Creative Realities, Inc. (“Creative Realities,” “CRI,” or the
“Company”) (NASDAQ: CREX, CREXW), a leading provider of digital
signage solutions, announced its financial results for the three-
and six-months ended June 30, 2022.
Rick Mills, Chief Executive Officer, commented
“I am pleased to report that the Company generated record revenue
of $10.9 million for the second quarter of 2022, a $7.6 million, or
233%, improvement over the same period in 2021. Importantly, this
represents a $4.7 million increase over the pro forma combination
of Creative Realities and Reflect Systems in 2021, indicative of
both organic and strategic growth through the merger of the
companies. The Company’s run-rate on annual recurring revenue is
also at a record level of $14.5 million, again well exceeding the
$12.0 million for the combined companies at the end of 2021 and the
$13.5 million run-rate reported as of the first quarter of this
year. EBITDA and Adjusted EBITDA for the second quarter amounted to
$2.8 million and $0.9 million, respectively. We believe these
results aptly evidence the strength of the platform created by the
combination of Creative Realities and Reflect Systems and
demonstrate the Company’s ability to drive value for our
shareholders. Our current client base continues to expand and the
pipeline for clients appears robust.”
Mr. Mills continued, “Our primary focus
continues to be expanding the number of devices managed via our
digital signage software platforms generated SaaS revenue, thereby
increasing the value of our Company through our growing annual
recurring services revenue. As we grow the software subscription
base and continue to integrate Creative Realities and Reflect, we
expect to further enhance our profit margins over operating
leverage and improve financial results.”
“With the expansion of our SaaS revenue and the
momentum within our pipeline, we reiterate our expected target to
generate revenue in excess of $43 million during 2022, which would
amount to an organic growth rate in excess of 40% on a pro forma
combined company basis, as compared to 2021. We are ahead of
schedule on delivering the goal of 25% growth in our annual
recurring revenue on a pro forma, combined company basis in
2022.”
Mr. Mills concluded, “The results for the first
and second quarters of 2022 demonstrate sustained organic and
inorganic revenue growth. We believe we have reached an inflection
point where our incremental revenue growth will have a profound
effect on profit. We remain engaged and excited about the platform
that we have created and our prospects for ongoing value creation.
Creative Realities is uniquely positioned to service enterprise
customers with our end-to-end offering and to drive profitability
through our increased scale.”
Second Quarter 2022 Financial
OverviewAll results herein represent the financial results
of Creative Realities, Inc. and include financial results for
Reflect Systems, Inc., a wholly owned subsidiary of Creative
Realities following their merger on February 17, 2022.
Key Highlights:
- Year-over-year revenue growth of
$7.7 million, or 233%
- Annual Recurring Revenue run-rate
exceeds $14.5 million – 7.4% growth since March 31, 2022
Revenue, gross profit, and gross margin:
- Revenues for the three months ended
June 30, 2022 were $10.9 million, representing an increase of $7.6
million, or 233%, as compared to the same period in 2021 driven in
part by the merger with Reflect Systems on February 17, 2022,
and the Company’s successful sales activities as a combined company
post-merger. During the three months ended June 30, 2021, the pro
forma combined results of Creative Realities and Reflect Systems
produced $6.3 million in revenues. The current year combined
company results for the three months ended June 30, 2022 represent
an increase of $4.7 million, or 74%, over the pro forma combined
results for the same period in 2021.
- Revenues for the six months ended
June 30, 2022 were $21.7 million, representing an increase of $13.4
million, or 162%, as compared to the same period in 2021 driven in
part by the merger with Reflect Systems on February 17, 2022,
and the Company’s successful sales activities as a combined company
post-merger. During the six months ended June 30, 2021, the pro
forma combined results of Creative Realities and Reflect Systems
produced $13.7 million in revenues. The current year combined
company results for the six months ended June 30, 2022 represent an
increase of $8.0 million, or 58%, over the pro forma combined
results for the same period in 2021. Effectively, the organic
growth rate for the combined company through six months ended June
30, 2022 is 58%. This is in-line with our previously stated
expectations to produce organic growth of 40% for the full year
2022.
- Hardware revenues were $5.7 million
in the three months ended June 30, 2022, representing an increase
of $4.4 million, or 337%, as compared to the prior year, driven by
the merger with Reflect and continued growth in large scale LED
deployments in the quarter by multiple customers.
- Services and other revenues were
$5.3 million in the three months ended June 30, 2022, an increase
of $3.3 million, or 165%. Managed services revenue, which includes
both software-as-a-service (“SaaS”) and help desk technical
subscription services, were $3.8 million in the three months ended
June 30, 2022 as compared to $1.4 million in the same period in
2021, driven by the merger with Reflect and the continued expansion
in our SaaS software subscription base. This represents a
year-over-year growth rate of 175% in our higher margin, typically
subscription-based, managed services revenue.
