Edited Transcript of MARK earnings conference call or presentation 28-May-20 9:00pm GMT

Edited Transcript of MARK earnings conference call or presentation 28-May-20 9:00pm GMT

Atlanta May 29, 2020 (Thomson StreetEvents) — Edited Transcript of Remark Holdings Inc earnings conference call or presentation Thursday, May 28, 2020 at 9: 00: 00pm GMT

E. Brian Harvey

Remark Holdings, Inc. – Director of Capital Markets & IR

Remark Holdings, Inc. – Chairman & CEO

Welcome to the Remark Holdings Fiscal Year ’19 Financial Results Conference Call. My name is Cody, and I’ll be your operator for today, and will handle the Q&A. As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Brian Harvey, Director of Capital Markets and Investor Relations. Please go ahead, sir.

E. Brian Harvey, Remark Holdings, Inc. – Director of Capital Markets & IR [2]

Thank you, Cody. Good afternoon. And thank you, everyone, for your patience as we put this call together. I’d like to welcome you to Remark Holdings’ Fiscal 2019 Financial Results Conference Call. As Cody indicated, I’m Brian Harvey, I’m the Director of Capital Markets and Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark’s Chairman and Chief Executive Officer. In just a moment, Mr. Tao will provide an update on our business, and I will recap our fiscal 2019 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 may be forward-looking. 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. The disclaimer is only a summary of remark Holdings’ statutory forward-looking statements disclaimer, which is included in its full filing with the SEC.

I’d now like to turn the call over to Remark’s Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional color on Remark’s businesses and recent developments. Shing?

Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [3]

Thank you. Thank you, everyone, for taking the time to join us on this call. I hope you and your loved ones are safe and healthy during this time. Being in New York, when it was just about to shutdown and coming back to Vegas for almost 15 years, just as we were shutting down, has certainly been a shock to us and the rest of the world. The only thought in my mind walking down the surreal empty Las Vegas strip every day over the last 2 months was how can America reopen? And what can an American tech company headquartered out of Las Vegas do now? I knew we have the technology, but would this COVID-19 virus be the spark that finally work America up? While it may seem that we’ve transformed overnight, the process to get here has taken 7 years. Over the last 7 years, we have built one of the world’s most comprehensive AI platforms. The breadth and the depth of our technology was evident, not only by the different industries we could be in, but also by the number of different applications we could apply to it.

It took us the first 5 years to collect the data, train our algorithm and build the AI platform that has distinguished itself in artificial intelligence and more specifically in computer vision. For example, in 2019, we won CVPR and ICCV conference, otherwise known as the Computer Vision Pattern Recognition and International Conference on Computer Vision. And it is widely considered to be the most prestigious conference in computer vision excellence and helped us to be the leader in real-time object tracking and visual segmentation spaces. These advanced computer vision technologies are now being used in our new products and showing great value to our customers.

Two things held us back. Number one, we did not have a strong balance sheet. And two, the long sales cycles to adopt AI technology, as in any new field, pioneering takes time. We are happy to announce that we have placed both of those issues behind us. As we have retired our debt to our senior lenders, which will now allow us to focus our energy building on the momentum that has been created by our award-winning AI platform going into the second half of 2020, especially in the face of COVID-19 virus. While the COVID-19 virus has certainly affected the world economy in a very dramatic fashion, the RemarkAI platform that we have built over the last 7 years have allowed us to be positioned favorably against a terrible situation. As they say, we never let a good crisis go to waste.

We have a very strong demand and are experiencing quick closings on systems to manage CD-19 issues. While we are under strict NDAs with our customers in terms of disclosing who they are, I can assure you that they are the best-in-class in their industry. And in fact, they are our biggest sales lead generators. We are engaged with the best in the hospitality, [sourcement], medical, sports, banking, and we are closing on average 1 to 2 large deals a week, and we expect that to accelerate as America reopens. Most importantly, they are uncompromising in their vision and dedication to both protecting their employees and, of course, their customers.

