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spk05: Hello, everyone. Welcome to the STRACCS full year 2021 conference call. We appreciate you joining us today. I'm Morgan, Vice President of Community. This is our safe harbor statement, which I will read. This presentation 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 limitations 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 as set forth in our annual report on Form 10-K for the year ended December 31st, 2020, or subsequent quarterly reports on Form 10-Q 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 SRACS and are difficult to predict. SRACS undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. I'd like to introduce Chris Manglino, the founder and CEO of SRACS.
spk02: Thank you, Morgan. and welcome everybody to the q4 2021 and full year 2022 conference call i want to thank you for your continued support of tracks as many of you know 2021 was a fantastic year for us and we grew significantly in all my years that I've had in business. I've not had a business that has grown as fast and has continued to grow as fast as Strax has. It was a monumental year, and as you will see as we get into the numbers, we're just getting started. While I appreciate our existing investors, I want to jump and wanting to jump right into the numbers. I want to take a minute to quickly explain to those that are new to our story a little bit about what we are doing and what is driving this significant growth. So Quire is a SaaS platform that provides public companies the ability to understand who their investors are, who's buying and selling their stock, and provides a number of tools to communicate with those investors, such as text messages, emails, surveys, and a number of other tools that help them manage their warrants, short interest data, shelf availability, and allows them to track specific financing transactions that they enter into. Once they're on the platform, we help public companies build community through a number of tools. First is our virtual events platform that allows companies, investors, and banks the ability to run virtual events. We combine this with our in-person events that gather some of the most notable investors and companies together to learn and engage from each other. We also provide news on small cap companies on both our microcaps.com website and ldmicro.com, where we have an index that tracks the microcap market. The creation of this community has taken years and our assets are well positioned to continue to grow this community. We can never accomplish this without our team. We have a team of around 150 people that are helping accomplish this goal on a daily basis. And we'd like to thank all of them for their participation in helping us accomplish these goals. And here's some of those major accomplishments that we achieved this year. We're pleased to announce that our full year revenue grew 340% year over year. This revenue continues to grow as we saw a 27% increase in Q4 revenue over Q3 revenue, which was also up 170% year over year. When we gave our revenue guidance for Big Token, we were still consolidated. With their 3.5 million in revenue and the revenue that Shracks achieved, we exceeded our guidance for 2021. Not only did we beat on the revenue side, but we continued on our trajectory of positive EBITDA. While we had a lot more expenses in Q4 due to big token spinoff, we still maintained positive EBITDA and had 3.8 million in positive EBITDA for the year. We now have 13 quarters of consecutive Sequoia revenue growth. We continue to add customers and grew the number of clients who've signed up for the platform from 284 to 307. Starting tonight, we're about to embark on our most successful in-person event we've ever thrown. LD Micro launches tonight with almost 200 companies and over 2000 one-on-one meetings. People are ready to get back to meeting in person and while we anticipate to continue, We're also live streaming the event to the investors who cannot make it to the event. At the end of the year, we held approximately $20 million in marketable securities. One thing to note here, and I know I've mentioned this many times in the past, our agreements for taking stock as service include price resets and most favored nation clauses that help us revalue our positions when stocks go down. This is, as I mentioned earlier, we exceeded our revenue guidance. And I'd like to point out how we got there. As our numbers for big token, Shracks and the Shracks gap numbers will combine to make the $31.981 million. So when you look at the Shracks financials, you're going to see That we have twenty eight point five million. That is excluding three point four million that big token had. So we gave a guidance of thirty one point five and we actually exceeded that. But now that we're deconsolidated on the numbers, you're only going to see the twenty eight. So I just wanted to be clear about that so you didn't think that we didn't hit those numbers. We did hit them, but it's just deconsolidating $3.5 million out of the P&L. We've had a great last few quarters of bookings. In just the last two quarters, we booked over $30 million in business. And I think we'll book around $12.5 million in Q2. If you look at this chart, it seems to indicate that growth is coming in three-month cycles. Since these agreements are 12-month arrangements, we have great insights into our revenue, and we're confident we'll get to $47 to $50 million this year. We also had our best one week of bookings in Q2, so the market turmoil has not derailed our growth. We continue to hold a positive EBITDA, even though we're growing the team and our infrastructure. We anticipate that Q1 will be a record EBITDA quarter for Shracks. In Q4, we had 865,000 in positive EBITDA. But getting into Q1, we anticipate to even exceed the 1.4 million that we had a few quarters ago. We continue to see that we're pacing around 25 to 30 new customers per quarter. We hope to see this increase as we have hired up on our sales team and they're bringing in a lot of companies into the pipeline. This is a look at our share structure. We have around 31.2 million shares outstanding fully diluted. This includes warrants and all of our employee options that are out there. When it comes to the warrants, we have around 3.6 million warrants that expire in October of this year. If they did get exercise, that would bring in around $7 million worth of extra cash into the company. One thing to note here is that since we didn't file this report on time, the warrants that were to be exercised in March ended up going cashless. And instead of 1.6 million shares being added to the cap table, only 194,000 shares were added to the cap table. So a significant dilution was avoided due to that, if there is any icing on the cake for filing late. So now I'd like to turn the call over to Mike for his financial review. Mike.
