Rick Mills - CEO John Walpuck - COO Will Logan - CFO.

Analysts:.

Good morning and welcome to the Creative Realities, Inc. Second Quarter 2018 Earnings Call. All participants will be in listen-only mode during this call. A brief question-and-answer session will follow the discussion. Please note that there is no presentation on the screen if you're logged into the webcast via computer.

Questions can be submitted during the call via email to ir@cri.com. Joining us on the call, we've Rick Mills, CEO; John Walpuck, Chief Operating Officer, and myself Will Logan, CFO.

Before we begin, please be advised that certain matters discussed on this call will include forward-looking statements regarding among other things, future operating results. Such statements are subject to a number of risks and uncertainties.

Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various factors. Such factors have been set forth in the company's reports on Form 10-K filed with the Securities and Exchange Commission.

In accordance with Regulation FD this call is being made available to the public. A webcast replay and transcript will be available on the company's Web site at www.cri.com later today and will remain available for approximately the next 30 days. It is now my pleasure to introduce Rick Mills, CEO of CRI..

Thank you, Will. Good morning everyone. Just want to start out and tell folks that we're pleased with our results and our position in the marketplace. Our year-over-year growth continues to significantly outpace the industry and our competitors. I look at that as kind of a - is our benchmark as we continue to grow.

So you know let's really take a moment and review what Q2 has looked like over the last three years or last several years. Q2 2016 the company did $3 million in revenue. Q2 2017 the company did $3.6 million in revenue or 17.8% year over year growth to 2018.

Q2 2018 the company did $7.2 million which is roughly 101% year-over-year growth or the two-year growth percentage 137%. Gross margin growth in the same time period over a year over year growth of 90.3% from a $1.6 million in gross margin in 2017 to $3.1 million in 2018 in pure gross margin. On a two year basis that growth the gross margin is 80%.

Now let's talk year over year operating expense. Q2 2016 to 2Q 2018 [indiscernible] the company grew operating expenses 23.3%. So again this continued growth is a result of our disciplined approach to our expansion of the sales team. At the same time we continue to manage our expenses.

We expect to leverage our superior cost infrastructure as we focus our immediate efforts on M&A activity on a go forward basis. So let's now take a moment and review Q2 in detail and I'm going to turn the call over to Will Logan to go over the- our CFO to go over Q2 in detail..

Thank, Rick. I now want to summarize our financial results for the quarter ended June 30th 2018 compared to 2017. Regarding 2Q 2018 we know that the MD&A section of our quarterly report on Form 10-Q provide unaudited 2018 and 2017 quarterly financial information derived from the company's annual and quarterly financial statements.

We've also provided a reconciliation of GAAP to non-GAAP quarterly EBITDA and adjusted EBITDA for those periods presented. Comparing to 2Q 2018 to 2017 revenues were approximately $7.2 million for the three month period ended June 30, 2018, a record high for the company and $3.6 million higher than the second quarter of 2017.

Hardware Sales grew approximately $1.3 million or 84% in the second quarter of 2018, as compared to the same period in the prior year. Services and other sales grew approximately $2.3 million or 114% in the second quarter 2018, as compared to the same period in the prior year.

' Gross profit was $3.1 million in the second quarter of 2018.and declined to 43% in the second quarter '18 compared to 46% in the same period in 2017 due primarily to sales mix between hardware and software sales.

The company achieved breakeven operations for the three months ended June 30th 2018 an increase of $1 million versus the same period in 2017. GAAP net loss was 612,000 for the quarter, with interest expense of 752,000 comprised of amortization of debt discount of 487,000 and other interest of 265,000.

Depreciation amortization was 437,000 which includes stock based compensation. We recorded a benefit from income taxes of 102,000 ding the period. The aggregation of these items represents EBITDA which was 475,000 positive for the quarter ended June 30 2018 and represents our highest EBITDA since the quarter ended March 31 2017.

Comparing the six month period year over year, revenues were $11.2 million for the six months ended June 30th 2018, an increase of 13% compared to the same period in 2017. Hardware Sales grew approximately $3.5 million for the first six months to June 30th 2018.

Gross profit was $4.6 million for the six months, up $1 million from the corresponding period in 2017. At this point, I'll turn the call back over to Rick Mills, CEO..

