Q1 2024 Remark Holdings Inc Earnings Call

Participants

Fay Tian; IR; Remark Holdings Inc

Kai-Shing Tao; Chairman of the Board, Chief Executive Officer; Remark Holdings Inc

Todd Brown; VP of Finance; Remark Holdings Inc

Presentation

Operator

Welcome to the Remark Holdings Inc., first quarter 2024 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to hand the call to Fay Tian, Vice President of Investor Relations. Please go ahead.

Fay Tian

Thank you, [MJ], and good afternoon, everyone, and welcome to Remark Holdings; first quarter 2024 financial results conference call.
I am Fay Tian, Vice President of Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao Remark's, Chairman and Chief Executive Officer, and Mr. Todd Brown, Vice President of Finance. In just a moment, Mr. Brown and Mr. Tao will provide an update on our businesses, and Mr. Brown will recap our first quarter 2024 financial results.
Following these 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 statements. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.
Any forward-looking statements reflect Remark Holdings' current views and Remark Holdings, expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof. This disclaimer is only a summary of Remark Holdings' statutory forward-looking statements disclaimer, which is included in full and in its filings with the SEC.
I will now turn the call over to Remark's Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional information on Remark's businesses and recent developments. Please go ahead, Shing.

Kai-Shing Tao

In our last quarter call, we highlighted the importance of where Remark AI stands in the artificial intelligence arena. We took the first quarter to continue to improve on our larger vision models and making everything we offer to customers multimodal. Most of the names you read in the AI space right now, focus on large language models or LLM.
Due to some great achievements and generated AI for Aero and space. In the past year or so. The market has shifted the focus from computer vision to LLM. However, Vision is still the major information source for humans, it represents 70% to 80% of our centers. And vision is still the major center for humans to react to the world. It is the same for AI and to really make AI useful to our lives and our social development. We need not only to have semantic level AI. but also visual AI.
Another word a multimodal AI to interact with the physical world. Benefiting from LLM.'s rapid development, computer vision AI has advanced dramatically as well. However, we are still facing several critical hurdles that have prevented computer vision AI from being wildly adopted, which are one black of sample data to the particular business or industry to generalization versus customization. And three affordability.
Remark AI as a computer vision Pioneer has been working with customers from various industries for over a decade. We have been tackling these problems for our customers and have built our zeal zero shot training framework for limit to training samples and our computer vision based large multimodal model for generalizing computer vision capabilities and reducing adoption cost significantly.
Our technologies have been applied to many smart city projects in fire prevention, [city] 311 services, construction, traffic control, et cetera. AI that can solve physical world problems is underway. 2024 is shaping up to be a year where our 18 months of hard work to pivot our business from a mostly China business to outside comes to fruition.
Most recently, we were formally awarded with the Clark County School District, which is the fifth largest school district in the US to supply based weapons and gun detection. Clearly, guns has been an issue that affects all of us. And in particular, our children and their safety and schools. We won this highly contested deal due to our effectiveness and value proposition that we brought to the table.
We anticipate this deal to be the first step for us to be to have our AI solutions across the various industries that encompass Clark County. And although this is to say this win also has resulted in many new potential opportunities for school districts across the US.
While we understand the TAM for the initial weapon safety contract to be roughly [50 million] split amongst three parties. We are optimistic that we will get the lion's share of that. Already, the initial orders earmarked for 2024 from this deal has surpassed even our own internal expectations, and we only expect more from this point on.
Last quarter, we announced our partnership with Microsoft, where we will be using their vast and very capable sales team to deliver our computer vision AI solutions to their customers. Currently, as expected, we are going through a technical migration process, which will soon be concluded. Once this is done, we expect the strong interest that we initially received from Microsoft customers to be cemented.
In the next quarter or so. We also expect to announce another Fortune 500 partner to also sell our solutions across their respective sales teams. Already, we have received very strong interest from their employees, looking at our products as something that they can sell successfully.
I've always talked about how unique our platform is to our current and potential customers. But it's one thing if I see it, clearly different when someone else does a testament to our unique ad platform is actually happening next week in New York City at the world's smart city Expo, both in NVIDIA and Oracle will be representing and selling our Smart City solutions.
In fact, I will be speaking on a panel with both their head of their Smart Cities division at NVIDIA and the former CEO of Orange County in New York City's fire department to discuss how our solutions can benefit them immediately.
NVIDIA and Oracle wanted us to showcase what we do. And one fire and smoke detection. Two traffic analysis, real-time. Three use of AI agents to handle city call centers like 911 or 311. We were asked to showcase our solutions with them because prediction and prevention is one of the key features, computer vision is being adopted in smart city applications.
In the case of fire prevention and early warning systems, our AI through street cameras or building Street security cameras to textbooks an early sign of a fire before it breaks out or real-time fire alert when a fire is just starting, whether it's in the garbage dump, construction site or EV charging station. And the AI is smart enough to tell the smoke from streams does or cloud to minimize false alerts.
Working with the fire department dispatching system, The AI can help the fire department to determine the severity of the fire and deploy the firefighters properly and quickly. In the case of fighting fires in a building or on a campus. Our AI can give real people real time people count. How many are in the building and how many have gone out and where the fighter firefighters are for better rescue planning and reduced risk for firefighters, and we'll talk down speakers, the AI can guide people in real time for evacuation.
These kinds of real-time analytics and assistance to the situation do save lives. What makes us so unique when they ask that we are able to attract these industry heavyweights to be our partner. AI capabilities are growing faster and stronger. People always have doubts on how AI can perform, especially on mission critical tasks until they see what AI can create and generate.
While LLM-AI. is a great tool for digital costs. Computer vision Ai is essential and the key for physical world interaction that is precision and responsiveness sensitive. Remark's computer vision, AI is trained with the framework that gets the precision from the pixels or visual and the context understanding, we call that human knowledge from semantic labels.
We are teaching it to understand the rules and physics of the real world. So that it's able to construct a 100 ton stacking machine to unload piles of ore from a ship or train and stack them properly in a warehouse autonomously or it is able to detect various damages on turbine engine blades and assist engineers to determine if the plane is safe to take off from the gate.
These are definitely exciting times. And while we still clearly have numerous loose ends to tie up to help us scale and achieve our goals faster. We are doing that as we as I speak, and you should expect to see positive news regarding these issues in the near future. Todd?

