LOUISVILLE, Ky., May 17, 2021 /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 first quarter
ended March 31, 2021.
Rick Mills, Chief Executive
Officer, commented "During the first quarter of 2021, CRI generated
approximately $5.0 million of revenue
and effectively achieved breakeven operating results, which are
in-line with the expectations we communicated in our most recent
earnings call. We generated net income during the period of
$1.3 million and, consistent with the
third and fourth quarter of 2020, we generated both positive EBITDA
and Adjusted EBITDA, highlighting our continued focus on cost
control and revenue-generating activities."
"During the quarter, CRI undertook and achieved significant
capital activities, including achieving forgiveness of our PPP
Loan, completion of a registered direct offering, and a refinancing
of all outstanding debt facilities. These activities provide the
foundation and runway for the Company's continued investment in
customer acquisition and an expected return to growth in the second
half of 2021. We continue to expect that the second half of 2021
will present opportunities for CRI as a result of strengthening the
Company's market perception and competitive position during the
COVID-19 pandemic, and through improvement of our balance sheet
through activities executed in the first quarter of 2021."
First Quarter Financial Update
Revenue, gross profit, and gross margin:
- Revenues were $5.0 million for
the three months ended March 31,
2021, an increase of $1.3
million, or 35%, as compared to the same period in
2020.
- Hardware revenues were $2.8
million for the three months ended March 31, 2021, an increase of $1.4 million, or 106%, as compared to the prior
year, driven by (i) Thermal Mirror and other Safe Space Solutions
products, which generated approximately $0.8
million in hardware sales during the three months ended
March 31, 2021 and (ii) increasing
sales to a previously announced expanding customer partnership,
which is undergoing conversion of its network during the first and
second quarter of 2021. Gross margin on hardware revenue was 32.0%
during 2021 as compared to 28.1% during the same period in 2020 due
to the shift in mix of hardware revenues from displays to the
Thermal Mirror and other Safe Space Solutions products, which
typically generate higher gross profit on a per unit basis compared
to our digital solutions products.
- Services and other revenues were $2.2
million for the three months ended March 31, 2021, a decrease of $0.1 million, or 6.8%, as compared to the same
period in 2020. Current year installation services decreased by
$0.3 million as a result of
suspended, delayed, and cancelled customer projects, initiatives,
and customer capital expenditures following announcement of the
COVID-19 pandemic, partially offset by an increase of $0.1 million in software development services in
the current year.
- Managed services revenue, which includes both
software-as-a-service ("SaaS") and help desk technical subscription
services for our traditional digital signage and recent Thermal
Mirror and Safe Space Solutions product offerings, were
$1.3 million for the three months
ended March 31, 2021 and 2020 as
reductions in digital signage subscription revenue related to
contracts with customers which were partially or permanently closed
during the year as a result of the COVID-19 pandemic were replaced
with subscription revenues added through our Safe Space Solutions
products and services.
- Gross profit was $2.2 million for
the three months ended March 31,
2021, an increase of $0.6
million, or 39%, compared to the same period in 2020,
approximately half of which relates to an increase in revenue
period-over-period with half driven by higher gross profit
generated on sales of the Thermal Mirror and Safe Space
products.
Operating expenses:
- For the three months ended March 31,
2021 as compared to the same period in the prior year:
- Sales and marketing expenses decreased by $0.1 million, or 22% while research and
development expenses decreased by $0.1
million, or 45%, 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 $0.4 million during the three months ended
March 31, 2021, or 16% compared to
the same period in 2020, driven by reduced headcount, salary
reductions, and the exit and/or restructuring of several of the
Company's operating leases for real estate following the start of
the COVID-19 pandemic. During the three months ended March 31, 2021, general and administrative
includes an increase of $0.3 million
in compensation expenses related to the probable vesting of
performance restricted awards. Exclusive of this incremental
non-cash compensation expense, general and administrative expenses
decreased by $0.7 million, or 26%, as
compared to the three months ended March 31,
2020.