The basic need for our system was with body temperature scanning. Our body scan is better because it provides number one, access; two, throughput; three, wider and more flexible read point; and four, a UI that makes managing clouds much easier. It is important to know the other body scanning competitors are one component that only do body temperature scan. While body scanning is the tip of the spear that got the installations going quickly, that it’s a very small part of our AI solution, less than 3% of our total capability. What is exciting are the add-on services that are and will be picked up by these body scan clients. For example, on top of body temperature scanning, amongst other AI applications we offer are: PPE detection; personal protection equipment detection; people counting, which include virtual time cards on big locations by construction sites; behavior tracking; food handling, which covers food handling, shop lifting, suspicious aggressive behaviour; fire and smoke detection, which has also protects people running and [pollen] detection for public safety. Social distancing and mass detection and intrusion detection, which also means creating virtual electric fences. While it took up the first 5 or 7 years to build our technology, it took the next 2 years to take this award-winning proprietary technology to commercialize it to different industries like retail, safety, surveillance, construction and agriculture.

The breadth of our own proprietary AI application is wide and proven as we have won major contracts with China Mobile, the world’s largest telecom operator by revenue and subscribers, where our AI will be transforming their 17,000 plus stores nationwide — smart stores to allow them to compete with real-time analytics versus their online competitors. And to CP Group, one of the world’s largest food compartments where we are working on installing our AI solutions to help with the biosafety of their pig farms to help combat the African swine disease.

In 2019, one of the key projects RemarkAI won was with the Education Bureaus of several major studies. Many schools are required to check children’s medical conditions daily, along with the attendant. To avoid long lines and human errors, we were tasked by the city to use a smart campus system to handle these issues. By the start of the summer in 2019, we successfully launched our smart campus product in Hangzhou, China, which is a city with 12 million people and where Alibaba was founded. Our smart campus system scans every student daily for their confirmed attendance and temperature to ensure no one enters with elevated temperature. And finally, at the end of the day, we make sure students are properly checked out of school and picked up by their parents or a rightful guardian. With daily health checks becoming a new norm and soon to be mandated in school campuses, we have now expanded to 2 other major cities in China, Chongqing and Chengdu and have been deploying our system at 50 schools per month rate. And with more schools now opening, we are expected to see greater opportunities in the market for 160,000 plus kindergarten through fifth grade schools in China.

Fast forward to the end of 2019, when the first signs of COVID-19 hit China, hospitals in Shanghai and Hangzhou that were aware of our AI solutions asked us to use the technology to be the first-line of defense program. Because we built our algorithms from the ground up, we were able to quickly repurpose the product to meet the needs of the hospitals. We soon launched RemarkAI’s body temperature scanning solution to meet these needs.

Our solutions accomplished 3 primary objectives: a, to be the first-line of defense for hospitals before the medical professionals even reach the hospital by checking for authorized access and elevated body temperature. B, once within the hospital, our solutions were used, not only to continually check each medical professional for access and elevated temperature, but they were used to be contactless control access for doors requiring different security clearances. I emphasize contactless, and as you know, being contactless allows for lower chances of transmitting viruses. C, and for the front of the house, our mass scanning solution, which has the ability to scan over 120 people a minute is used to not only check their temperature, but also has the ability to perform contact tracing in case someone comes in with an elevated temperature.

In addition, our RemarkAI platform allows to perform other applications that are now being required to the reopening of each country’s economy by people counting, TPE detection or social distancing. The fact that we had a working live solution that we launched in early 2019 has allowed us to expand our product to other parts of the world as we are looking for a solution that is tested, live and scalable.

In early 2020, we expand our product into Japan with one of Japan’s largest technology conglomerates with interest standing from e-commerce to travel to telecom. And by this past spring, we continued the expansion of our AI solutions into the United States. We first started off with the Las Vegas Metro Police, as they were looking for a fast and accurate solution to help with their own officers as well as the top [suspects] and current business in the system. This is a relationship that we’ve built over the last 5 years and through trust and, of course, rigorous testing, became our first customer in the U.S. using our AI solutions. Las Vegas Metro Police is one of the largest law enforcement agencies in the U.S. and the support and vision of the sheriff has been invaluable for the launch of RemarkAI in the U.S. Since coming on board, we’ve expanded our U.S. customer base to include shopping centers, amusement theme parks, casinos, hotels and sports center. Most recently, we handled the body temperature scanning for the United Medical Center of Southern Nevada. We are screening 4,000 patients a day for the next month, as the employees of the various casinos are coming back to work.