spk03: Thank you, Chris. As we previously mentioned, with the deconsolidation of Big Token, we're now able to present our operating results exclusively of the Sequoia business. And jumping into the fourth quarter, We're looking at revenues exceeding the prior quarter and the prior year by 27% and 170% respectively. And as Chris mentioned, this growth is as a result of the continuing bookings that we've had in the Sequoia business over the past year. Total operating expenses have increased as well. On a quarter over quarter basis, they're up 28%. And on a year over year basis, they're up 91%. Again, this is reflective of the continued investment and growth in the cost structure of the business to support the revenue growth. Now, moving to the full year, we see revenues increasing year over year 341%. And again, this is exclusive of the big token operations. This is Solis Acquire and the LD Micro Conference revenues, as well as some miscellaneous other revenues. On a cost side of things, expenses are up almost 2x or 97%. But again, roughly one third of the increase that we've seen in revenues. And again, this is mostly supporting the increased operations of the business on an overall basis. And when we move into the GAAP P&L, I think it's important that we focus, spend a little time and understand the large non-cash items that we have in the GAAP income statement. What you'll see are two large charges, both non-cash and represent the deconsolidation of big token. With the deconsolidation of big token, what we do is we consolidate all of the revenues and expenses of that business and present them in one line item on the P&L called discontinued operations. And what you'll see in terms of the entire consolidated big token business for the full year 2021, it incurred a loss, a net loss of $14.4 million. And then the second charge that we have non-cash related to the deconsolidation of big token is to dispose of the carrying value and the assets and liabilities, as well as the prior equity components of that business. And that results in a loss on deconsolidation of approximately $9.4 million. So those two charges, both non-cash as it relates to SHRACs, represent $24 million and are a one-time charge, but we will no longer see the effects of the deconsolidation on a go-forward basis. Now, moving into... Moving into the business of Sequire exclusively going forward, I think it's important, at least for this period, to understand the major movements from our net loss or gap net loss to what we represent, what we feel is an appropriate measure of the business, which is adjusted EBITDA. And so I wanted to point out, as I previously mentioned, we've had significant charges as it relates to to the big token deconsolidation, but there are some other non-cash charges that we need to add back to get to what we rep, what we believe is the appropriate measurement for our business, which is adjusted EBITDA. And so of that 20, Of the $34.3 million total net loss, approximately $24 million of that is related to the big token deconsolidation, slightly offset by the non-controlling interest in that discontinued operation. And so we find ourselves with a full year adjusted EBITDA of $3.8 million for approximately a $6 million year-over-year increase from a negative $2 million in the prior year. Now, moving into the Sequoia security portfolio, it was Chris previously mentioned, you know, we have some additional features within the, the contracts in which we obtain the securities from our, from our customers. Um, mainly if the, if the, if the, uh, company, the issue where that we've received the securities from does a dilutive financing, we get reset subject to us still holding those shares. And at the end of the year, we had receivables of approximately $2.1 million of fair market value of securities, but for GAAP accounting rules, we do not get to reflect those shares in our asset balance. We also had $1.2 million of shares that are due under new revenue contracts. We report these on the balance sheet. If we move to our balance sheet, we report these on the balance sheet as a, as a as a contract asset you're going to see that as a as a new line item on the balance sheet reflecting the value of the securities that we have yet to receive and then finally moving back to the balance sheet with a deconsolidation of of the of the big token business historically we're going to represent the assets and liabilities of big token in the respective categories of the balance sheet as discontinued operations. So you get a true sense of what the balance sheet is, as well as the income statement for this acquired business, historically and on a go-forward basis. And with that, I'd like to turn the call back to Morgan.
