Good day everyone and welcome to the SRAX Fourth Quarter 2016 Results Conference Call. Today's call is being recorded. And now, your host for today's conference, Ms. Kirsten Chapman of LHA Investor Relations. Ms. Chapman, please go ahead now.

Thank you, [Rupert] [ph]. Good afternoon, everyone. I'd like to welcome you all to SRAX fourth quarter and year-end 2016 conference call. This call is being Webcast and is available on the Web-site. With us today are SRAX's CEO, Christopher Miglino, and CFO, J.P. Hannan. Chris will review the Company's 2016 highlights, J.P. will discuss the operations and financial metrics, and then Chris will discuss the vision for 2017, after which we will open the call for questions. Before I turn the call over to management, I would like to remind you that in this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially. The words, anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to SRAX are forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual results to differ materially 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 and can be reviewed at www.sec.gov. Finally, please make note that on today's call, management will refer to certain non-GAAP financial measures. Please refer to SRAX's press release for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. The Company issued a press release reporting the financial results prior to this call, and tomorrow, March 31, the Company intends to file its 10-K with the SEC. It is now my pleasure to turn the call over to SRAX's CEO, Chris Miglino. Please go ahead, Chris.

Thanks, Kirsten. Good afternoon, everyone. I'm excited to speak to you today. 2016 was a pivotal year and set a foundation for a profitable growth in 2017. Several of our initiatives began to take effect in the fourth quarter, as evidenced by our financial results. Revenue reached $11.5 million, up 41% Q4 2015 and 20% over Q3 2016. Our gross margins also increased, growing from 27% in Q3 of 2016 to 41% in Q4 of 2016. Combined with essentially flat operating expenses, we delivered improved adjusted EBITDA of $583,000. J.P. will review the financials in greater detail in a minute, but first I want to take a step back and discuss what SRAX is today and who we serve. As many of you know, SRAX is an advertising technology company that combines the power of programmatic technology, social media and data science to amplify digital marketing performance. We serve two primary sets of customers; marketers whom we refer to as the buy side, and content owners whom we refer to as the sell side. During Q4, we continued to build out our recurring revenue streams on both sides of the business with ongoing development and enhancements on our differentiated proprietary technology. On the buy side, one of our main products is the SRAX digital media management platform. With this we serve various verticals, including healthcare, consumer packaged goods, retail, automotive, financial services, and natural products. Another buy side product growing in magnitude is SRAX Social, which combines the social media management solution with the power of programmatic technology and big data to grow brand audiences. Our lead and most advanced vertical is healthcare and we have created SRAX MD to enable marketers to engage hard-to-reach healthcare professionals, consumers and patients. In 2016, SRAX MD delivered record results with sales up 115% over 2015. This offering exemplifies the power of our customized solution. Turning to the sell side, our main products are SRAX APP and SRAX Reach. SRAX APP lets content owners build a mobile app that aggregates their audiences from different digital channels for greater monetization opportunities. After considerable development in Q4, we launched SRAX Reach, an ad technology tool set for publishers that enables them to expand both their audience and their revenue opportunities. Overall, we offer our customers a differentiated hybrid solution comprised of our platform, services and support team that we believe few, if any, of our peers can match. During the year, we focused on diversifying our customer base as well as eliminating low-margin business. Our footprint today includes industry premium publishers. No single customer accounts for more than 15% of our Q4 revenue and we anticipate continuing to build out our customer footprint. To that end, we expanded our sales team, tripling our infrastructure and hiring some amazing new people, including leaders in U.S. and Europe. We expect the team's contribution will increase the magnitude in 2017. As you know, during the fourth quarter we up listed to NASDAQ. We're managing this transition and strengthening our leadership team. In October, J.P. Hannan joined as our CFO. He has served public companies in a financial capacity for over 20 years, most recently Vice President, Treasurer and Chief Financial Officer of Cumulus Media, Inc., the second-largest radio station operator in the United