In addition, our AI was featured in the welcome back video for the world’s most luxurious casino operators. Our customers are at the top of their industry and most importantly, is not compromised on their employees’ and customers’ health. And because they are the leaders of their respective industries, we are experiencing strong unsolicited demand from companies aspiring to be like them.

As the companies generally are opening at under 25% capacity, we are confident we will continue to grow our orders with them as they understand the lay of the land post reopen and gradually open up their business back to where it was just a few months ago.

We can safely say, as the world has been paralyzed by COVID-19, we didn’t count the days, we made the days count. And to be clear, we are not a one-trick pony with only having the ability to scan temperature. In fact, our RemarkAI body temperature scanning solution is only a small part of our overall AI platform product can do. We are winning contracts against much larger and better finance competitors, not just due to outperformance, but because of the versatility and other RemarkAI applications we can add. With the reopening of America, there are many operational protocols mandates in order to reopen. For example, there is a limit to how many people can be in the room to the requirement of wearing certain PPE like now.

Amongst other applications that we own and built from the ground up, we can automate people counting, automate the monitoring of PPE wearing and look for suspicious behaviour. This is what excites about the future of RemarkAI. Body Temperature scanning is just the tip of the iceberg for the growth of the company.

The U.S. adoption of AI applications has started, which speaks directly to our strength that we have shown time and time again, regardless of what part of the world we operate. The ability to continue to upsell to our customer RemarkAI applications due to their existing camera infrastructure and/or the setup we have built for them allows us to continue our growth trajectory even when the current pandemic subsides. This is mutually beneficial, as our solutions allow our customers to continue to drive revenue while lowering costs, which has always been the whole purpose of artificial intelligence.

Our strength is in our AI software capability. Our competitors are hardware specialists. We are confident that it is our AI capability that sets our products apart. For instance, with body temperature scanning, thermal technology is not new, it has been around for a long time. However, what is new is the science and brains behind the thermal technology. Therefore, buying a thermal camera is just not enough and generally useful, especially when you’re performing mass scanning for a large group of people. Without the proper software intelligence, we will need someone trained to look at thermal imaging. This leads to additional human cost and error. With RemarkAI, we’re able to simplify and intelligently read thermal images for the customer. Our AI helps to quickly differentiate the different people and their temperatures rather than just being globs of red. Our AI is able to quickly discern the difference between human and nonhuman key emitting objects. And because of our accomplishments in the field of computer vision, we are able to quickly track a [season] when a guest walks through the door and quickly find the most accurate spot on the face to take the temperature. For example, take the temperature of your lips, it is very different from the area between your tear ducts in terms of accuracy. In the effort of fighting current COVID-19 pandemic, we have not only developed a high-precision mass detection AI model, but also upgraded our facial recognition with mask to 96% accuracy. This exceeds most of the competitors’ numbers in the market. In addition, we have also developed our proprietary social distancing algorithm at 98% accuracy. And our proprietary people just for recognition and people counting algorithm with over 99% accuracy, which has been tested in various scenarios and locations around the world.

To get ready for the reopening of the businesses, we have developed our mass temperature scanning software and products at 99% accuracy with over a 120 people per minute plus scanning rate. In addition, to address any concerns regarding customer data privacy, we are conducting external GDPR auditing on all RemarkAI products, which by far is the most strict guideline on data and privacy protection in the world.

I want to talk briefly regarding our products and other projects. RemarkAI has released 2 COVID-19 prevention products. Thermal Kit and Thermal Pad version 1.0. Our Thermal Kit and our Thermal Pad with third-party hardware has been released and deployed in early April. We also are very pleased to announce version 2.0 of the kit and pad as RemarkAI’s own proprietary hardware kit will soon be released in early June.