spk07: Thank you, Chris. Thank you, Mike. We'll now move to the Q&A portion of this call. We have John Hickman with Lattenberg Thelman. John, if you'd like to unmute.
spk04: Okay. Can you hear me okay?
spk07: We can. Thank you.
spk04: Okay. I have a couple questions. So maybe this question is for Mike, but were there – what were the, in the operating expense line is, could you take a number out of that that was related to the deconsolidation of big token and would not be like going, there would be expenses that wouldn't be repeated in Q1 or Q2. Yeah.
spk03: Yeah. John, uh, we had approximately, I'd say just shy of, of a half a million dollars of, uh, uh you know legal accounting and and other kind of overhead charges associated with with you know the um you know facilitating that that process between you know big token and and and um a bright pull on our side um yeah so i would i would i would say you know a good number would be would be, would be $500,000 would probably be a good number.
spk04: But what didn't you have? Didn't you have expenses like that in Q1 as you resolved all this accounting stuff?
spk03: Well, I think, I, I think that it, we, we probably did have a, a, a bump certainly in, in, you know, accounting and charges we do pretty much every year. You know, we, we book a significant increase from prior quarters in, in, uh, you know, audit and illegal fees, but, but I don't think it's, it's going to be materially out of line with what we had in the prior year, especially in the prior year, 2021. Remember we had a significant amount of expenses due to the, you know, the first part of the big token spinoff when it moved into, into the, we did the reverse merger. So on a comparable basis, I don't think you're going to see much of a difference there, but, but
spk02: specifically related to the the transaction um you know we had you know that that's probably the best way to think about it and then i think it's worth noting and pointing out the 10 million dollar finance charge that was at the beginning of the year as well for the um that won't exist into the next year right mike yeah so we did uh uh that's right chris so at the beginning of the year we had a
spk03: beginning of 2021, we had a charge that we took to the P&L to reflect what you'd call a warrant inducement charge. We had dropped the exercise price on some warrants outstanding in exchange for shortening the duration on a replacement warrant. And so what you do is you take the difference between the fair market value of the warrant that the holder had and the fair market value of the new warrant when you drop it from seven 50 to two 50, it is a quite a, quite a large P and L hit, but again, it's all non-cash and we get to wipe those warrants out much sooner.
spk02: So. And a lot of people forgot about that because it happened so long ago, but you know, those warrants are now gone and already in the system.
spk04: Okay. And then Chris, could you walk through you, you now own preferred shares in, a big token and what, what's your position there exactly. And when can you start to liquidate that if you want, if you chose to.
spk02: Yeah. So the, the preferred shares we have now, we have both, we have common, which represent around 4.99% of the company. And we have, and we have the preferred. The preferred, obviously we have a blocker, so we can never go above the 499. So we'd have to sell the 499 first or a fraction thereof before we can convert out any more of the preferred. So we took a really conservative approach here with this so that If we would have taken it as it marked a market, it would have been a positive $194 million P&L to the upside. And then next quarter, we would add another $50 million up to the upside. And maybe we don't know what will happen in the next quarter, but maybe it would be down another $50 million. So it would add this constant noise to the Sequoia numbers, which is what we were trying to avoid by getting this whole thing done. So by doing it this way, it allows us to, you know, if and when we sell any of our big token holdings, it'll go straight to our bottom line. And it won't, you know, we won't have to endure any of the stock volatility that they may experience in that stock that would have an impact. And we don't have to go around explaining it every quarter about why we're up 50 million or down 50 million. So that was the idea behind that. I think that they need to file their K and their Q before we'll be able to sell any shares. But once they do file that, then we would be able to do that.
