Ladies and gentlemen welcome to the Remark Holdings, Inc., Third Quarter 2021 Financial Results Conference Call. My name is [Nora Sed] (Ph), 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, Director of Capital Markets & Investor Relations.

Please go ahead..

Thank you, Nora. Good afternoon, everybody and welcome to Remark Holdings fiscal third quarter 2021 financial results conference call. I’m Brian Harvey, Senior Vice President of Capital Markets & 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 our third quarter 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..

Good afternoon and thank you for joining the Remark Holdings third quarter 2021 financial results conference call. In 2009, we made an initial investment of $1 million into Sharecare, which was an early pioneer in capturing the digital health care market.

In the third quarter of 2021, 12 years later, we are pleased to recognize a gain of 78 million, which reflects an annualized return of nearly 50%.

To put things in perspective, we only began attacking the AI markets in 2018 and have seen our revenues grow from five million in 2019 to 10 million in 2020 and now in 2021, expect to finish the year above 15 million. We are attacking large total addressable markets that will be shaping the future for the next decade.

The seeds that we have planted in building our remark AI platform over the last four years have created a path to our future prosperity and monetization. Last week, we attended the American Public Transportation Association, known as APTA.

Their bi annual conference focused on public transit, where we had lunch with Representative Peter DeFazio, the Chairman of the Transportation and Infrastructure Committee in the House of Representatives, who led the passing of the once in a lifetime $1.2 trillion infrastructure bill, which President Biden is in the process of signing, as we speak.

The infrastructure in the United States has not been modernized in over 40-years and this is the first real effort to do so. This bill was approved in a rare moment of bipartisan accord and will help address a very long list of public work projects.

Simply put, the opportunities and funding allocated in the infrastructure bill here are massive and we could have not written a better bill to reflect our core competencies and products to pursue and capture the specific growth markets allocated by the bill.

The AI platform that we have built and operated successfully in Asia, has put us in a leading position to capture market share and providing those solutions for public transit and many of the highway and road projects already allocated for public spending in the infrastructure bill.

For example, out of the 1.25 trillion, a 110 billion has been allocated to roads and bridges, 73 billion allocated to power grid infrastructure, 66 billion for passenger and freight rail, 39 billion for public transit and 11 billion for passenger and travelers safety to prevent road accidents and fatalities.

Just local to the New York City tri state region. The Metropolitan Transportation Authority which operates the New York subways, buses, and to commuter rail networks expects to receive 10 billion. [Amtrak] (Ph) is set to receive 27 billion. So as you can see, the numbers here are massive.

Our products and relationships, tap each of the specific areas targeted by the infrastructure bill, giving us multiple buckets for us to get funding from. This morning’s press release detailing our working partnership with Brightline continues to show the power and the credibility of our AI real safety platform.

We have received tremendous interest from similar transit CEOs and transportation agencies and have already begun discussions with them regarding their specific needs.

Brightline, which is the only provider of modern eco friendly high speed intercity rail in the United States will use Remark AI’s smart safety platform to initially monitor the 67 mile traffic corridor with the challenge of protecting 188 traffic corridors.

Intrusion detection is a necessary part of a first class safety program requires more than the human eye alone to function at a level that will significantly reduce risk.

Remarks sophisticated AI powered cameras and smart safety platform provide detailed computer vision coverage to detect intrusions and track anomalies, providing real time actionable predictive analysis from data collected, while monitoring long stretches of track in rail yard areas for unusual behavior.

We have already identified talented leaders with the relevant experiences to help grow and build our rail safety and infrastructure team with us and expect more announcements to come as we roll out our products in onboard new customers.

Each successful reference opportunity leads to a natural pipeline of interested customers as word spread quickly among this tight collegial industry. In short, our ability to bring our proven AI platform to the U.S.

from Asia has given us the leading opportunity to capture this business where technology helps augment the effectiveness of the infrastructure bill.

On our last earnings call, we announced our intention into entering the NFT Metaverse space by leveraging Remark entertainments platform to create proprietary content from leading influencers, entertainers and artists and building a Non-Fungible Token business known as NFT. In the U.S.

and Asia with a targeted fourth quarter launch, anchored by a very well known global celebrity with substantial valuable intellectual property and assets.

Again, for those unfamiliar with what an NFT is, a Non-Fungible Token is a unit of data stored on a digital ledger called the blockchain that certifies a digital asset to be unique and therefore not interchangeable. NFT’s can be used to represent items such as photos, videos, audio and other types of digital files.

