Good day, and welcome to the Remark Holdings Fiscal First Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Fay Tian. Please go ahead..

Thank you, Justin. Good afternoon. And welcome to Remark Holdings fiscal first quarter 2022 financial results conference call. I'm Fay Tian, Vice President of Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark's Chairman and Chief Executive Officer; and Todd Brown, Remark's Vice President of Finance.

In just a moment, Mr. Tao will provide an update on our businesses and Mr. Brown will recap our first quarter financial results. Following those remarks, we will open the call to questions. 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 may be forward-looking statements.

These statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements reflect Remark Holdings' current views and Remark Holdings expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof.

This disclaimer is only a summary of Remark Holdings statutory forward-looking statements disclaimer, which is included in full in its filings with the SEC. 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..

weather as it relates to fog, rain and ice; traffic hazard detection as it relates to pedestrian walking, bicycles, illegal parking and dumping; and highway maintenance hazard, for example, being able to identify cracks in the highway.

Lastly, in the area of the railway and train station safety, we are in the process of integrating these solutions into our Remark AI smart safety platform. We are building for one of the largest railway systems in the world, a platform system that monitors passengers to not cross the two ends of the platform.

The challenge here that we are meeting is having the ability to discern who is potentially entering the track. Our system needs to identify the difference between the staffs. If it's a railway worker, security staff, maintenance and/or cleaning individual versus actual passengers.

We are currently in the bid to build this out for 40 train stations and look to finish it in Q3, Q4 of 2022. With our continued partnership with Brightline, we are rapidly moving to increase our presence in the railway industry in the U.S.

Our technology is cutting edge, and the reality is that there are not too many companies out there that are -- that have proven to be capable of doing what we're doing.

In China, we are currently in the midst of bidding -- as I mentioned before, in the midst of bidding for the 40 train stations to use our platform, and we look forward to updating you that over the course of the next few weeks. I'd like to touch upon the graph our rapidly growing business in Europe and especially in the U.K.

I briefly mentioned our burgeoning business in the U.K. on our last quarter call. We are proud to announce our first deal in the U.K. illegal dumping or fly tipping has become a huge concern to the U.K. government and has cost the government close to £400 million a year, which cannot be ignored.

Local authorities handle over 1 million illegal dumping incidents in 2021 during the pandemic, up 16% from the year before. With such an alarming figure, the Department of Environmental Food and Rural Affairs, known as DEFRA, is stepping up with a plan to crackdown on this.

Remark AI won this contract to supply our illegal dumping solutions system as part of the project. Our AI video analytics enabled the cameras to detect illegal dumping behavior and vehicle plate recognition in real time at illegal dumping hotspots.

This links the vehicles of the suspects to be disposed of items, which allow local authorities to crack down on this. This is just the very first deal that we've concluded and anticipate to win 10 to 15 more deals over the course of '22 in the U.K. We are very excited about what lies ahead.

In Q1, we've also finally expanded our augmented reality metaverse business into the U.S. Using our AI platform to quickly build this for new markets, we took our success with the Winter Olympics in Beijing and now most recently brought to Vegas in partnership with MGM Resorts and BTS, the most successful pop group in recent history.

Taking a step back, there is -- to understand what augmented reality is, there is a disconnect between the wealth of digital data available to us in the physical world in which we apply this data. However, currently, we can only consume this data in the two dimensional world of pages and screens.

Augmented reality is a set of technology that superimposes digital data in images on the physical world that helps us bridge the gap between the real and digital world by connecting all these data points. While the industry is still in its infancy, spending on AR technology will reach over $30 billion by the end of this year.

AR, augmented reality, will affect companies in every industry and many other types of organizations from universities to social enterprises.

With our successful launch with MGM Resorts, we've already been approached by numerous companies to create similar experiences in their respective industries, looking to improve productivity, quality and training. And we expect to announce future new customers on our next call.

Our strategic location as a local vendor in Las Vegas allows for a robust pipeline of convention customers who are seeking similar experiences. As you can see, even with the zero-COVID lockup, our business is robust right now and clicking on all cylinders. Our China business is strong and will only get stronger as the lockdown is lifted.