spk04: Okay. So could you walk through, like, if you got paid in stock and say the contract value was, I don't know, $3 million or something, and you got stock, and then the price of that stock got cut by 30% just in the market, how would you recoup? Could you walk me through how you recoup that 30%?
spk02: Yeah. Maybe let's use a million dollars just to make it a little bit easier for, I know you're a big numbers guy, but for me, I make them round numbers. So if we do a contract for a million dollars, we don't, the million dollars obviously doesn't become the revenue. There's a formula that we have that, you know, takes a discount against that million dollars to calculate what the revenue will be. So there's already a discount that's being applied for the revenue side. And that's determined based on, you know, volatility of the stock, how much liquidity it has and things of the sort. And then let's say that we are six months in because typically we need to hold these shares for six months under rule 144. Then six months from now, the value of that stock is half a million dollars instead of a million dollars now. So now the revenue side, let's say we booked it at $700,000 because we took a discount on it. So now we're down $200,000 against the $700,000 in revenue. So now that company ends up doing a financing, whatever kind of financing it is. They do a convertible note. They do a debt deal. They do any kind of financing at all. we're then able to reset our position. We're able to reset the price of that stock down to that level. So let's say that when we did the deal with them, the stock was trading at a dollar, but now the stock is trading at 50 cents and they do a financing at 40 cents. We get reset to 40 cents. And let's say that they end up giving out warrants in that new transaction. They reset the price to 40 cents and they also give 100% warrant coverage at 40 cents. We also get that warrant at that point. So whatever terms that the new financing gets, we're able to apply that to our financing as well. And so that resets us down. We get more shares, but we also get new warrants as well, which we're seeing a lot more of that now because of where the market is. A lot more companies are doing transactions with warrants, which didn't happen as much last year. What if there's no new transaction? If there's no new transaction, then you just got to wait. And that's why we wait as long as we can to sell our stock because these rules only apply as long as we hold the stock. So we try to hold as little as cash as possible and as much stock as possible at any given time and then sell stock as we need the cash. So Mike and his team are diligent in planning that out and figuring out what we do need to sell. And I think we've been selling around $4 million a quarter in other people's stock out in the marketplace.
spk04: Okay. And then just one last question. When do you anticipate being able to file a Q1?
spk02: You know, I don't want to give a definitive date on that yet, but we're on it right away. This obviously, this needed to happen first. And so we will, I think we need a week or so before we can give you that. Okay. Thank you. Thank you, John. Appreciate it.
spk07: Thank you, John. Up next, we have Mike Crawford from B Reilly. Mike.
spk01: Thank you. You mentioned 12 and a half million of Sequoia bookings in the second quarter. Is that a target or is that what you have already?
spk02: That's our target. That's what we think we'll do in the second quarter. Because remember, we had a lot of stuff that closed in those previous two quarters. So a lot of the pipeline got sucked up in the previous two quarters. So the pipeline now looks pretty significant into Q3 and Q4.
spk01: And can you provide a sense of how much more you need to book in the you know, final three and a half weeks of the quarter to hit that target?
spk02: Around three million bucks, three and a half million bucks, which there's contracts out for Signature to get that. So I think we'll be pretty comfortably get there.
spk01: And if you are to secure new Sequire commitments at this LD micro conference that's occurring this week, is that possible? Those are contracts that would not typically be signed until the third quarter.
spk02: Yes, they would be signed in the, probably in the third quarter, or, I mean, you'll have some people that sign up right away. You know, our sales cycle is interesting. Some companies sign up immediately. And on one phone call and others take a couple of months to finish up. But I think we'll see a boost from this conference. It's at the beginning of the month here. So the sales guys have all... month to close them up. And, and, you know, what's interesting about this particular conference is that it's a lot of, a lot of non Sequire clients that are attending. So there's a big opportunity for our sales guys to close them up.