Let me give you a brief overview of our products. RemarkAI Thermal Kit is designed for mass temperature scanning for fast and high-precision on temperature check with RemarkAI’s proprietary facial detection, mass detection, face tracking and face angle correction algorithm, combining with fine-tuned thermal base temperature detection device, the thermal kit gives out touchless, accurate and fast temperature readings at 120 persons per minute rate, while people just walk through seamlessly. RemarkAI Thermal Pad is designed for automated 1 by 1 temperature scanning with optional mass detection and facial recognition features. It is perfect for unmanned gate and entrance control where people line up and go in and out 1 by 1, whether it’s indoors or outdoors. With high accuracy on temperature check, with or without mask, you can check 30 to 60 people per minute, and the entry lot can be connected to various time sheets and time card systems.

As mentioned before, these advanced products have been widely deployed in hotels, casinos, shopping malls, government agencies, sports stadiums, restaurants and COVID-19 test centers. RemarkAI has turned into a 2-headed dragon, where we are able to capitalize now in both Asia and the U.S.

Let me now give you an update on our other RemarkAI projects. As you know, we won a hard fought victory in securing the Phase I AI contract with China Mobile back in the summer of 2019. This was a long and arduous process as we competed against much larger competitors. By the end of 2019, we released and deployed smart products in over 2,000 China mobile stores as part of the Phase I smart store contract. With Remark’s AI people counting solutions, VIP recognition and facial identification, our smart self-service kiosk has started transforming China Mobile’s retail operation into automated and data-driven businesses. Although we are facing some delays in the deployment due to COVID-19 shutdown in China, we are projecting over 5,000 store deployments in the rest of 2020 and over 10,000 stores in 2021.

We are looking forward to expanding our partnership with China Mobile into Phase II and beyond. We are confident that our smart store AI platform will win the Phase II bidding process. This platform provides in-store real time feedback, fast behavior monitoring, fire and smoke detection and a virtual security patrol. The goal is to connect all 17,000-plus stores to the platform in the next 2 years. The contract value is expected to be in the mid- to high 7 figures, U.S. dollars — million dollar in software recurring income. As our work with China Mobile has gotten off to a favorable start over the last year, we are confident that we’ll be working with them for the many stages to come in the years to follow.

We are also pleased to have launched our first AI cattle biosafety system with CP Group to combat the African swine flu. The African swine flu has been a disaster for the full pork supply over the last few years, as it is lethal and spreads quickly. Our system performed real-time video analysis on top of existing surveillance cameras installed in the cattle farm. We have identified biosafety [violations] and forbidding behavior based on which produce early warnings and enforcement of the biosafety procedures to the last bit of detail. The system includes the following major functions to enforce the defined biosafety rules. Personnel access management through face and gesture recognition, the system authorizes access to the important facilities of the cattle farm. While in the farm, the system monitors staff activity to make sure they follow biosafety protocols, such as the right walking path to avoid cross contamination between dirty and clean air. The shower/cleaning conduits for PPE protocol. Vehicle decontamination monitoring, which automatically analyzes the operational steps of the staff performing, stem sampling, car washing and drying to determine whether they follow biosafety protocols, such as time spent on car washing and drying, proper equipment and tools used in place and proper uniform or PPE worn during the procedure. Articles disinfection monitoring. In the process of disinfection of articles, the staff activities are detected, tracked and monitored to enforce safety protocols, such as crossing of infectious and noninfectious flow. And finally, live or dead cattle transportation monitor. In live or dead case transportation operations, the system monitors the staffs’ behavior and triggers alerts when biosafety rules are violated. For example, unauthorized personnel the transfer room, both entrance and exit doors being open, dead cattle in the transfer room for too long and et cetera. This is the first AI biosafety system in the market that helps to fighting cattle disease. With proven value by the current cattle farms, we have great opportunities to deploy to 40 to 50 cattle farms a year globally.

