Q4 2022 Remark Holdings Inc Earnings Call
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Greetings and welcome to the remark Holdings' fiscal year 2022 financial results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Vice president of Investor relationships baked yet. Thank you say you may begin.
Thank you Alicia good afternoon, everyone and welcome to remark Holdings' fiscal year 2022 financial results Conference call I Am Fei Chen Vice President of Investor Relations for remark on the call with me. This afternoon is housing Paul you must chairman and Chief Executive Officer and Mr.
They are called Brown, Vice President of Finance and just a moment Mr. Chow will provide an update on our businesses and Mrs Brown, well recap our fiscal.
Fiscal year 2022 financial results.
Following these remarks, well open the call for 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 statement here 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 following what the SEC I'll now turn the call over to remarks, Chairman and Chief Executive Officer, Mr. Cao So he can provide additional information on remarks business and recent developments.
Please go ahead Sir.
Thank you thanks.
Thank you for taking the time to listen to our quarter four update as we have much to update on.
In Q4, we've continued to execute on our plan to continue to build the foundation to scale, our remark AI platform globally.
The legendary Investor Warren Buffett once said.
Quote someone sitting in the shade today, because someone planted a tree a longtime ago uncle.
We are that tree as it stands today and we'll continue to watch it grow and reap all the benefits from the foundation, we have put in place over the last eight years.
Simply put 2022 was the year, where we were able to successfully diversify our businesses to other parts of the world Most specifically the U S and United Kingdom.
In 2023.
Let me see the announcements of major wins in both the U S and the U K, but also our expansion into the middle East and Latin America and to achieve the goal of profitability by the end of 2023.
With all the excitement surrounding open AI chat GBT launch at the end of last year, which is.
Which has sparked a fervor of interests and AI companies. We strongly believe we are only just scratching the surface for what AI can do for you me and the rest of the world.
We have already launched our own chat G. P. Two service to augment our offerings to our customers.
For example, as you know we already have a growing business dealing with construction companies and using our AI to help manage their workforce and the daily intricacies of project management.
By now, adding remark AI generated AI capabilities to our product offerings, we will be able to offer AI based design services as well.
In our last quarter call, we were accurate in our prediction that China would be loosening their COVID-19 rules by the next time, we spoke.
We are excited to see all business is rushing to bring their business is back to pre pandemic growth numbers and.
And we certainly expect to be a beneficiary of this.
In Q4, 2022 here are some updates on previously announced wins.
One we deployed our smart campus products to now over 100 schools, which makes our total deployment over 600 schools and serving and protecting 1.2 million students daily.
Do we.
We finished 11 smart construction projects in Q4, 'twenty, two which brings US a total of 97 construction project deployments.
In 'twenty two.
We are anticipating another hundred construction projects in 'twenty three as the Covid pandemic has ended now.
Each initial construction project generates approximately 100000 in revenue and the pace of remarks installations are expected to grow as China opens up.
Three our previously announced wins using remark AI retail platform for both China Mobile and bank of China's retail branches are now set to resume as the stores are now back open.
And for China Mobile Smart communities, we've now begun to resume deployment and we anticipate to be installed in 100 of these communities by the end of 2023.
As I mentioned in the past remark AI is able to differentiate ourselves from competitors.
Because one we offer a platform not a point solution.
Customer wants to handle 15 different vendors.
To our platform is tried and tested no customer wants to be the Guinea pig.
For example, in the fourth quarter remark AI was able to demonstrate the uniqueness of our large crowd skilled people counting solution, which differentiates from individualized people counting that is limited in the quantity measure.
This too was effectively applied during the 2022 new year's Eve celebration in both the densely populated cities of Edinburg, Scotland.
So Korea, giving us the credibility in working globally large metropolitan cities.
Due to this live and real World success, we are now close to quickly expanding this product the governments around the world.
And three the secret sauce of our AI platform is the.
The ability to train our algorithms three times as fast as our competitors.
While only using a limited amount of datasets.
This means we are able to adapt to our customer needs quickly and provide a new solution, it's not readily available in the market.
The well known saying great things happen when preparation meets opportunity.
Life's remark AI.
Since we began building our platform almost eight years ago. We have now created a system, which can provide the tools for businesses to run more efficiently and effectively and to provide an immediate rois.
And coming out of Covid, we are seeing unprecedented need for AI platform in many different industries.
Due to the strength of our core technology, we are able to compete to win the business and in addition create solutions that I've never been introduced before in the industry.
