Q4 2023 Remark Holdings Inc Earnings Call

Participants

Fay Tian; VP of IR; Remark Holdings, Inc.

Kai-Shing Tao; Chairman & CEO; Remark Holdings, Inc

Todd Brown; VP of Finance; Remark Holdings, Inc.

Presentation

Good day, and welcome to the Remark Holdings Fiscal 2023 financial results conference call. (Operator Instructions) Please note today's event is being recorded. I would now like to turn the conference over to Fay Tian. Please go ahead, ma'am.

Fay Tian

Thank you, Rocco, and good afternoon, everyone, and welcome to Remark Holdings Fiscal 2023 financial results conference call. I am Fay Tian, Vice President of Investor Relations for remarks on the call with me this afternoon is Mr. Kai-Shing Tao, Remarks, Chairman and Chief Executive Officer, and Mr. Todd Brown, Vice President, President of Finance. And just a moment, Mr. Tao will provide an update on our businesses, and Mr. Brown will recap our 2023 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 statutory forward-looking statements disclaimer, which is included in full in its filings with the SEC.
I will now turn the call over to RE/MAX Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional information on RE/MAX businesses and recent developments. Shing please.

Kai-Shing Tao

Thank you for joining the call. And our most important achievement in 2023 was setting the groundwork for 2024 and beyond. The primary highlight was the signing of our business partnership with Microsoft up until this point, our sales efforts have been mostly direct. However, that has changed and that is that has changed and that is due to the value proposition that the Remark AI platform has brought to the table. It took almost 18 months of due diligence on our platform, and we are now honored and excited to be able to leverage with Microsoft the thousands of sales teams to market our solutions to their enterprise customers.
This collaboration allows for mark to rapidly broaden its sales and marketing for the Microsoft mature marketplace, providing institutional credibility for prospective IT departments approval as well as the rapidly scaling remark, AI inference and training models. A five year agreement is expected to drive $240 million of AI. business for remark by 2029.
But with all the hoopla on I., I want to clarify on how we are positioned right now. Ai is all in the press, but most specifically, it's about generating data, our large language models at remark we have been doing generated by us since 2017. However, we felt back then as we do now that it's a tough business proposition, cool technology does not mean people will buy your products in a profitable manner.
The open secret, as they say is that in January of a I know everyone is copying each other and therefore will result in a disastrous score at remark. While January of AR is a feature. We provide our strengthened focus on computer vision and the building of large division models, which in turn leads to our core platform of multimodal models as a service in 2023, we launched our first SaaS AI platform, first large vision model business application.
The large decision models, Smart Construction, best AI platform is a few shot training framework based on our large division model, a large computer vision and semantic multimodal model. The release version is it's 34 billion parameter, a model with the propriety dynamic prototype Fusion network. It is designed to address limited training samples and complex environmental problems in various industries. And it's achieved extremely high performance with Microsoft cocoa dataset for complicated object detection and segmentation, LogicVision model otherwise known as LVM. Smart Construction product has learned federal, state and industrial level safety, quality and environmental protection guidelines and SOPs as well as social laws. It can autonomously perform safety, quality and environmental check two video streams from fixed security, surveillance cameras and wearables, i.e., 360 degree cameras card have mountains GoPro cameras specialized for worker safety hazard risk management, meaning fire, collision and traffic, equipment operations, safety, environmental safety, construction, progress estimation and quality checks. This even powerful enough to allow for new and updated SOP and rules to take effect as soon as they're updated. It provides construction business intelligence by real-time video analytics and autonomous work logs.
Currently, the product is being customer tested. One of the largest construction project in the world located in Saudi Arabia, starting in Q4 2023 and working with our cloud partners. Our smart safety platform, SSP. has been upgraded to a cloud base global SaaS platform with guaranteed scalability and mission critical processing capability. The SSP. covers public safety applications like access control, crowd, safety management, fire and smoke, real-time alerts, weapons detection parity evasion fighting an unattended object detection enhanced with our LGMRSSP. is being used in various levels of public safety agencies in the United States and the unit in the United Kingdom. What is multimodal multimodal models can process a wide variety of inputs, including text images and audio as prompt and Converse, those prompts introduced upwards, not just the source type. Give you two examples of what Remark AI does. We recently announced our kind of large multimodal model in a high-powered aviation safety platform called ASP. remark, AI developed ASP. to safely reduce inspection times associated with aircraft engine maintenance as well as provide anti-collusion tools for aircraft tolling and other functionalities. All while improving the collection and reporting of a central performance data in a multimodal format. Given the recent safety inspection failures and supply chain disruptions experienced by Boeing and its airline customers there's never been a better time to utilize AI to improve safety performance. The ASP. uses a large multinational model to provide several functionality included in three essential components on inspection and engine expense expansion kits, an aircraft towing anti-collusion system and a large multimodal model for business intelligence and reporting portable aero engine inspection kit, the techs damaged aircraft engines, including damage such as combustion chamber erosion, terror detection, Blade coal ablation samples or pits lap where the misalignment upon recognizing such damage, they are to evaluate for certain severity and automatically generates an inspection report with detailed images, thereby reducing staff workload and inspection times from days to approximately 30 minutes, allowing for real-time preflight inspections before take all the tolling anti-collusion system, TACS. provides aircraft towing operations functionalities that look for warn of and thereby potentially prevent accidents. The system helps those tolling aero planes to avoid obstacles by utilizing the Cotco stream to provide a real-time three-dimensional view of the aircraft travel time. A dynamic environmental status and potential Collision Warning functionalities include collision prediction, speed monitoring and detection of abnormal, driving an unquantified LiDAR to provide comprehensive coverage under all weather conditions. The aviation industry business and touch a partner has a powerful AI system to analyze this massive business data files, photos, videos and other files and then provides valuable business intelligence system allows for data processing, predictive analysis, semantic search and statistical analysis, and it provides intelligent recommendations that allow for process improvement in many aspects of aviation operations. We've already launched a similar platform like this buffer trains, subways and railways. And we are soon to launch our Remark AI, multimodal safety platform for Marine and see safety as we have significant potential customers in the Middle East and South America. Our pipeline continues to be very strong and is only getting stronger with our recent win at the Clark County School District, which is top five largest in the United States. It has set us up well for other large school districts across the US.
In addition, currently as we are targeting the US domestic security market, there are 100 million domestic security cameras and 200 million global cameras, excluding China, that do not provide intelligence or AI real-time analytics, assuming a base case of $1,200 annual stream per camera to empower it with analytics. This represents a $360 billion total addressable market. With that we believe we are well positioned and in the final stages to win a large security contract with over 100 micro centers, walking you through the numbers to show how quickly this business can sales in just this industry alone, we generally sell six solutions, which we charge $100 per solution, one violence detection to facial recognition, three weapons detection, four slip trip and fall five fire and smoke detection and six intrusion detection.
So if you multiply $100 times six, that's $600 a month times 12, which equates to $7200 a year. $7200 a year times 100 cameras, which is the typical amount of cameras and located in each Micro Center decreased to $720,000 -- $72,000 in the year. And with 100 my margin centers that equates to $72 million a year. This is an exciting day here as the revenues all software, it does not include our hardware revenue. We're still generates approximately 50% gross margin. I hope this is a strong example of what we see for marquee I. in 2024 and beyond.
Todd?