We are on track for a fourth quarter launch in conjunction with Miami NFT week in Art Basel. While many of you were confused by the prospects of the NFT Metaverse opportunity, we have seen many announcements recently to have only validated our commitment to this new area of growth.

Facebook just renamed itself Meta to reflect the new focus of their company in its embracement of Web 3.0. Nike, Louie Vuitton, Gucci and all major global brands have now entered into this market in an aggressive manner. In that remark were very well positioned to do so, as our AI platform allows us to enter this market in a fast and efficient manner.

Inspired by the vision of global leading companies like Epic Games, who created Fortnight, Facebook, Roblox and Nvidia, we will pivot and leverage our bikini.com brand equity and IP assets to create a beach lifestyle Metaverse where we can integrate the digital and physical worlds together.

With the launch of Bikiniverse, our trademark pending bikini.com Metaverse, we are creating a full fledged economy and offering unprecedented, interoperability. Users have the ability to take their advertising goods from one place in the Metaverse to another, no matter who runs it.

And with bikini.com, we will capitalize on our names being recognized around the world, as it means the same in every language.

Our core strengths in artificial intelligence gave us the market intelligence to make early investments to develop and support the NFT and Metaverse vision, and we believe we are well positioned to prosper in this fast growing industry.

The recent pandemic has changed both lifestyle and work habits, advancing technology trends that would have taken decades to adopt, instead of taking place in years. Human beings continue to crave social interaction, while keeping a form of unique identity.

The virtual world has mirrored the physical world, with owners desiring to own unique branded status symbols to show off the same way customers of Chanel and Irma’s proudly wear their brands to reflect social status. Finally, we expect to announce a powerful partnership in the near future, using our NFT platform in the entertainment and arts world.

For a while all these opportunities are exciting and present massive opportunities. This only happened because we were able to properly build an AI platform from the ground up. Remark AI platform strength, its ability to be multi dimensional, while others are not.

As I mentioned last quarter, our consistent in continued leadership in AI innovation and practical execution has given us a strong advantage to beating our much larger and capitalized competitors in this space. To this point, during the third quarter, we introduced an exciting new school campus management platform and were named by the U.S.

National Institute of Standards as a top five company in the area of facial recognition vendor tests ahead of many multibillion dollar unicorns. 2021 is turning out to be a transformative year for us.

We already nearly surpassed our 2020 revenue number and expect our fourth quarter to be strong, setting us up in a perfect position to continue to win new businesses continue to capitalize on in sell opportunities and expand into new verticals.

Our current pipeline and future potential wins remain very strong and will continue to commercialize our industry leading AI technology around the world. With Brightline being our first major U.S. customer win using our Remark AI Smart Safety platform. Here are some of the highlights and other parts of the world.

In Asia starting off with China Mobile, because of the sporadic COVID-19 cases, smart store development is very slow due to the safety concerns. However, we have completed 21 stores in Q3. China Mobile is very optimistic and resuming the store deployment when COVID-19 situation turned to normal in 2022.

There are 16,000 stores to be completed according to the projects we have signed before COVID. Other areas of retail with Lotus Supermarkets we have completed the Lotus Xishan Smart Store improvement project.

The upgraded facial ID membership system, theft prevention system, product planning system and shelf replenishment system had been in their day-to-day operations and helping Lotus Xishan increase membership conversion and sales from day one.

We have also deployed our Smart Campus System to 60 plus more schools in Q3, and quickly expanded our sales into the Shanxi province. Our facial check-in and checkout system have been widely adopted due to its accuracy and easy to use features. Our AI Running and Farming prevention system has now become a must have safety system in many schools.

Our system has been running in over 400 schools, and we are expecting faster growth in Q4 and in 2022 due to the educational reform being conducted across the nation. We plan on launching two more AI products for schools and education and will be released in online in the fourth quarter. Smart Banking.

We are in the process of deploying our Smart Self Service System for China Construction Bank in Yunnan, which covers over 318 branches for the current phase. And with the same products we have now deployed to 54 branches for China Construction Bank.

66 branches for Bank of China, 31 branches for China Agricultural Bank, 47 branches for the Agricultural Credit Union, and these are all in the Sichuan Province. In addition 49 branches for China Bank of China Yunnan and 82 branches for the Bank of China in Guangdong. Moving on to Smart Community.