For example, as I've mentioned in the past we have introduced the first global AI based aviation platform.
Both airline and airport operators can use to run their business in a much more effective manner.
For example in the past it took one hour with a true.
To check the plane engine blades for wear and tear like burnt spots that can affect the plane safety and energy usage.
With remark AI the airline operators now need only 10 minutes and one person to do the same thing.
Or traditionally when the plane lands the airport operator has problems tracking all the different vendors and how much time. It takes each once in service the plane.
Again with remark AI, we were able to help them keep track and the airplanes honest airplane vendors honest.
And finally, when they airplane engine goes through general inspection could be with Rolls Royce Whitney Pratt.
There always is a difficulty to keep track of the 500 plus distinctive parts that make up the engine.
Using our computer vision technologies, we were able to make sure every nut and bolt and tags are properly installed and secured and had no missing pieces before the engine is installed to the airplanes are.
Our solutions have never been offered before.
Until Mark AI has introduced it.
Remark this pursuing recurring revenue streams that leverage our AI powered solutions.
Public and private sectors that include any large gatherings of people that require safety such as sporting events and touring locations as well as the education public safety retail and transportation markets.
We focus on large total addressable market that can scale quickly and benefit from our AI powered software to improve our customers' operations and generate immediate return on investment from increased safety, reducing incidents as well as cost savings from efficient teamwork.
We are a solutions provider that tells the well funded programs, which you already have the budget pre allocated as part of their security and infrastructure investments, thereby providing more visibility than a cyclical economically dependent business.
We actively partner with existing sales and solution partners, whose sales of 100 million plus will accelerate with our product capabilities and have the current distribution and customer relationships in the markets we are pursuing.
An example of this partnership is with net watch a security company that's been built.
That has built a proactive company to provide 24, seven real time security monitoring augmenting an organization's existing security force.
When a trespasser editors of property illegally net watches monitoring center broadcast of real time warning to the trespasser, well notify the appropriate security personnel.
Like remark net what's a success.
<unk> deployed internationally is now seeking to grow that U S business.
And they were looking for an effective AI powered solution to enhance their product offerings, which led them to remark.
One of the first markets, we looked at in the public sector, what's the yellow school bus market, helping operators with safety and security solutions by counting the students on and off the bus to make sure they arrived at their destination.
Safeway.
Remark AI power solution now enables networks, you offer plus occupancy counts real time rules based notification for parents and teachers via SMS email.
Or G. P. S location tracking with map views of all active bus drivers student attendance via a digital register roll call.
And batch uploads of student information for the student database.
To provide some numerical perspective, there are currently 480000 school buses in operation in the U S. We.
We are conducting or are currently conducting a pilot test with one of the largest school buses.
As a fleet of 55000 buses.
Typical school bus requires three video streams front middle and back and we charge based upon to suggest the recurring subscription a $50 per month with represents a total addressable market size of up to 860 million of recurring annual revenue and $99 million of recurring <unk>.
Annual revenue if we were only to include the fleet size of our current pilot customer.
Public transportation is another opportunity as there are additional 500000 buses that serve the commercial sector.
We are in active negotiations to provide similar services that also include bus driver and passenger safety a vital concern in wood storing the confidence of customers by providing accountability and peace of mind.
Publican venue safety.
Any large gathering of people requires a security solution that is dependable highly accurate and most importantly helps provide T D.
Our security solutions are currently being marketed and deployed in places like airports arenas parks schools stadiums.
Through our strategic integration partners like Minuteman security technologies.
And established video management systems, such as Genentech.
And milestone.
We are providing AI powered solutions that help with people counting.
Moca and fire detection.
Intrusion detection and weapons detection through our century and mobile platform.
The state of Nevada, and Clark County is granted over $700 million to be spent upgrading school security as part of the Baidu infrastructure built and we're excited to be actively be a participant of those programs through the current pilot tests, we're running along with our partners milestone systems.
What can we expect to start turning into revenue for the second half of 2023.
And going into the Health club space. This is another market that we're targeting.
Health clubs require accountability and safety solutions for customers in real time.
Currently health clubs experienced a potential liability whenever someone falls or gets injured while they're on the premises.
For health clubs with pools, a lifeguard has always required to be on duty to reduce the risk of any accidental groundings.
Remark AI powered solution provides an additional layer of protection by actively monitoring for falls in abnormal activities, including potential grounding identifying and reporting those events on a real time basis in order to help save lives. This is critical spending not discretionary spending.
