Q3 2022 Remark Holdings Inc Earnings Call
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Once again, you're holding for the remark holdings, we are still in many additional participants in the call should begin shortly what do you think you for your patience and please continue to standby.
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Good day and welcome to the remark Holdings third quarter 2022 financial results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to fake Tan. Please go ahead.
Thank you Justin good afternoon, everyone and welcome to remark Holdings' fiscal third quarter 2022 financial results Conference call I didn't say, Kim Vice President of Investor Relations for remark on the call with me. This afternoon is Kai Shing, Tao remarks, chairman and Chief Exec.
They've offered there and if they are caught brown, vice president of finance and Mr. Robert Gotshal, She's safety and security off of that in just a moment Mr. Paul will provide an update on our businesses and Mr. Brown will recap our third quarter financial results and we will have Mr. Gotcher I'll to talk about our reach.
They've all been enjoyed and some other exciting business opportunity with our technology.
Following these remarks, well open the call for questions, but before I turn the call over to Mr. Paul 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.
For materially from those expressed or implied by these forward looking statements.
Any forward looking statements reflect remark holdings currently and remark holdings expressly disclaims any obligation to update or revise any forward looking statements. After the date hereof.
Disclaimer is only a summary of remark holdings' statutory forward looking statements disclaimer, which is included in full and that's sort of a pilot with them.
I will now turn the call over to remarks, Chairman and Chief Executive Officer and Mr. Chow. So he can provide additional color on remarks businesses and recent development Shane.
Okay.
Thank you for taking the time to listen to our third quarter update as we've much to update on.
In the third quarter, we continued to execute on our plan to continue to build the foundation to scale, our remark AI platform globally.
Being here in the U S. We won our first contract with a major top 10 sports and Entertainment Arena.
With more than $2 5 million annual visitors and attached to a major transportation hub with over 20 million visitors visitors annually.
Rob will go into further detail later, but we are confident this is a strong indicator of what is ahead of us not just in the U S or globally.
We have continued to expand our footprint in all things security related in the U S. Two airports supermarkets smart traffic and more.
And our world three things need to happen.
Number one you need the technology.
Number two you need the customer base.
And three the customer base needs to funding.
Up until recently, we've had points one and two covered.
But with president by then.
Three trillion dollar infrastructure Bill.
We are now seeing playing three covered we're seeing an unprecedented opportunity to tap into the funding that's been released to build back and modernize the U S.
This is a once in a lifetime opportunity and we must grab it.
Remark AI will leverage our critical position as a provider of solutions addressing public safety and security that the U S needs.
Our strategic partnerships with video management system providers, such as Genentech and axis axis.
Provide both the validation and distribution for our award winning artificial intelligence solutions to a new range of customers. This builds upon the solid foundation, we have created putting us in the best position for success in the coming quarters.
Moving across the Pacific.
With the conclusion of the National Party Congress in China, we are optimistic that the stringent zero COVID-19 policies will be loosened sometime in the next three to six months, which will allow us to continue to go back to full speed and our deployment with China mobile and bank of China's retail branches.
Just to remind you. These are very large contracts and it is a question of when not if.
Uh-huh other highlights in the third quarter for China.
Right the stringent zero Covid policy.
They include remark AI Smart campus solutions, which were deployed at more than 70 campuses in China.
Our total installations to more than 530 campuses and now we cover in excess over 1 million students in.
In addition, we recently launched our student evaluation system, using our AI platform and we will use that and so on so we will sell that on top of our current safety projects.
In the smart construction industry.
We have now completed an initial 60 site installation project.
And then and compared to the previous quarter and we have now also completed an additional 19 installations.
Well I'm, sorry building, we completed the 19 installations and during the third quarter on top of what we initially had thought or total installation is too is that 86 sites and we continue to work towards the completion of a third of our second 60 site project.
Each initial construction project generates 100000 in revenue initially and is expect to grow as China opens up.
And the last quarter I mentioned, our positive momentum across the Atlantic into the U K and Continental Europe .
We expect to have positive news to share over the next quarter.
As we have been quite successful in taking our existing technology platform and expanding it there.
Similar to the U S. We have partnered up with large integrators and D. M S companies.
Spanned our footprint efficiently and effectively.
Our areas of focus like the U S or a large scale infrastructure projects, primarily with tunnels and bridges.