Operating loss, net loss, and EBITDA:
- Operating loss was $0.2 million
for the three months ended March 31,
2021 as compared to an operating loss of $12.2 million during the same period in 2020. The
reduction in operating loss was driven by (i) a reduction in
cash-based operating expenses of approximately $0.9 million, and (ii) non-recurrence of a
non-cash goodwill impairment loss of $10.6
million recorded during the three months ended March 31, 2020, partially offset by (i) a
reduction of $0.9 million in bad debt
expense during the three months ended March
31, 2021 as the result of a recovery from a previously
bad-debt reserved customer bankruptcy, and (ii) an increase of
$0.3 million in non-cash share-based
compensation expenses as a result of probable vesting of
performance-based option awards.
- Net income was $1.3 million for
the three months ended March 31, 2021
as compared to net loss of $13.2
million for the same period in 2020. In addition to those
operating items previously identified, the increase was driven by
increases of (1) $0.3 million in the
fair value of debt instruments, and (ii) $1.5 million related to gains on settlement of
obligations, including specifically forgiveness of the Company's
PPP loan during the three months ended March
31, 2021.
- EBITDA was $2.4 million for the
three months ended March 31, 2021 as
compared to an EBITDA loss of $12.7
million the same period in 2020. Adjusted EBITDA was
$0.7 million for the three months
ended March 31, 2021, compared to an
Adjusted EBITDA loss of $1.9 million
for the same period in 2020. See below for a description of these
non-GAAP financial measures and reconciliation to our net
loss.
Other material transactions during the three months ended
March 31, 2021:
- Paycheck Protection Program Loan ("PPP Loan"): On January 11, 2021, the Company received notice
that the full principal amount of the PPP Loan and the accrued
interest had been forgiven. The Company recognized a gain of
approximately $1.5 million during the
three months ended March 31, 2021 as
a result of the forgiveness.
- Registered Direct Offering: On February
18, 2021, the Company entered into a securities purchase
agreement with an institutional investor in which the Company
sold800,000 shares of the Company's common stock (the "Shares") in
a registered direct offering (the "Offering") at a purchase price
of $2.50 per Share, for gross
proceeds of $2.0 million. The net
proceeds from the Offering after paying estimated offering expenses
were approximately $1.8 million,
which the Company intends to use for general corporate
purposes.
- Debt Refinancing: On March 7,
2021, the Company refinanced its debt facilities,
which:
-
- extended maturity dates on all outstanding secured credit
facilities to March 31, 2023;
- provided an additional $1.0
million of availability under a line of credit;
- removed the three-times liquidation preference of the Company's
special convertible term loan; and
- extinguished the outstanding obligations owed with respect to a
$0.2 million existing disbursed
escrow loan in exchange for shares of the Company's common stock
valued at $2.718 per share (the
trailing 10-day VWAP as reported on the Nasdaq Capital Market as of
the date of execution of the Credit Agreement).
The Company expensed approximately
$0.1 million in expenses related to
the refinancing activity and recorded additional debt discount of
approximately $0.1 million which will
be amortized through interest expense over the remaining life of
the loan.
Subsequent events:
- Seller Note: On May 13, 2021, the
Company and Seller entered into a settlement agreement wherein
neither party admitted liability, and the Company agreed to pay,
and Seller agreed to accept, $100 as
settlement in full for the outstanding balance of principal and
accrued interest under the Amended and Restated Seller Note and a
mutual release of all claims related to the Amended and Restated
Seller Note and sale transaction under the Allure Purchase
Agreement and all related agreements. The Company expects to record
a gain on settlement of obligations of approximately $1.6 million during the three months ended
June 30, 2021.
Mr. Mills concluded, "We continue to build the foundation to
prepare the Company for long-term success and are excited by recent
customer developments. While we remain bullish on the long-term
prospects for both the industry and the Company, there remain
short-term challenges including the timing of reopening of our
customers throughout the United
States, and the current chip shortages and production
delays, which will potentially impact our ability to procure and
timely deliver customer solutions. We believe any impact as a
result of these developments will result in a shift in timing of
revenue, as opposed to a loss of revenue, however we continue to
monitor the situation closely with our manufacturing partners.