Lastly, as we have finally now cleared out our debt with our senior lenders, we are able to enjoy the full potential of a monetization of share gain. The digital health industry for public companies like Lovaza and Teladoc has been explosive, and it looks to continue to be strong as America reopens. We will be carefully monitoring the progress and look to monetize our stake when the timing is appropriate.

In conclusion, we now have completed our first giant step forward to building a solid balance sheet. We have great traction on body temperature scanning. We have a suite of exciting add-on features that will increase our APRU. These add-ons are also very profitable and recurrent. We currently sell hardware only as a means to get our software into the marketplace. Our goal long-term is to remain a software as a service company and to provide and license our RemarkAI software technology for a recurring monthly fee per registered user in the system to every producer of thermal scanners and cameras in the world. We believe if we focus on what we inherently do better, which is AI-enabled software solution, and camera manufacturers focus on what they do best, which is producing, distributing and maintaining complicated hardware solutions, everybody wins.

To this end, we will be announcing the addition of new executive level business development leadership and partners in the coming weeks, which can help us navigate these relationships, while we continue to focus on the incredible influx of inquiries and opportunities we have at hand.

We are honored to be doing a small part to help reopen America, whether it is for large, small profit or nonprofit organizations. We are excited to what may be the new norm, post-COVID era, as we all become more cognizant of being responsible to others by helping to keep everyone safe and healthy. We have a lot of new shareholders on this call, and we look forward to continuing to build your trust in us and grow our business long-term together.

Finally, I hope America opens up soon, and all of you can come take part of the reopening of Vegas. Go Vegas Rangers.

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E. Brian Harvey, Remark Holdings, Inc. – Director of Capital Markets & IR [4]

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Thank you, Shing. I will now provide a brief overview of our financial results for the fiscal year ended December 31, 2019, and I’m going to let the Rangers comment go.

Revenue from continuing operations for fiscal 2019, was $5.0 million, down from $10.1 million during 2018. As many of you are aware, regulatory changes in China’s financial services market caused us to discontinue our FinTech business in 2018, resulting in no FinTech revenue in 2019 after reporting 3.7 in the prior year.

Our advertising-based business showed a decline dropping from $2 million in fiscal 2018 to $1.4 million in fiscal ’19, primarily as a result of the sale of Banks.com in 2018. On the e-commerce front, Bikini.com showed a slight growth in fiscal 2019, and the prospects for Bikini.com look positive in 2020 as online shopping has expanded due to the COVID crisis and recently, several major department stores have declared bankruptcy.

Our AI-based products and services revenue declined to $3.6 million from $4.3 million, as revenues were constrained by ongoing working capital issues that kept us from purchasing equipment that would have led to higher revenue. Implementation is underway to convert China Mobile stores into smart stores, as Shing noted. During fiscal 2019, over 2,000 store mobilizations were begun, and we expect the pace to accelerate in the second half of 2020 to over 5,000 as the global lockdown is eased across China.

During the year, we also completed and passed several proof-of-concept tests on projects and the beginning of deployment and implementation leases on other projects. Total cost and expense for fiscal 2019 was $27.8 million, a decrease from the $54.6 million reported in fiscal 2018. The decrease is primarily attributable to decreases in cost of sales as a result of the discontinuance of the FinTech services, a decrease in consulting fees and in payroll and related costs as a result of headcount reductions. Our operating loss declined to $22.8 million in 2019 from $44.5 million in 2018, commensurate with the constant and expense declines.

Our net loss from continuing operations totaled $23 million or $0.52 per diluted share in the fiscal year ended December 31, 2019, compared to a net loss from continuing operations of $18 million or 46% per diluted share in the prior fiscal year.

At December 31, 2019, our cash and cash equivalents balance was $272,000 compared to a cash position of $1.4 million at December 31, 2018. Cash decreased primarily due to ongoing operating losses that were offset by the issuance of stock.

Cody, we’d now like to 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. Cody, could you please instruct the callers how to queue up with their questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we’ll take our first question from Steve Allen.