In Q3 we have started the deployment of 523 communities, which comprises over one million families and over 300 million residents with our Smart Community System for facial access control, temperature plus mask plus health coach check and safety monitoring, which are expected to be completed before Q1 of 2022.

Into construction in Q3, we won a $5 million U.S. deal with our construction on Smart Workplace System for construction, which covers worker check in, checkout system, worker PPE Monitoring System, Smart Helmets, Fire Smoke Detection Systems, Falling Prevention System, Crane Safety System and construction site surveillance system.

We have begun the deployment in Q4 and will complete the deployment by Q2 of 2022. And finally, we have also started several new POC projects and one of the largest airlines in China. The POC projects and cover from autonomous plane towing and positioning to AI assisted plane checkups.

In conclusion, our Remark Holdings continues to grow and transform into a business that number one either recurring or repetitive in nature. Two, AI based platform with proprietary services attached to it, three, business an earnings model that will lead to increase margins and four, significant cross channel selling opportunities.

I would now like to turn the call back to Brian for review of the third quarter of 2021 financial results..

Thank you, Shing. Third quarter revenue fell 1.2 million as China’s Zero COVID policy literally draconian city wide lockdowns that impacted our ability to roll out our DMP, Banking, School and retail projects.

Additionally, in the U.S., our principal customer for our data analytics slowed their rollout due to technical issues with on-boarding customers we brought them. Our value proposition in this space was proven however, with lower customer acquisition cost and higher customer conversion rates.

In the next few months, we expect to bring on additional customers for these services. Our gross profit fell to 0.4 million from one million commensurate with the decline in revenue. We incurred an operating loss of 6.7 million in the third quarter of 2021, compared to an operating loss of 3.1 million in the third quarter of 2020.

The primary drivers of the increase were lower gross profits and the $3.2 million increase to share-based compensation related to the recognition of stock options originally issued in July 2020, and $0.5 million of issuance costs related to a product placement that was completed towards the end of the quarter.

The company recorded net income of $72.2 million or $0.72 per diluted share in the third quarter of 2021, which compared favorably to net income of $4.4 million or $0.04 per diluted share in the third quarter of 2020. The increase primarily resulted from the gain on the Company’s investment in Sharecare of 78.9 million.

A decrease in the Company’s stock price between December 31, 2020 and September 30, 2021, led to a $0.4 million non-cash gain and the change in fair value of our warrant liability, compared to a $5.6 million non-cash gain for the same category in the same period of last year.

We also recorded a $0.4 million gain on the extinguishment of debt, which offset 0.4 million of interest expense. As September 30, 2021, our cash balance totaled 3.1 million, compared to a cash balance of 0.9 million at December 31, 2020.

Proceeds of 4.8 million from a debt issuance 800,000 from stock option exercises 2.3 million proceeds from the share pair transaction, and five million from a private placement were offset by 10.1 million of cash used in operations. With that, I will turn the call back to the operator and we will now open the conference call to questions.

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

Sure. Thank you. [Operator Instructions] We will take our first question from Stephen Wagner from Integrity Wealth Advisors. Stephen your line is open. Please go ahead..

So question, Shing, it seems like every quarter, we are entering into a new business, which is fantastic. And it is very, very exciting. Now this quarter, we are talking about infrastructure, NFT, the Metaverse all that good stuff.

Help me understand, I mean, how are we positioned really to take advantage of that and how do these all tie together for the future remark?.

I think it is a great question, because there has been some confusion there. Our core business is an AI, is an artificial intelligence. And that is the foundation to all these different areas that we are moving into.

And I think, it speaks to the strength of our platform that we built and as you know, it is taken us, almost over five-years to build this from the ground up. And it allows us now to be able to go into these different businesses where there are large TAMs. So it is not so much for us to - it is not a lot of work for us to be able to go into it.

And when we are presented with a new contact or new relationship, we are fine, we are able to train our models, retrain our models to be able to handle the task at hand. When we go and compete for different businesses, the fact that we are able to provide a platform versus a point solution really puts us in the lead right from the beginning.

And then it just becomes a point of convincing the customer why and what are the use cases of adopting our platform. But certainly with the NFT and the Metaverse opportunity, this is a very real opportunity, certainly where the world is going. And in general, with this unique AI or blockchain.

Blockchain is fairly a commodity and the unique part is the artificial intelligence aspect, which we provide..

A follow-up question on the Metaverse, the Bikini Verse, which sounds interesting.

What are we talking about in terms of investment and timeframe that you see going forward to have that become a reality?.