Just today, Shanghai announced June 1 as the end to the lockdown, and we expect to grow our business faster while everything resumes back to business. In the U.S., we are making tremendous headway and feel we're in the red zone on several large deals in the security and safety space, plus transportation.

And finally, rounding it out, our new business efforts in the U.K. have now come to fruition, and we are expecting strong growth there. Our company is well positioned to capture the organic growth that we have built over the last few years and, most importantly, do it profitably.

We are looking forward to our next quarter call to share our results and continued updates to our business..

All right, Shing, thank you, and I will continue with financial highlights for the first quarter. Revenue for the first quarter of 2022 totaled $4.7 million, which was up about 6% from the amount of revenue we recognized in the first quarter of 2021.

That first quarter 2022 revenue was driven by a $0.6 million increase in China revenue with the total revenue of China, including $2.2 million from projects in the construction industry and $2.2 million from projects in the education sector, plus an additional $0.2 million from deployments of our smart retail systems in cities that were less affected by the ongoing lockdown.

Revenue from the sales of our biosafety products in the U.S. further decreased as we adapted to post-COVID demands and shifted our focus to thermal analytical products which will provide AI-driven risk management solutions for transportation providers, construction enterprises and governmental clients.

As a result of that change in product focus, we expect longer sales cycles and extended decision-making procedures. Gross profit was $0.4 million for the first quarter of 2022, which was a drop of -- drop from the $1.7 million we recorded in 2021 in the same period.

The overall gross profit margin for the first quarter of 2022 was 8.5% with increased cost of revenue of $4.3 million primarily being associated with the previously mentioned completions of more projects in the construction industry and education sector.

We incurred an operating loss of $4.2 million for the first quarter of 2022, which was in comparison to an operating loss of $3.7 million in the comparable quarter of 2021.

In addition to the increases in revenue and cost of revenue, G&A expense increased primarily from about $0.5 million of share-based compensation, which resulted from the recognition of a 2020 stock option grant that, for accounting purposes, didn't have a grant date until July of 2021.

Also contributing was an increase of $0.3 million in business development expenses as we expand our client base and $0.2 million increase in payroll and benefits.

Partially offsetting those increases in cost of revenue and general and administrative expense were decreases in sales and marketing expense as well as in technology and development expense.

The sales and marketing expense decreased because the prior year first quarter included approximately $0.6 million that we advanced to our China business partner in such amounts in that period were classified as marketing expense but no such activity occurred in the current year.

Technology and development expense declined $0.6 million due to reduced reliance on consultants as a result of our acquisition of our U.K. entity and in a material business combination; and also by $0.3 million due to a decrease in the company's liability for China cash bonuses.

Our net loss totaled 24 -- pardon me, $25.4 million or $0.24 per diluted share in the first quarter compared to a net loss of $5.5 million or $0.06 per diluted share in the quarter ended March 31, 2021.

The loss on investment of $19.1 million, which consisted primarily of the change in the fair value of our investment in the common stock of Sharecare, Inc. was almost entirely responsible for the larger net loss in the first quarter of 2022.

Another significant contributor to the increase in net loss was interest expense, including amortization of original issue discount and debt issuance costs, which resulted from our $30 million note payable that we executed in December 2021, that item bearing a 16.5% interest rate.

The same period of the prior year included significantly less debt principal outstanding. On March 31, 2022, our cash balance totaled $2.7 million, which was compared to a cash position of $14.2 million on December 31, 2021.

Cash was primarily impacted by a principal repayment on the company's note payable, which was about $3.7 million, interest payments totaling around $1.1 million on the note payable and payment of approximately $1 million for work on our metaverse project, as well as increased spending for business development.

And with that summary, I will go ahead and turn over the call to the moderator to queue up questions for our Q&A session..

Okay. Thank you. Thank you, everyone, for participating in Remark Holdings first quarter 2022 financial results call. A replay will be available in approximately 4 hours through the same link issued on our May 3 press release. Thank you, and have a good afternoon..

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.