Q3 2020 SRAX Inc Earnings Call
SRAX.
Q3 conference call.
We appreciate you joining the call today.
There's still a few people getting into the call.
And so we'll go ahead and.
Slowly start here.
We're excited for the quarter, we think we had a really good and inks exciting quarter.
I'm going to go ahead and do the presentation and then afterwards work and.
And there's some queuing day. So if you have if you have any queuing day questions. Please go ahead and.
Assets questions right through the Q and a section of the of the platform some of it and and a share start the start the presentation.
So SRAX is.
Give me a little bit arm and overview of the third quarter.
And so you have the Q3 2020 conference call.
And they give you a little bit of an overview of what happened this quarter.
We had a really good year over year call, we had 161% year over year growth within the company and most of that is attributed to the growth of our supplier platform and the recurring revenue nature of.
Our supplier platform, we also had a quarter over quarter growth of approximately a 124%.
Which we're really proud of that and we're continuing continuing to see growth of these acquired platform quarter over quarter.
We completed the acquisition of the LD micro this quarter and that's been going fantastic and while well talk to you a little bit about that we completed the sale of the remaining position that we had inside of SRAX MD.
So inside of SRAX MD, we owned a piece of and LLC that was a owner of a part of the SRAX MD assets and we sold that for $8 million.
And Ah so that was not sitting on our balance sheet. Previously so that's $8 million that was not recognized on the balance sheet. So we're excited about that.
We also had seven quarters of consecutive sequential revenue growth, which is fantastic seven and quarters of growth overtime.
And there's no there's no stopping of that into the future, we're continuing to see that grow.
The.
We increased the number of required clients from the last time, we did our conference call we had 91.
Customers and now we have 125, so we've grown significantly since the last quarter conference call. So growing from 90 125, and we're just hitting our stride now we're really starting to sign companies up significantly.
And we think that the pace of this acceleration is continuing to grow as we add more and more services into the platform.
We move we move big token into its own public company by signing a share exchange agreement with S.P.V.D. and we anticipate that that company will be trading and its own public entity at the beginning of Ah.
December.
The.
Q3 bookings force acquire were $6.7 million, which is the largest bookings that we've ever had and in individual corridor, which is fantastic.
We're currently holding approximately $10 million and publicly traded marketable securities.
So our balance sheet has been completely revitalized between the $8 million that we've taken and for the SRAX MD transaction and the $10 million and marketable securities that we currently are holding a if you look at the balance sheet today or that we put out today, you'll notice there's only approximately four.
A point something million dollars on the balance sheet, but since then we've we have close to $10 million and and marketable securities.
Where we have good insight into our revenue for Q4. So we anticipate that Q4 will be approximately $4 million at this point.
We think that.
You know this is this has exceeded our analysts expectations both for this quarter and for the next quarter.
So for a lot of you that are new to the luddy view that are new to the SRAX story.
I want to give you a little bit of an update on what's acquire is and why we're seeing such momentum on the growth of the company.
Acquire is a we'd like to call. It a operating system for publicly traded companies. So it's a tool that allows you to track your investors are buying selling trends of those investors and provide a variety of tools that are important for public issuers to understand everything about their business.
And we built this out of the out of necessity for ourselves and then realized that there was a massive miss and the market.
So I'll give you some overview of the things that we're doing inside of supplier. So you can understand some of the things that we have now and and you know some of the things that we're building and the future.
So we have 125 clients have joined this acquire platform. This quarter, we increased the sales team of the supplier platform and we're adding more infrastructure on the sales side, we launched what's called and advance search feature inside the platform that allows for our issue is just search.
All companies that are.
All of the other companies that are out there the Republic. So they can see who's investing and their companies or they can see.
On a on an institutional basis. So all of the institutional data that's available out in the marketplace and they're also providing what is a CRM to reach out to those people. We <unk>, we launched a reseller portal for our reseller partners. So we have a big initiative around helping to IR companies and helping them.
Get trained up on this acquire platform and then allowing those IR companies to become experts and leveraging the platform and using it to help their customers understand.
What's going on within their company and manage everything and their company and we've created a portal for those resellers and that's an important piece.
That's an important piece, we have the LD micro conference. So we haven't LD Micro conference that has Ah. We also bought the LD Micro conference. That's out there. So as you can as you can see that with the LD Micro initiative we have.
Of put the conference out and we'll continue we'll be continuing to.
ER launch the conference.
Here are some of the supplier features that we have.
One of the most important is tracking of.
The shareholders, who are the shareholders that are participating in any particular company.
Who are they what price are they buying the stock at and when are they buying and selling those shares.
