SRAX Reports Third Quarter 2017 Financial Results
LOS ANGELES, Nov. 14, 2017 /PRNewswire/ -- Social Reality, Inc. (Nasdaq: SRAX), a digital marketing and data management platform delivering the tools to reach and reveal valuable audiences, reported total revenue of $5.6 million, operating loss of $560,300, GAAP net loss of $4.1 million, which includes a non-cash charge of $2.9 million for accretion related to warrants, and Adjusted EBITDA loss of $93,000 for the third quarter 2017.
"The third quarter of 2017 demonstrated the successful implementation of a strategic transformation that has set SRAX up for long-term growth," stated SRAX's CEO and Chairman Christopher Miglino. "In the last twelve months, we uplisted to NASDAQ and cleaned up our balance sheet as well as significantly increased gross margins, reduced operating costs, and improved our key metric, Adjusted EBITDA. In the third quarter, we enhanced our competitive advantage in real-time bidding (RTB) and targeting by acquiring additional technology. Leveraging our successful healthcare model, we continued to diversify into more verticals such as sports and automotive.
"Additionally, we continue to develop cutting edge technologies that have the opportunity to transform the marketing industry. We unveiled our plans around BIGtoken, our Blockchain Identification Graph platform. We believe our BIGtoken platform will revolutionize data sales by offering consumers choice, transparency and compensation for their data, and, consequently, markedly change the way that data is bought and sold."
Third Quarter 2017 Financial Results:
-- Gross revenue was $5.6 million, compared to $9.5 million in the third
quarter of 2016, which included revenue from a large, non-recurring SRAX
Reach customer. This decrease was partially offset by an increase in
revenue from SRAX buy-side and sell-side clients as well as continuing
growth in SRAXmd.
-- Gross profit was $3.1 million, compared to $2.5 million in the third
quarter of 2016. Gross margin was 56%, compared to 26% in the third
quarter of 2016, reflecting the benefit from reduced low-margin revenue.
-- Operating expenses were $3.7 million, compared to $3.9 million in the
third quarter of 2016, reflecting first quarter 2017 cost management
measures.
-- Operating loss was $560,000, improving compared to an operating loss of
$1.3 million in the third quarter of 2016.
-- Interest expense was reduced to $619,000, compared to $1.1 million in
the third quarter of 2016. The company also recorded $2.9 million in
non-cash expenses related to the accretion of warrants. Total other
expense was $3.5 million, compared to $1.1 million in the third quarter
of 2016, which did not have expenses related to the accretion of
warrants.
-- Net loss was $4.1 million, which includes $2.9 million in non-cash
expenses related to the accretion of warrants, compared to $2.4 million
in the third quarter of 2016.
-- Adjusted EBITDA loss was $93,000, compared to $732,000 in the third
quarter of 2016.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and certain additional one-time expenses. It is not intended to represent a measure of performance in accordance with accounting principles generally accepted in the United States (GAAP). A detailed description and reconciliation of EBITDA and management's reasons for using this measure is set forth at the end of this press release.
Other Recent Corporate Highlights:
-- Acquired additional demand side platform (DSP) technology from OpenDSP
with unique and complementary RTB and targeting capabilities.
-- Launched a new vertical offering, SRAXfan, designed to reach and reveal
valuable sports fan audiences.
-- Engaged financial advisors to explore strategic alternatives for the
SRAXmd business including spinning off the business into its own public
company, strategic acquisitions or a variety of other possible
transactions.
-- Held the SRAX Investor and Analyst Day in Mexicali, Mexico, to tour the
facility,
-- Received recognition as one of Deloitte 2017 North America Technology
Fast 500.
Also in October, the company entered into a definitive securities purchase agreement with existing investors for the sale of an aggregate of approximately $5.2 million in principal amount of 12.5% Secured Convertible Debentures due on April 21, 2020, and 863,365 Series A Warrants to purchase Class A common stock with a 5-year term. The Debentures will be secured pari passu with the investors' prior debentures issued in the company's April 2017 offering. The Debentures and Warrants are initially convertible and exercisable at $3.00 per share subject to anti-dilution protection.
2017 Guidance:
SRAX continues to manage the business to optimize gross margin: while it may impact revenue, the company expects benefits gross margin and Adjusted EBITDA.
-- Management expects 2017 gross margin to exceed 50%, compared to 35% in
2016.
-- Management expects SRAX will generate positive Adjusted EBITDA for the
second half of 2017 and to be breakeven or better for the full year
2017, up from an Adjusted EBITDA loss of $1.1 million in 2016.
Conference Call & Slide Presentation
Management will review the results on a conference call with a live question and answer session today, November 14, 2017, at 4:30 p.m. ET. To access the call, please use passcode 1119213:
-- If calling from the United States or Canada, please dial (866) 791-6248
to access the live call and (844) 512-2921 for the replay available
until November 22, 2017.
-- If calling internationally, please dial (719) 325-4929 to access the
live call and (412) 317-6671 for the replay.
-- The call will be webcast over the internet and accessible at the
Company's website at http://srax.com/investors/ for at least 90 days.
Investors may also download the slides from the website.
About SRAX
SRAX (Social Reality, Inc.; NASDAQ: SRAX) is a digital marketing and data management platform delivering the tools to reach and reveal valuable audiences. SRAX's machine-learning technology analyzes marketing data to identify brands and content owners' core consumers and their characteristics across marketing channels. Through an omnichannel approach that integrates all aspects of the advertising experience into one platform, SRAX discovers new and measurable opportunities that amplify campaign performance and maximize profits. For more information on how SRAX delivers a digital competitive advantage to surpass today's marketing challenges, visit www.srax.com.
Safe Harbor Statement
This press release contains certain forward-looking statements that are based upon current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words or expressions such as "anticipate," "plan," "will," "intend," "believe" or "expect'" or variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including, without limitation, statements made with respect to expectations of our ability to increase our revenues, satisfy our obligations as they become due, report profitable operations and other risks and uncertainties, all as set forth in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of Social Reality and are difficult to predict. Social Reality undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Contact Information:
Kirsten Chapman, LHA Investor Relations, +1 415 433 3777, srax@lhai.com
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $216,409 $1,048,762
Accounts receivable, net 7,196,915 8,411,019
Prepaid expenses 541,510 332,503
Other current assets 6,898 6,488
----- -----
Total current assets 7,961,732 9,798,772
Property and equipment, net of accumulated
depreciation 138,539 55,492
Goodwill 15,644,957 15,644,957
Intangibles - net 1,609,228 1,365,241
Other assets 21,488 34,659
------ ------
Total assets $25,375,944 $26,899,121
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
expenses $12,434,810 $13,156,081
Note payable, net of unamortized costs - 3,418,788
Unearned revenue 67,516 -
Put warrant liability 757,476 -
Debenture warrant liability 1,615,844 -
Leapfrog warrant liability 673,416 -
Debenture conversion liability 1,936,752 -
Put liability 1,551,323 1,500,000
--------- ---------
Total current liabilities 19,037,137 18,074,869
Secured convertible debentures, net 2,092,798 -
--------- ---
Total liabilities 21,129,935 18,074,869
---------- ----------
Commitments and contingencies (Note 13) - -
Stockholders' equity
Preferred stock, authorized 50,000,000
shares, $0.001 par value, no shares
issued or outstanding at September 30,
2017 and December 31, 2016, respectively - -
Class A common stock, authorized
250,000,000 shares, $0.001 par value,
8,232,830 and 6,951,077 shares issued and
outstanding at September 30, 2017 and
December 31, 2016, respectively 8,233 6,952
Class B common stock, authorized 9,000,000
shares, $0.001 par value, no shares
issued or outstanding at September 30,
2017 and December 31, 2016, respectively - -
Common stock to be issued 97,500 678,000
Additional paid in capital 25,367,237 22,529,303
Accumulated deficit (21,226,961) (14,390,003)
----------- -----------
Total stockholders' equity 4,246,009 8,824,252
--------- ---------
Total liabilities and
stockholders' equity $25,375,944 $26,899,121
=========== ===========
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
Three Months ended Nine Months ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ----
Revenues $5,554,182 $9,530,842 $16,861,449 $24,249,588
Cost of revenue 2,454,919 6,986,834 8,378,247 16,430,204
--------- --------- --------- ----------
Gross profit 3,099,263 2,544,008 8,483,202 7,819,384
Operating expense
General, selling and administrative
expense 3,659,202 3,851,890 11,395,454 11,082,581
Write-off of non-compete agreement - - 486,750 -
Restructuring costs - - 377,961 -
Impairment of goodwill - - - 670,000
--- --- --- -------
Total operating expense, net 3,659,202 3,851,890 12,260,165 11,752,581
--------- --------- ---------- ----------
Loss from operations (559,939) (1,307,882) (3,776,963) (3,933,197)
Other income (expense)
Interest income (expense) (338,010) (817,864) (668,583) (1,898,893)
Amortization of debt issuance costs (281,352) (250,100) (1,047,060) (816,705)
-------- -------- ---------- --------
Total interest expense (619,362) (1,067,964) (1,715,643) (2,715,598)
Loss on repurchase of Series B
warrants - - (2,053,975) -
Loss on repricing of Series A
warrants - - (99,820) -
Accretion of put warrants (419,062) - 1,934,663 -
Accretion of debenture discount and
warrants (2,139,618) - (788,873) -
Accretion of Leapfrog warrants (336,347) - (336,347) -
Write-off of contingent
consideration - - - 3,744,496
--- --- --- ---------
Total other income (expense) (3,514,389) (1,067,964) (3,059,995) 1,028,898
---------- ---------- ---------- ---------
Loss before provision for income
taxes (4,074,328) (2,375,846) (6,836,958) (2,904,299)
Provision for income taxes - - - -
--- --- --- ---
Net loss $(4,074,328) $(2,375,846) $(6,836,958) $(2,904,299)
=========== =========== =========== ===========
Net (loss) income per
share, basic $(0.50) $(0.40) $(0.85) $(0.49)
====== ====== ====== ======
Net (loss) income per
share, diluted $(0.50) $(0.40) $(0.85) $(0.49)
====== ====== ====== ======
Weighted average shares outstanding,
basic 8,115,790 5,958,897 8,008,717 5,929,793
Weighted average shares outstanding,
diluted 8,115,790 5,958,897 8,008,717 5,929,793
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
Nine Month Period Ended
September 30,
-------------
2017 2016
---- ----
Cash flows from operating activities:
Net loss $(6,836,958) $(2,904,299)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization of stock based prepaid fees - 373,567
Stock based compensation 947,968 610,397
Noncash financing cost - 274,695
Amortization of debt issue costs 663,210 816,705
Loss on repurchase of Series B warrants 2,053,975 -
Loss on repricing of Series A warrants 99,820 -
Accretion of Leapfrog warrants 336,347 -
Accretion of put warrants (1,934,663) -
Accretion of debenture discount and
warrants 788,873 -
Amortization of debt discount 383,850 -
PIK interest expense accrued to principal 51,323 447,738
Impairment of Goodwill - 670,000
Write-off of non-compete agreement 468,751 -
Accretion of contingent consideration - (3,585,388)
Accretion of put liability - 63,718
Provision for bad debts (163,703) 96,253
Depreciation expense 14,240 17,294
Amortization of intangibles 358,698 269,650
Changes in operating assets and
liabilities:
Accounts receivable 1,377,870 (2,767,590)
Prepaid expenses (209,007) 81,562
Other assets 12,762 29,602
Accounts payable and accrued expenses (721,272) 6,355,103
