LOUISVILLE, Ky., Aug. 13, 2020 /PRNewswire/ -- Creative
Realities, Inc. ("Creative Realities," "CRI," or the "Company")
(NASDAQ: CREX, CREXW), a leading provider of digital marketing
solutions, announced its financial results for the three- and
six-months ended June 30, 2020.
Rick Mills, Chief Executive
Officer, commented "I would first like to thank all CRI employees,
customers, suppliers, and partners for their unwavering support of
our Company during these unprecedented, dynamic times. I am proud
of the adaptability and commitment that our personnel have shown in
the face of adversity in light of the COVID-19 pandemic."
Mr. Mills continued, "Entering the second quarter, we
anticipated that the COVID-19 pandemic would disrupt the digital
signage industry and the business operations in each of the
vertical markets we serve as it forced companies to address both
stay-at-home orders along with social distancing, increased
sanitation protocols, masks, temperature checks and other
procedures. In response, we implemented a series of cost-cutting
measures and, more importantly, adjusted our product offering to
launch the Thermal Mirror to assist businesses responding to newly
developed COVID-19 protocols."
Mr. Mills added, "We launched the Thermal Mirror in late-April
to exceptional market reception. We worked throughout May and June
to enhance features and functionality of the product, building our
upstream and downstream supply chain capabilities to support the
eventual sale of thousands of units throughout the United States and Canada, and to launch a substantial trial unit
program focused on customers throughout the United States. During July and August, we
have seen a consistent flow of Thermal Mirror orders on a weekly
basis. Similar to our digital signage customer base, our mix of
customers for the Thermal Mirror includes enterprise corporations,
K-12 and higher education institutions, sports and entertainment
venues, and small and medium businesses. We believe this market
continues to represent a significant opportunity for the Company
throughout the remainder of 2020 as we have positioned ourselves as
a clear market leader in this space. With the product, including
our cloud subscription services, having recently been made
available via the distribution channel, we have seen increasing
demand week-over-week throughout July and August. As we continue to
develop and evolve the product offering and as businesses continue
to reopen throughout the United
States and Canada, we fully
expect the Thermal Mirror to be a go-to consideration for safe
space solutions."
Business Update
- Business Operations – In response to the COVID-19
pandemic and the guidance of government and public health
officials, Creative Realities closed all of its facilities in
April 2020 and the majority of CRI's
employees are currently working from home and continue to support
the business.
- Cost Management Initiatives – CRI has and will continue
to take additional action to aggressively manage operating costs,
capital expenditures, and working capital. Our actions throughout
the second quarter of 2020 and through today include (1) personnel
and salary reductions, (2) working closely with vendor partners to
enter payment plans for the Company's outstanding accounts payable,
(2) exiting, negotiating the deferral of payments, or restructuring
existing long-term leases for our facilities, and (3) suspending
travel for personnel.
- Liquidity – On April 27,
2020, the Company applied for and received a Paycheck
Protection Program loan ("PPP") of approximately $1.6 million, which is eligible for forgiveness.
Our initial internal calculations and analysis indicate that we
have achieved 75% forgiveness as of the date of this press release
and expect to achieve 100% forgiveness by the end of the third
quarter of 2020, at which point we plan to apply for forgiveness.
If forgiveness is granted, the Company would recognize a gain of
approximately $1.6 million and
eliminate an equivalent amount of long-term debt. On June 19, 2020, the Company entered into a Sales
Agreement under which the Company may offer and sell shares of its
common stock. As of June 30, 2020,
the Company has not sold any shares of common stock under the
Agreement. Through August 13, 2020,
the Company received net proceeds under the Sales Agreement of
approximately $1.2 million from the
issuance of approximately 550,000 shares of our common stock. The
Company currently has cash on hand of approximately $1.1 million as of the date of this press
release.
Second Quarter Financial Update
- Revenues were $3.7 million for
the quarter ended June 30, 2020, a
decrease of $5.7 million, or 61%, as
compared to the same period in 2019.
- Hardware revenues were $1.6
million for the quarter ended June
30, 2020, a decrease of $0.1
million, or 3%, as compared to the same quarter in the prior
year. Gross margin on hardware revenue was 19.1% in 2Q2020 as
compared to 20.7% in 2Q2019.
