SRAX, formerly known as Social Reality, Inc., is a technology firm that has been at the forefront of enhancing communication between public companies and their shareholders and investors. Headquartered in Westlake Village, California, the company operates primarily through its proprietary SaaS platform, Sequire, which provides valuable insights and data-driven solutions to help public companies better understand and engage with their investor base.

Company Background

SRAX, Inc. was formed as a Delaware corporation on August 2, 2011. The company operates as a distributed virtual company, allowing for flexibility and efficiency in its operations. SRAX's core business revolves around its unique SaaS platform, Sequire, which allows issuers to track their shareholders' behaviors and trends, then use data-driven insights to engage with shareholders across marketing channels.

Business Overview

Through the Sequire platform, SRAX offers tools and related data and insight services to allow issuers of publicly traded securities to better understand their position in the market. The company generates revenue from multiple sources, including licensing the Sequire platform, selling proprietary data, attendance and sponsorship fees from investor conferences and events, and selling insight and consulting services.

In September 2020, SRAX made a significant acquisition, purchasing LD Micro, a respected organizer of investor conferences and events. This strategic move allowed the company to expand its offerings and provide a more comprehensive suite of services to its public company clients. Unfortunately, in March 2023, the company divested its LD Micro subsidiary, as part of its ongoing efforts to streamline operations and focus on its core Sequire platform.

SRAX's Sequire platform is the centerpiece of its business, providing clients with a powerful set of tools to track shareholder behavior, identify potential new investors, and engage with their existing investor base. The platform utilizes advanced analytics and machine learning to deliver actionable insights, enabling public companies to optimize their investor relations strategies.

SRAX operates in two primary business segments: Sequire and LD Micro (until its divestiture in March 2023).

The Sequire segment, which is the company's core offering, provides a SaaS solution for public companies to track shareholder behaviors and trends. Through Sequire, SRAX offers tools and data/insight services to help issuers of publicly traded securities better understand their market position and engage with shareholders. Sequire revenue is generated through several sources, including licensing subscriptions to access the platform, managed services involving data and marketing initiatives, and ancillary data supplementing the use of the platform.

During the quarter ended March 31, 2023, Sequire SaaS platform revenue was $4 million, comprising 99.75% of SRAX's total revenue. However, this represents a significant 46.61% decline compared to the prior year period, primarily due to SRAX's transition from accepting marketable securities as compensation to a cash-only payment model for services rendered. In previous years, a substantial portion of Sequire's revenue was derived from payments in the form of securities, which allowed for potential capital appreciation. The shift to a cash-based model has resulted in slower customer acquisition and reduced overall revenue for this segment.

The LD Micro segment, which organized and hosted investor conferences within the micro and small-cap markets, contributed just $10,000 in conference revenue during the quarter ended March 31, 2023, representing only 0.25% of SRAX's total revenue. On March 3, 2023, SRAX disposed of its entire ownership interest in LD Micro through a sale to Freedom Holding Corp. As a result of this divestiture, SRAX deconsolidated LD Micro from its financial statements and recognized a $594,000 gain on the disposal, which is included in other income/expense.

The company operates primarily in the United States, with some revenue from Canada and other international markets. For Q1 2023, the geographic breakdown of revenue was as follows: United States (99.41%), Canada (0.39%), and Other (0.20%).

Financials

Financially, SRAX has faced its share of challenges in recent years. The company's annual revenue for the most recent fiscal year (2022) was $27.86 million, with an annual net income of -$31.64 million. Annual operating cash flow for 2022 stood at -$12.33 million, while annual free cash flow was -$12.77 million.

On a quarterly basis, SRAX's latest financial results show a mixed picture. In the most recent quarter (Q1 2023), the company reported revenue of $7.32 million, down 46.47% from the same period the previous year. Net income for the quarter was -$8.52 million, compared to the prior-year period. Operating cash flow and free cash flow figures for the quarter were not available.

Liquidity

SRAX's liquidity position presents some challenges. As of Q1 2023, the company had a debt-to-equity ratio of -0.7454, indicating a negative equity position. Cash and cash equivalents stood at $765,000, while the current ratio and quick ratio were both 0.40, suggesting potential short-term liquidity concerns.

The company has a $9.45 million senior secured revolving credit facility, of which $5.62 million was outstanding as of Q1 2023. The facility is due at the earlier of August 2024 or upon an event of default. On December 9, 2024, the maturity date was extended to August 9, 2025, providing some additional financial flexibility.

Despite the financial headwinds, SRAX has remained focused on its strategic priorities. The company recently announced a definitive merger agreement with DNA Holdings Venture Inc., a Web3 investment firm. This move is expected to bolster SRAX's capabilities in the rapidly growing Web3 space, as the combined entity will leverage DNA's expertise in advisory services and investments in Web3 infrastructure.

Risks and Challenges

Risks facing SRAX include its heavy reliance on the Sequire platform for revenue, the competitive landscape in the investor relations technology space, and the ongoing challenges of transitioning from a digital advertising-focused business to a more specialized investor relations and Web3 service provider. The company's ability to successfully integrate the DNA Holdings acquisition and execute on its strategic vision will be crucial in determining its future success.

Over the years, SRAX has faced various challenges common to technology companies, such as market competition, regulatory changes, and the need to continuously innovate and enhance its product offerings. The company has also experienced periods of financial difficulty, including significant losses since its inception, which required management to explore various financing options to fund its operations.

The transition away from accepting non-cash compensation and the disposal of its LD Micro subsidiary have significantly impacted the company's revenue composition and financial performance. Management will need to focus on driving growth in the core Sequire platform, potentially through new product offerings or expanded services, to offset these changes and improve the company's long-term profitability.

Conclusion

Overall, SRAX's journey has been marked by both challenges and opportunities. As the company navigates the evolving landscape of investor relations and embraces the emerging Web3 ecosystem, its ability to continue innovating and providing value to its public company clients will be the key to unlocking long-term growth and profitability. The recent strategic shifts, including the focus on cash-based revenue models and the divestiture of LD Micro, demonstrate the company's willingness to adapt to changing market conditions. However, SRAX will need to address its financial challenges, particularly in terms of profitability and liquidity, to ensure sustainable growth in the competitive investor relations technology sector.