Todd Brown

Thank you, Sheng, and thank you to everybody for joining us on the call today. Our revenue for fiscal year 2023 totaled $4.4 million, reflecting a decrease from the $11.7 million we recorded during fiscal year 2022 to the revenue we recognized during 2023 resulted primarily from additional installations of our Smart Campus Solution and our Smart Construction solution in China. We did also complete certain projects during 2023 worth approximately $1.4 million, but the agreement with our new customer did not meet our requirement for revenue recognition on an accrual basis. So we only recognized an immaterial amount from such agreement in 2023, but we expect to record the remaining amount as revenue in future periods.
Overall, our project completion slowed in China initially due to the slow economic recovery efforts after the COVID-19 pandemic related restrictions lifted at the end of 2022. And then as political tensions increase between the U.S. and China that we were able to have some moderate success earlier in 2023. The economic conditions and the political tensions made it more difficult than expected for us to complete projects on a steadily increasing pace.
Our operating loss of $17.2 million during fiscal year 2023 reflected a decrease of $4.1 million from an operating loss of $21.3 million during fiscal year 2022. In addition to recording less revenue during 2023, our cost of revenue decreased $8 million, primarily in conjunction with the decrease completions in China. And also because cost of revenue in 2022 included $1.3 million of inventory obsolescence that did not recur materially in 2023.
General and administrative expense decreased by $5 million as bad debt expense, legal and professional fees, certain business development costs and stock-based compensation all declined during 2023, partially offsetting the decreases in cost of revenue and in general and administrative expense were increases of $1.3 million and $0.4 million respectively.
In asset impairments and sales and marketing expense, we are reporting a net loss of $29.1 million or $1.74 per diluted share during fiscal year 2023 compared to a net loss of $55 million -- pardon $55.5 million or $5.22 per diluted share during the fiscal year ended December 31, 2022.
Our net loss decreased primarily because we reported a $26.4 million loss on investment during 2022, whereas we did not maintain investment assets during 2023 and therefore, did not report any gain or loss on investment in 2023.
The decrease in our operating loss described above and the or pardon me, was partially offset by a net effect of $1.8 million of decrease in interest expense, which resulted from less debt principal outstanding and a decrease in debt fee and debt discount amortization in the $6.3 million increase in finance costs, which was related to our issuance of additional convertible debentures and draws on an equity line of credit pursuant to our agreements with Ionic Ventures LLC
As of December 31, 2023, cash balances totaled $0.1 million, which compares to cash balances of less than $0.1 million on December 31, 2022. Net cash used in our operating activities during 2023 was $10.5 million.
With that, I'll turn the call over to the moderator to begin the question and answer portion of our call.

Operator

Thank you. Before we begin, I believe as Shing Tao has another comment I'd like to make before the Q&A.
Yes, I just wanted to clarify the numbers. It is $72 million a year just for this one contract that Kevin brought walking through the numbers. It's $100 a solution which we have six of them. So that's $600 a camera times 12 months, which equates to $7200 a year. Typically, each one of these migrants centers have 100 cameras. So suddenly 7200 times 100 to $720,000 per Micro Center times 100 micro centers, which equates to about $72 million in new.
Okay. Great, moderate.

Question and Answer Session

Operator

Thank you sir. (Operator Instructions)
This concludes your question and answer session. I'd like to turn the call conference over to Tim for closing remarks.

Fay Tian

Thank you, Rocco, and thank you, everyone, for participating in Remark Holdings Fiscal 2023 financial results conference call. A replay will be available in approximately four hours through the same link issued in our April 4 -- sorry April 8 press release. Have a good afternoon. Thank you.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.