States. We are also making changes on our Board. We thank retiring director Rod Dillman and Derek Ferguson for their service and appoint new member, Robert Jordan. We are excited about Robert's contribution as he has spent the last 25 years transforming and building world-class companies across a spectrum of industries, including leading software companies that provide SaaS-based employee onboarding, lifecycle management and offboarding software. We are also evaluating candidates to appoint to other directors and welcome input from our investors. Before I elaborate on our key growth drivers and our vision for 2017, let's have J.P. review the financial results. J.P. Hannan: Thanks Chris. We'll now turn to the fourth quarter and year-end 2016 financial summary. For the fourth quarter of 2016 as compared to the fourth quarter of 2015, gross revenue reached $11.5 million, increasing 42% over the prior year and 21% over the third quarter of 2016. This reflects growth in SRAX sell side clients and SRAX MD, which were partially offset by continued declines in buy side revenue that began earlier in the year, as we have discussed previously. Gross profit grew to $4.7 million, increasing 7% over the fourth quarter of 2015 and 85% over the third quarter of 2016. Gross margin was 41% compared to 54% in the fourth quarter of 2015 and 27% in the third quarter of 2016. These results reflect the timing and execution of initiatives to reduce low-margin business as well as the launch of SRAX Reach at the end of Q4 2016. Fourth quarter 2016 operating expenses were $5.6 million, including increased sales salaries and commissions resulting from the recruitment of additional sales personnel earlier in 2016. This compared to $3.9 million in the fourth quarter of 2015. Net loss for the quarter was $1.3 million, compared to a loss of $426,000 in the fourth quarter of 2015 and a loss of $2.4 million in the third quarter of 2016. Adjusted EBITDA was $583,000, compared to $1.1 million in the fourth quarter of 2015 and a loss of $764,000 in the third quarter of 2016. You may recall we pre-released Q4 earnings back in January. While the revenue we gave you at the time did not change, final adjusted EBITDA was reduced from the preliminary estimate to account for charges related to accrued bonus and commission, our end of year equity financing and reconciliation of prepaid items. For the full year 2016 as compared to the full year of 2015, revenue grew by 18% from $30.3 million to $36 million. However, we came up short against our previously given full year guidance of $40 million. The factors that contributed to this included the ongoing elimination of low-margin revenue that would have otherwise helped us achieve this guidance but would have dampened our margin profile. Non-returning buy side business over the holiday season and timing of other advertising placements that shifted into the first quarter of 2017 also contributed. The latter is actually fairly typical as buyers manage their remaining budgets at year end. Gross margin finished at 35.1% compared to 52.4% in 2015, as is reflected due to the previously mentioned lower margin business. As indicated, gross margin improved greatly from third to fourth quarter and began to return to normalized levels in the last six weeks of 2016. Operating expenses for the full year including a $670,000 impairment charge taken in Q2 was $16.6 million or 46.6% of revenue, as compared to $14.8 million or 48.9% of revenue last year. GAAP net loss was $4.2 million, compared to $2.7 million in 2015. Full year adjusted EBITDA loss was $1.1 million, compared to a positive adjusted EBITDA gain just under $3 million in 2015. Now turning to a review of the balance sheet, cash and cash equivalents totaled $1 million at the end of the year. It was a very busy financing quarter in Q4 where we continued to aggressively pay down debt through additional issuances of equity. This continued into January of 2017 when we repaid the final balance due under our senior secured facility that totaled $4.1 million. On January 4, we announced the sale of approximately 761,000 common stock units to two institutional investors. We continue to evaluate financing opportunities to provide additional working capital for the Company. And with regard to equity, there are approximately 7.9 million common shares and approximately 3.7 million warrants currently outstanding. Finally, we're not a federal cash taxpayer. We finished the year with a net operating loss carryforward for federal taxes approximately $7.4 million. We are reaffirming our 2017 guidance. We continue to expect gross revenue for the year to be between $45 million and $50 million and adjusted EBITDA is anticipated to be between $2 million and $5 million. As the first quarter is winding down, we are on track to achieve both these targets. And with that, I'll pass it back to Chris for a few additional insights into our current business trends and his closing remarks.

Thanks J.P. Overall, our unique tool set enables content owners, publishers and brands to amplify performance and maximize profits as well as attribute online actions to offline sales lift. To this end, we have worked very closely with both CPG companies and retailers to track the ads that are being shown to the consumer and then track if that ad is driving to a purchase at the retail location. In 2017 we are focusing our resources on our most profitable revenue streams as well as creating more operational efficiencies. With that objective, at the end of March we've resized our buy side operations staff, consolidating the team into our headquarters in Los Angeles from their office in New York. We expect this to save approximately $1.5 million annually. Turning to the market review, overall the ad market continues to grow. Programmatic buying has nearly tripled in the past years per [indiscernible] Research and programmatic digital display ad spending is expected to exceed $30 billion in 2017 per eMarketer. While the market is growing dramatically, it remains very fragmented. So we are very focused in our efforts. Our main target on the buy side is mid-market agencies and we continue to have ample opportunities to capture market share. In 2017, we believe our primary growth drivers on the buy side will be verticals such as healthcare via our flagship SRAX MD offering and retail through our SRAX CPG product, which we expect to increase in prominence as we bring our products to market in 2017. We are committed to building verticals to reach the highest potential. On the sell side, we expect our key 2017 growth driver to be SRAX Reach. It has the ability and a rich owned content and additional premium content, again guaranteeing revenue from a fixed budget buy. While we developed Reach to serve both sides of the business, it is quickly gaining traction with the sell side. Since its launch in Q4, SRAX Reach has accumulated almost 600 sites, which we think is pretty impressive growth. Overall, we are excited with our progress in late 2016. We are committed to driving long-term shareholder value and we are confident in our 2017 guidance. And with that said, we'd now like to open it to questions.

[Operator Instructions] We will take our first question from Darren Aftahi of ROTH Capital Partners.

Just a few if I may. As it pertains to your guidance for fiscal 2017, can you talk a little bit about the correlation between kind of hitting the high end of EBITDA and how that correlates to kind of the revenue range, i.e., do you hit a certain inflection point where the business is kind of breakeven and then after that there is kind of a higher-margin contribution? And then secondarily, Chris, you said those are kind of high margin areas of your business, what kind of revenue composition in your guidance is attributed to SRAX MD and then what kind of investments are you kind of putting against that in fiscal 2017? I guess lastly, your gross margins have moved around and I understand the weakness with the buy side stuff, how do we kind of think about that number in fiscal 2017 vis-a-vis the last couple of years? J.P. Hannan: So I mean I'll address the first part of it. I think this Company made a strategic shift midyear last year to really focus much more on profitability and bottom line, and as a result we probably left some very low margin or no margin revenue on the table towards year-end that had we taken we would have achieved the overall revenue number but really wouldn't have done anything for us on our bottom line. And so, going into this year we are very focused on maximizing revenue for the most amount of profit, and that's how we derived the guidance that we gave earlier in the year. I think if we hit the mid range of that, the low to the mid range of that revenue guidance, we will hit the mid range of that EBITDA number. If we get higher than that, I think the additional revenue will be probably at lower margins.

And then as far as the breakdown of the MD business, we don't break out the revenue for each of these business units yet. So we haven't done that. So we can't really answer that particular question, but we do have different margin profiles for each of these different business units that are contributing to that overall baked margin. And we think that the MD business is a fantastic opportunity and we continue to invest heavily into that space and we're building a lot of software that is being utilized to help that team be more efficient and have more things that they can sell to market.

I guess just as a follow-up, what percentage of your sales force is kind of dedicated to the healthcare vertical, as it kind of stood at the end of 2016, and then where do you kind of see that number going at the end of 2017? Is it more about adding bodies in sales to grow that business or as you said efficiencies with software, or is it kind of a combination of both?

