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 nine-months ended September 30, 2022.
Rick Mills, Chief Executive Officer, commented,
“I am pleased to report that the Company generated record revenue
of $11.2 million for the third quarter of 2022, a $6.4 million, or
135%, improvement over the same period in 2021. Importantly, this
represents a $3.5 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, on track for a 25% growth
rate in this key profitability driver in the current year. EBITDA
and Adjusted EBITDA for the second quarter amounted to $1.5 million
and $1.2 million, respectively, which represents continued
expansion in our Adjusted EBITDA of 2.6% in the third quarter of
2022 as compared to the second quarter of 2022, consistent with the
expansion from first to second quarter of 2022. 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, “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. 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.”
Mr. Mills concluded, “Throughout 2022, we have
demonstrated our ability to achieve sustained organic and inorganic
revenue growth and expansion in Adjusted EBITDA. We believe we have
reached an inflection point where our incremental revenue growth
will have a meaningful effect on profit. As we look forward to
2023, we are excited to announce our revenue target of at least $54
million, with targeted Adjusted EBITDA of 15%. Despite market and
macroeconomic conditions, our industry remains positioned to
capitalize on strategic tailwinds and we remain excited about the
platform 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.”
Third Quarter 2022 Financial
OverviewAll current year 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 third quarter
revenue growth of $6.4 million, or 135%
- Annual Recurring Revenue run-rate
exceeds $14.5 million – on-track for targeted 25% growth rate in
2022
Revenue, gross profit, and gross margin:
- Revenues for the three months ended
September 30, 2022 were $11.2 million, representing an increase of
$6.4 million, or 135%, as compared to the same period in 2021
driven in part by the acquisition of Reflect on February 17,
2022, and the Company’s successful sales activities as a combined
company post-Merger. During the three months ended September 30,
2021, the pro forma combined results of Creative Realities and
Reflect Systems produced $7.7 million in revenues. The current year
combined company results for the three months ended September 30,
2022 represent an increase of $3.5 million, or 45%, over the pro
forma combined results for the same period in 2021. The
year-to-date organic revenue growth rate was 53% as compared to the
pro forma combined 2021 nine months ended September 30, 2021.
- Hardware revenues were $5,015 in
the three months ended September 30, 2022, representing an increase
of $2,800, or 126%, as compared to the prior year, driven by
continued large scale LED deployments continued in the quarter by
multiple customers.
- Services and other revenues were
$6,165 in the three months ended September 30, 2022, an increase of
$3,627, or 143%, with the inclusion of Reflect’s operations in the
Company’s consolidated results for the full reporting period.
Managed services revenue, which includes both software-as-a-service
(“SaaS”) and help desk technical subscription services, were $3,900
in the three months ended September 30, 2022 as compared to $1,444
in the same period in 2021, driven by the continued expansion in
our SaaS software subscription base. The long-tail of hardware
ultimately continues to drive these SaaS revenues higher
period-over-period. This represents a year-over-year growth rate of
150% in our higher margin, typically subscription-based, managed
services revenue.
- Gross profit increased by $2,167,
or 92% during the three months ended September 30, 2022 as compared
to the same period in 2021 driven by an increase in revenue but
offset by a reduction in gross profit margin. Gross profit margin
decreased to 40.4% from 49.4% driven by less favorable revenue mix
during the three months ended September 30, 2022 related to several
material customer hardware rollouts during the year that had a
lower gross profit margin than our software services. We expect
this contraction in gross profit margin to be less severe as we
move beyond 2022. We believe the gross profit margin for the three
months ended September 30, 2021 to be more representative of our
normalized, long-term 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 $388, or 118%, driven primarily by (i) the
acquisition of Reflect via the Merger on February 17, 2022, and
(ii) the Company’s enhanced investments into sales and marketing
activities post-COVID-19 pandemic. Immediately following the
Merger, 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 undercapitalized 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 September 30,
2022 to adequately reflect the pace for spend in these areas in
future reporting periods.
- Research and development expenses
generally include personnel and development tools costs associated
with the continued development of the Company’s content management
systems and other related application development. Research and
development increased by $12, or 5%, in the three months ended
September 30, 2022 as compared to the same period in 2021. The
prior year included a benefit of $49 related employer retention
credit (“ERC”), resulting in a net reduction in research and
development expenses year over year for the three months ended
September 30, 2022. Through the Merger, 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. The Company’s gross spending on research and development
activities has increased in the current quarter and year as a
result, however, the capitalized portion of those activities has
also increased specifically related to the increased investment
into development and enhancement of specific products, features,
and functionality associated with our customer acquisition strategy
in key vertical markets. We expect an elevated level of expense
throughout the remainder of 2022 and 2023 as we develop our current
and future product set.