Thanks, Will. Appreciate the update on the numbers. Before I jump back in and talk about general updates stuff as we move forward, I'm going to ask John Walpuck, our Chief Operating Officer to give us a little update on our CRI systems and methodologies.

John?.

I'm going to talk just briefly about our systems infrastructure and tool sets as a part of our broader platform here and CRI. In short, we know of no one else in the industry who has these capabilities. This complete suite of capabilities and offerings today.

We believe our system infrastructure, tool sets and importantly how we leverage these is a competitive advantage today and we have a roadmap to further distance ourselves from the competition in the future. In some, it's currently comprised of three core systems.

It includes third party integrations via APIs and integration layers [ph] with partners and certain very high volume transactional services clients. It's all cloud based. Each serves as a true origin system with full integration across all systems, highly, highly scalable.

This infrastructure and tool set is designed to scale and support hundreds of millions of dollars of transactions with minor additional investment and personnel.

The functionality at a higher level includes field service with the ability again to support very high volume transactional service processing, project management, inventory management, order processing, client portal capabilities, automations alerts escalations et cetera.

The systems themselves are critical, but we believe it is also extremely important to know how we holistically incorporate these into our operations. It's literally an ERP solution that actively involves the people how we communicate internally and with our clients and partners, Processes an ongoing process improvements.

The raw data itself that's going into the system, how we train our employees, the reporting operational and financial and then again the feedback loops are super important here with the actions that we're taking based on each of the foregoing going;.

Forward we're actively working on specific additional third party partner integrations and actively adding additional functionality. Again, we believe this is a competitive advantage today and will further distance ourselves from the competition in the months and years to come. Back to you thanks John..

Thank you, John Appreciate the update. Now let's talk a little bit about general updates and go forward some of the things we're doing. Last quarter we announced the expansion of our vertical sales group into the sports entertainment sector.

So our focus really is on large venues that contain hundreds or thousands of screens displaying a complex cross-section of live action advertising and menu offerings. We're pleased to announce the addition of a new customer.

It's a world renowned Stadium in Dallas Texas one of the largest in the world that is using our proprietary UCI universal Cantet interface to control the menu offerings throughout all the screens in the venue. So just a new cost additional customer for our sports entertainment team.

Our retail team deployed and test them one of the top five hardware home improvement retailers in the nation. And that test has been successful. We expect final approval, literally any day to move the deployment and there are 300 plus stores across the U.S.. So those are some of the customer interactions that we have going on.

M&A, I have talked about M&A strategy and really our unique position across the U.S., we specifically addressed the need of our enterprise customers to really generate a lot of inbound inquiries from small single locations suppliers of digital signage. How can we be part of your platform.

How can we be part of your delivery team? So we continue to have discussions with many of these small customers or small potential integrators as we have stated before CRI is prepared to be a leader in the industry consolidation.

The typical industry profile that we see out of these competitors they have a single site located 8 to 12 million in revenue, 35 to 45 employees, typically one or two large customers that are 35% to 50% of their revenue with another 30 to 40 active accounts of meaningful size.

And these folks have been 10 plus years in business and they're looking for an exit strategy. Oh and by the way that that digital signage integrator is under constant evaluation by their largest enterprise customer wondering can they really support me at scale across the United States.

We again expect to participate in the consolidation of the industry. I want to finally - want to address revenue guidance. We updated it in our release. We have a smart cities transaction that we have taken a million dollar deposit on approximately a year ago. It appears that this transaction now will not happen in 2018.

We suspect it will not happen at all. We have taken it off of our active backlog and that's why we reduced our topline revenue guidance. Our quarterly revenue now has reached 7 million. We expect Q3 to be north of that in Q4 to be significantly higher. And so we are comfortable with our year end number and our full year guidance.

We look forward to 2019 as we do expect significant additional growth in the topline revenue and the gross margin as we build upon the successes we have had over the last two or three quarters. With that I want to thank everybody for their time. And I'd like to turn it over to any Q&A that we might have..

[Operator Instructions].

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If there are no other questions at this time let me conclude by thanking all of our shareholders clients partners and employees for their continuing effort commitment and support as we work together to transform CROI into a leading brand in digital marketing solutions. This can this concludes the CROI second quarter 2018..