I think it's a combination of both of those things, but it's definitely our year to increase the sales of the MD team. While the team that is selling regular Internet ads and working with agencies is capable of selling MD products, the MD team has a very unique language that they speak to the advertisers. And if you were coming from an ad tech perspective and you show up into one of these pharmaceutical meetings, you would almost think that you didn't know what they were talking about, because the language and everything that happens in that business is completely different than what the regular ad tech sales person is used to. So we envision hiring additional specific people that are targeted to that business.

For our next question, we go to Jim McIlree with Chardan Capital.

I know that you've been shifting a lot of what you've been doing on the buy side, but would you expect that to decline in let's say the first half of this year and then expand in the second half or you kind of flushed everything out and so now you're stepped for growth on the buy side?

We hired up heavily into the end of the third quarter and the middle of the fourth quarter on the buy side. So those guys are really starting to contribute now. I anticipate they will contribute more as the year goes on, but they are doing well. We have hired very seasoned salespeople in this space with lots of relationships. So we think that they will do really well in contributing. We do anticipate that the buy side of that business will have a little bit of a down year, but that's overcompensated by the growth that we are having in our other areas of our business.

Okay. And then J.P., the expenses in Q4, you cited increased sales for that increase. Was there anything one-time-ish in there that we can take out going forward or would those expenses go even higher in Q1 as we're going to get a full quarter of presumably some hires in Q4? J.P. Hannan: I mean there were additional salespeople added mid-year last year. As you know, those take time to ramp and you have no guarantees as they sort of start to begin to build their business. Actually as the end of the year closed and coming into this year, we have actually been cutting costs in the first quarter and reducing particularly some of the old legacy Steel Media expenses that we inherited as part of that acquisition. So we don't see a substantial amount of cost increase going forward.

And just to be clear, you will see that savings coming through in the second quarter because a lot of those changes we made in the second part of the first quarter. J.P. Hannan: Right, we'll stick to comp through that.

And you are referring to the move from LA – from New York to California or that as well as the other?

Yes, that as well as the other. I mean there has been a lot of cost-cutting that we have done on that side and we had a lot of redundancy. There was an operations office in New York City which was redundant to operations that we had in Los Angeles and it was an expensive place to have operations. Sales definitely needs to be in New York City but from an operational perspective we are much better suited handling that out of our Los Angeles and our Mexico office.

Okay. And on the verticals, how long did it take you to get from MD's let's call it idea or the germination of an idea into a product, and I'm trying to figure out where are you in those timelines for other verticals that you are targeting this year?

So it took MD – MD had basically no revenue to speak of for around two years. But then it really just skyrocketed after that. And I think that you can look at these other verticals in the same way, except we are further along in the process of building what we need to manage a lot of those verticals so that our time to market for the additional verticals will be much quicker because we have a lot of infrastructure and technology that we own on our side that can be duplicated across multiple verticals.

Right, that makes sense. And just to verify, Q1 is usually a seasonally down quarter, is that right and is there any reason to think that it's not going to be that way this year?

No, it definitely is always. The agencies aren't even back from vacation until the first, second week of January, and then they start going at it again. So the beginning of January is usually a very quiet time, and since we don't focus around a lot of direct marketing, that's kind of when a lot of the direct marketers are buying cheap inventory on the Internet just because there is so much of it out there. So that is definitely true for our business, is that first quarter is historically always a lower quarter and then it kicks in throughout the rest of the year.

Great, perfect. Thanks a lot, guys.

For our next question, we go to Jason [Svensky] [ph].

So I am in the answer to your previous question understanding how the learning curve that may be associated with your sales team integrating and selling to the MD customers, it also sounds like you [indiscernible] in the previous question about new verticals, but is the MD product, just to understand a little better, is that solely a rebranding of your existing tools to move on a market opportunity in an underserved market or is there something else that would make it more defensible from your peers entering the market [indiscernible]?