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Unidentified Analyst, [2]

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Yes, Shing, a couple of questions. You’ve obviously been very active on the social media front, mentioning companies win and [Simon] and the Las Vegas Police. What’s the strategy behind the tweaks instead of press releases, and what’s the strategy of using social media versus press releases?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [3]

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Thanks, Steve. I think that just to be clear, we try to keep our investors informed on what’s happening with the company. And so that’s what we do. And when — but certainly, as I mentioned in the comments that there are strict NDAs that are put in place, sometimes — many of the times are done after I make the post or not. So we’re not obviously have to adhere to it. But we certainly feel that it’s our job to not use — not just use the social media as a way to keep investors updated, but we use it as a way to keep potential customers updated. We get many leads for people that follow our social media, not just in our Twitter, but really all across the board. And it’s a great lead generating, frankly, it’s a cheap way to generate lead. Making press releases costs money. And we all know that. So we’re still — until we start getting profitable, we’re certainly not in the position to be just spending money that we don’t have to.

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Unidentified Analyst, [4]

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Okay. And on Sharecare, what update can you give us of where they stand from either S-1 registration or you being able to monetize your position? And with the offerings they’ve done, what percentage of Sharecare would you own now?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [5]

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So I think our percentage will be released in the 10-K tomorrow. In terms of any type of their own S-1 plans and all that, that is something that is — will be — that information will be disseminated by them when — if and when they will ever be ready. So that’s something that, obviously, we are upheld by our NDA with Sharecare, so we can’t comment on that. But what I can comment on is that the digital health space is very strong, as we see Livongo and Telebox has been — performed amazing over the last 2 months, and it’s a big reflection of their digital health industry, certainly as in the U.S. So Sharecare is very much in that industry, and I think it bodes well for us.

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Operator [6]

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We will take our next question from Darren Aftahi with Roth Partners.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [7]

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Shing, maybe if you could start, it’s good to see you paid the debt off. What’s your current state of cash as it stands today? And what’s kind of the current share count?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [8]

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Our share count will be released tomorrow in the 10-K, okay? I can say our — the cash that we have right now will — is more than sufficient to handle our working capital needs and to be able to fill the orders.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [9]

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Got it. On the thermal side, you’ve mentioned some wins and obviously you’ve pieced things together, you can kind of figure out maybe who those business partners are. Some questions on that. Maybe can you give us a sense for, I think you kind of went over why you win. But in terms of how you’re selling this, like, what’s the cost, maybe a sense for how many cameras or kits are installed in each venue? And then as you think about your, let’s call it, 2020 pipeline, how many sort of opportunities you currently have right now? And maybe how many installations have you put into place already?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [10]

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Okay. Well, the stuff specifically as it relates to the win, and you mentioned before, we obviously can’t talk about that, I think the easiest way is to come to Vegas, and you can see for yourself. We certainly can’t address that, we can say that our technology was featured on the welcome back video. And I think actually, as soon as we load up the Wynn Las Vegas web page, you’ll see our technology there.

They’ve been, I would say, in general, our sales leads either come from my relationship or referral. That has allowed us to get to this point with the best of, I think, as I said, with the different industries. I know a lot of CEOs in a lot of different industries. And as soon as they heard what we were doing, they clearly were interested. And then the next step was to being able to showcase it. As I mentioned, Las Vegas Metro Police. They were an early adopter of our technology, which gave a lot of these different groups to be confident that our technology works. So how we’re finding it and really is that we go out and sell our thermal kits, and we sell that at a $25,000 pricing, and we’re selling a lot of them. And we expect to sell more of them as these different venues begin to open up more because right now, they are not allowed to open up there. And it probably isn’t prudent for them to open up their entire facility. But kind of — because there’s just not the demand there.

But then we would also sell our thermal facial pads as a way of doing secondary screening. Or as another way to do employee back of house cleaning because not only does it check, as I mentioned, the temperature, but we can tie it into the different employee management system to — the associate can handle multifunction. What are the other stuff, I think there was like 2 other or 3 other questions that you had on the back of that?

