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, 2021.
Rick Mills, Chief Executive Officer, commented, “During the third quarter of 2021, we saw demand for our core digital signage offerings begin to approach pre-pandemic levels. Revenues from our core digital signage products and services increased $1.5 million, or approximately 50%, versus the same period in 2020. Throughout 2021 we have been engaged in customer conversations which were challenged by a lack of customer budget allocation for the 2021 calendar year as a reaction to the COVID-19 pandemic. As many of our current and prospective customers enter into the 2022 budget cycle, we are witnessing a significant expansion in both customer marketing and IT budgets with respect to the allocation of funds for digital transformation and signage projects. We are engaging in meaningful conversations that we believe will translate into a return to strong top-line growth beginning in the fourth quarter and continuing throughout 2022.”
“Despite facing continued disruptions in delivering and executing sold engagements due to limited supply chain availability of semiconductor chips, which has delayed the delivery of digital displays to the Company, we have received high praise from customers and vendor partners for our consistent and transparent communications which have further built trust and engagement. While we have seen a significant increase in market activity and remain bullish on a number of opportunities as we move into 2022, we expect to experience continued disruptions and delays related to fulfilment of inventory purchases from vendors and the associated services into the first half of 2022. Despite these industry challenges, specifically the lack of availability of displays, I am proud of our ability to generate positive EBITDA for the fifth consecutive quarter.”
“Beyond the current financial results, I could not be more excited about the opportunity to join forces with Reflect Systems, Inc., which we announced last week. Reflect has an incredible track record for growing annual recurring revenues via software subscriptions to its content management system. In addition, it brings CRI a tremendous ADTECH platform (AdLogic) which we will leverage to support the strong growth continuing in the digital-out-of-home advertising industry. The combined company becomes a key player for enterprise customers in the digital signage industry. By fully integrating our solutions and business operations, we can bring to bear the most competitive product and service offerings available for the digital signage market, including the potential for integrated programmatic advertising solutions. We expect the merger to close in the first quarter of 2022.”
Third Quarter Financial Update
Revenue, gross profit, and gross margin:
For the three months ended September 30, 2021 as compared to the same period in the prior year:
- Revenues were $4.8 million, representing a decrease of $0.4 million, or 7%, as compared to the same period in 2020 despite a reduction in revenues generated from the sale of our Safe Space Solutions products and services of $1.9 million. Revenues generated from our core digital signage products and services increased $1.5 million, or 50%, for the three months ended September 30, 2021 as compared to the same period in 2020.
- Hardware revenues were $2.2 million in 2021, a decrease of $0.6 million, or 21%, as compared to the prior year, driven by (1) continued supply chain disruptions related to semiconductor chips delaying the delivery of digital displays and media players to the Company, and (2) reduced revenues from the sale of our Safe Space Solutions hardware of $1.9 million
The supply disruption for digital displays prevented the Company from delivery of hardware and execution of installation activities during the quarter. As of September 30, 2021, the Company had customer purchase orders for equipment and installation activities in excess of $1.2 million which were delayed as a result of product unavailability. The Company expects to experience continued disruptions and delays related to fulfilment of inventory purchases from vendors throughout the remainder of 2021; however, the Company currently anticipates those disruptions will be resolved in the first half of 2022. - Services and other revenues were $2.5 million in 2021, an increase of $0.3 million, or 13%, as compared to 2020 driven by increases in both installation ($0.3 million) and managed services ($0.1 million) revenue. Managed services revenue, which includes both software-as-a-service (“SaaS”) and help desk technical subscription services for our traditional digital signage and Safe Space Solutions product offerings, were $1.4 million in 2021 as compared to $1.3 million in 2020 as digital signage subscription revenue began to rebuild following (1) customer reopening activities, and (2) the continued expansion in the number of devices managed by the Company generating such revenues.
- Gross profit decreased by $0.1 million, or 4%, during the three months ended September 30, 2021 as compared to the same period in 2020 driven by a reduction in revenue but offset by an increase in gross profit margin. Gross profit margin increased to 49.4% in 2021 from 47.9% during the same period in 2020 as a result of improved mix and from increasing managed services revenue.
Operating expenses:
For the three months ended September 30, 2021 as compared to the same period in the prior year:
- Sales and marketing expenses decreased by $0.1 million, or 20%, having benefited by approximately $0.1 million in the current period from Employee Retention Credits (“ERC”) recognized during the three months ended September 30, 2021.
- Research and development expenses were flat in 2021 as compared to 2020.
- General and administrative expenses were flat in 2021 as compared to 2020. General and administrative expenses included a benefit of $0.2 million in the three months ended September 30, 2021, which was offset by an increase of $0.1 million in non-cash stock compensation expenses.
Operating loss, net loss, and EBITDA:
For the three months ended September 30, 2021 as compared to the same period in the prior year:
- Operating loss was $0.4 million in both 2021 and 2020, reducing by approximately 4% in 2021 and compared to 2020, which included a benefit of a $0.4 million of employee retention credit (described below) recorded in the three months ended September 30, 2021, partially offset by an increase of $0.1 million in non-cash share-based compensation expenses as a result of probable vesting of performance-based option awards.
- Net loss was $0.3 million in 2021 as compared to net loss of $0.6 million in 2020, representing a reduction in the net loss of 41%.
- EBITDA was $0.5 million in 2021 as compared to EBITDA of $0.3 million in 2020. Adjusted EBITDA was $0.3 million in 2021, compared to an Adjusted EBITDA of $.02 million 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 June 30, 2021:
- Employee Retention Credits: The CARES Act provided an employee retention credit (“ERC”) that is a refundable tax credit against certain employer taxes. The Company qualified for the ERC beginning on March 13, 2020 (the earliest eligibility date) through September 30, 2021 (the most recent assessment date). During the three months ended September 30, 2021, the Company recorded an ERC totaling $0.4 million which was included as a reduction in payroll taxes within the Condensed Consolidated Statement of Operations and allocated to the financial statement caption from which the employee taxes were originally incurred.
- Settlement of Obligations: In September 2021 the statute of limitations expired with respect to the possibility of a claim against the Company related to abandonment of a legacy lease in 2015. The Company recorded a gain on settlement of obligations of approximately $0.3 million during the three months ended September 30, 2021.
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