Yes, definitely it has its own data and a substantial amount of data. We have built a significant number of tools that are proprietary to that industry. The pharma business is, the way that they buy media is completely different and their rules around what they can and cannot do is completely different than what our traditional buyers of media are accustomed to doing. So yes, we've built a lot of tools around that that are very specific to the pharma industry and we own a lot of data around all the different verticals. So, oncologists, cardiologists, and you name the doctor vertical, there is a lot of data that we own across that industry.

Okay. Thank you.

For our next question, we go to Tom [indiscernible] with [TNT] [ph] Commercial Corporation.

I just have two questions relative to your balance sheet. You note that notes payable net of unamortized cost from 2015 to 2016 increased about $2.1 million. What was the basis for that? And then the second question is, on your accounts payable you go from $5 million to $13 million from 2015 to 2016, and I would like to know why such a large ramp-up. J.P. Hannan: On the notes payables, that is you will notice on the balance sheet a classification of all of the long-term debt into current. So while we paid down debt substantially, you'll notice there is no long-term debt anymore on the balance sheet.

You just moved it into current? J.P. Hannan: As it became due at year-end because at the midyear there was a covenant breach which then there was a forbearance agreement that was signed and that accelerated the debt to be due at year-end, and as a result we had to move all of that debt into the current category. And while that was occurring, we paid down a substantial amount. And we did several transactions which allowed us to raise capital which all went to pay down the debt.

So did you reduce the $13 million by the $6 million that you raised? J.P. Hannan: Yes, and we finished the year with $4 million of gross debt and then there is about $500,000 of deferred financing costs that are required to be presented as an offset to that debt, which is what gets you to the $3.4 million that you see in the balance sheet today.

Okay, great. Thank you.

For our next question, we go to [Jim Murray with Timber Rock] [ph].

I attended two of your presentations in San Diego and I enjoyed them, but I've lost 75% of my small investment in the last 12 months, and wonder why and if you foresee me getting back even and making money hopefully?

I certainly do hope that you do, and over the last month and a half or a couple of months here, we ended up paying off the debt that J.P. was just mentioning. In order to accomplish that, we did a financing with a company that gave us the debt or gave us the equity in order to pay off the debt that we had, and we issued the shares that J.P. mentioned in his commentary to that fund, and that fund then subsequently it went to market and started selling some shares. I think one thing you will notice about this stock is that while the levels have reduced from where they were, the amount of volume in the stock has increased significantly as well. There were the times when the stock was trading at $5 a share, $6 a share, where it literally would trade 1,000 shares a week or 2,000 shares a week, and I think that as the people that had some shares that they put into the deal started selling those into the market, you found a natural market for the stock where there is really a lot of buyers for the stock and there is a lot more activity. Now that doesn't mean that I think the levels we're at today are acceptable based on the numbers that we are telling you we are going to do. I think there is downward pressure on the stock based on some people selling and I think that that hopefully should recover as those people eliminate their positions. But I think that if you look at the industry in general, which is trading at any times from 1x to 3x sales, I think we are significantly undervalued here.

Thanks. I worry, I asked my Merrill Lynch advisor what he thought, he said, it sounds like a good company, it looked good when you bought it, but he said, are they aware of professionals that can pump and dump and are they being taken at all? And so, it's another question.

There was never really the pump because the stock didn't trade when it was at the $5, $6 range. There wasn't a lot of activity happening up there. There was some trading that happened but it wasn't significant. As the price came down in the stock, that's when the volume picked up, so I don't think there's ever been kind of like that except for the day that we went public on NASDAQ. The day that we went public and rang the bell at NASDAQ, there was kind of a push of the stock up. But that was short-lived for that afternoon and then settled back into the $6 or so range.

Ladies and gentlemen, this will conclude our question-and-answer session. Therefore, Mr. Miglino, I will turn the call back over to you for any closing remarks.

Thank you very much. We really appreciate you participating in the call and we look forward to speaking with you soon. We are going to be at the B. Riley Conference and at the LD Micro Conference, if you're going to be there, and we'd love to talk to you there more. So thank you very much.

Ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect.