ramped-up execution of larger projects, such as China Mobile, and the recognition of revenue from ongoing projects with school districts and banks.

The increases in revenue from project acceleration in China and our new health safety business were offset by a decrease in revenue of $0.6 million in our Remark Entertainment business due to contracts that ended in 2019 that were not renewed, and a decrease in e-commerce revenue of $0.3 million due to our decision to liquidate certain inventory at lower costs.

As Shing noted, we're particularly excited about Remark Entertainment's prospects in 2021 as our AI driven targeted marketing solution was recently named the exclusive marketing partner for SuperDraft.

The innovative online daily fantasy sports platform, which is co-owned by Caesars, Remark Entertainment will be responsible for developing a brand identity by managing and leading the digital and offline marketing efforts on SuperDraft's behalf.

And we're working on additional opportunities in the AI driven target marketing industries, such as mortgage originations. As we collect more and more Big Data, whether it's from retail stores, bank branches or daily fantasy sports, our learning models become more and more valuable.

Overall, our gross margins improved to 37% from 30% from better utilization and more AI software projects.

Total operating expense for fiscal 2020 was $18 million, a decrease from the $24.3 million reported in fiscal 2019 driven by a $4.8 million decline in G&A costs attributable to lower bad debt expense, lower lease costs, and a headcount reduction.

Sales and marketing expense increased by $400,000, primarily as a result of a $1.5 million payment to a third-party computer hardware manufacturer for joint marketing of AI projects.

Technology and development expenses increased by about $600,000 mostly due to a $500,000 increase in share-based compensation due to the increase in our common stock price over 2020. Our operating loss declined $14.2 million in 2020 from $22.8 million in 2019 commensurate with the decline in G&A.

Our loss from continuing operations total $13.7 million or $0.16 per diluted share in the fiscal year ended December 31 2020 compared to a net loss in continuing operations of $23 million, or $0.52 per diluted share in the fiscal year-ended December 31 2019.

At December 31 2020, our cash and cash equivalents balance was $0.9 million, compared to a cash position of $0.3 million at December 31 2019.

The cash increase primarily due to $32.1 million of proceeds from common stock exchanges whose proceeds were offset by operating losses, the payments of certain liabilities, and the net repayment of $12.4 million of debt. We would now like to open up the conference call to questions.

We encourage callers with the questions to queue-up with the operator as soon as possible so that there will be minimal lag time between each caller. Keith, please instruct the callers on how to queue up with their questions..

Thank you. [Operator Instructions] We'll take our first question from Darren Aftahi with ROTH Capital Partners. Please go ahead..

Good afternoon. Thanks for taking my questions. Couple if I may, first on Sharecare, how you guys are planning on monetizing, you know, [leverage your] [Ph] position in terms of selling the space, usually [a debt] [Ph] or just any kind of color on that would be helpful..

Darren, could you repeat the question? You came in kind of garbled..

Yes, just kind of curious about how you're going to monetize your Sharecare space [indiscernible] debt or selling it outright?.

Yes, I mean we're looking at both options, but our first choice there, as you can imagine, with the [stack de-stacking] [Ph] probably right around May there, or a lot more financing options from different funds to potentially take some debt against that. Sharecare's business is growing very strong right now, in 2020, it's very strong in '21.

So, it's definitely up to our interest to keep as much of the position as possible. So, we're definitely exploring our options on that..

And then on SuperDraft, can you just give a sense for how much of that business, one, I guess is the scope of how big that deal is maybe relative to some other business you've won in the past? And then how much of that is kind of the AI agency versus just traditional AI for [indiscernible]?.

Well, I think the opportunity for us with SuperDraft is a $15 million to $20 million opportunity for us. Out of that, I would say 70% of that number will be AI related, and then the other, the remainder will be more kind of traditional agency related..

Got it. And two more, if I may, then, last quarter, you spoke about your China business, if I recall correctly, either being breakeven or profitable by the second quarter.

