Q4 2021 SRAX Inc Earnings Call

6 million shares being added to the cap table only a 194000 shares.

Were added to the cap table.

So a significant dilution was avoided due to that.

If there is any icing on the cake for filing late.

So now I'd like to turn the call over to Mike for.

It's fun financial review Mike.

Mike.

Thank you Chris.

As we previously mentioned.

With the deconsolidation.

Big token.

We're now able to or.

We're not only able to present, our operating results exclusively of this acquired business and jumping into the fourth quarter.

We're looking at revenues exceeding the prior quarter and the prior year.

By 27% and 170%, respectively and as Chris mentioned this growth is as a result of the continuing bookings that we've had in in the acquired business over the past year.

Total operating expenses have increased as well on.

On a quarter over quarter basis, they're up 28% and on a year over year basis are up 91% again. This is reflective of the continued investment and growth in the in the cost structure of the business support the revenue growth.

Now moving to the full year.

We see revenues increasing year over year of 341% and again. This is exclusive of the big token operations. This is solely supplier.

And the LD micro conference revenues as well as some miscellaneous other revenues.

On a cost side of things.

Expenses are up almost two X or 97%, but again roughly one third of the increase that we've seen in revenues.

And again this is mostly supporting the increase operations of the business.

On an overall basis.

And when we move into the GAAP P&L I.

I think it's been potent that we focus or spend a little time and understand the large noncash items that we have in the in the gap.

Income statement.

What you'll see our two large charges.

Bolt noncash and represent the the deconsolidation of big token.

With the deconsolidation of Big token what we do is we consolidate all of the revenues and expenses of that business in Pearl presented in one line item on the P&L called discontinued operations.

Yeah.

And what you'll see what you'll see in terms of the entire consolidated big took in business for the full year 2021.

It incurred a loss a net a net loss of $14 $4 million.

And then the second charge that we have noncash related to the to the deconsolidation of big token is to dispose of the carrying value in the assets and liabilities as well as the the.

Prior equity components of that business.

And that results in a loss on deconsolidation of approximately $9 4 million. So those two charges.

Both noncash as it relates to two tracks.

Represent $24 million and our.

Our onetime charge, but we will no longer see the effects of the deconsolidation on a go forward basis.

Now moving into.

Moving into the business of supplier exclusively going forward I think it's important at least for this period to understand the major movements from our or a net loss of GAAP net loss.

Two what we represent what we feel is appropriate measure of the business, which is adjusted EBITDA.

So.

I wanted to point out as I previously mentioned, we've had significant charges as it relates to to the big token deconsolidation, but there are some other noncash charges.

That we need to add back to get to what we what we believe is the appropriate measurement for our business, which is adjusted EBITDA.

And so.

Of that.

'twenty.

Of the $34 3 million total net loss approximately $24 million of that is related to the big token deconsolidation slightly offset by the non controlling interest in that in that discontinued operation.

And so we find ourselves with a full year.

Adjusted EBITDA of.

$3 8 million.

For approximately a $6 million year over year increase from.

From a negative $2 million in the prior year.

Okay.

Now moving into this require security portfolio as Chris previously mentioned you know we have some additional features within the the contracts in which we obtained the securities from our from our customers.

Mainly.

Mainly.

If the if the if the company.

The issue where that we've received the securities from Desert dilutive financing.

We get reset.

Subjects, who are still holding those shares and at the end of the year.

We had receivables of approximately $2 $1 million of fair market value of securities, but for GAAP accounting rules, we do not get to reflect those shares in our asset balance.

We also had $1 $2 million of shares that are are due under new revenue contracts. We report these on the balance sheet.

If we move to our our balance sheet report these.

On the on the balance sheet as a as a as a contract asset youre going to see that as a as a new line item on the balance sheet, reflecting the value of the securities that we have yet to receive.

Yeah.

And then finally moving back to the balance sheet.

With the deconsolidation of the big token business historically, we're going to represent.