One example of a project in the U K has four major crossing a world with an average daily use of over 130000 vehicles.
Analytics detect vehicle stoppage speed vehicle type.
Vehicle driving the wrong direction.
People exiting their cars delays an unknown object on the roads.
Again, we are very excited for the next couple of quarters or shareholders to see the good results that have come from over the last year and we expect the momentum to grow as we announced and commenced each project.
Before I pass the call over to Rob to go over our U S business I wanted to take a step back to talk about how we got here.
We have never received private equity or venture capital.
Like our competitors since we began to build our business.
Having said that we believe we have built a much stronger business.
We have built our technology from the ground up.
We are scaling to profitability as we are benefiting from deploying the technology developed over the past five years, but we're not there yet.
Our ability to continue to finance our business operations is still dependent on the access to the capital markets and I've always been dependent on the support and trust of our public shareholders.
For such a reason we are asking our shareholders to approve the reverse stock split as described in our recently filed proxy statement. So that we can preserve our NASDAQ listing and continue to raise equity capital to fund the massive opportunities we are capturing in 2023.
The initial projects, we are winning in Q3 and Q4 of 2022 naturally convert into scalable recurring annual subscription contracts, which requires an increase in investment in hardware and software support.
As one of the largest shareholders I fully recognize and acknowledge the impact of shareholder dilution editors herd patient investors, who have supported us the past five years, while we had been developing our AI powered smart safety platform.
Those such dilution has also impacted management. The most we are confident the commercial deployment of our smart safety platform combined with the expected funding provided by the bite an infrastructure bill lays the groundwork for a strong return on investment leading to future accretive cash flow and earnings we there.
Therefore, urge you to vote in favor of the reverse stock split proposal and the proposal to approve the potential issuance of 20% or more of our common stock pursuant to our convertible subordinated debenture and equity line of credit with Bionic ventures, each of which is described in our recently filed proxy.
We remain available to discuss any of this with any of you and thank you in advance for your continued interest and support of remark holdings.
<unk>.
Thank you Cheng and thanks to everyone, who joined our call today, and giving me the opportunity to update you on the operations portion of our business.
I am happy to report that much progress has been made and we continue to have a presence and homeland security space.
<unk> been reappointed to the TSA surface Transportation Security Advisory Committee.
For those unfamiliar with this committee.
That advisors, the TSA administrator on surface transportation security matters, including the development refinement and implementation of policies programs initiatives rule makings and security directives pertaining to surface transportation secure.
Few private sector companies that have a representative on this committee.
As such remark is seen as a critical component in the homeland security space that provides support and superior technology solutions to key industries.
I am committed to leading the team and to the next phase of our success in helping the company evolved into one of the leaders in risk based technology solutions, not only in Europe and Asia, but also in North America and South America.
We are building upon our award winning technology in a wave of momentum will soon reveal the fruits of our labor.
We've recruited a business development team of former security professionals, who are known as product evangelists and are well respected leaders, providing the latest security solutions. The past few months have been spent.
Analyzing our business model and the industries and verticals that we've engaged with.
After a competitive process, we have been selected to implement the first phases of private and public sector security projects and needs.
Aviation Entertainment and retail industries, where clients in Florida, Nevada, and South America.
One highlight in Q3 was winning one of the top 10 sports and entertainment arenas in the U S with over $2 5 million annual visitors, while being part of a transportation hub with more than 20 million passengers the pass thru annually.
We are helping to deliver the safest arena experience possible to fans guests employees players and performers.
Our smart safety platform features allow for intrusion detection people county, behavioral analysis detection avoid entering suspicious object detection fire and smoke detection intelligence investigation and trespassing detection.
This is only the first phase of the integration to improve the perimeter security with data driven intelligence actionable insights in real time alerts on potential security breaches around the clock.
We are confident that this will be the first phase to many subsequent phases and even more importantly allow us to expand quickly into other sports arenas and stadiums as well as big city traffic hubs, where security is the number one priority.
Another highlight in Q3 was that remark AI is providing a solution that streamlines the operations of one of the largest airports in the U S with over 45 million annual passengers one of the applications. We are providing solves the issue of inoperable conveniences, such as mobile walkways and escalators within it does.
Made it area by alerting the application operator in real time, when a convenience stops working as intended.
