Good day everyone, and welcome to the SRAX's First Quarter 2018 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Kirsten Chapman of LHA Investor Relations. Please go ahead, ma'am..

Thank you, Katherine. Good afternoon, everyone. I’d like to welcome all of you to SRAX’s first quarter 2018 conference call. This call is being webcast and is available on the website at srax.com/investors/presentation. With us today from management are SRAX’s CEO, Christopher Miglino; and CFO, J.P. Hannan.

Chris Miglino will review the Company’s quarterly highlights and J.P. will discuss the financial metrics, then Chris will open the call for questions.

Before I turn the call over to management, I would like to remind you that this call may contain forward-looking statements which could be indicative by the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to SRAX.

Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual results to differ from those anticipated by SRAX at this time. In addition, other risks are more fully described in SRAX's public filings with the U.S. SEC, which can be reviewed at www.sec.gov.

As previously disclosed in October 2017, we engaged outside advisors to review strategic alternatives for SRAXmd. The company entered into a memorandum withstanding in May 2017. The closing of the transaction is subject to the completion of due-diligence and definitive agreements including the employment of certain employees.

As of day hereof, none of these conditions have been met. There could be no assurance that the process will be completed, will be successful, or that if such process is completed, will be on terms favorable to us.

Finally please make note that on today's call management will refer to certain non-GAAP measures in which SRAX excludes stock-based compensation expenses and other one-time items from its GAAP financial results.

Please refer to SRAX press release for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. Now, it is my pleasure to turn the call over to SRAX's CEO, Chris Miglino.

Please go ahead Chris?.

Thank you, Kirsten. Good afternoon, everyone. 2018 promises to be a year of significant transformational change. In 2017 we focused on reducing high volume low margin revenue and balance sheet management.

Now we have the solid foundation for which to grow and we're implementing our growth strategy launching a bunch of new products and working diligently toward our goal of monetizing SRAXmd. First a quick review of the quarter. As you know advertising sales have seasonal swings.

The fourth quarter is typically the strongest and the first quarter is typically the lightest. We expect the same for 2018 and we were pleased to achieve above historical gross margins of 61% for the first quarter. We also continue to invest in sales, engineering and product development.

We’re excited about several new offerings that we’re launching to help drive growth in our verticals. First SRAX's social’s intelligent budget which uses artificial intelligence to enable users to create rules to automatically allocate budget and payment amounts specific - among specific campaigns or client profiles.

Next, the SRAX's social [indiscernible] which based on user set rules and parameters automatically triggers additional content to enhance specific social advertising campaigns.

And other SRAX shopper, which delivers a single intended message across multiple devices and inventory sources to target verified shoppers visiting key retailers to lay a immediate buying with social and shopping data elements.

As Kirsten mentioned on SRAXmd our healthcare vertical we’ve been working diligently to monetize this asset and are pleased to have signed a memorandum of understanding. The team is working to get this transaction done but again there's no assurances that this transaction will be completed. With that said, I'd like to review our BIGtoken efforts.

BIGtoken is a consumer data platform comprised of blockchain platform layer allowing the secure decentralized and transparent transmission of data and a reward system layer for users and developers. Both corporations and consumers deal with challenges in today's digital advertising ecosystem and want improved online experiences.

We believe advertisers and marketing companies should have access to specific and highly accurate consumer data and that consumers should be compensated for sharing this data. The BIGtoken application enables consumers to verify and manage their digital data and identifies and identities.

Connect through social network features and earn rewards when their data is accessed. BIGtoken provides third-party sites and applications of tool to learn more about their consumers and earn revenue from data sales made through their platform. BIG operates autonomously and openly making all records public so users can verify every transaction.

It also cuts out middlemen, speeds of transaction times and reduces the need for human intervention thereby minimizing opportunities for fraud. In the past consumers didn’t mind giving up their privacy or more likely we’re unaware that they should be concerned about the privacy.

Now with the recent Equifax and Facebook scandals, consumers are more aware of privacy issues than ever before.

And frankly they are reminded daily that their privacy is at risk as the media announces new data breaches and consumers receive email alerts about privacy policy updates from everyone from financial and retail providers to medical services and social media platforms.

We've been working on this privacy issue related to personal data for a year and when the congressional hearings started, we were ready. In fact it was like a two day commercial for us. Now people are beginning to recognize the value of their own data.

Consumers are being tracked on their phones from where they live to where they work and this information is being aggregated and sold. As an example on digital advertising side not including consumer market research or direct-mail consumers could earn a significant amount of money on a monthly basis.

We’re creating the ability for consumers to opt out of sharing their data or to opt in to sharing it for payment. The choice belongs entirely to the consumer.

The market opportunity is large according to IDC the digital data market is currently valued at over $130 billion and the data protection solutions and services market is expected to reach approximately 120 billion by 2020 at a compounded annual growth rate of 16% according to markets and markets.

We believe the blockchain technology behind BIG ensures digital data privacy choice and security for all users and can create new and unprecedented value to the market. We're leveraging our existing infrastructure to support BIG development and it's progressing quite well.

To test functionality, rewards, mechanism and blockchain mechanics, we released our alpha version in March. We’re incorporating actionable feedback provided by test users in the next version.

Based off our learnings and progress we now expect data version to include additional features with team oriented components for gaming and social oriented elements for data-gathering. Now I’ll turn the call over to J.P. for the financial review..

Thanks Chris. I’ll now review the results for the first quarter of 2018. As Chris just mentioned advertising sales experienced seasonality with the first quarter being our lightest and fourth quarter our strongest. In the first quarter gross revenue was $2.1 million compared to $5.3 million in Q1 of 2017.

That included revenues of high-volume, lower margin revenue, as well as a larger contribution from SRAX Reach customers in that prior year period. Reflecting our focus on high margin revenue, gross margin remained above historical averages at 61% on gross profit of $1.3 million.

That compares to gross margin of 38% on gross profit of $2 million in the year ago quarter. Going forward, we expect gross margin to ebb and flow throughout the year but on a blended annual basis be in the range of more than 50% on a normalized basis.

Operating expenses were $4.1 million in the quarter down from $5.2 million in the first quarter of 2017.

Now even though Q1 2017 included $469,000 in a noncompete write-off and $378,000 in restructuring costs, our Q1 2018 operating expenses still decreased ex those one-time items and that reflects the cost measures that were undertaken in the first quarter of 2017.

As a result, loss from operations improved to $2.8 million and is up from $3.2 million loss in Q1 2017. Our interest expense was $767,000 in the quarter that compared to $711,000 in the first quarter of 2017.

Net loss improved to $3.6 million or $0.36 per share and that compared to a net loss of $3.9 million or $0.50 per share in the first quarter of 2017. Adjusted EBITDA loss was $2.5 million and that compared to $1.7 million in the first quarter of 2017.

We ended the quarter with $190,000 in cash and cash equivalents and that compares to $1 million at year-end 2017.

This balance reflects the advertising business seasonality as I mentioned earlier and the impact of DSOs approximately 90 to 120 days, but generally advertising companies that have larger national accounts will typically have longer dated DSOs and that will impact cash balances during this first quarter period.

Subsequent to quarter end in April we renewed our $4 million credit facility with FastPay. By March 31, 2018 at the end of the quarter 1.1 million warrants have been retired or expired and $3.3 million of debentures were converted to common stock thereby reducing our debt to $6.6 million at the end of the year.

As of March 31, 2018 there were 10.2 million common shares outstanding. And now with that, I’d like to turn the call back to Chris..

Thanks J.P. So timing is everything. We believe the timing for our BIGtoken platform could not be better and we’re poised to benefit. Consumers are more aware of privacy issues and the value of their data.

BIGtoken.com will provide a solution to many of today's privacy concerns by creating an ecosystem where advertising and marketing companies reward consumers to obtain quality and rich data, and we believe this addition will diversify our product portfolio and drive shareholder value. Further our vertical strategy is coming to fruition.

We’re building targeted offering silos that provide digital advertisings and social solutions in a variety of categories. Our oldest vertical healthcare is quite successful and we’re poised to close the transaction to monetize that asset. We’re using that model to build additional verticals in consumer packaged goods, sports, automobiles and more.

It’s a good time for us. Before I open the call to questions, I’d like to note that you can see us at Needham Emerging Technology Conference in New York City.

If you happen to be there tomorrow, the SRAX and Digital Health Conference in San Francisco, the Ladenburg Thalmann Technology Expo at 2018, the LD Micro in Los Angeles and I’d like to note that we’re trying to be as transparent about the SRAXmd transaction as possible, it’s just certain things that we just can’t discuss but I will try to be as open as possible.

I’d like now to turn the call over to the Q&A..

