Creative Realities Reports Second Quarter 2022 Results
- Announces record revenue of
- Announces growth of annual recurring revenue to
- Reaffirms 2022 Revenue Guidance to Exceed
“With the expansion of our SaaS revenue and the momentum within our pipeline, we reiterate our expected target to generate revenue in excess of
Second Quarter 2022 Financial Overview
All results herein represent the financial results of
- 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, 2022were $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 millionin revenues. The current year combined company results for the three months ended June 30, 2022represent 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, 2022were $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 millionin revenues. The current year combined company results for the six months ended June 30, 2022represent 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, 2022is 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 millionin 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 millionin 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 millionin the three months ended June 30, 2022as compared to $1.4 millionin 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, 2022as 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, 2022from 40% hardware during the three months ended June 30, 2021related 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, 2022to 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, 2022to be more representative of our normalized gross profit margins.
- 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 millionrelated 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, 2022to 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 millionrelated 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, 2022to 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 millionthousand, or 49%, driven primarily by (i) the inclusion in the prior year of a benefit of $0.5 millionrelated 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 thousandduring the three months ended June 30, 2022, inclusive of $0.4 millionin non-cash charges for both amortization of intangible assets and non-cash employee and director stock compensation.
- Net income was
$1.2 millionduring the three months ended June 30, 2022, which included:
$2.4 milliongain on marking outstanding liability warrants to fair value (prior to their conversion to equity warrants) $0.3 millioncharge related to the amendment of outstanding warrants through extension of useful life; and $0.8 millionof interest expense.
- EBITDA was
$2.8 millionand Adjusted EBITDA was $0.9 millionfor 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 Details
The 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
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.
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
The combined company has operations across
Use of Non-GAAP Measures and Operating Measures
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
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
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in thousands, unaudited)
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
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.
|GAAP net income (loss)||$||1,262||$||2,502||$||(1,722||)||$||(343||)||$||1,025|
|Amortization of debt discount||360||181||29||29||29|
|Other interest, net||390||268||160||158||153|
|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|
|(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||-||-|
|Stock-based compensation – Director grants||82||82||318||27||27|