We are focused on the mutual goals of positive cash flow generation and grow our business model is built upon annual multiyear recurring subscription revenue that provides a total turnkey.
The power platform for our customers and partners.
Just these three opportunities mentioned below.
Alone potentially represent over 100 million.
Dollars of recurring domestic revenue capture over the next 18 months starting July 1st.
There are many opportunities.
We are at the 10 year line upon completion that we did not mention this.
This earnings call was meant to give you a taste of the numerous and diverse businesses that we are in the prime position to win and it only emphasizes the incredible opportunity of artificial intelligence and how well remark is positioned to benefit from it.
We always welcome serious current and potential shareholders to reach out to understand the full picture of our opportunities and why we are so bullish over the next 18 months.
With that I pass this over to Tod Brown.
Yeah.
Yeah.
Thank you Shane.
Yes.
As we have talked about in the past 'twenty to 'twenty two it's been a challenging year for our teams, especially in China.
As we.
Uh huh.
Alright, my apologies for the interruption, so 'twenty to 'twenty two has been a challenging year for our teams. However, the good news is that despite the COVID-19 lockdowns that has caused.
Caused us to have these.
Problems with our operations. The good news is that China has ended at zero Covid policy and we are working to resume our deployments at China mobile retail branches bank of China's consumer banking branches, which have been closed since the visitors.
Uh huh.
Close to visitors since the onset of Covid and our construction sites in school campuses.
Despite the difficulties the team was able to complete a number of projects, including construction projects in smart smart campus deployment that schools.
Presented more of a decline in revenue during 'twenty, two I'm prepared to 'twenty one.
Revenue for 'twenty to 'twenty, two totaled 11.7 million roughly.
Reflecting a 27% decrease from the $16 million during 'twenty one.
First of all we'll address the U S revenue, which.
Declined primarily because in the prior year, we performed $2 $8 million worth of AI data intelligence services and advertising services related to a daily fantasy sports project during 2021.
But did not repeat such a project in 2022.
We also experienced a decline in demand for thermal imaging products that reduced our revenue from the U S by approximately zero point $4 million in comparison to 2021.
Of course from China.
Revenue decreased $11.4 million was the number in 2022 compared to $12 $12 million in 2020 one.
And of course as Covid restrictions that we've discussed.
That were implemented in continued in many cities across China well.
Well under the fourth quarter of 2022 was.
It was the main cause.
Those measures prevented our changed from being able to get out too.
Many of the project sites.
And those implementations that we're not able to be completed in the current year, we expect will start to pick up.
In the second quarter of 2023.
Our operating loss of 21 $23 million during 2022, reflecting an increase of $7.4 million from an operating loss of $13 9 million during 'twenty one.
Several large drivers caused that increase in operating loss.
The fact that the prior year 2020 one.
But at 1.5 million dollar recovery of marketing cost from our China business partner, while we had no similar activity in 2022.
Also an increase of $2 6 billion and our provision for bad debt related to the COVID-19 restrictions that affected us and an increase of approximately one and a half million dollars in expenses related to our focused effort on business development, which has resulted in the expected business Shing as described earlier.
Net loss totaled $55 5 million or $5.22 per diluted share during 2022.
Compared to net income of 27, and a half a million or two $2.70 per diluted share during fiscal 'twenty one.
The prior fiscal year included a 43 6 million nonoperating gain on the revaluation of the company's investment in the common stock of share care.
The value of that investment.
Clients significantly.
And that was primarily a result of macroeconomic and stock market conditions, such that when we disposed of the investment through sales and and partial settlement of our debt.
A $26 $4 million loss on investment results.
Our interest expense increased to approximately $6 million during 2022.
Oh from an amount of $2 3 million in 2021 and that was primarily due to an increase in our debt principal outstanding as well as debt discount on the new debt.
Cash at December 31st 2022 totaled approximately $50000 compared to a cash balance of $14 2 million at December 2020 one at December 31st 2021.
Net cash used in operating activities during 2020 to 16 and $26 million.
As previously disclosed on October six 2022.
We obtained an equity line of credit pursuant to which after a certain conditions are met.
We can sell our common stock to Ionic ventures LLC in exchange for as much as $50 million.
And finally, a reminder, that we affected a one for 10 reverse stock split on December 21, 2022, and our disclosures in our 10-K will retroactively reflect that reverse stock split.