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [11]

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Yes. I was just kind of curious maybe two more on the topic. So one, what is can you kind of quantify what the number of installations you’ve actually done? And then what the pipeline perhaps looks like as it stands for what the opportunity looks like for, say, in 2020?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [12]

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I can comment that we are in over 20 different installation sites. But I can’t comment on how many we’re doing for each.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [13]

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And then in terms of your backlog, how does that 20 installations compared or kind of your sense for kind of quantification? Is it 20 or 100?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [14]

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Yes. I mean, we probably get, I would say, 10 serious inquiries a week — I’m sorry, 10 serious inquiries a day. Our backlog, I would say, would be closer to 70 to 90 different groups. But we need to, one, handle all of the business negotiation part of it. And number two, be able to fulfill it. So we don’t obviously want to accept the contract until we’re sure that we can fulfill it because there are issues, the whole world wants the thermal scan to be able to reopen up. So especially with China coming back online, we’re now having to compete against like the schools, as I mentioned, in the different businesses over there that have opened up.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [15]

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Got it. And could you speak to perhaps maybe the top 3 or 4 industries that you’re seeing kind of the greatest demand from and not just the demand, but in terms of the sense of scope, meaning say, a sports stadium would have probably more points of presence than something from a smaller venue. I’m just trying to clear stuff to understand that.

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [16]

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Yes. So I would say the errors would be like hospitality. I would say, certainly, the sports are — sports/stadiums, right? So that includes kind of the concert venues and the live action stuff. Number 3 would be the amusement parks, which are big. And then the fourth part would be government, I’d say, government agencies. And say, for example, if I say government agency, I would say, include that with other law enforcement agencies or hospitals.

And I would just add, I think the fact that we have been doing this with the Metro Police and the UMC, we are covering both the law enforcement plus medical side. And I think that gives a lot of confidence to the different private enterprises that we’re able to check the box on both sides. Got it.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [17]

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And just last one from me. I noticed on your thermal AI site, there’s a tab for becoming a distributor. What is kind of your strategic focus in terms of getting the resellers and distributors kind of — given kind of your limited scope in terms of manpower capital right now?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [18]

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Yes, yes. So we’re — it’s a great point. I mean, we’re — we went into 2020, we cut a lot of the costs in our business. And certainly, when this — we know that obviously, this virus caught everyone by surprise. And we, frankly, just didn’t have the — we don’t have enough people to service the demand. So we are certainly working with the biggest reseller in different parts of not just the U.S., but in the Middle East, Europe, Northeast and Southeast Asia in taking our technology to their respective clients. We can’t cover the world, obviously. But we’ve had very strong interest and not just interest, but it proves that already that we are partnering up with in terms of the reseller.

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Operator [19]

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We will now take with Ron Nash with Nash Partners.

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Ron Nash, Nash & Company [20]

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Can you hear me?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [21]

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Yes.

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Ron Nash, Nash & Company [22]

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Okay, good. Shing, question. I got on the call late. I don’t know if there was some problems where I couldn’t get in. I’m not sure if you actually mentioned it but the 12 — in your press release you said $12.7 million as full payment against the lien. Is that correct, was this made today?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [23]

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Yes.

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Ron Nash, Nash & Company [24]

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Okay. So tell me, if you didn’t put it in the release, where did that $12.7 million come from?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [25]

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The $12.7 million came from our different partners that provided the financing for us to be able to take care of our debt.

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Ron Nash, Nash & Company [26]

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So you issued equity in place of the debt. Is that what you want to do?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [27]

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Yes.

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Ron Nash, Nash & Company [28]

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Okay, okay. So that will be in the press release tomorrow, I assume?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [29]

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That will be reflected in the K tomorrow.

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Ron Nash, Nash & Company [30]

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In the K. Okay, that’s what I want. I didn’t see it put anywhere today. So that was the question. And the other thing is, I’m curious to know, how do you generate most of your sales leads that you get? Where did they come from really?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [31]

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So yes. So Ron, we get our sales really through my personal relationship. But I think even more importantly, our customers are our best sales lead generators, right? As I mentioned in my remarks, our customers are our greatest lead generators there. After we show them that it works after they become a customer, they refer us to — each one refers us to, I’d say, between 10 to 15 other customers. So we’re pretty excited about that because it’s — they increase the demand for us, or help create the demand for us.

