LOUISVILLE, Ky., Nov. 12, 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
nine-months ended September 30,
2020.
Rick Mills, Chief Executive
Officer, commented, "CRI's third quarter results highlight the
tremendous adaptability and commitment that our personnel have
shown in the face of adversity and challenges in our core business
throughout the COVID-19 pandemic, specifically both (1) the
flexibility to pivot our business to Safe Space Solutions' products
and services that remain relevant in a marketplace with continued
business closures, and (2) the ability to continue to drive
reductions in expenses despite the incremental costs associated
with launching new products and services."
Mr. Mills continued, "Revenue for the third quarter 2020
increased approximately $1.4 million
as compared to the first and second quarter of 2020 as we began to
see adoption of our Thermal Mirror product in the marketplace. We
continue to believe that CRI's solution is a market leader and has
opportunity for continued adoption in the marketplace throughout
the remainder of 2020 and into 2021 as employers seek to adopt
technology that will further enhance the safety of the workplace
for their employees. We continued to focus on reducing controllable
expenses, reducing total operating expenses by approximately
$0.7 million, or 23%, versus the same
quarter in 2019, exclusive of non-cash charges in each period. Net
loss in the quarter reduced to $0.6
million, which resulted in the generation of $0.3 million of EBITDA, an improvement of
$2.0 million versus the second
quarter of 2020. As we look forward and into 2021, and as
businesses continue to reopen throughout the United States and Canada, we fully expect our Safe Space
Solutions, including the Thermal Mirror product, to be a go-to
consideration for return to work products and for our core digital
signage revenues to return to growth."
Third Quarter Financial Update
Revenue, gross profit, and gross margin:
- Revenues were $5.1 million for
the three months ended September 30,
2020, a decrease of $1.6
million, or 24%, as compared to the same period in
2019.
- Hardware revenues were $2.8
million for the three months ended September 30, 2020, an increase of
$0.8 million, or 40%, as compared to
the same quarter in the prior year, driven by the introduction of
the Thermal Mirror product which generated approximately
$1.8 million in hardware sales during
the quarter. Gross margin on hardware revenue was 34.0% in the
third quarter of 2020 as compared to 27.0% during the same period
in 2019 due to the shift in mix of hardware revenues from displays
to the Thermal Mirror product which generates higher gross
profit.
- Services and other revenues were $2.3
million for the three months ended September 30, 2020, a decrease of $2.4 million, or 52%, as compared to the same
period in 2019, driven primarily by a reduction in installation
services of $1.5 million
year-over-year combined with a general reduction in other software
and managed services revenue due to customer closures in response
to the COVID-19 pandemic. Gross margin on services and other
revenue was 65.4% in the quarter ended September 30, 2020 compared to 58.9% in the same
period in 2019 driven by less labor-intensive services offerings
related to the Thermal Mirror product.
- Managed services revenue, which includes both
software-as-a-service ("SaaS") and help desk technical subscription
services for our traditional digital signage and new Thermal Mirror
product offerings, were $1.3 million
for the three months ended September 30,
2020, a reduction of $0.5
million, or 28%, driven by customer closures in response to
the COVID-19 pandemic.
- Gross profit was $2.4 million for
the three months ended September 30,
2020, a decrease of $0.9
million, or 26%, compared to the same period in 2019.
Consolidated gross margin decreased to 47.9% for the three months
ended September 30, 2020 from 49.1%
in the same quarter in the prior year, driven primarily by a higher
ratio of hardware revenue to total revenue in the period on
continued sales of the Thermal Mirror product.
Operating expenses:
- For the three months ended September 30,
2020 as compared to the same period in the prior year:
-
- Sales and marketing expenses decreased by $0.1 million, or 21% while research and
development expenses decreased by $0.1
million, or 25%, 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 decreased by $0.3 million, or 12%; inclusive of incremental
non-cash charges related to the amortization of stock compensation
of $0.2 million during the period.
Exclusive of the incremental year-over-year increase in non-cash
charges, general and administrative expenses decreased by
$0.5 million, or 22%, for the three
months ended September 30, 2020 as
compared to the same period in 2019.
Operating loss, net loss, and EBITDA:
- Operating loss was $0.4 million
for the three months ended September 30,
2020 as compared to operating income of $0.1 million during the same period in 2019,
despite a reduction in revenue period-over-period of $1.6 million.
- Net loss was $0.6 million for the
three months ended September 30, 2020
as compared to net income of $0.2
million for the same period in 2019.