Despite potential short-term supply challenges, we continue to
believe that our end-to-end offering has positioned us well within
the industry to compete for new and growing opportunities with
partners, particularly potential enterprise customers in a variety
of key verticals."
Conference Call Details
The Company will host a
webinar to review the results and provide additional commentary
about the Company's recent performance, which is scheduled for
Tuesday, May 18, 2021 at 9:00 am Eastern Time.
Prior to the call, participants should register at
https://bit.ly/criearnings2021Q1. Once registered, participants can
use the weblink provided in the registration email to listen to and
view prepared materials via live webcast. An archived edition
of the 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,
Inc. ("CRI" or the "Company") helps clients use the latest
omnichannel technologies to inspire better customer
experiences. CRI designs, develops and deploys consumer
experiences for high-end enterprise level networks, and is actively
providing recurring SaaS and support services across more than
fifteen diverse vertical markets, including Automotive, Advertising
Networks, Apparel & Accessories, Convenience Stores,
Foodservice/QSR, Gaming, Theater, and Stadium Venues. The Company
operates primarily throughout North
America and has active contracts 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" 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 filings available online at www.sec.gov, including its
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 10, 2021.
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 of our Annual Report on Form
10-K for the year ended December 31,
2020 and Quarterly Report on Form 10-Q for the three-months
ended March 31, 2021, 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: our strategy for customer
retention, growth, product development, market position, financial
results and reserves 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; supply chain
shortages; 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.
|
|
Quarters
Ended
|
|
|
|
March
31
|
|
|
December
31,
|
|
|
September
30,
|
|
|
June
30
|
|
|
March
31,
|
|
Quarters
ended
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2020
|
|
|
2020
|
|
GAAP net income
(loss)
|
|
$
|
1,272
|
|
|
$
|
(617)
|
|
|
$
|
(585)
|
|
|
$
|
(2,459)
|
|
|
$
|
(13,183)
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt
discount
|
|
|
72
|
|
|
|
85
|
|
|
|
85
|
|
|
|
84
|
|
|
|
85
|
|
Other interest,
net
|
|
|
177
|
|
|
|
186
|
|
|
|
179
|
|
|
|
176
|
|
|
|
142
|
|
Depreciation/amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
140
|
|
|
|
139
|
|
|
|
161
|
|
|
|
158
|
|
|
|
159
|
|
Amortization of
finance lease assets
|
|
|
4
|
|
|
|
3
|
|
|
|
5
|
|
|
|
5
|
|
|
|
7
|
|
Amortization of
share-based awards
|
|
|
512
|
|
|
|
250
|
|
|
|
248
|
|
|
|
100
|
|
|
|
19
|
|
Depreciation of
property, equipment & software
|
|
|
200
|
|
|
|
209
|
|
|
|
212
|
|
|
|
216
|
|
|
|
200
|
|
Income tax
expense/(benefit)
|
|
|
1
|
|
|
|
(6)
|
|
|
|
(1)
|
|
|
|
4
|
|
|
|
(155)
|
|
EBITDA
|
|
$
|
2,378
|
|
|
|
249
|
|
|
$
|
304
|
|
|
$
|
(1,716)
|
|
|
$
|
(12,726)
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
of Special Loan
|
|
|
(166)
|
|
|
|
(609)
|
|
|
|
-
|
|
|
|
551
|
|
|
|
151
|
|
Gain on settlement of
obligations
|
|
|
(1,565)
|
|
|
|
(54)
|
|
|
|
(114)
|
|
|
|
(1)
|
|
|
|
(40)
|
|
Loss on disposal of
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
Loss on lease
termination
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss on goodwill
impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,646
|
|
Stock-based
compensation – Director grants
|
|
|
27
|
|
|
|
27
|
|
|
|
25
|
|
|
|
19
|
|
|
|
31
|
|
Adjusted
EBITDA
|
|
$
|
674
|
|
|
|
(369)
|
|
|
$
|
228
|
|
|
$
|
(1,147)
|
|
|
$
|
(1,939)
|
|
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SOURCE Creative Realities, Inc.