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Ron Nash, Nash & Company [32]

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So because of the network that you have, it appears that a lot of these contracts are being rolled up from one person to another person once they get to meet you. Is that more or less what happens once they see your products? Is that the basis of it?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [33]

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Yes. Right.

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Operator [34]

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We’ll now take our final question from Dillon Heslin with Roth Capital Partners.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [35]

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I wanted to follow-up on the landscape in China, sort of how have things trended in terms of the pace and scale of some of these rollouts across the various partners in schools and in construction in CPP? So let’s think the Chinese economy has opened up a little bit more here in sort of the last 2 months or so.

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [36]

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Dillon, I missed you in the middle there. I just heard about the China economy opening, is it — how is it — I guess the other parts are kind of coming in and out.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [37]

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Okay. Just wondering how the pace of the smart terminal rollouts have been in — the Chinese economy is starting to reopen, relative to sort of in case you’re exiting sort of December?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [38]

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Yes. So we are in 2,000 stores already. We — certainly, the COVID shut everything down in the world, as we all know. But now I think China is maybe 30% there in terms of getting back onto speed. So we still think that we will be in a roughly 5,000 stores by the end of 2020. That is a goal that is set by China Mobile. And then our target for 2021 is to get to — to be over 10,000 stores.

Yes, I think it’s coming back, that it’s still coming back too early.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [39]

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Okay. And then have you gotten any of sort of the early 2019 deferred revenue recognized at all yet?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [40]

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No, we haven’t.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [41]

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Do you have any visibility to if or when that could possibly come through?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [42]

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We do have a visibility. And part of it is as the economy is opening up, we need to balance how we basically — when you’re dealing with somebody with like China Mobile — I mean, is that the deferment that you’re talking about?

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [43]

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Yes.

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [44]

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Okay. Which part?

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [45]

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I’m not sure.

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [46]

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I just give me a call offline, and we can go through that in detail.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [47]

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I mean, there’s approximately 4Q ’18 into — I think the last time we talked about, there was about $5 million of deferred revenue that you would get to collect. So just sort of wondering where that balance stands.

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [48]

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Right. So some, we will be — okay, so that I think that revenue, we will be recognizing soon. Some of it will be written off, but most of that, we’ll be able to recognize soon.

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E. Brian Harvey, Remark Holdings, Inc. – Director of Capital Markets & IR [49]

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And there’ll be greater detail on that in the K tomorrow.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division – Research Associate [50]

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Got it. Okay. Last one for me. Could you talk a little bit about sort of a quarterly cash OpEx rate and so where that’s trending so far here in sort of into, I guess, mid- 2Q?

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Kai-Shing Tao, Remark Holdings, Inc. – Chairman & CEO [51]

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I would say it’s hard to do any kind of forecasting as the things are changing so much week-to-week. I know that we have — coming into 2020, we cut our costs down dramatically. And now we just have to figure out how to scale up again because of all this increased demand. So that’s something that we’re working on right now. But it’s too hard for us to forecast. But the big part, I think, which hampered us in the past is that we’ve acquired in the past to put down 100% deposits, and we’re working with our performance, with our different partners. And now we’re able to handle that using the working capital from our customers because they have to put down 50% to 80% of the deposits in order to get anything started.

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Operator [52]

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And that does conclude today’s question-and-answer session. I’d like to turn the conference back over to Mr. Harvey for any additional or closing remarks.

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E. Brian Harvey, Remark Holdings, Inc. – Director of Capital Markets & IR [53]

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Thank you, everyone, for participating in Remark Holdings Fiscal 2019 Financial Results Conference Call. A replay will be available in approximately 4 hours through the same link issued in our May 13 press release. Thank you. Have a good afternoon.

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Operator [54]

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That does conclude today’s conference. Thank you all for your participation. You may now disconnect.

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