- General and administrative expenses
increased $999, or 54%, driven primarily by (i) the inclusion in
the prior year of a benefit of $186 related to ERC, and (ii)
increased headcount and operations as a result of the acquisition
of Reflect via the Merger on February 17, 2022. While the Company
anticipates carrying higher general and administrative expenses
moving forward as a result of the acquisition and subsequent
expansion in organic revenues, the Company continues to execute
integration activities (including but not limited to consolidation
of CMS tools, cloud hosting environments, IT tools, and rightsizing
leases for office space) that we expect will be realized by the end
of 2022 and into 2023. The Company also reinstituted its 401k
matching program for employees in the fourth quarter of 2021, which
represents an increase of $52 versus the prior year, and launched
several investor relations initiatives, increasing spend $81 in the
three months ended September 30, 2022 versus the prior year.
Operating loss, net income, and EBITDA:
- Operating loss was $284 thousand
during the three months ended September 30, 2022, inclusive of $0.8
and $0.5 million in non-cash charges for both amortization of
intangible assets and non-cash employee & director stock
compensation, respectively.
- Net loss was $0.6 million during
the three months ended September 30, 2022, which included:
- $0.4 million gain on marking
outstanding contingent liabilities to fair value, and
- $0.8 million of interest expense,
including $0.4 million in amortization of debt discount included
within interest expense.
- EBITDA was $1.5 million and
Adjusted EBITDA was $1.2 million for the three months ended
September 30, 2022. Adjusted EBITDA margin was 11.2% 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 Monday,
November 14, 2022 at 9:00 am Eastern Time.
Prior to the call, participants should register
at https://bit.ly/criearnings2022Q3. 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 |
|
September 302022 |
|
|
June 302022 |
|
|
March 312022 |
|
|
December 312021 |
|
|
September 302021 |
|
GAAP net income (loss) |
|
$ |
(554 |
) |
|
$ |
1,262 |
|
|
$ |
2,502 |
|
|
$ |
(1,722 |
) |
|
$ |
(343 |
) |
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
|
363 |
|
|
|
360 |
|
|
|
181 |
|
|
|
29 |
|
|
|
29 |
|
Other interest, net |
|
|
394 |
|
|
|
390 |
|
|
|
268 |
|
|
|
160 |
|
|
|
158 |
|
Depreciation/amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
848 |
|
|
|
431 |
|
|
|
680 |
|
|
|
302 |
|
|
|
320 |
|
Amortization of employee share-based awards |
|
|
456 |
|
|
|
316 |
|
|
|
469 |
|
|
|
324 |
|
|
|
329 |
|
Depreciation of property, equipment |
|
|
37 |
|
|
|
37 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
Income tax
expense/(benefit) |
|
|
(10 |
) |
|
|
53 |
|
|
|
3 |
|
|
|
13 |
|
|
|
1 |
|
EBITDA |
|
$ |
1,534 |
|
|
|
2,849 |
|
|
|
4,130 |
|
|
|
(867 |
) |
|
$ |
521 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on fair value of warrant liability |
|
|
- |
|
|
|
(2,433 |
) |
|
|
(5,469 |
) |
|
|
- |
|
|
|
- |
|
(Gain)/loss on settlement of obligations |
|
|
(37 |
) |
|
|
(21 |
) |
|
|
295 |
|
|
|
- |
|
|
|
(256 |
) |
(Gain)/loss on debt waiver consent |
|
|
- |
|
|
|
- |
|
|
|
1,212 |
|
|
|
- |
|
|
|
- |
|
(Gain)/loss on warrant amendment |
|
|
- |
|
|
|
345 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(Gain)/loss on fair value of equity guarantee |
|
|
(442 |
) |
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deal and transaction expenses |
|
|
110 |
|
|
|
37 |
|
|
|
391 |
|
|
|
518 |
|
|
|
- |
|
Other income |
|
|
2 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
Stock-based compensation – Director grants |
|
|
82 |
|
|
|
82 |
|
|
|
82 |
|
|
|
318 |
|
|
|
27 |
|
Adjusted EBITDA |
|
$ |
1,249 |
|
|
|
933 |
|
|
|
635 |
|
|
|
(31 |
) |
|
$ |
292 |
|
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