So this is a very important piece to our customers to understand exactly what's happening inside the company.
We provide and institutional database, so that our clients can understand who it is that is investing in their company and also other companies of similar size and nature. So you can see the name they address the phone number of the people that are investing in those companies and what the trend look.
Like for your particular company.
We provide the ability for companies to send and mock surveys out to their shareholders. So that there is a survey that is a if you wanted to create a mock proxy or ask questions to your shareholders. You can do that right through the platform.
We provided tool to manage warrants so that all of our customers can manage all the warrants that they have inside their company and you can also manage your employee option plans as well.
And around 30% of our customers opt to hire us to run display advertising to promote their company. So as you know our history as a company has that and managing digital advertising initiatives for many different second.
Vince.
And inside our company.
Company, we are helping public issuers.
Getting the investor audience aware of who their companies are.
And these are some examples of display advertising that we've done for some of our clients.
These are some display and some more display ads.
These are this is to give you. An example of how those ads appear on a page.
This is social media and so this is what the ads look like with inside Facebook and inside of a Twitter.
So the growth has been significant around supplier. We started the second quarter of last year with 12 clients. We're currently now at 125, the the revenue force acquire and the third quarter was $1.9 million the bookings for the quarter were six.
0.634, so as you can see the acceleration of growth is really starting to take root right now and I could tell you that into the fourth quarter were seeing the same continued growth on the platform.
This quarter, we pardon and up and and bought LD micro and in collaboration with the Crystal Heagy and it's amazing team of of people Weve now I believe fully integrated the LD micro platform into.
The into the SRAX organization.
And we have our first conference that we're gonna be throwing on December 14th and December 15, 2020, Oh, we anticipate that there will be somewhere between 300 and 350 companies.
At that conference and our team has been working diligently with the team over at LD.
L.D. to finish up and modify and and and customize the virtual conference software to accommodate the throwing that conference and we think that what we've built there is going to be the best.
Conference software that anybody has seen and we're very proud of it and it's going to be you know a really really unique format.
Not only has LD micro or you know and not only is it the virtual piece that we're all used to right now it's the pandemic is going on but you know we anticipate that one of these days, we'll be back to and person meetings, maybe and take a year from now, but we anticipate one day that there will be a timeframe when will be.
Be back and person, but even when we do get back to being in person. Our conferences, we'll always have a virtual element to them. So while there might be a few thousand people and and LD Micro conference listening to company stories, there's also going to be a there's also going to be.
A a virtual element that is happening so that you're always be able to have a a virtual.
The presentation happening.
And we think that the combination of this and ours acquired platform software is going to bring a lot of synergies together and I'll talk about that in a minute.
LD micro is not just the LD micro as not just the conference itself, but LD micro is also a web site that is tracks. The LD Micro index and we are working on some amazing enhancements to this platform and so.
Some other digital assets that will be combined together with LD micro dot com and provide tools for investors not only the companies themselves, but investors as well.
So the future of LD micro is and elevated format. It's the same LD micro that a lot of the community has come to love, but with more reach and resources will add those virtual conferences into the element will be inviting millions of shareholders to the conferences and anybody that is a sequential.
Client and for the main event this year is coming free to our virtual conference.
There are only entry is that they need to invite all of their shareholders. The calm and there is millions of shareholders within that ecosystem. So we'll we'll be inviting millions of shareholders to the conference in December which is very beneficial for all of our companies that are participating because we have a huge investor community that.
Being created around all of those shareholders and each company is going to be able to invite all of their shareholders to come see their presentation. It's not just the people that are traditionally accessing the L.D. community, but we're inviting these additional.
Investors as well and then where you know taking additional steps to enhance the index or the story you know, we'll provide you some more insight on that and and the next coming months.
So we got rid of the M.D. asset that wasn't on our balance sheet. So that was the $8 million that we got on the LD micro assets, but I mean, I'm sorry, the SRAX MD assets, but we also own the big token assets, which is a tool that allows consumers to own and monetize.
And as their own data.
That company has gotten to a point now where it can move onto its own public company and we're moving it into a company called assets PV D is the symbol Frank Paul Victor David and we anticipate that we'll be starting to trade there at the end of Q4, the we have filed.
A definitive proxy statement with the company. The noticed statements have been sent out and I'll take around 20 days before we start trading there. The company well you know SRAX will end up owning around 88% of that company, the and we've hired a management team there.
There a gentleman by the name of Malcolm 'cause Sal has been on our board for the last eight years and Malcolm has started 11 different companies and exited 11 companies successfully and.
And Weve promoted George stellar there's chief revenue officer of the company as well and they're very well position. They've also created a amazing board of people a really great pedigree of people that have really a deep background in the inner net advertising business. We've also done a re.
Ways for that company, a week or there's a 3 million dollar raise three that million dollar offering that's being done that should be completed in the next 20 days Weve actually raised close to 2 million of that 3 million today.
Now one thing that's important to point out with the M.D. business or the big token businesses that that piece of the business was a cost center for US. It was a costing us a lot of money to participate and to a key.
That piece of the business running so you know getting rid of that piece of the business into its own public company allows a supplier to continue to grow without the burden of needing to invest.
Directly into big token, so so quire and its own as you'll see as we go into this presentation is EBITDA profitable and we anticipate that going into the next quarter that it'll continue to be EBITDA profitable the Oh, we have.
I have.
You know weve.
We've said that we're going to be doing 4 million and revenue into Q4, and we think that you know that exceeds all of our analyst expectations and we're very confident on that number and that number gets us even not much closer to the full company being EBITDA positive. So I'm going to go ahead and let me.
Mike.
Mike Malone start taking over and share the financial portion of the presentation.
Thank you Chris.
And to jump into the financials as you can see and because we suppose we started doing the second quarter were not breaking out the business and tortue operating segments acquire and be token.
And just to drive into the revenues and.
As you can see a total revenue for the quarter was $2.6 million compared to 1 million and the third quarter 2019, representing an increase of 161%.
The mass majority of that that increases it or would you can see here is the increase its acquire growing from 31000 to approximately 2 million in the quarter.
Operating expenses were $4.2 million compared to 5.4 in the second quarter and then.
During the third quarter 2019.
Representing a 22% decrease.
And for the year to date period.
Operating expenses were $12.4 million compared to 15 in the year to day period in 2019, representing an 18% decrease.
The vast majority of this decrease in both the quarter and the year to date period is the rationalization of the the expense base that we began to take in the <unk> and in the first quarter towards the towards the middle of the second quarter.
And we're going to see that partially offset by an increase in the and the expense base due to the.
Acquisition of LD micro as we start to see that realized and are paying now beginning in the fourth quarter.
Operating loss was 2.5 million.
And $9.6 million in the third quarter and the year to date period, respectively. This compares to the operating losses of $4.7 million.
And $13.6 million in the third quarter and year to peak periods in 2019, respectively.
And.
And as Chris mentioned, we've had a substantial amount of activity and our balance sheet and during the year and.
And at 930, we have approximately 2.5 million of cash and on the balance sheet as of 934.8 million and marketable securities.
And some of this is that the variance here to the the 10 million that Chris mentioned earlier has to do with with the the receipt of the securities and some cases, we we close our deals and have the right to these these be securities, but we don't have them physically and our name. Although we have the contract to two received and there's a process that takes place.
To to get that booked and her name.
And that's.
Thats the major driver for the difference.
At the end of the quarter.
Sorry at the end of October subsequent to the end of the quarter, we received 7 million and proceeds from the sale of the empty business 1 million of the 8 million that we receive was a net deferred note.
Substantially all of those proceeds from the sale of the empty business were used to redeem our outstanding convertible and redemption convertible debentures.
And after this redemption, we have approximately 9.2 million convertible debentures outstanding.
And with that I'd like to turn the call back to Chris.
Thanks, Mike.
That's the.
So now I would like to open the questions are open the.
Huh.
Presentation to Q and AG and we see it and we have a number of Q and any questions here.
And let me go ahead and the first is from Joel Jim Mcalary I'll go ahead and say.
If we can go ahead and answer this live here.
The first question from Jim.
Is.
The sequester platform revenue flat Q2, Q given the number of subscribers increased why what's platform revenue flat.
No I don't think that is the case Jama we've had the this acquiring revenue increased quarter to quarter.
Yeah the.
As of today, we have a 125 subs as of today, what was a Q and sub so the key we reported last time, we reported that we had 91 subs.
And now were now we're seeing 125.
On the 4 million in Q4 revenue how much is from supplier Big R.L.D. We're.
We're not going to break that out right now we just know that were you know.
I'll just tell you this that a majority of that 4 million as coming from the us acquire platform.
And so we are you know were seen most of that come from supplier.
Let me go on to the next question is from Todd Rosman.
So it says like.
Given the decrease and the debt and increase and the balance sheet and moving out big tug and Israel reasonable to assume that SRAX is cash flow positive plus not need additional funds as revenue continues to ramp up the choir.
Yes that is a that is definitely a that is definitely our.
The projection that we are going to be able to utilize the.
Capital that we have on the balance sheet today to go.
Get through and pay all of any and all debt and we have outstanding and also get.
Supplier to a place where it is EBITDA positive.
So thank you very much then.
The next question is from Dave Levine.
Hey, Chris Great quarter can you give a sense of when you may be able to stop consolidating big token.
So.
When we do the deal we're going to.
You will have to consolidate for a little bit because at the onset we're gonna own around 88%.
The other big token.
And the but the good part is they're going to have their own capital.
On their side, they've been doing really well and raising capital for the business. So we will get diluted down in that business as they raise additional dollars.
Hopefully they continue to raise capital at higher and higher valuations as they go debt go along so there's not a definitive timeframe.
In mind, yet when we would be able to stop doing that.
So.
Hopefully is as soon as possible.
The next cash question is from Todd rest and again.
Would it be correct to state that SRAX is now more of a pure breed SaaS model company.
Yes, definitely the the bulk of our revenue is coming from the supplier platform itself.
Are you.
The platform is all encompassing you you know the agreements that we have in the the platform itself is a we we don't do any services for companies that are not on the platform itself. So every customer that we have within supplier is a customer that is on the supplier platform.
So our goal is to be 100%.
Our SaaS based company and that's why we've taken the initiatives to get rid of the M.D. assets to get rid of or move big token into its own public company. Just so that the story is it's a lot more clear and there's no questions out there.
The next question also from Todd is with LD micro is it expected to bring additional revenues.
At good margins, yes, the margins within.
LDR are fantastic not only gross margins, but the EBITDA margins are are very good on the L.D. business buffer for us really the LD business is a something that we're adding onto the platform itself. So that as our customers are inside acquire where price.
Fighting them additional services. So while we you know we we'd like to see them participate and the platform to make money off of them. We're also providing and as a service to keep them involved in the LD micro or and this acquire platform itself and LD micro has such a strong name and the small cap business.
We think that that adds a lot of value to our customers and were seeing that a lot of our customers really really appreciate.
That initiative and.
He has a lot of conferences that happened out there and a lot of people try to throw conferences, but L.D. has been able to do something special with that community and we'll keep that going for our customers.
Also from Todd are there plans to also list the big token on T. zero any other further synergies expected with Malcolm and the new expanded board.
So as many of you might know Malcolm.
You know has started and number of cryptocurrency companies one of which was.
The wax token, which was his most recent transaction that he did he raise a substantial amount of money for the wax, Doug and I think it was around $80 million for the wax truck and he has and he has a very deep understanding.
He has a very deep understanding of the cryptocurrency ecosystem and market place. So it definitely is bringing that element to the table for big ticket. So we're proud that you know Malcolm is adding that so as far as listening on T. zero itself and that's.
That's a question that Malcolm would have to answer as they get into it but I know they have had some conversations about.
Doing some things that are a little bit different with big token.
And then Todd.
And then we have a question let's say.
So the current you know are are the next question is from Mark Caruso is what effect will the big token have on the EFT EFI DVD shareholders. So we entered into agreement with ASP.
D, where we will receive 88 points and 9% of the company.
So the remaining piece.
His last for the existing shareholders and the existing debt holders.
And then the next question is from anonymous.
Well the current SRAX shareholders received and PVD shares no you will not at this point receive F. PVD shares the share.
SRAX itself is owning those share so we will be the owner of those shares does not mean that we won't given them out sometime in the future but at this point we are we are not.
So the next question is what steps are you doing to reduce corporate operating expenses.
[music].
How much will acquisition of LD micro or add to the corporate operating expenses from Christopher sockeye, well, we've reduced operating expenses and.
Yes year over year on a quarter by 27%. So we've been working hard at reducing operating expenses.
The.
LD micro integration is a net positive they've they've than net income positive for many years now.
And it doesn't have a massive infrastructure.
Yeah, Chris League and the team have done a fantastic job and keeping that business running you know with minimal infrastructure and I think that the technology infrastructure that were bringing to the table now will also cut back on their costs because in the past they they'd have to outsource to other companies to have them do the.
To do the virtual conference software and to do the webcasting saw a webcast and software which are all pieces that we are now going to be able to add without infrastructure cost.
The next one is.
What does the contract length of subscribers you have entered into it for the sick choir platform. It's typically.
Yearlong contract so.
We have net and were not enter and intending agreements less than a year. So as you can see were continuing to.
As you can see were continuing to add more customers to that platform.
Excellent.
The next one is from Mike Crawford.
At B. Riley and says can you break down so acquired revenue between media data and subscriptions and do three will you report LD micro financial results and this acquire segment will report the LD micro.
[music].
But we'll report the LD micro financials inside the next quarter, because that's when they'll have substantial revenues.
In this quarter there.
Conference that they did and September was before our acquisition so even though they did the LD 500, the numbers there didn't come into play and till after after.
After the segment.
It was over and so where until after the you know the the Q is in place already so we didnt take those revenues, but we'll have them in Q4, So we'll break them out in Q4 as far as breaking down the the sequential revenues between media data and subscriptions I'll go ahead and let.
Mike take that question.
Mike.
Sure Yeah, Mike in footnote two within the.
Thank you that we filed this morning, there's a.
Segment analysis, it breaks it breaks it down and in the in the Q I'm sorry, it's actually for.
No number we just hearing footnote number four.
You can see the.
You can see the distribution between.
Between the shareholder and Investor Media services the platform subscription and then the BP took and and then there's a line for conferences as Chris mentioned and we Didnt we didnt.
Pickup and our financials and you'd be activity for the third quarter. The LD micro had as we close acquisition and the 16th and there was no revenue from the 16th through the Thirtyth.
Okay.
The next question that we have.
It says what's the status of the special dividend that was declared several years ago and the we add as many of you know and many of you have a.
As many of you have.
This sitting and your brokerage account there is a special dividend that was out there. So we're continuing to.
Work with the lawyers on getting that extended and do some kind of dividend around that obviously most of that was done around big token.
And it was to provide a fraction of the revenue of the big token shareholders. So we're working and the lawyers to see what we can do with that but anticipation that something will happen there.
The next question is from anonymous attendee is what are your expectations of what SaaS revenue multiples effect will be on the stock.
You know SaaS revenue multiples, obviously are much higher than others.
Their multiples and we think that will have a positive impact and long term on the stock itself.
The next one is from.
Dave Levine, how do you plan to liquidate the shares that you own and other words will you largely sell shares as they become available for sale or would there be an element of trying to hold some because you have better expectations for the potential appreciation of those shares at that make sense.
In some cases, you know we've been able to be in the market and sell shares over the last.
Few months and we Havent done so and so we just think that there is the opera either certain opportune times to be able to do that and obviously we are you know we're very cautious about how we do that with our clients. So we want to make sure that were getting the best price for those shares without her.
Moving a negative impact on on our partners.
So we're very conscious about how we're going about doing that.
The next one is.
I asked the same question around the SRAX rights.
And then we have a question from Carl that is Karl SRO Bird that is I can we provide and clarity on that PBD share transfer agreements and we filed that transfer agreement. That's publicly available for you to say we've filed an 8-K around that so you can actually see.
What.
The deal that we did so I would I would direct you towards that document itself and then you're saying are you reading and write that 850000 convertible debt will be converted via dilution the debt in the agreement. We are are we are taking the company debt free.
So it it is the company's obligation to be delivered to us debt free.
What are our expectations of cash burn and Q4, considering the separation of big tokens, obviously with an increase of revenue of another million dollars more than more than a million dollars from you know.
The current quarter.
Close to 2.7 up to 4 million Youre going to have a lot more cash there that's going to reduce the burn down and then we'll only have two months of big token burn and in SRAX itself. So you have one month last SRAX burn so with that said, we have and define that number.
For the market, yet, but we anticipate it would be way less than where we are today. So take another million on the topside reduce one third of that cost that you see inside the document now for.
The four big Autocad, and and apply some of the operating income or the operating corporate expenses over two big token because there's probably around you know.
Somewhere between.
Five and $600000 a quarter of the corporate overhead that gets shifted over to.
Two big token.
The next question is what holds a feature for SRAX after big took and wellness acquires the future of SRAX after big token.
And that is really what we are highly focused on our goal is to grow.
Growth as 2000 companies and we think that if we can accomplish that will be well on our way to providing a very very valuable tool for our customers.
The.
You know it's a weve.
We have a lot of things that are coming and supplier that are very unique and our things that public companies need and I'm really excited about the future of what suppliers got to offer to companies. We have a literally a years long pipe.
Pipeline of developments that we're bringing into this acquired platform itself, some really really exciting and interesting.
Interesting things like that public issuers need and and when I think we're serving as a place and the market today that is not being served by by anyone else.
So that's the end of the Q and and we don't have any more questions. So.
I'll give you one more SEC if anybody does have another question to go and entered entered and there.
All right. Thank you again, where you know we're always open to further conversations have you have any.
If you have any questions or anything please reach out to us, let us know and we'd be happy to have a conversation with you about what we're doing.
Right. Thank you very much I appreciate it.
Good bye.