Is that kind of still the case?.

With that, it is still the case, a big decision, as we've always said, is just that how fast do we want to grow. Our core business is going strong. I think we will be able to look towards opened up new financing options for us. There are a lot of new opportunities that we've been apply our technology platform to.

And now, we'll just view on what's the next best step. This announcement with our ESG product, that will be coming out very soon, is a massive opportunity for us that we've been working on for the year, year-and-a-half. It's almost ready to go launch. And I think we've all seen what's happened in that industry.

So, we want to be able to be well positioned to capitalize on that..

Well, and then this last one for me.

As you looking to 2021, how much of the year revenue composition is going to come from either existing customers or expansion of existing versus new business?.

We're expecting the business that we have, I think in terms of the growth in our business coming up, 50% will probably come from existing customers that are looking to add on to their services, and then the remainder will be the new customers that we have in the -- kind of in the same industry or new industries that we are able to expand to.

We've always said that our platform is industry agnostic, so I think we have a great opportunity to capture that and, one, to establish a foothold in new industries, and continue to grab market share in the ones that we've already broken into..

Great, thank you..

Thank you..

We'll take our next question from [Leone Solomon] [Ph] with Summit River Investments. Please go ahead..

Yes, hi, guys. Congratulations on the great quarter..

Thank you..

And then main question was how much, if any, of your revenue in the fourth quarter was [roughly] [Ph] -- deferred revenue from 2019, I believe, that may have been recognized during the quarter?.

I think the deferred revenue, we don't have the -- in terms of deferred revenue regarding as in China Mobile or is that what you're asking?.

Yes, you had deferred revenue on your balance sheet, at the end of 2019, I think there was some recognized last year, and -- or earlier in the year. And there's no cash flow statement with the 8-K. So, I can't really tell if there any movement in that..

And I think it's roughly $500,000, we'll double-check and get back to you, but we don't think it's -- it's probably right around that number..

Okay. And looking at the financial statements, I see, for example, $177,000 of your accounts receivable are actually held in the U.S. by Remark, about 3.5%, the rest being held by your VIE. And that's essentially the case with the majority of your assets, but not the liabilities, those Remark tends to hold itself.

I guess what I'm getting at is why -- are you planning on disclosing the contracts that make up the VIE agreements in your KanKan through [indiscernible] 'trust me' approach..

Is the question, just to be clear, is there a plan for us to disclose our VIE contracts?.

Yes, well, as this common practice with other companies in the U.S.

who use this VIE structure, are you planning on disclosing the VIE contracts within your KanKan?.

We have no plans on doing that right now, but we'll certainly take a look at all the other companies that do disclose their VIE structure and then react accordingly..

Yes, I think it would give investors a lot more confidence in the balance sheet and the income statement too considering the large portions of your assets and revenues that come in through the VIE, and we'd like to -- you know, that VIE structure is out..

Understood. Thank you. Thank you very much..

[Operator Instructions] We'll take our next question [technical difficulty] with FSA Investments. Please go ahead..

Yes, Shing, two questions on SuperDraft, did you say 15 million to 20 million, would that all be in 2021?.

Yes, it would be..

Okay, and then on the Sharecare ownership on a fully diluted basis when they close, what will Remark[count] [Ph]?.

We'll get back to you on that number, but it will be roughly around 4%..

Okay.

So, 4% would -- roughly be $160 million worth of stock?.

Yes, we're working through the calculations, but we'll come out with the number as it gets closer to the close..

Okay. Thank you..

Thank you..

Ladies and gentlemen, this will conclude today's question-and-answer session. At this time, I would like to turn the conference back to your presenter for any additional or closing remarks..

Thank you everybody for participating in our fiscal year 2020 financial results conference call. A replay will be available in approximately four hours through the same link issued in our March 22 press release. Thank you, and have a good afternoon..

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect..