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SRAX Reports Third Quarter 2017 Financial Results

- Increases Gross Profit Margin to 56% for Q3 2017, Up from 27% in Q3 2016 -

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.

SRAX (PRNewsfoto/SRAX)

"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, [email protected]

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
September 30,


Nine Months ended
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
September 30,


Nine Months Ended
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.

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