[Operator Instructions] Our first question comes from Michael Kupinski with Noble Capital Markets..

In the recent quarter, could you describe why SRAXmd was not treated as a discontinued operation in the quarter? Was that due to the fact that due-diligence hadn’t been performed yet or?.

We still don’t have a definitive deal. We have memorandum of understanding but we have not entered into next contract at least not in the quarters, that's why..

And then also when you look at the rate of decline accelerated from the fourth quarter and obviously you’re going to be coming up against some easier comps.

Second quarter last year did you start implementing your initiative to kind of fill for higher margin business in the middle of the quarter or was it kind of beginning at the quarter or just kind of give us some sense of the comps and how the quarter is going to shape up?.

Yes, I mean we talked about this a little bit last quarter. It wasn’t a definitive turn-off. It was something that sort of evolved over time, we actually began the initiative towards the end of 2016 and then it let into 2017, it was really by the end of tail-end of Q1. We had most of that phased out.

So you will start to see much clear comps in Q2 and beyond..

And was the quarter and obviously your seasonality in the quarter but was there anything in particular in the quarter large in advertiser or something that that also influenced the numbers or was it just generally the seasonality plus the initiative that you’re talking in terms of going after higher margin business?.

I mean the other big thing that went on was the SRAX Reach that has been launched in November of the prior quarter and so I think that was still finding its place with the revenue was very lumpy and there was some test revenue and charter revenue sourcing of that are no longer with us. And so that create a lot of noise in Q1 last year..

And in the past you guys believe you gave guidance in terms of annual revenues, do you have any thoughts in terms of your annual guidance in terms of revenues?.

Yes, we mentioned last quarter we’re not giving guidance just simply because of the SRAXmd process..

We will continue on to Steve Ossello with Aspenwood Capital..

Chris to the extent you can, can you give me the idea of the activity through the process that’s now resulted in MoU for SRAXmd, what kind of activity that generated and then assuming if you get to the goal line, what would be the use of proceeds for that transaction?.

Sure.

So we had around 10 people that bid on the transaction that are down to around three and then we added those three, we selected one that we thought had the best chance of being able to close the transaction and demonstrate it the wherewithal to be able to close the deal and gave us the confidence that they were truly interested in the SRAXmd platform.

So that was a long process that we want to do but we think that we made the right choice there, very sophisticated and highly capable buyer for the product. So we’re excited about that.

As far as use of proceeds, we have the chickens before they're hatched but obviously funding all of our big token initiatives are important for us and focusing on the other verticals there would obviously be significant amount of capital.

So, the board would have to decide if they wanted to use some of that money to buy back some stock or given it out to the - giving it out to the shareholders. So that’s something that we will contend with when and if we close the transaction..

Our next question comes from Matthew Larson with Wells Fargo..

Actually my questions were already answered by you because they were similar to the previous two callers. So thanks anyway, and good luck at the Needham Conference tomorrow..

Thank you very much..

So we have a follow-up from Mike Kupinski. Mr. Kupinski, your line is open. Please check your mute button..

Can you talk about how much you spent in the quarter regarding your BIGtoken initiative?.

Yes, it’s detailed in the 10-Q but it was little over $10,000..

And then what are the next - I know you’re moving into beta testing but what are the next parameters or things that we should look for in terms of if we are going to monitor the success of where we’re going with, whether it would be in terms of the amount of customers that have signed up with data, the personal data, what are some of the benchmarks that you guys are looking for in terms of this initiative?.

Yes, it’s certainly the number of people that have signed - we’ve had a lot of people, I think we had around 4,000 people sign up for the beta and that’s without anything else there. So those once we’re ready for the beta, we will issue 4,000.

Our goal initially will be to hit the 10,000 consumer level inside the beta and once we get there, we’ll have a bunch of learnings that will do and understandings of the consumers and their activities and then we will start to accelerate that growth and hope to get around half a million members and that will give us enough of threshold that we could then open up to get out of closed beta into an open beta..

[Operator Instructions] I will turn the floor back over to our speakers..

Thank you very much everybody for joining today. We really appreciate it. We’re excited about what we’re doing. So if there is any other questions please reach out to us directly and we look forward to keeping you apprised of what’s going on with MD and what’s going on with BIGtoken. Thank you very much..

Thank you. Ladies and gentlemen this concludes today’s conference. Thank you all again for your participation. You may now disconnect..