And with that I will turn the call back over to say it's yeah.
Thank you Todd we can't open the floor now for the Q&A are Lisa could you. Please tell the instruction for the Q&A, Okay perfect participants. Thank you.
Of course no problem.
Well now be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question is from Steve Wagner with integrity wealth. Please proceed with your question.
Hi, everybody, how you say high Shanghai Troy.
Thank you for all the detailed information Shing on all of the business initiatives I've got a few questions I think some for you and probably some for Troy.
First of all it's I mean, it's intriguing that you talk about that you've got a chat GPT product I'd love to hear more about that.
And just in connection with that can you.
Can you talk about how generative AI is different from the U can the you know the computer vision AI that you guys have been talking about.
Sure.
On the generator AI you know when we say, we've launched a kind of a cap GBT rival or something like that that you know we've been doing AI for a long time and and I think our first major product was building very large language models. This was dating back to 2007.
17 2018.
So we've been doing this for a while you know the difficulty though back then was no one was paying for it.
So it was very hard for us to continue to you know pursue that business that no. One was ready to pay for it then so we're certainly excited are you know certainly with open AI success there.
That in a potentially from a revenue standpoint, it opens it up for a lot of people, you know and and obviously for them to get to this point.
You know they have incurred a lot of losses to get there. So we wouldn't have been well positioned to handle it. So instead of focusing on that just say over the last five years, what people were paying for what businesses, where paint war was for computer vision and really that's what we specialize in is it's really putting the brains behind the camera.
And interpreting what's happening there, but with with the the chat CPT service, we're now able to up sell the businesses that we work with right. So say for example, as I mentioned in the in the AR in the speech with whether it's a.
Restructuring projects it has to do with our building whether that has to do with a cement factory or a power plant not only are we handling the front and back office now in terms of their operations using our AI, but now we're able to use our January to help them with design services and we're seeing a lot of demand for that right now.
But allows the first part yeah. Please and then go ahead.
Was there anything else you wanted to add no I think I think that's that I think that.
At least I think that addresses it or okay. Let me know.
And then.
I would like to get a little more information on some of these initiatives for example, and by the way. It sounds like you guys are just busier than heck with all sorts of different verticals.
Obviously, the shareholders out there very relieved to hear that I could hear confidence in your voice.
And in that debt.
Means a lot to us.
I do want to dive in first China.
I was intrigued by the one comment there that you've got these 11.
You did.
An additional installations by the end of 2022 on the on the smart construction solution, there and that you're getting a $100000.
In revenue for each one can you unpack that a little bit is that a lump sum is that is it <unk>.
<unk> revenue over a period of time is it subscription based.
All of us with that.
Well no construction projects in general you know after two years the projects been built right. So if it's a if it's during the life of the project.
Okay right now its during the life of the project doesn't just say that as long as they use as long as we get deployed in the system. It generates about 100000 in revenue now the upside to this is a couple of things one is as as our customers are more comfortable in using AI, helping their construction bids.
Is that number will go up but you know obviously as they subscribe to more services that we that we provide a that's one and second of all is that they'll give us more projects two to implement are so I think I think those are the two upside factors for here are we work with the world's largest.
Construction company. They work on 7000 projects annually. So there's massive upside for us, but like any large company with a great reputation they move slowly and you need to prove you know what.
You say what you do is you know what you see is what you do.
We're doing that now.
And certainly now that construction is resuming we expect to share that number go up.
Excellent and can you give us a little bit of like understanding.
Of what the upfront costs are for the company and in that is it is this all is it it's obviously theres some hardware or software involved how does that work.
You know, it's it's used in a lot of these construction companies already have cameras.
And we're just basically installing our AI boxes.
To oversee the construction site or to.
Help manage their their workforce, so theres not really that much upfront costs and more in the beginning both sides. We're trying to understand you know how to use AI right. So and now it's been several years and I think both sides are getting better they're getting more comfortable using it where understanding how to implement because each construction site is.
You know its exciting and yeah, I and at one point I think on this construction is because we've had this experience working with them with them.
<unk> opened up a lot of other opportunities one of which I. Just mentioned is in the middle East you know potentially you've been reading probably in the papers of one of the one of the biggest smart cities in the world being created right and they're they currently have I think 40000 construction workers and that's growing up.
To 500000 construction workers.
You know as they finished the different projects over the next five years and that's a massive opportunity for us because nobody in the world are really you know it has been able to manage these large scale projects.
