SRAX, Inc.
Q4 2015 Earnings Call Transcript

Published: 23 Mar 2016

[Operator:]

Greetings and welcome to Social Reality’s 2015 Fourth Quarter and Full Year Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Robert Haag, Managing Director at IRTH Communications. Mr. Haag, you may begin.

[Robert Haag:]

Good afternoon everyone. I would like to welcome all of you to Social Reality’s Fourth Quarter and Full Year 2015 conference call. With us today is Social Reality’s Chief Executive Officer, Christopher Miglino. Before I turn the call over to Christopher, I would like to remind you that in this call, management’s prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question and answer session. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to Social Reality, Inc., are, as such, a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties which may cause actual results to differ from those anticipated by Social Reality at this time. In addition, other risks are more fully described in Social Reality's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. Finally, please note that on today’s call management will refer to certain non-GAAP financial measures in which Social Reality excludes certain expenses from its GAAP financial results. Please refer to Social Reality's 2015 10-K for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. Last Wednesday, March 16th, the company filed its 10K with the SEC and afterwards issued a press release announcing its financial results, so participants in this call who may not have already done so, may wish to look at those documents as we provide a summary of the results on this call. I would like to now turn the call over to Social Reality’s CEO, Christopher Miglino, who will give an overview of the Company’s business activities and developments for the Fourth Quarter and Full Year 2015, as well as an overview of the Company’s operating and financial metrics. We will then open the call for Q&A. Christopher?

[Christopher Miglino:]

Thanks Robert. Hello everyone and thank you all for joining our call today. Social Reality operates a powerful online marketing and advertising platform. In 2015, the company delivered solid growth in both revenues and gross profits. Our year-over-year revenues showed an increase of almost 500% and our gross profit increased by more than 580%. Later on in the call I will walk you through a more detailed review of our numbers and we will take a deeper look at our unique value proposition and how that drives our progress in this market sector. First let me provide you a 20,000 foot view of Social Reality and the trends in the internet marketing industries that are supporting our growth. We believe that Social Reality is rapidly becoming one of the leading providers in the digital advertising space. We pride ourselves on strategy, innovation and execution and the fruit of our efforts is evident in our growth and the demand for our programmatic platform offerings. From traditional banner advertising to mobile, video, native and social media, we have developed solutions that help brands and publishers maximize returns on their digital assets. Our sector is also quickly evolving and several market statistics continue to support this. In fact, the U.S. real-time bidding market, (one of our primary focuses) was valued at $2.4 billion in 2014 and is now projected to grow to $14.4 billion by 2017. BI Intelligence also suggests that real-time bidding, a key piece of the programmatic ecosystem, will account for over 33% of U.S. digital ad sales, or $18.2 billion, in 2018. According to Statista, in 2015, the advertising revenue of social networks worldwide amounted to $25.1 billion and is now projected to grow to $41 billion in 2017. I believe Social Reality is well poised to ride the wave of both of these markets which provide very significant opportunities. Our team has worked diligently to establish the company as a leader in these spaces, and we offer advertisers a consolidated platform, customer loyalty applications, cross-platform programs, media buying, analysis and more. For publishers, we offer increased revenue yield, a single platform to manage ads, access to real-time bidding buyers, retargeting capabilities and content optimization. We are proud to be one of the few publicly traded ad tech companies with a positive Adjusted EBITDA. We strongly believe that this is a great time to be in the digital advertising space as it is still in its infancy and already a multi-billion market. We also believe that Social Reality is well positioned to capture a growing portion of this spending due to the current size of real-time bidding and social media markets, as well as the expected continuation of rapid growth in the digital media space. Over the past year we’ve hit several significant milestones which we believe make our story extremely compelling to the investment community. These milestones include

[Operator:]

[Operator Instructions] Our first question is from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Yes, it's a simple question. One factor was very strong, it was very insightful, can we get a written document of the delivery of the content because it was all to kind of stay up the all the details.

[Christopher Miglino:]

We filed an 8-K that has been filed with the details of the statements that we just made. So I need to file that. We'll also have that person on our website within the few hours.

[Unidentified Analyst:]

Yes, congratulations. This is extraordinary.

[Christopher Miglino:]

Thank you, Don. I appreciate you joining the call. Thank you very much.

[Unidentified Analyst:]

Very impressive results in the well-deserved 8-K, well deserved.

[Christopher Miglino:]

Thank you very much sir. I appreciate that.