- Gross profit increased by $2.8
million, or 147% during the three months ended June 30, 2022 as
compared to the same period in 2021 driven by an increase in
revenue in part as a result of the merger with Reflect, but offset
by a reduction in gross profit margin. Gross profit margin
decreased to 42.7% from 57.2% driven primarily by a shift in
revenue mix to 52% hardware during the three months ended June 30,
2022 from 40% hardware during the three months ended June 30, 2021
related to several material customer hardware rollouts active
during the first half of 2022. We expect gross profit margin to
stabilize as we move into the second half of 2022 and beyond, as
was the case from first quarter to second quarter 2022. The gross
profit margin increased for the three months ended June 30, 2022 to
42.7% from 36.2% in the three months ended March 31, 2022, which
experienced significant short-term significant pressure driven by a
single, large-scale/hardware-heavy deployment. We continue to view
the long tail of hardware revenue as a leading indicator of future
SaaS and other services revenue. We believe the gross profit margin
for the three months ended June 30, 2022 to be more representative
of our normalized gross profit margins.
Operating expenses:
- Sales and marketing expenses
generally include the salaries, taxes, and benefits of our sales
and marketing personnel, as well as trade show activities, travel,
and other related sales and marketing costs. Sales and marketing
expenses increased by $1.0 million, or 597%, driven primarily by
(i) the inclusion in the prior year of a benefit of $0.2 million
related Employee Retention Credits (“ERC”) that did not recur in
the current year, (ii) the merger with Reflect on February 17,
2022, and (iii) the Company’s enhanced investments into sales and
marketing activities post-COVID-19 pandemic as related limitations
on such activities have eased. Excluding the impact of the ERC, the
increase was $0.8 million, or 371%. Immediately following the
merger with Reflect, the Company integrated the sales and marketing
functions and did not disaggregate expenses between the two legacy
companies. Following the Merger and through integration activities,
the Company adopted certain tools, technology, and processes –
particularly with respect to lead generation and brand marketing –
that were underutilized historically by the Company. Additionally,
the Company engaged an investor relations firm and has increased
investor relations activities, including conferences and
presentations. As a result, we expect the sales and marketing
expenses of the Company for the three months ended June 30, 2022 to
adequately reflect the pace for expenses in these areas in future
periods.
- Research and development expenses
increased $0.4 million, or 621% in 2022, driven primarily by (i)
the inclusion in the prior year of a benefit of $0.1 million
related to ERC, which did not recur in the current year, and (ii)
the merger with Reflect on February 17, 2022. Excluding the impact
of the ERC, the increase was $0.2 million, or 367%. Through the
merger with Reflect, we acquired a fully staffed, experienced
software development team and elected to keep that team in-tact,
particularly given employment market conditions with respect to
talented software engineers. We have integrated the pre-existing
CRI development team with the acquired team and have experienced
enhanced speed to market on new feature and functionality
development activities from increasing this resource pool. We
expect this level of expense during the three months ended June 30,
2022 to be representative of our future operations as we continue
to develop and enhance our current and future product set.
- General and administrative expenses
increased $0.8 million thousand, or 49%, driven primarily by (i)
the inclusion in the prior year of a benefit of $0.5 million
related ERC which did not recur in the current year, and (ii)
increased headcount and operations as a result of the merger with
Reflect on February 17, 2022. Excluding the impact of the ERC, the
increase was $0.3 million, or 19.8%. While the Company anticipates
carrying higher general and administrative expenses moving forward
as compared to its history as a result of the merger with Reflect,
our integration activities include numerous projects targeted at
controlling further expansion of these expenses from the level
realized in the three months ended June 30, 2022.
Operating loss, net income, and EBITDA:
- Operating income was $30 thousand
during the three months ended June 30, 2022, inclusive of $0.4
million in non-cash charges for both amortization of intangible
assets and non-cash employee and director stock compensation.
- Net income was $1.2 million during
the three months ended June 30, 2022, which included:
- $2.4 million gain on marking
outstanding liability warrants to fair value (prior to their
conversion to equity warrants)
- $0.3 million charge related to the
amendment of outstanding warrants through extension of useful life;
and
- $0.8 million of interest
expense.
- EBITDA was $2.8 million and
Adjusted EBITDA was $0.9 million for the three months ended June
30, 20222. Adjusted EBITDA margin was 8.3% during this period.
A reconciliation of the GAAP-basis net
income/(loss) to Adjusted EBITDA is provided in the table at the
end of this press release.
Conference Call DetailsThe
Company will host a conference call to review the results and
provide additional commentary about the Company’s recent
performance and the Reflect merger, which is scheduled for Tuesday,
August 16, 2022 at 9:00 am Eastern Time.
Prior to the call, participants should register at
https://bit.ly/criearnings2022Q2. Once registered, participants can
use the dial-in information provided in the registration email to
listen to the Company’s prepared remarks and participate in the
live question and answer session. 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 helps clients use place-based
digital media to achieve business objectives such as increased
revenue, enhanced customer experiences, and improved productivity.
The company designs, develops and deploys digital signage
experiences for enterprise-level networks, and is actively
providing recurring SaaS and support services across diverse
vertical markets, including but not limited to retail, automotive,
digital-out-of-home (DOOH) advertising networks, convenience
stores, foodservice/QSR, gaming, theater, and stadium venues.