spk01: Okay. And then you gave that cash and securities number for December 31st, around what was it at the end of Q1?
spk02: You want to go, Mike?
spk03: Yeah, I was going to say, so Mike, we've got, I'd say just shy, probably the midpoint between a half a million and a million dollars at the end of the first quarter. And then the balance sheet is going to show roughly 30 million in marketable securities. But You know, as Chris was saying, you know, there's some noise in that as it relates to, you know, certainly the mark-to-market as well as, you know, what we sell. And then the way that we book, you know, these receivable or rather these shares we have in transit. So there's going to be a few million dollars of those that otherwise would be in that number that we book as contract assets that, you know, we close towards the end of the year. end of March that we had yet to receive actually in book entry form. So it's probably a good number is just shy of a million dollars and then 30 at March 31st for securities.
spk02: But Mike, I think it's important to note that in the first quarter, we sold around $4 million worth of securities. So we're able to, you know, like I said, we hold the stock as long as we can because the longer we hold it, if those companies do dilutive financings, then we get, you know, we get reset. So our goal is to, you know, kind of ride, you know, ride as long as we can with the uh with the stock so in q1 and correct me if i'm wrong mike i think we sold around four million dollars worth of security that's right and we and we anticipate that we'll be able to you know continue to do that um okay and then just i hate to get
spk01: Too much in the weeds here. But yeah, Mike, I did hear about, you know, the contract assets at year end was 1.3 million and now that's going to be around 3 million March for securities and transit and and I'm sorry, can, can you just say where we see your preferred and common big token holdings on the balance sheet. So there's this 4.1 million designated asset. And there's also this 4.1 million, at least at year end of a preferred stock liability, but where would.
spk03: Yes. So, so Mike knows. So the, the, the value of our, of our position in big token, our investment in big token is, is part of that, that, um, securities held for sale or marketable securities balance. It is in there. And as Chris was saying, you know, we've, we've, it's, you know, we've marked that extremely low, you know, for the purposes that, that Chris was saying. So it's, it's, you know, it's within that, within that balance.
spk01: Oh, okay. So, and, but you can't say what.
spk03: Well, yeah, it's, it's, no, it's, it's, it's, we're, we're carrying it at a, roughly $30,000.
spk01: And that's the common and the preferred.
spk03: Yeah.
spk01: Okay. So essentially you mark it down zero, but now big token itself with bright pool published or issued an eight K on Friday afternoon about transitioning to a web 3.0 business model. How, I mean, you're on the board, I think, still, Chris. And what can we say about where big token itself may be headed this year?
spk02: Well, I think they were in the past giving away points to consumers. for their data. And that proved to be a very expensive business model. Now they're shifting to working with doing the same thing, but they're rewarding those consumers with NFTs that they're doing in participation with very large brands. So it's actually a really interesting model. It saves them the cost of the points. I think there's a good opportunity for them. And our accounting and our recognition of that accounting has absolutely nothing to do with the, you know, the prospect that they have. I think that they, you know, they have a good opportunity there. So, you know, when we do sell some of this stock, and if we do sell some of it, it'll, instead of, you know, eating against the value that we have on the P&L, it'll go straight to our straight to our bottom line after that $38,000 is eaten against. And then we don't have to worry about these weird jumps in the stock or decreases in the stock value that would have a massive impact on our P&L.
spk01: Okay, great. Thank you very much. Thanks, Mike.
spk03: Thank you, Mike.
spk06: Thank you, Mike. That concludes the Q&A for the Strax full year 2021 financials. Thank you everybody for joining us today.
spk02: And if I'd like to, if anybody wants to watch the, the Sequire event, we'd love to have you join us. We have the LD micro event that starts tomorrow. It's all day on Friday, Tuesday, and Wednesday, and then part of the day on Thursday, we have 200-plus public companies that are presenting. You can find a link at microcaps.com under the events if you'd like to watch it virtually, if you're not going to be joining us in person. If you are joining us in person, we look forward to seeing you there. We have, like I mentioned earlier, around 2,000 one-on-one meetings set up, so it should be a very busy couple of days for us. So thank you very much for joining us and we appreciate the continued support.
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