We haven't either but we have a lot of experience in dealing with the world's largest construction company, who build these large factories and all that so you know we're very optimistic about how we will enter the middle East.
And we expect a more things to come over the next three to six months regarding that.
That sounds good so very intrigued by your comment your commentary on being profitable by.
But at the end of 2023.
I can only imagine what that would look you know what that would do to the share price. So that aside I mean, how is that going to be possible. I mean, you guys. You know obviously there are some noncash charges in here and so I get all that I mean, the losses and as big as what.
The headline numbers are going to show.
But still pretty look at loss.
And well, you'll still have a loss for 2023, obviously youll be profitable by the end of 2023.
Okay. So so I don't know.
So what I need.
You have to find profitability for US yeah. So so I would just break that down to you know I'd break down your questions and to answers number one you have to compare apples to apples.
If I were to compare us against other <unk>.
AI companies like real AI companies out there, whether they're public or private they're losing hundreds and hundreds of millions of dollars you know generating a roughly the same amount of revenue if not lower than we are and yet they trade at a significant premium to us in terms of valuation.
Right so.
So that so you know no ones no one, saying, hey, we're creating magic and you know if there is another company out there that's doing it profitably we loved it loved to learn what which company that is indeed love to learn from that but there just isn't a that's one and then number two from a revenue standpoint, you know the example.
That we can just use from from is the one I just used in our speech with these.
With the school buses. This is a massive opportunity and if you just break it down.
Using over 50000 buses Ah.
To install this is them coming to us to install three cameras per bus.
At $50 a month, so 150 times 12.
Times are 50000, just to make math easy.
And you that's a very large number.
Yeah. So these are just these are just and that's that's on a recurring basis now say for example, we don't win the entire fleet or their slower even at a half of that is still very significant the bottom line is as I've said previously there not a lot of groups out there that provide the bra.
And depth of our platform they might have one solution, where it saying Oh, let me just count how many people are coming up and down you know to the bus, but they don't handle all of the other solutions that any customer wants no customer wants to handle a lot of different vendors. So we're seeing that as a as a great opportunity.
For us and it's not just with school buses you know now you're even talking with EV buses, which are going under the same type of situation, but in that particular case, it's not just the bus itself. It's the buses.
Indications these are all components.
Where essentially we can upsell, our AI too and I think we're having very deep conversations with kind of the name players in that market.
Alright fair enough I appreciate that so let's talk a little bit about the awareness of the company obviously the majority of.
Investors today or you know individual investors you know day traders short sellers.
Some semi.
Our long term people men and women.
What what can you guys do or what are you doing to regain some kind of coverage I know, we had rock before but then they they went in a different direction.
And then some some potential stronger hands I know a lot of institutions will look at a company with a market valuation of where we're at right now, but you know there are hedge funds out there that will and there are some other special situation type funds that well I'm just curious what.
You guys have in store there.
I think I think it comes down to two things.
One is you know very soon.
Ourselves and our customers will be we'll be able to announce like we will be able to announce who we're working with them to customers will be comfortable with us disclosing who they are right. So I think that things are good credibility.
To what we're doing.
<unk> said that I don't think we can be.
B you know you don't get into such details and such specifics unless we have a real customer at hand.
You know so so I feel comfortable on that front.
The second part is a the exploration of very deep strategic partners. What I mean by that is you know it is very exciting to talk about all the different businesses and verticals that would potentially getting into.
However, what gets lost.
Is the real core and as I said.
In the speech is the secret sauce of our of our business.
And that's the core technology value and that's the ability to train our algorithms three times as fast as our competitors and not needing.
A vast quantity of data sets to be able to train the algorithms.
No.
True technology partner.
People that really do understand the technology will be attracted to that.
And we are in discussions with that.
So okay, you know what.
But I can disclose you know kind of timetable, but just the fact that we are in discussions regarding that.
Okay, Alright sounds good maybe offline, we can get together and have a more in depth conversation, but thank you guys. So much for your time it sounds like a lot of stuff is happening and we will look forward with interest having a great afternoon. Okay. Thanks.
Thanks, Steve you got it right.
Yeah.
Yeah.
There are no further questions at this time I would like to turn the floor back over to say T N for closing comments.
Thank you Alicia and thank you everyone for participating in remark holdings, let's call. It 2022 financial results conference call a replay will be available in approximately four hours through the same link issued in our April press release have a good evening. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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