The assets and liabilities with big token.

And their respective.

Categories of the balance sheet as as discontinued operations.

So you get a true sense of what the what the balance sheet is as well as the income statement for this acquired business historically on a go forward basis.

And with that I'd like to turn the call back to to Morgan.

Yeah.

[laughter].

Okay, great. Thank you, Mike well now move to the Q&A portion of this call.

We have Jon Hickman of Ladenburg Thalmann, Jonathan.

Okay can you hear me okay.

Okay. Thank you.

Okay I have a couple of questions.

So maybe this question is for Mike but.

We're there.

What were the in the operating expense line is could you take a number out of that it was related to the deconsolidation of big token and would not be like.

So there would be expenses that wouldnt be repeated in Q1 or Q2.

Yeah.

Yes, yes, John .

We had approximately I'd say just shy of of a half a million dollars of.

Legal accounting and another.

Overhead charges associated with with the <unk>.

Facilitating that process between big token.

And upright pull on our side.

Yeah, So I would I would say.

A good number would be.

$500000, probably be a good number but wouldn't you have when you have expenses like that in Q1 as you all saw this accounting stuff.

Well I think.

I think that.

We probably did have a bump certainly and in Macau.

Accounting and charges, we do pretty much every year.

Book, a significant increase from prior quarters in and.

Audit and legal fees, but but I don't think it's it's gonna be materially out of line with what we had in the prior year, especially in the prior year 'twenty 'twenty. One remember we had significant amount of expenses due to the <unk>.

As part of the big token.

Spinoff when it moved into into the.

When we did the reverse merger so on a comparable basis I don't think you're going to see much of a difference there, but but specifically related to the transaction.

We had that that that's probably the best way to think about it.

And then and then I think it's worth noting and point out the $10 million of finance charge that was at the beginning of the year while for the.

That wont exist into the next year, Mike Yeah. So we did.

That's right Chris so at the beginning of the year, we had a.

To it being a 2021, we had a charge that we took to the P&L that reflect the.

What you'd call a warrant inducement charge we had.

<unk> dropped the exercise price and some warrants outstanding in exchange for shortening the duration.

Remember replacement warranted. So what you do is you take the.

The fair Mark as the difference between the fair market value of the warrant that the holder had the fair market value of the new warrant when you dropped from 750 to $2 50.

It.

It was a quite a quite a large P&L hit but again, it's all noncash.

And we get the wipers warrants out much sooner, so and a lot of people forgot about that because it happened so long ago, but you know.

Those warrants are now gone in already in the system.

And then Chris could you walk through.

You you now own preferred shares in <unk>.

Big token then.

Whats your position there exactly and when can you start to liquidate that if you want if you chose to.

The preferred shares we have now we have both we have common which represent around four 9% of the company and we have.

And we have the.

Preferred the.

Preferred.

Obviously, we have a blocker. So we can never go above 499, so we'd have to sell the 499 first or more a fraction thereof before we can convert out in any more of the any more of the preferred so what we took a really conservative approach here with this or that.

If we would've taken it.

As as it mark to market it would've been a positive $194 million P&L from the upside.

And then next quarter, we would add another $50 million up to the upside and maybe that you know we don't know what will happen in the next quarter, but you know maybe it will be down another $50 million. So we'd add this constant noise to the.

To this acquire numbers, which is what we are trying to avoid by getting this whole thing done.

So by doing it this way.

It allows us to you know.

If if and when we sell any of our big token our holdings and it'll go straight to our bottom line and it wont.

We won't have to endure any of the stock.

Volatility that they may experience in that stock and that would have an impact and we don't have to go around explaining it every quarter about why we're up $50 million or down $50 million.

So that was the and the idea behind that I think that they.

They need to file their K in their queue before.

Before we'll be able to.

Sell any shares.

But once they do you file that and then we would be able to do that.

Okay.

Okay.

So could.

Could you walk through like.

If you got paid in stock.