- Services and other revenues were $2.1
million for the quarter ended June
30, 2020, a decrease of $5.6
million, or 73%, in the quarter ended June 30, 2020 as compared to the same period in
2019. Gross margin on services and other revenue was 73.6% in the
quarter ended June 30, 2020 compared
to 50.7% in the same period in 2019.
- Managed services revenue, which includes both SaaS and help
desk technical subscription services, were effectively flat at
$1.6 million in the second
quarter of both 2020 and 2019.
- Gross profit was $1.8 million for
the second quarter of 2020, a decrease of $2.4 million, or 57%, compared to the same period
in 2019. Consolidated gross margin increased to 49.7% for the
quarter ended June 30, 2020 from
45.4% in the same quarter in the prior year, driven primarily by a
higher ratio of managed services revenue to total revenue in the
period in part as a result of a reduction in installation
services.
- With respect to operating expenses for the second quarter of
2020 as compared to the same period in the prior year:
-
- Sales and marketing expenses reduced by $0.2 million, or 39% while research and
development expenses reduced by $0.1
million, or 38%, each driven by a reduction in
employee-related expenses as a result of a combination of headcount
reductions, salary reductions implemented for retained personnel,
and a reduction in travel-related expenses in the current year
including the elimination of participation in industry trade
shows.
- General and administrative expenses were flat year-over-year;
however, this is not reflective of the Company's cost-cutting
measures. During the second quarter of 2020, the Company's
employee-related expenses decreased by approximately $0.6 million as compared to the same period in
2019, representing a 45% reduction versus the prior year. These
reductions were offset by an increase of $0.5 million in the Company's reserve for bad
debt related to a customer bankruptcy that was filed during the
second quarter of 2020 and an increase of $0.2 million related to deal and transaction
costs associated with the Company's entry into an at-the-market
offering. Excluding the effects of these discrete events, general
and administrative expenses decreased by $0.6 million, or 25%, during the second quarter
of 2020 as compared to the same period in 2019.
- Operating loss was $1.6 million
in the quarter ended June 30, 2020 as
compared to operating income of $0.5
million during the same period in 2019. Excluding the
effects of discrete charges in 2Q20 and adjusting for the potential
impact of the forgiveness of our PPP loan as calculated today,
adjusted operating income would have been approximately
$0.1 million. See below for a
description of these non-GAAP financial measures and reconciliation
to our operating loss.
- Net loss was $2.5 million in the
quarter ended June 30, 2020 as
compared to net income of $0.4
million for the same period in 2019. Net loss in the second
quarter 2020 included a discrete, non-cash charge of $0.6 million related to fair value accounting for
the Company's Convertible Special Loan.
- EBITDA was ($1.7) million for the
three months ended June 30, 2020
compared to $0.9 million the same
period in 2019. Adjusted EBITDA was ($1.1)
million for the three months ended June 30, 2020, compared to $1.1 million for the same period in 2019. See
below for a description of these non-GAAP financial measures and
reconciliation to our net loss.
Mr. Mills concluded, "We believe that we have weathered the
worst of the COVID-19 pandemic with respect to its impact on our
business and are optimistic about CRI's opportunities with respect
to our traditional digital marketing technologies and the immediate
opportunity with respect to the Thermal Mirror. CRI has remained an
open, flexible, and transparent business partner to our vendors and
customers and we believe our flexibility and responsiveness during
this crisis will contribute to our success as businesses reopen and
markets stabilize. We believe the long-term opportunity for both
the digital signage industry and CRI remain bright and we look
forward to supporting our customers in their pursuit to reopen as
we move forward together."
Conference Call Details
The Company will host a
conference call to review the first quarter results and provide
additional commentary about the Company's recent performance, which
is scheduled for Friday, August 14,
2020 at 9:00 am Eastern
Time.
Prior to the call, participants should register at
http://bit.ly/criearnings2020Q2. Once registered, participants can
use the weblink provided in the registration email to listen to the
live webcast. An archived edition of the second quarter
earnings conference call will also be posted on our website at
www.cri.com later that same day and will remain available to
interested parties via the same link for one year.
About Creative Realities, Inc.
Creative Realities
helps clients use the latest omnichannel technologies to inspire
better customer experiences. Founded over 15 years ago, CRI
designs, develops and deploys consumer experiences for high-end
enterprise level networks, and is actively providing recurring SaaS
and support services for more than fifteen diverse vertical
markets, including Automotive, Advertising Networks, Apparel &
Accessories, Convenience Stores, Foodservice/QSR, Gaming, Theater,
and Stadium Venues. The Company acquired Allure Global Solutions,
Inc. in November 2018, expanding the
Company's operations to five offices across North America with active installations in
more than 10 countries.
Use of Non-GAAP Measures
Creative Realities, Inc.
prepares its consolidated financial statements in accordance with
United States generally accepted
accounting principles ("GAAP"). In addition to disclosing financial
results prepared in accordance with GAAP, the Company discloses
information regarding "EBITDA," "Adjusted EBITDA," and "Adjusted
Operating Income." CRI defines "EBITDA" as earnings before
interest, income taxes, depreciation and amortization of
intangibles. CRI defines "Adjusted EBITDA" as EBITDA excluding
stock-based compensation, fair value adjustments and both cash and
non-cash non-recurring gains and charges. CRI defines "Adjusted
Operating Income" as GAAP operating income/loss, excluding deal
& transition costs, bad debt charges related to customer
bankruptcies, and the addition of estimated loan forgiveness
income. EBITDA, Adjusted EBITDA and Adjusted Operating Income
are not measures of performance defined in accordance with GAAP.
Management believes that disclosure of these metrics offers
investors, bankers and other stakeholders an additional view of the
Company's operations that, when coupled with the GAAP results,
provides a more complete understanding of the Company's financial
results.
EBITDA and Adjusted EBITDA should not be considered as an
alternative to net income/(loss) or to net cash used in operating
activities as measures of operating results or liquidity, and
Adjusted Operating Income should not be considered as an
alternative to operating income/(loss). Our calculation of EBITDA,
Adjusted EBITDA and Adjusted Operating Income may not be comparable
to similarly titled measures used by other companies, and the
measures exclude financial information that some may consider
important in evaluating the Company's performance. A reconciliation
of EBITDA and Adjusted EBITDA to GAAP net income/(loss), and a
reconciliation of Adjusted Operating Income to GAAP operating
loss is included in the accompanying financial schedules.
For further information, please refer to Creative Realities,
Inc.'s Quarterly Report on Form 10-Q to be filed with the
Securities and Exchange Commission on or about August 13, 2020, available online at
www.sec.gov.
Cautionary Note on Forward-Looking Statements
This
press release contains certain statements that are deemed
"forward-looking statements" under Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and includes, among other things, discussions of our business
strategies, future operations and capital resources. Words
such as "may," "likely," "anticipate," "expect," "intend," "plans,"
"seeks," will," should," "future," "propose," "believe" and
variations of these words or similar expressions (or the negative
versions of such words or expressions) indicate forward-looking
statements. These forward-looking statements are not
guarantees of future performance, conditions or results, and
involve a number of known and unknown risks, uncertainties,
assumptions and other important factors, many of which are outside
the Company, that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking
statements. Some of these risks are discussed in the "Risk
Factors" section contained in Item 1A in our Annual Report on Form
10-K for the year ended December 31,
2019, Item 1A of our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020, and the
Company's subsequent filings with the U.S. Securities and Exchange
Commission. Important factors, among others, that may affect actual
results or outcomes include: the inability to recognize the
anticipated benefits of our acquisition of Allure Global Solutions,
Inc.; our ability to meet Nasdaq's continued listing standards; our
ability to execute on our business plan; our ability to retain key
personnel; potential litigation; and general economic and market
conditions impacting demand for our products and services,
including those as a result of the COVID-19 pandemic.
Except where required by law, the Company assumes no obligation
to update forward-looking statements to reflect actual results or
changes in factors or assumptions affecting such forward-looking
statements.
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED
EBITDA
and
RECONCILIATION OF GAAP OPERATING
LOSS TO ADJUSTED OPERATING INCOME
(in thousands,
unaudited)
Creative Realities, Inc. prepares its consolidated financial
statements in accordance with United
States generally accepted accounting principles ("GAAP"). In
addition to disclosing financial results prepared in accordance
with GAAP, the Company discloses information regarding "EBITDA",
"Adjusted EBITDA", and "Adjusted Operating Income". CRI
defines "EBITDA" as earnings before interest, income taxes,
depreciation and amortization of intangibles. CRI defines "Adjusted
EBITDA" as EBITDA excluding stock-based compensation, fair value
adjustments and both cash and non-cash non-recurring gains and
charges. CRI defines "Adjusted Operating Income" as GAAP operating
income/loss, excluding deal & transition costs, bad debt
charges related to customer bankruptcies, and the addition of
estimated loan forgiveness income.