Todd Brown

Thank you, Shing, and thank you to everybody for joining us on today's call. Our revenue for the first quarter of 2024 totaled $0.4 million, reflecting a decrease from the $0.8 million we recorded during the same quarter of 2023.
The revenue we recognized during the first quarter of 2024 resulted from cash collections on certain projects that we had actually completed during 2023, with a total of about $1.4 million, but for which the agreement with our customer did not at the time meet the requirement for revenue recognition on an accrual basis.
We expect to record the remaining amount related to such projects as revenue in future periods. Overall, due to our decision to reduce staff in China because of the negative effects on our business from the slow economic recovery in China. And the political tensions between the US and China. We did not complete new projects during the quarter, although we will be able to complete new projects in China in the future.
For now, our efforts are focused on executing the Clark County School District project and winning several other opportunities outside of China that we believe we are very close to winning.
Our operating loss of $3.7 million during the first quarter of 2024 reflected an increase of about $0.7 million from an operating loss of $3 million during the same period of 2023. In addition, certain expenses related to business development increased by $0.6 million during the first quarter of 2024 those such increases were partially offset by a $0.2 million decrease in franchise taxes as well as by other small decreases in general and administrative expense categories that were not representative of significant business trends.
Also during the first quarter of 2024, our technology and development expense increased in comparison to the same period of 2023 and that was the result of the prior year, including a tax credit of approximately $0.5 million from the UK government, which we recorded at the time as an offset to expense, but we did not receive such credit during the first quarter of 2024.
The increase related to the tax credit was partially offset by $0.3 million of the decrease in payroll related expenses during the first quarter of 2024 due to the reduction in our workforce that we previously talked about.
We are reporting a net loss of $13.8 million or $0.40 per diluted share during the first quarter of 2024 compared to a net loss of $8.2 million or $0.63 per diluted share during the same period of 2023. In addition to the impact of items affecting operating loss that we just discussed, our net loss increased primarily as a result of a $5.6 million increase in finance costs, finance costs related to the establishment of an measurement of our obligations to issue common stock.
Those obligations arise as a result of our transactions with Ionic ventures LLC, including the convertible debentures, which are now fully settled and the draws on the equity line of credit. The increase in finance cost was partially offset by a decrease in interest expense of $0.6 million and that decrease primarily resulted because the same period of 2023 included an extension fee of $0.8 million that was reported in interest expense.
While during this first quarter of 2024, no such fee was incurred. As of March 31, 2024, our cash balance totaled $0.2 million, and that compared to a cash balance of $0.1 million as of December 31, 2023. And we also used $3.4 million of cash in operating activities during the first quarter of 2024.
And with that, I will turn the call over to the moderator to begin the question and answer portion of this call.

Question and Answer Session

Operator

Thank you very much. We will now begin the question and answer session. (Operator Instructions)
Seeing no questions at this time. This concludes the Q&A session. I would like to turn the call back over to Fay, for any closing remarks.

Fay Tian

Thank you, [MJ], and thank you, everyone, for participating in Remark's Holdings, first quarter fiscal 2024 financial results conference call. A replay will be available in approximately four hours through the same link issued our May 16, press release. Have a good afternoon.
Thank you.

Operator

The conference has now concluded, and thank you for your participation. You may now disconnect your lines.