And so the contract value was I don't know.

$3 million or something and you've got stock and then that's good prices that start when got cut by 30% in just in the market.

How would you recoup how what can you walk me through how you recoup that 30%, yeah, maybe less use of $1 million just to make.

That easier for okay.

I know, you're a big numbers got better for me and make them round number so.

If we do a contract for $1 million.

We we don't the $1 million, obviously doesn't become the revenue there is a formula that we have that cat takes a discount against that million dollars to calculate what the revenue will be.

So there's already a discount that's being applied for the revenue side.

And that's determined based on volatility of the stock analysts liquidity it has and things of the sort.

And then let's say that we are six months then there's typically we need to hold these shares for six months under rule 144.

Then.

Six months from now the value of that stock is half a million dollars instead of $1 million now.

So now the revenue side we.

Let's say, we booked it at 700000, because we take a discount on it. So now we're now we're down 200000 against the.

Against the 700000 in revenue so now that company and they are doing a financing.

Whatever kind of financing and has made you a convertible note they do a.

They do that deal may do any kind of financing at all we're then able to reset our position and we're able to reset the price of that stock down too.

Down to that level, so, let's say that when we did the deal with that and the stock was trading at a dollar but now the stock is trading at 50 cents.

And they do a financing at 40.

We get reset to 40.

And let's say that they end up giving out warrants and that new transaction.

They reset the price to 40 cents and they and they also give a 100% warrant coverage at 40.

We also get that warrant.

At that point, so whatever terms at the new financing gets we're able to apply that to our financing as well and so that resets is down we get more shares, but we also get new warrants as well, which we're seeing a lot more of that now against where the market is.

A lot more companies are doing transactions with warrants, which didn't happen as much last year.

What if there's no new transactions.

And there is no new transaction then you just got to wait and that's why that's why we wait as long as we can to sell our stock because these rules only apply as long as we hold the stock.

So we try to hold as little as cash as possible and as much stock as possible at any given time and then sell sell stock as as we need the cash.

So Mike and his team are diligent and planning that out.

Figuring out what we do need to sell and I think we've been selling around $4 million a quarter.

And.

On other People's stock out in the marketplace.

Yes.

Okay.

And then just one last question when do you anticipate being able to file a Q1.

You know I don't want to give a definitive data on that yet, but we're we're on it right away and there's obviously this needed to have in first and so we will I think we need a a week or so before we can give you that.

Okay.

Okay. Thank you.

Thank you John I appreciate it.

Thank you John .

Next we have Mike Crawford from B Riley.

Thank you.

Sure.

You mentioned.

12, and a half million of supplier bookings in the second quarter is that a target or is that what you have already.

That's our that's our target that's what we that's what we think we will do in the second quarter, because remember we had a lot of stuff that close and those those previous two quarters and a lot of the pipeline got.

Stocked up on the previous two quarters so.

So the pipeline now looks pretty significant.

Into Q3, and Q4 Q3 and Q4.

And can you provide a sense of.

How much more you need to book.

The final three and a half weeks of the quarter to hit that target around 3 million Bucks $3 5 million Bucks.

Which theres contracts out for signature to get that so I think it will be pretty comfortably get there.

Yeah.

If you are too.

Secure new supplier commitments at this LD micro conference that's occurring this week is that.

Those are projects that would not.

Typically besides of the third quarter.

Yes, they would be signed in the probably in the third corner or I mean, you'll have some people that sign up right away you know our sales cycle is interesting some companies sign up immediately.

And on one phone call and others take a.

A couple of months to finish up but.

I would say you know I think we will see a boost.

From this conference at the beginning of the month here so that the sales guys have all.

Month to close them up and and.

What's interesting about this particular conference does that.

There's a lot of a lot of non <unk>.

<unk> clients that are attending zone, theres, a big opportunity for our.

Our sales guys to close them up.

Okay.

Oh.

You gave.

Cash and securities number.