The alert gives the operator the ability to resolve the problem quicker by rapidly deploying the proper resources to return the convenience to working order, which in turn provides a better passenger experience.
In addition, our technology is used for loss prevention. One example of our solution is that we are learning application operators and rail time when persons known to a previously committed deaths at the customers locations are present at a customer location.
Any new losses with potentially stolen goods.
It.
Deliverable results as increased revenues, while providing better inventory control or the client.
The third project I would like to mention is right here in our backyard in the city of Las Vegas, We have provided an entertainment experience space with over 60000 daily visitors and over 6 million visitors annually with a solution to monitor at Roswell identify alternate objects and capture attendees that are within a given entertainment space.
Solution allows the customer to operate with a heightened level of security and it provides the application operator with better situational awareness and data that allow for more rapid operational decisions also we will continue our work with the customer on other security solutions that they have requested the project is a great example of our ability to utilize.
Our risk based methodology to provide customers with a more comprehensive solution.
The next four to six months will be an extremely busy and exciting time for all stakeholders.
Existing and prospective clients cannot be mentioned by name, but the result of our work with such entities will be seen over the next few months. There is no lack of opportunity and our product is being recognized as a source of innovation and various industries. Our recent projects and prospective clients are involved in the transportation construction fortunate.
<unk> venues retail hospitality and security sectors.
As I mentioned during the August call in an unpredictable world risk comes in many forms.
Ability to be resilient and to protect people assets and reputation while managing risk is critical for any organization.
Our focus will remain on helping clients and communities build that resilience through an extensive understanding of their assets risks and vulnerabilities remark is a company built around resiliency and the ability for us to provide such services will be the driving force behind our success.
Thank you for your time, and I look forward to providing future updates and showcasing our continued path of success and.
Now I'll, let Tod Brown, Vice President of Finance present financial results the third quarter of 2022.
Todd.
Yeah.
Thanks Robert.
As has been the case our teams in China has had to continue to work very hard to overcome the effects of the continued lockdowns and other stringent measures implemented under China's zero Covid policy.
However.
We believe that was the conclusion of the National Party Congress in China.
Loosening of these policies will happen sometime in the next three to six months.
Thereby allowing us to resume our deployment of China mobile retail branches and.
Bank of China's consumer banking branches, which have been closed.
To visit or since the onset of Covid.
In addition, we look forward to resuming at full speed, our AI deployments with construction sites in school campuses. Despite all these obstacles put it in our past we are still able to complete larger projects, including construction projects Smart campus deployments at schools than we were able to complete in the same quarter of last year.
Sure.
Total revenue for the third quarter of 2022 was $2 8 million, which is a 130% increase from the $1 2 million during the fiscal quarter of 2021.
Revenue contributed by our U S business decreased primarily due to <unk>.
$2 million decrease in advertising business related to a daily fantasy sports project in the prior year's third quarter, which did not repeat in the current year, but.
But at the same time, our revenue from China operations grew by nearly 230% to $2 7 million.
Construction project completions contributed about $1 9 million of the total China revenue with the remaining amount of revenue being primarily due to the completion of smart campus deployments in various school districts.
Gross profit of <unk> 4 million remains essentially unchanged in the third quarter of 2022 compared to the prior year's third quarter.
Such amount represented the gross profit percentage of 12 six in the current year quarter compared to 38% the same period of last year.
Our operating loss of $6 7 million in the third quarter of 2022 showed only a de minimis increase from the operating loss in the comparable quarter of the prior year.
The increase in revenue was offset by changes in several operating expense categories.
Those increases in our operating expenses the largest during the third quarter was $2 $3 million recognition of bad debt expense as we increased our provision for bad debt related to accounts receivable from certain China customers such action was the result of our evaluation such customers accounts in light of the ongoing.
<unk> zero Covid measures, we have discussed throughout today's call.
Net loss was $8 9 million or eight cents per diluted share in the third quarter ended September 32022, compared to a net income of $72 7 million or <unk> 72 per diluted share in the third quarter of last year.
The prior year third quarter included a $78 $9 million gain on the revaluation of the company's investment in the common stock I'm sure Jerry Inc, and the value of such assets has declined significantly since the prior year due to macroeconomic and stock market conditions.
On September 30th 'twenty to 'twenty, two our cash balance totaled <unk> four.
$4 million compared to a cash balance of $14 2 million at December 31, 2021.