- EBITDA was $0.3 million for the
three months ended September 30, 2020
as compared to $0.8 million the same
period in 2019. Adjusted EBITDA was $0.2
million for the three months ended September 30, 2020, compared to $0.4 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 and that the incremental changes we
have made to both our business operations and cost structure will
continue to benefit us well into the future as CRI returns to
revenue growth. Despite the challenges that 2020 has brought, we
believe that CRI has gained momentum against our peers within the
industry by remaining an open, flexible, and transparent business
partner to our vendors and customers and our flexibility and
responsiveness during this crisis will contribute to our continued
success as businesses reopen and markets stabilize."
Conference Call Details
The Company will host a
conference call to review the third quarter results and provide
additional commentary about the Company's recent performance,
on Friday, November 13, 2020 at 9:00 am
Eastern Time.
Prior to the call, participants should register at
http://bit.ly/criearnings2020Q3. 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, Movie
Theater, and Stadium Venues.
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" and "Adjusted EBITDA." 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. EBITDA and Adjusted EBITDA are not measures of performance
defined in accordance with GAAP. However, EBITDA and Adjusted
EBITDA are used internally in planning and evaluating the Company's
operating performance. Accordingly, 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. Our
calculation of EBITDA and Adjusted EBITDA 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 GAAP net
income/(loss) to EBITDA and Adjusted EBITDA is included in the
accompanying financial schedules.
For further information, please refer to Creative Realities,
Inc.'s Annual Report on Form 10-K to be filed with the Securities
and Exchange Commission on March 12,
2020, and its other filings 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, and Item 1A of our Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2020 and
June 30, 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
(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" and
"Adjusted EBITDA." 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.
EBITDA and Adjusted EBITDA 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 financial metrics
because they allow external users of CRI's financial statements,
such as industry analysts, investors, lenders and rating agencies,
to more effectively evaluate CRI's 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 also 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
and Adjusted EBITDA exclude some, but not all, items that affect
net income (loss) and may vary among companies, the EBITDA and
Adjusted EBITDA 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.
|
|
September
30,
|
|
June
30,
|
|
March
31,
|
|
December 31,
|
|
September 30,
|
Quarters
ended
|
|
2020
|
|
2020
|
|
2020
|
|
2019
|
|
2019
|
GAAP net
loss
|
|
$
|
(585)
|
|
|
$
|
(2,459)
|
|
|
$
|
(13,183)
|
|
|
$
|
563
|
|
|
$
|
242
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt
discount
|
|
|
85
|
|
|
|
84
|
|
|
|
85
|
|
|
|
105
|
|
|
|
105
|
Other interest,
net
|
|
|
179
|
|
|
|
176
|
|
|
|
142
|
|
|
|
109
|
|
|
|
94
|
Depreciation/amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
161
|
|
|
|
158
|
|
|
|
159
|
|
|
|
204
|
|
|
|
147
|
Amortization of
finance lease assets
|
|
|
5
|
|
|
|
5
|
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
Amortization of
share-based awards
|
|
|
248
|
|
|
|
100
|
|
|
|
50
|
|
|
|
21
|
|
|
|
31
|
Depreciation of property, equipment & software
|
|
|
212
|
|
|
|
216
|
|
|
|
200
|
|
|
|
167
|
|
|
|
123
|
Income tax
expense/(benefit)
|
|
|
(1)
|
|
|
|
4
|
|
|
|
(155)
|
|
|
|
128
|
|
|
|
51
|
EBITDA
|
|
$
|
304
|
|
|
$
|
(1,716)
|
|
|
$
|
(12,695)
|
|
|
$
|
1,304
|
|
|
$
|
801
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
of Special Loan
|
|
|
-
|
|
|
|
551
|
|
|
|
151
|
|
|
|
-
|
|
|
|
-
|
Gain on settlement of
obligations
|
|
|
(114)
|
|
|
|
(1)
|
|
|
|
(40)
|
|
|
|
(1,632)
|
|
|
|
(406)
|
Gain on earnout
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(250)
|
|
|
|
-
|
Loss on disposal of
assets
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
Loss on goodwill
impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
10,646
|
|
|
|
-
|
|
|
|
-
|
Stock-based
compensation – Director grants
|
|
|
25
|
|
|
|
19
|
|
|
|
31
|
|
|
|
31
|
|
|
|
31
|
Stock-based
compensation – PRSU vesting
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
Adjusted
EBITDA
|
|
$
|
228
|
|
|
$
|
(1,147)
|
|
|
$
|
(1,907)
|
|
|
$
|
(547)
|
|
|
$
|
426
|
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SOURCE Creative Realities, Inc.