With its recent acquisition of Reflect Systems,
Inc., a leading provider of digital signage software platforms, the
company is poised to extend its product and service offering and
accelerate growth in SaaS revenue. While Reflect provided a broad
range of digital signage solutions, Reflect’s flagship products are
the market-leading ReflectView digital signage platform and Reflect
AdLogic ad management platform. ReflectView is the industry’s most
comprehensive, scalable, enterprise-grade digital signage platform,
powering enterprise customer networks. Meanwhile, Reflect AdLogic
has become the benchmark for digital signage powered ad networks,
delivering nearly 50 million ads daily. The acquisition of Reflect
also brought to the Company a media sales division with the
expertise and relationships to help any digital signage venue owner
develop and execute a monetization plan for their network.
The combined company has operations across North
America with active installations in more than 10 countries.
Use of Non-GAAP Measures and Operating
MeasuresCreative 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.
“Annual recurring revenue,” or “ARR,” represents
the annualized revenue run rate of our subscription (1)
software-as-a-service (“SaaS”) contracts, (2) maintenance and
support of perpetual license contracts, and (3) content management
service contracts at the end of the final calendar month included
in a reporting period, assuming these contracts are renewed on
their existing terms for customers that are under subscription
contracts with us. We believe that ARR is a key operating metric to
measure our business because it is driven by our ability to acquire
new subscription customers and to maintain and expand our
relationship with existing subscription customers. ARR should be
viewed independently of revenue and deferred revenue as ARR is a
performance metric and is not intended to be combined with any of
these items.
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 22, 2022.
Cautionary Note on Forward-Looking
Statements This press release contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, Section 21E of the Securities Exchange Act of
1934, as amended, and the Private Securities Litigation Reform Act
of 1995, and includes, among other things, discussions of our
business strategies, product releases, future operations and
capital resources. Words such as "estimates," "projected,"
"expects," "anticipates," "forecasts," "plans," "intends,"
"believes," "seeks," "may," "will," "should," "future," "propose"
and variations of these words or similar expressions (or the
negative versions of such words or expressions) are intended to
identify forward-looking statements. Forward-looking statements are
not guarantees of future performance, conditions or results. They
are based on the opinions, estimates and beliefs of management as
of the date such statements are made, and they are subject to known
and unknown risks, uncertainties, assumptions and other factors,
many of which are outside of our control, that may cause the actual
results, level of activity, performance or achievements to be
materially different from those expressed or implied by such
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, 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 ability to effectively integrate
Reflect’s business operations, our strategy for customer retention,
growth, product development, market position, financial results and
reserves, 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. Readers should not place undue reliance
upon any forward-looking statements. We assume no obligation to
update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
Contact
Christina Daviescdavies@ideagrove.com
Investor
Relations:ir@cri.comhttps://investors.cri.com/
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 |
|
Quarters ended |
|
June 302022 |
|
|
March 312022 |
|
|
December 312021 |
|
|
September 302021 |
|
|
June 302021 |
|
GAAP net income (loss) |
|
$ |
1,262 |
|
|
$ |
2,502 |
|
|
$ |
(1,722 |
) |
|
$ |
(343 |
) |
|
$ |
1,025 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
|
360 |
|
|
|
181 |
|
|
|
29 |
|
|
|
29 |
|
|
|
29 |
|
Other interest, net |
|
|
390 |
|
|
|
268 |
|
|
|
160 |
|
|
|
158 |
|
|
|
153 |
|
Depreciation/amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
431 |
|
|
|
680 |
|
|
|
302 |
|
|
|
320 |
|
|
|
317 |
|
Amortization of employee share-based awards |
|
|
316 |
|
|
|
469 |
|
|
|
324 |
|
|
|
329 |
|
|
|
329 |
|
Depreciation of property, equipment |
|
|
37 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
Income tax
expense/(benefit) |
|
|
53 |
|
|
|
3 |
|
|
|
13 |
|
|
|
1 |
|
|
|
7 |
|
EBITDA |
|
$ |
2,849 |
|
|
|
4,130 |
|
|
|
(867 |
) |
|
$ |
521 |
|
|
|
1,887 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on fair value of warrant liability |
|
|
(2,433 |
) |
|
|
(5,469 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain)/loss on settlement of obligations |
|
|
(21 |
) |
|
|
295 |
|
|
|
- |
|
|
|
(256 |
) |
|
|
(1,628 |
) |
(Gain)/loss on debt waiver consent |
|
|
- |
|
|
|
1,212 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain)/loss on warrant amendment |
|
|
345 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain)/loss on fair value of equity guarantee |
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deal and transaction expenses |
|
|
37 |
|
|
|
391 |
|
|
|
518 |
|
|
|
- |
|
|
|
- |
|
Other income |
|
|
1 |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation – Director grants |
|
|
82 |
|
|
|
82 |
|
|
|
318 |
|
|
|
27 |
|
|
|
27 |
|
Adjusted EBITDA |
|
$ |
933 |
|
|
|
635 |
|
|
|
(31 |
) |
|
$ |
292 |
|
|
|
286 |
|
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