Net cash used in our operating activities was $13 6 million during the nine months ended September 32022.
We recently disclosed that we raised $2 5 million was the issuance of a convertible debenture to ionic ventures, an entity with whom we also executed an agreement, giving us access to a $50 million equity line of credit to fund the necessary hardware and software development and support we need for deals.
We're executing in 'twenty to 'twenty three and beyond.
As Jim previously mentioned, we are holding a special meeting of stockholders on December six 2022.
Which we are asking stockholders to vote in favor of a reverse stock split proposal and our proposal to approve the potential issuance of 20% or more of our common stock pursuant to the convertible debenture and the equity line of credit with <unk> ventures.
Approval of these proposals is vital to allowing us to continue to access capital markets.
Sure.
As positive contract wins and operational performance leads to long term shareholder earnings accretion.
As a result, I do it respectfully request that our shareholders vote in favor of these proposals.
And with that I will turn the call back over to say.
Thank you Bob with that I'll turn the back the call back to the operator, and we will now open the conference call to questions.
Inquiry callers with questions to queue up with the operator as soon as possible. So that there will be minimal lag time between each caller.
Could you please instruct the callers how could keep up with their questions. Thank you.
Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone. If you are joining US today, you say speaker phone. Please make sure mute function is turned off to a lagger signal to reach our equipment.
And that is star one if you would like to signal with questions Star one.
And our first question will come from Steve Wagner with integrity wealth advisors.
Yes.
Hi, Shang and then everybody. Thank you very much for hosting this call hope all is well.
Alright. So my question is good.
Yes, so here's my my my question to you it feels like.
Do you have developed a really good management team.
It I've always known.
But you had amazing vision and passion for the technology and that is.
It feels like it's coming to fruition.
And obviously some of the announcements that you've alluded to.
You'll give a lot of encouragement or are you able to I mean, you talked about today a path to profitability.
Right to hear that.
Is there any.
You know timeline, there that shareholders can look forward to based on the assumption that.
These are company proposals are approved.
And that the business that you have in the queue is is able to be executed on our.
Would you be looking for profitability in 2023.
Yes.
The short answer.
We think.
We sound like to give ourselves.
I'd say by the end of next year.
That we will be profitable.
Like I think we.
Talked about on previous calls.
We have a very scalable model.
And we're just talking about the U S. In terms of how we are selling our software solutions, obviously, if China continues to if it reopens the way we think it will then that.
Profitability will happen sooner.
And certainly what were working on with the with the.
In the UK and in Continental Europe , So we are targeting.
Q4 of next year to be profitable.
Where our business is lean and our revenue model is very scalable.
Thank you for that I had a hard time getting on the call today and I apologize I got a little touch with the flu so.
Voice is a little bit strained.
But.
I saw the revenue I think you mentioned $2 8 million, but only 400000 of that is coming from U S operations did I get that right.
That's correct is the balance from.
Revenue that is being retrieved from China business that has already been done.
Yes, so the bulk of the definitely the bulk Todd will follow up with you on this specific.
The breakdown.
But I would say that certainly the bulk of the business for the third quarter Kim.
From China, which we were very happy about.
Given the situation.
Certainly as compared to last year, we were more than double that number.
The.
Again with the conclusion of the of the National Party Congress.
We're seeing a lot of signs.
That the economy in China will open up much sooner than people expect.
Already seen some recent announcements with how they are handling the property sectors say for instance in the markets in Asia have been very has had a very positive response to that over the last couple of days.
So yes, yes, so basically I would say.
This.
This quarter is just another step for us to kind of build that foundation to grow our business here in the U S.
We have the customers we've integrated with the largest vms operators to show that our technology is very real and they need us.
And so really over the course of Q4 and Q1 of next year, it's really just blocking and tackling getting across the finish line but.
So we're very excited about that.
Okay can you give an update at all on say for example, the bright line business.
At all.
Well, we can't at this we can't at this point, but we will do that certainly over the next six weeks I believe.
Alright, and then.
<unk> had some interesting.
<unk> that you've put out on theft detection, I think thats very exciting super.
Important a lot of applications a lot of verticals. There can you give an update in terms of.
What kind of customers you're working with what you feel the prognosis is for that application of your AI, Yes, no absolutely yeah I mean.
As you just mentioned it touches across a lot of different industries.
It deals with home centers supermarkets, certainly sublease season metro anywhere with high traffic.
Just to just to be clear, what I mean by home center. It means like a like a home depot or Lowes com.
And this situation anywhere that has a lot of traffic where.
Whereas theft happens a lot.
And.
And certainly I think we've alluded to.
In the past quarters call.
Very much involved in.
And the bidding for contracts Reza relates to airports and metro stations.
In large cities like.
L a miami.
Chicago, New York City.
So.
That's something that is a requirement that debt.
That are potential customers need.
So we our technology works very well in that.
But even more importantly is that we're able to provide 10% to 15 other solutions where the customer.
Really just has to work with one one vendor hopefully that will be us.
And because we don't really see other groups, providing those types of features that the way we do it.
Okay.
In connection with that.
This have anything to do with the <unk>.
Millstone systems release that you put out the other day or is it completely different I'm not super intelligent on all of this.
But I mean, it sounded like a really good announcement I've read it a few times.
<unk> got over 500.
Maria milestone.
Milestone and Genentech are are there essentially our partners right. They have they've been around for a long time have a lot of customer reach.
They came to us.
Because they needed an AI component.
Obviously, working with them as a as a great validation to our platform. So once we once we.
Signed a deal with them, we were able to integrate with their platform and now they can push us across to all their customers.
But just to give you. An example, the genentech and milestone or two of the largest security customers right. So.
So it's something to make that sell through much faster.
So we're very much excited about that.
Alright, and then are you confident.
With the given shareholder base that remark has.
You know that we can get these proposals through.
It's been it's been a bit of a challenge in the past you guys.
No.
Tried to create some avenue to make it smoother this time as opposed to last time.
Any any feelings on that.
Yeah.
<unk>.
We have a predominantly retail.
Shareholder base, so, it's sometimes hard to handicap that but.
But we do believe and are confident that the true long term shareholders kind of.
Through the noise and the smoke and can see what we have been building and have built and what our prospects are ahead.
And we certainly feel so we're confident about that there are always naysayers and short sellers out there that try to confuse the facts, but we believe we do believe that.
Our shareholder base that if you're in you're in for the right reason and they have done their work on us.
Okay, and the $2 five mill that you get you just contracted for a finance financing.
Can you give any.
Timeline in terms of.
How long that will keep everything afloat.
Until we get these other revenue sources.
Okay.
Well, we signed a.
It's a 50 million dollar credit equity credit line right. So theres, obviously, a bunch of bells and whistles to that on how we're able to tap that but.
I think a lot of the business prospects that we have mentioned.
We see them as eminently happening.
Staying within this quarter or next rather than saying Oh at the end of next year. So I think that will allow us to do.
It's going to be very favorable to shareholders and we will be able to tap that at much more.
Better valuations of where we are today.
Shareholders recognize what we're doing.
We have been quiet.
On purpose, because we don't want to.
Tell our competitors, where the money is.
And so.
Pretty soon we will feel very comfortable and much more comfortable sharing.
You know who our customers are what type of deal we're working with them, but until then it is definitely hurt us in the past because as investors are listening to this call. So are so our competitors okay.
Okay.
And then one final thought thank you for that Ching.
One final thought.
<unk>.
Having to do with the reverse split and a lot of times those are very challenging and all that just putting it very mildly.
They can work.
But it's got to be in conjunction with some of the things that you are talking about good news contracts things.
Things like that.
Feels like it feels like that's the message that you're sending out is that a fair.
Interpretation.
Yes.
You are 100% right, we wouldn't do a reverse split.
Unless we had strong fundamental news behind it.
This slide really speaks to our operations and really that's what's going to get us to where we think we can be.
Sure Okay very good well. Thank you you've taken up enough of your time I. Appreciate your hard work your team's hard work.
And obviously you know, let's let's just keep it rolling.
Thank you.
Thank you and as a reminder, if you would like to signal with questions. Please press star one on your Touchtone telephone again star one and we'll pause for just a moment.
Yes.
And that does conclude the question and answer session I will now turn the conference back over to you.
Thank you Justin and thank you everyone for partners participating in remark holdings third quarter, two financial results conference call. A replay will be available in approximately four hours through the same link issued in our October 35 press release have a good evening. Thank you.
Thank you that does conclude today's conference. We do thank you for your participation and have an excellent day.
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Sure.
Yes.
Yeah.
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