December 31 around what was it at the end of <unk>.

Q1.

So.

Do you want to go Mike.

So Mike we've got I'd.

I'd say just shy.

Probably the midpoint between a half a million in and $1 million at the end of the first quarter and then the balance sheet is going to show roughly $30 million.

In marketable securities, but you know as Chris was saying you know there's there's a.

There's some noise in that as it relates to.

Certainly the mark to market as well as what we what we sell and then and then the way that we book.

These receivable are the rather the shares we havent transit so theres going to be a few million dollars of those that otherwise would be in that number that we book as contract assets.

We closed towards the end of the end of the.

And the end of March that we had yet to receive actually.

And and book entry form so so it's it's.

Probably a good number as is.

You know.

Just shy of $1 million, and then and then 30.

At March 31st for Securities, but Mike I think it's important to note that in the first quarter, we sold around $4 million worth of securities.

So we're able to.

Like I said, we hold the stock as long as we can because the longer we hold it if those companies do dilutive financing then we get we get reset.

Our goal is to kind of ride right as long as we can with the.

With the stock so in Q1 and correct me if I'm wrong like I think we sold around $4 million worth of security that's right.

And we and we anticipate that we'll be able to continue to do that.

Okay.

Hum.

Okay and then.

Just I hate it.

Too much into the weeds here, but yes, Mike I did hear about that.

Contract assets at year end was $1 3 billion and now that's going to be around 3 million.

Much for Securities in transit.

And I'm, sorry can you just say, where we see your preferred and common.

Big token rulings on the balance sheet. So the $4 1 million designated answer and there's also with $4 1 million in recent year end.

The preferred stock viability.

Yes, so Mike node, so that the value.

Of our of our.

Position in big token our investment in big token.

As part of that that.

Securities held for sale or marketable securities balance it isn't there and as Chris was saying.

We've.

We've marked at extremely low for.

For the purposes that debt.

Chris was saying so.

It's.

Within that with the.

The net balance.

Oh, Okay. So, but you can say what we yes.

No. It's it's it's we're carrying it at.

Roughly $30000.

And that's the common and the preferred yeah.

Okay, so essentially a market down.

But.

No big token itself with rightful publish or issued an 8-K.

Friday afternoon about transitioning to a web three <unk> business model.

I mean, you're on the board I think so Chris.

What what what can we say about.

A big chunk of itself may be headed this year.

Well I think they haven't.

They were in the past given away points to consumers.

For there.

For their data and that proved to be a very expensive business model and now they're shifting do.

Working with doing the same thing, but they're rewarding those consumers with ftes.

That theyre doing in participation with very large brands. So it's actually a really interesting model.

It saves them.

The cost of the points I think there's a good opportunity for them.

And our accounting and our recognition of that accounting that has absolutely nothing to do with the prospect that they.

That they have I think that they know they have a good opportunity there.

<unk>.

So when we do sell some of the stock and if we do sell some of it it will instead of.

Eating against our the value that we have on the P&L and will go straight to our straight to our bottom line. After that 38000 is eaten against and then and then we don't have to worry about this these weird.

<unk> jumps in the in the stock or decreases in the stock value that would have a massive impact on our P&L.

Okay, great. Thank you very much.

Thanks, Mike Thank you Mike.

Thank you Mike.

That concludes the Q&A for the full year 'twenty.

Maybe one financials. Thank you everybody for joining us today.

And if.

If anybody wants to watch the.

These require event.

Love to have you join us and we have the LD micro event that starts tomorrow all day on.

No.

Tuesday, and Wednesday, and then part of the day on Thursday, We have 200, plus public companies that are presenting you can find a lincoln microcap stock com under the events and if you'd like to watch it virtually if youre not going to be joining us in person.

If you are joining us in person we look forward to seeing you. There we have like I mentioned earlier around 2001 on one meetings set up so it should be a very busy couple of days for us. So.

So thank you very much for joining us and we appreciate the continued support.