Unearned revenue 67,516 18,115
------ ------
Cash (used in) provided by operating
activities (2,240,400) 867,122
---------- -------
Cash flows from investing activities:
Purchase of equipment (97,287) (4,816)
Development of software (454,368) -
-------- ---
Cash used in investing activities (551,655) (4,816)
-------- ------
Cash flows from financing activities:
Proceeds from the issuance of common stock,
net 3,820,001 3,550,815
Proceeds from notes payable - 2,100,000
Proceeds from secured convertible
debentures, net 2,136,629 -
Repayments of note payable and PIK interest (3,996,928) (1,763,077)
Payment of contingent consideration - (1,600,000)
--- ----------
Net cash provided by financing activities 1,959,702 2,287,738
--------- ---------
Net decrease in cash and cash equivalents (832,353) 3,150,044
Cash and cash equivalents, beginning of
period 1,048,762 1,091,186
--------- ---------
Cash and cash equivalents, end
of period $216,409 $4,241,230
======== ==========
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
Nine Month Period Ended
September 30,
-------------
2017 2016
---- ----
Supplemental Schedule of Cash
Flow Information:
Cash paid for
interest $873,433 $1,224,525
======== ==========
Cash paid for
taxes $ - $ -
=== === === ===
Non-cash financial
activities:
Proceeds paid by
Fastpay on
behalf of
Social Reality $ - $5,507,468
Common stock
issued as
payment of
contingent
consideration $ - $2,400,000
Initial
derivative
liability on
issuance of put
warrants $3,038,344 $ -
Issuance of
placement agent
warrants $249,028 $ -
Common stock
issued for
vested grants $52 $ -
Issuance of
common stock to
be issued $100 $ -
Initial
derivative and
warrant
liability
accounted as
debt discount
on convertible
debenture $2,763,723 $ -
Repurchase of
series B
warrants
directly paid
by debenture
holder on
behalf of the
Company $2,500,000 $ -
Common stock
issued and
Initial warrant
liability
accounted for
assets purchase
arrangement $617,069 $ -
SOCIAL REALITY, INC.
NON-GAAP TO GAAP RECONCILIATION
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
Social Reality's management evaluates and makes operating decisions using various financial metrics. In addition to the company's GAAP results, management also considers the non-GAAP measure of Adjusted EBITDA. Adjusted EBITDA is defined as income from operations before depreciation and amortization expenses, stock-based compensation and one time financing and transaction expense. Management believes that this non-GAAP measure provides useful information about Social Reality's operating results. The tables below provide a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure. This non-GAAP measure should be considered a supplement to, and not a substitute for, or superior to, financial measures calculated in accordance with GAAP.
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ----
Net loss $(4,074,329) $(2,375,846) $(6,836,958) $(2,904,299)
plus:
Equity based compensation 326,641 207,248 947,968 984,026
Accretion of put warrants 419,062 - (1,934,663) -
Accretion of debenture
discount and warrants 2,139,618 - 788,873 -
Accretion of put liability - - - -
Accretion of other
consideration 336,347 - 336,347 (3,744,496)
------- --- ------- ----------
Adjusted net loss $(852,661) $(2,168,598) $(6,698,433) $(5,664,769)
Loss on repurchase of
Series B warrants - - 2,053,975 -
Loss on repricing of
Series A warrants - 274,695 99,820 274,695
Restructuring costs - - 377,961 -
Write-off of non-compete
agreement - - 468,750 -
Write-off of contingent
consideration - - - -
Impairment of goodwill - - - 670,000
Interest expense 619,362 1,067,964 1,715,643 2,715,598
Depreciation and
amortization 140,551 93,859 372,938 286,944
------- ------ ------- -------
Adjusted EBITDA $(92,748) $(732,080) $(1,609,346) $(1,717,532)
======== ========= =========== ===========
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SOURCE Social Reality, Inc.