We are planning on launching, just say, a full launch within the next three-months. We will be doing our initial launch at the end of the month at the Miami NFT week. So it is fairly fast. And the actual commitment, in terms of resources, like I said, it was very easy to move into this because we already have an existing foundation.

So we could move into it not just fast, but in a very efficient manner and we wanted to figure out how to take advantage of our brand equity. And so we are very excited about this..

Alright, good. Moving on to Sharecare, obviously you had the nice paper gain on that, obviously, that is still in Sharecare’s stock.

Where his Remark right now in terms of monetizing that, though to get it into an account where you can start to invest in some of these things, fund operations to a certain extent, where are we there?.

Yes, so we are trying to figure where - I would say we are in the final stages. We have been approached as you can imagine by a number of different funds and banks that want to present us a monetization opportunity, given the strength of Sharecare’s business and right now we are just trying to find the right partner to work with.

So it is not just about terms, it is more importantly to find the right partner who understands our long-term vision and can grow with us..

Okay, thank you for that. So we look forward to obviously more detail on that in the coming weeks and months.

But is it true that you are able to actually physically liquidate some of your shares in Sharecare after the first of the year?.

Yes..

Okay.

Is that something you plan on doing, are you still going to look at a loan thing or a combination of the two?.

We have a number of different options and we just going to obviously do what is best for the company. We are strong believers in Sharecare’s prospects, but we just so- you know, we are certainly long-term supportive, but of course, we would want to take things off, take some money off the table and look to reposition..

Looking at the quarter in the year, I know, Ross, the analysts there had a - I think it was a $27 or $21 million revenue numbers. So we came in well under that.

Is that all attributable to the lockdowns in China? Is that mainly a result of China Mobile?.

It is not just China Mobile, actually all of China. I mean, it is not an easy environment, working and this is zero tolerance, Zero COVID policy in China. So, I mean, we have probably had on so many occasions where our team of ours goes to a particular site and then there is some person in the city that they came from that tested positive for COVID.

And it is an immediate lockdown, and they are sent back to - the city doesn’t let anyone that comes from that city that had the COVID case. So this is an issue that is happening all over China, it is very well documented, and it is not easy.

So we are doing the best that we can to navigate this, but it has been obviously a big issue and but we are adapting like we always do. And I would say the second part is was with the fantasy sports business that they are a startup as well, they have been going through their different issues as a relates to technology on-boarding.

And but they are smart guys and we were very confident that once they solve those issues that will experience some form of a catch up in the fourth quarter..

Well, that would be really good to hear. And obviously, it takes a lot to bring all these things together. Are you now looking at - I mean again, you have got some cash in the bank as a September 31, three million further report. I mean, how do you see that holding you guys going forward.

I mean, are you good for the next couple of months, quarter, where do you think we are? And the reason I asked that question Shing is that, obviously one of the challenges for a lot of businesses today. I’m sure yours as well as his hiring folks and all of these things you are talking about requires people to build.

And so I’m just wondering, where are we there, in terms of the balance sheet going forward? What is your confidence level that you are going to be able to bring onboard people that is going to be able to take care of all these commitments and hopefully obviously, larger book of business going forward?.

Yes. I mean we are very comfortable with our capital going, not just till the end of the year, but certainly into the first quarter. We are very comfortable with where our costs with our financing partners are. Certainly the lockup that - some part of the lockup that results that will end at the end of the year with Sharecare will certainly help.

Look, recruiting even when you have money is difficult. So it is a constant challenge. And but I would say most people that we are recruiting, believe in the long-term vision that we are doing, they have seen how we have built this company from the ground up. We didn’t throw money at the problem. And we have a pretty tight knit group here.

So I think it is been very attractive and successful and being able to recruit additional personnel, not just in the U.S., but in China and in Europe..

Alright. Well, thank you very much. I really appreciate it. Keep up the good work, and we will continue to look forward to these deals. You are talking about, these partnerships and collaborations should be interesting times. Thank you very much..

Yes, thank you. Stay tuned..

Thank you, Steve..

[Operator Instructions] It appears we have no further question. I will hand over the call back to Brian for any additional closing remarks. Please go ahead..

Thank you, Nora. And thank you everyone for participating in Remark Holdings third quarter 2021 financial results conference call. A replay will be available in approximately four hours through the same link issued in November 8th press release. Thank you all have a good afternoon..

Ladies and gentlemen, that concludes today’s call. Thank you everyone for your participation..