[Operator:]

Our next question comes from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Thanks so much for holding the call. Appreciate the opportunity. So listen, you mentioned that your objective this year would be to continue the development of your specialty platforms and you talked about obviously SRAX Social and SRAX MD. I’m wondering if you have other things up to your sleeve you're thinking about and whether or not you might be able to offer some insight on how revenues might break down on those platforms. Clearly MD is a new launch so there wasn't much contribution from that this past year but I'm wondering if you could offer some insight on how the other platforms compare with each other.

[Christopher Miglino:]

So we haven’t given any guidance that's breaking out the revenue between the different groups but we anticipate that we will be doing that in the next few quarters and that’s one of the main tasks that we will be - that we'll have the new CFO working on is to be giving you some more insight into how each of the business units are performing. But on a general level, we’re finding that customizing our platforms too specific verticals that we have expertise in as providing a lot of value for us and for our customers. So we anticipate to continue to enhance those existing platforms that we have now and to look for other opportunities outside of the retail which is consumer packaged goods category which we're doing a lot of work in and also within the pharmaceutical business which we're doing a significant amount of work in. So we're looking at other opportunities and as we think that there is a market to develop there, we’ll start to build platforms but really now we’re focused on enhancing the platforms that we have and continuing to grow those.

[Unidentified Analyst:]

Fair enough, thanks Chris. Given the push to develop your reach both on the buy and sell side can you speak to your plans regarding headcount and operating expenses and your expectations in each of those for 2016?

[Christopher Miglino:]

Yes. So we've grown a lot through this last year and we've beefed up the development team significantly over the course of 2015 and I think we find ourselves in a pretty good spot not needing to really add too much more there. We've beefed up in anticipation of the growth that we’ve had and we continue to look for good developers on the tax side and when we find people are we think are really valuable for the team, we try to bring them on board. But its - I think we’ve seen a lot of growth within 2015 and we're kind of stabilizing a little bit here and not growing people wise as much as we did and we over hired because we needed to do that because we are growing the revenue side so fast. So I don’t know that we add the big hires that we have now. We're bringing on a new CFO which is a role that hasn’t been filled here for a while, and I’m really looking forward to having somebody there to take a lot of that activity off of our plate. We’ve really leaned heavily on our senior management team of Richard Steel and Chad Holsinger and over at Steel Media for helping us grow that side of the business and on the operational side and on the building to platform side both Kris Nelson and Dustin Suchter have done a great job in providing the growth and maintaining the platforms and building the platforms. So I think that as we find opportunity for more growth and need to add we will but at this point, I think there is a few open roles that we have but not as crazy as we were in 2015.

[Unidentified Analyst:]

Okay. I was curious to on the sales and marketing side Chris because I know that you would have an opportunity to present Social Reality to people that might not be familiar with it yet and I’m just kind of curious on how you see that changing and how you might focus resources on developing the sales and marketing effort and where you see that headcount at the end of the year versus what it could be by the end of 2016?

[Christopher Miglino:]

So in - on the marketing side, we beefed up the marketing side in 2015 and halfway through the year hired a Senior VP of Marketing and then beefed up internally on the marketing side and they've been doing a fantastic job on content creation and reach-out and leads and acquiring new customers from marketing perspective. And then from the sell side, we’re going out to market and looking for additional sales people to help us sell the SRAX MD product and to also bring additional platform sales into market. So it’s a very - we’re looking for high end sales people there and we’re very - we’ve been very picky about who we’re bringing in for that and so we continue to look. And similar to the programming side as we find talented good people that we think will bring value to the organization then we’ll go ahead and hire them but you have to kiss a lot of frogs in that side of the game. So I think in the hi-tech business finding the right sales team is probably one of the hardest pieces of the business and it’s one of the things that the Steel team has been fantastic of doing is bringing in some amazing sales people and they have a really good detailed understanding about how to do that and how to execute against that.

[Unidentified Analyst:]

Okay. Last question from me Chris, could you talk a little bit about the company's cap structure, you’re still carrying some debt but you’re starting to throw some cash. So how do you see that sort of progressing through the course of this year?

[Christopher Miglino:]

Yes, we paid down a good chunk of the debt in excess cash flow payments over the year and then we borrowed some again because we - Richard Steel had his payment for his earn-out. So we had which is in the 10-K as well, we had issued to Richard a $4 million earn-out and we paid $2.6 million of that in stock and the rest in cash - I'm sorry, $1.6 million in cash and the rest in stock. So that additional shareholder equity is what's giving us enough to get out to a National Exchange and also at the same time which is in our 10-K we did another round internally from our existing investors of around another $0.5 million in cash just to give us a little bit more shareholder equity. So we anticipate that over this year we'll continue to pay down the Victory Park note and through our excess cash flow payments. And then we also have - we have some warrants that expire in October of this next year. So there is our core underlying investors that are around five or six investors own some warrants that expire in October of this year that are not cashless, none of them are cashless warrants that except for some that went to some of the bankers but most of them are not cashless. So we anticipate that those will get exercise as well, those are at a dollar - is around 5 million of those.

[Unidentified Analyst:]

I'm sorry Chris, I lied. One last question. Just coming it seems that you spoke to acquisitions obviously a few that you did in 2014, I’m just kind of curious, how you’re looking at that now. Obviously you spoke to it being component of your growth strategy, what sort of focus is that getting vis-à-vis developing more platforms in-house and if you’re really looking at it, can you give us an idea of what you’re seeing and what the pipeline might look like?

[Christopher Miglino:]

It's been an interesting year for the ad tech space. When we said that we did the acquisitions in 2014, really it was – either we ended them in October 2014. So really is into 2015 that those acquisitions kicked in and so we learned a lot about doing the acquisitions and what we needed to do and how we integrate and it’s been a fantastic learning experience for all of us. And we think that we’re finding that there is other ad tech companies that are not now afforded an opportunity to go to market that are - that are not able to go back to the venture capital well or have been companies that have been generating EBITDA and are just looking for an opportunity to join along with the bigger company. So we’re seeing those opportunities and we explore them on an opportunistic basis. I'd say there is lots of different bankers are bringing deals to us and asking us if we take a look at few different things and we do and when we find something that looks good and it’s - when it’s not that thing, that's like almost breakeven at a 100,000 loss a month, we’ll take a look at it. But if it's, we're not interested in looking at ad tech companies that are losing a bunch of money. We're interesting in stuff that’s accretive and can add to our EBITDA and help us grow the company. We got in 2015, we made it pretty far down the line with one company, spent a lot of time on it that just ended up not happening a deal that was being presented would not have been favorable to the shareholders of the companies that we ended up not doing that transaction. So, we’re continuing to look.

[Unidentified Analyst:]

Great, okay Chris, thanks so much for all the color. Appreciate it.

[Christopher Miglino:]

Thank you, Kevin. Appreciate it.

[Operator:]

Our next question is from [Mike Randall] [ph] from Ages Capital. Please go ahead.

[Unidentified Analyst:]

Hi, Chris thanks for the call. Can you talk a little bit about revenue for 2016, any color that you can provide on the magnitude of growth that you're putting guidance out there – not quite sure. And then can you comment on the impact of SRAX MD becoming more problem in the picture and the impact on gross margin for the year.

[Christopher Miglino:]

So all questions I would love to answer but I think my attorneys would kill me if I answered any of those right now. So we’re going to give some guidance when we put out our first Q for the year and at that time like I said earlier was that new CFO coming on board, we’ll try to give some color to the MD business itself. But we’re - obviously we have a big focus on the MD business and there is a lot of technology that’s been built there and a lot of big brands that are making buys across that platform. But we think there is a - we think that piece of the business can grow significantly. But I'd like to - if I could, reserve that until we give some guidance and have a little bit more structure around how we are going to break out those business units so that you guys can understand the need separately.

[Unidentified Analyst:]

Great. And along those lines any thoughts or discussion about some operational metrics that you can put out for us so we can better track and model your development.

[Christopher Miglino:]

Yes, both of those are key components of bringing down the new CFO. So that we can have those metrics for you so that we can help you guys in developing the models.

[Unidentified Analyst:]

Okay, all right. Fantastic, thanks.

[Christopher Miglino:]

I really appreciate it. Thanks Mike.

[Operator:]

[Operator Instructions] And if there are no further questions, I'd like to turn the floor back over to Mr. Haag for any closing remarks.

[Robert Haag:]

Thanks everyone. So with that, I would like to thank all Social Reality stockholders for their participation on today’s call and their support for the company. This concludes our fourth quarter and 2015 full year conference call. Thank you very much.

[Christopher Miglino:]

Thank you everybody.

[Operator:]

Thank you. This concludes today's conference. You may disconnect your lines at this time.