EBITDA, Adjusted EBITDA, and Adjusted Operating Income are
non-GAAP financial measures and should not be considered as a
substitute for net income (loss), operating income (loss) or any
other performance measure derived in accordance with United States generally accepted accounting
principles ("GAAP") or as an alternative to net cash provided by
operating activities as a measure of CRI's profitability or
liquidity. CRI's management believes EBITDA and Adjusted EBITDA are
useful because they allow external users of its financial
statements, such as industry analysts, investors, lenders and
rating agencies, to more effectively evaluate its operating
performance, compare the results of its operations from period to
period and against CRI's peers without regard to CRI's financing
methods, hedging positions or capital structure and because it
highlights trends in CRI's business that may not otherwise be
apparent when relying solely on GAAP measures. CRI's management
believes Adjusted Operating Income is useful in light of the
COVID-19 pandemic because they allow external users of its
financial statements, such as industry analysts, investors, lenders
and rating agencies, to more effectively evaluate its operating
performance in normalized market conditions. CRI presents EBITDA
and Adjusted EBITDA because it believes EBITDA and Adjusted EBITDA
are important supplemental measures of its performance that are
frequently used by others in evaluating companies in its industry.
Because EBITDA, Adjusted EBITDA, and Adjusted Operating Income
exclude some, but not all, items that affect net income (loss) and
may vary among companies, the EBITDA, Adjusted EBITDA, and Adjusted
Operating Income CRI presents may not be comparable to similarly
titled measures of other companies.
The following table presents a reconciliation of EBITDA and
Adjusted EBITDA from net loss, CRI's most directly comparable
financial measure calculated and presented in accordance with
GAAP.
|
|
June
30,
|
|
|
March
31,
|
|
|
June
30,
|
|
Quarters
ended
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
GAAP net
loss
|
|
$
|
(2,459)
|
|
|
$
|
(13,183)
|
|
|
$
|
417
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt
discount
|
|
|
84
|
|
|
|
85
|
|
|
|
158
|
|
Other interest,
net
|
|
|
176
|
|
|
|
142
|
|
|
|
55
|
|
Depreciation/amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
158
|
|
|
|
159
|
|
|
|
147
|
|
Amortization of
finance lease assets
|
|
|
5
|
|
|
|
7
|
|
|
|
8
|
|
Amortization of
share-based awards
|
|
|
100
|
|
|
|
50
|
|
|
|
41
|
|
Depreciation of
property, equipment & software
|
|
|
216
|
|
|
|
200
|
|
|
|
152
|
|
Income tax
expense/(benefit)
|
|
|
4
|
|
|
|
(155)
|
|
|
|
(107)
|
|
EBITDA
|
|
$
|
(1,716)
|
|
|
$
|
(12,695)
|
|
|
$
|
871
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in warrant
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
(22)
|
|
Change in fair value
of Special Loan
|
|
|
551
|
|
|
|
151
|
|
|
|
-
|
|
Gain on settlement of
obligations
|
|
|
(1)
|
|
|
|
(40)
|
|
|
|
(6)
|
|
Gain on earnout
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss on goodwill
impairment
|
|
|
-
|
|
|
|
10,646
|
|
|
|
-
|
|
Stock-based
compensation – Director grants
|
|
|
19
|
|
|
|
31
|
|
|
|
|
|
Stock-based
compensation – PRSU vesting
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
Adjusted
EBITDA
|
|
$
|
(1,147)
|
|
|
$
|
(1,907)
|
|
|
$
|
1,093
|
|
The following table presents a reconciliation of Adjusted
Operating Income from operating loss, CRI's most directly
comparable financial measure calculated and presented in accordance
with GAAP.
Quarters
ended
|
|
Three Months
Ended June
30, 2020
|
|
GAAP operating
loss
|
|
$
|
(1,644)
|
|
Bad debt expense
(customer bankruptcy)
|
|
|
468
|
|
Deal and transaction
costs (ATM offering)
|
|
|
160
|
|
Implied forgiveness
of PPP loan
|
|
|
1,164
|
|
Adjusted Operating
Income
|
|
$
|
148
|
|
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SOURCE Creative Realities, Inc.