Apologies all. There were some technical difficulties with our initial webcast. We will begin the call now. Good morning and welcome to the Creative Realities Third Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the company’s remarks, there will be a question-and-answer session.

[Operator Instructions] Alternatively, questions can be submitted during the call via e-mail to IR at cri.com. This call will be recorded and a copy will be available on our website at cri.com following completion of the call.

The call today, you'll be hearing from myself, Will Logan, Chief Financial Officer, and I'll be joined by Rick Mills, Chief Executive Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements.

The words anticipates, beliefs, expects, intends, plans, estimates, projects, should, may, propose and similar expressions or the negative versions of such words or expression as it relate to us or our management are intended to identify forward-looking statements.

Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in our quarterly financial statements on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP financial measures is included in our public filings. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities..

Thanks, Will. Sorry everybody but the technical difficulty. First and foremost, good morning to everyone. Thanks for joining the call. We exited the third quarter with a tremendous amount of optimism and momentum. As I've discussed on our past two earnings calls.

We've moved the impact of the COVID-19 pandemic on the digital signage industry and CRI would be significant. Several of our key verticals have been severely impacted by the pandemic. Specifically, our movie theater, and stadium arena verticals have been hit hard.

However, the good news is activity has resumed in our other verticals such as retail, C-store, and quick serve restaurants. And while these verticals have not bounced back to 100% pre-pandemic levels, there is activity and engagement. I believe we have seen the worst of the pandemic and not only survived we are beginning to thrive.

Our Thermal Mirror product has become an entire suite of products with a new name, Safe Space Solutions. It's one platform with many use cases. We adopted the best practices globally. That's Q&A screening along with temperature taking and we implemented them in our solution. We added mobile capability for Q&A screen.

We add screen of employee badges for identification. And finally, we added in a touch enabled tablet for Q&A screening, which has become a must have product in the nursing home and retirement community environment.

I do want to take a moment to thank our software partner in this endeavor, Ron Lovak and his entire team in reality, they've been an outstanding partner. As we previously announced, three of the major distributors of technology products as Ingram micro, Tech Data and Synnex.

They picked up the entire Safe Space solution product line, including our SaaS subscription offerings to customers. And now we have added a fourth distributor in the mix. ELMO Corporation.

For those of you who don't know ELMO, ELMO corporation is the largest independent distributor of appliances, consumer electronics, professional audio video equipment, furniture and housewares in the United States. ELMO has picked up the Safe Space solutions product line, and within the past two weeks, we train about 100 of their salespeople.

Welcome ELMO to the Safe Space solutions team. Similar to our digital signage customer base, our mix of customers for Safe Space solution products, includes enterprise corporations, small and medium business, higher ad-institutions, some K312. And then finally, a mix of sports teams and entertainment venues.

We believe this market represents a significant opportunity for the company certainly for the next few quarters and beyond. I want to take a moment I want to switch gears I want to talk about our core signage business. This will absolutely be the growth engine for 2021. Our pipeline has never been this robust ever.

We expect at approximately 8,000 screens and players to our SaaS subscription base in the first half of 2021. 75% of these screens have already been deployed in the marketplace and we're switching them into our system. However, the remaining screens will be new sales and installations.

The majority of these screens and players are being attached to our clarity, CMS system, which is the best purpose built content management system for the QSR and C-store environment. Well, our entertainment vertical has been hit hard. We did complete the installation of our clarity CMS in the new SoFi Stadium in Los Angeles.

Our clarity CMS powers over 550 menu boards throughout the most technically advanced stadium ever built. Clarity is the reason CRI was picked for this project. They simply wanted the best and they got it. Moving on to operations. As a result, we are reorganizing our entire operations. Our expense structure has been significantly reduced.

We've taken advantage of the reduction in the rental marketplace and we moved our Atlanta Office to take advantage of significantly reduced cost. In Q4, we're actually moving our Dallas office for the same reason. I will now turn this back to Will to discuss the numbers in detail. .

Thanks, Rick. I'll now summarize our financial results for the three months ended September 30, 2020 compared to 2019.

Regarding our third quarter 2020 results, we note that MD&A section of our quarterly report on Form 10-Q provides unaudited 2020 and 2019 quarterly financial information derived from the company's annual and quarterly financial statements.

We've also provided a reconciliation of GAAP net income to non-GAAP quarterly EBITDA and adjusted EBITDA for the current and previous four quarters therein. Starting with revenue, gross profit and gross margin.

Our revenues were $5.1 million for the three months ended September 30 2020, a decrease of $1.6 million or 24% as compared to the same period in 2019.

Hardware revenues were $2.8 million for the three months ended September 30, 2020, an increase of $0.8 million or 40% as compared to the same quarter in the prior year, driven by the introduction of the Thermal Mirror product.

Gross margin on hardware revenue was 34% the third quarter as compared to 27 during the same period in 2019 due to the shift and mix of hardware revenues from displays to the Thermal Mirror product which generates higher gross profit.

Services and other revenues were $2.3 million for the three months ended September 30 2020, a decrease of $2.4 million or 52%, compared to the same period in 2019.

This was driven primarily by reduction insulation services of $1.5 million year-over-year, combined with the general reduction other software managed service revenue due to customer closures in response to the COVID-19 pandemic.

Gross Margin on services and other revenues 65.4% in the quarter ended September 30, 2020 as compared to 58.9 in the same period in 2019, driven by the less labor intensive services and offerings related to the Thermal Mirror product.

Managed services revenue, which includes both SaaS and help technical subscription services for traditional digital signage and new Thermal Mirror a product offering were $1.3 million for the three months ended September 30 2020 reduction and a $0.5 million or 28% driven by customer closures in response to the pandemic.

Gross profit was $2.4 million for three months ended September 30 2020 the decrease of $0.9 million or 26% compared to the same period in 2019.

Consolidated gross margin decreased to 47.9 for the three months ended September 30, 2020 to 49.1, the same quarter in the prior year driven primarily by a higher ratio of hardware revenue to total revenue in the period on continued sales of the Thermal Mirror product.

With respect to our operating expenses for three months ended September 30 2020 as compared to the same period in the prior year, sales and marketing expenses decreased $0.1 million or 21%, while research and development expenses decreased $0.1 million or 25%, each driven by reduction employee related expenses as a result of a combination of headcount reductions, salary reductions implemented for retained personnel, and a reduction in travel related expenses in the current year including the elimination of participation in industry tradeshows.

General and administrative expenses decreased $0.3 million or 12%. inclusive of incremental non-cash charges related to the amortization of stock compensation is $0.2 million during the period.

Exclusive as those non-cash charges, general and administrative expenses decreased $0.5 million or 22% for the three months ended September 30, 2020 as compared to the same period in 2019.

Operating loss was $0.4 million for the three months ended September 30, 2020, as compared to operating income of $0.1 million during the same period in 2019, despite a reduction in revenue period over a period of $1.6 million.

Net loss was $0.6 million for three months ended September 30, 2020, as compared to net income of $0.2 million for the same period in 2019. EBITDA was $0.3 million from the three months ended September 30, 2020, as compared to $0.8 million for the same period 2019.

Adjusted EBITDA was positive $0.2 million for the three months ended September 30, 2020, as compared to $0.4 million for the same period in 2019. We've included in our financial filings with descriptions and non-GAAP financial measures and reconciliation to our net loss.

I'd like to take a couple of minutes to further expand on a few of the details within our financial statements.

Despite the previously, -- with respect to our profitability despite the previously anticipated challenges in our core business in the third quarter, due to a combination of revenue growth versus the second quarter contributed by the thermal mirror and continued cost reductions and controls, we did achieve positive EBITDA of 300,000 in the period.

Adjusted EBITDA was positive 228,000 as compared to negative $1.1 million and $1.9 million in the second and fourth -- first quarter of 2014, respectively. This shows our continued commitment to improve earnings and manage our costs as we work through the pendant.

Adjusting for non-cash amortization charges related to stock compensation third quarter of 2020. Our operating loss was near breakeven at a loss of 150,000. We believe that the many cost reductions we have undertaken during 2020 will remain in place as we return to revenue expansion in 2021.

Putting the company in a strong position to generate earnings in the future as businesses across the U.S. and Canada reopen and re-engage in capital activities. With respect to our general administrative expenses, our operating expenses for the third quarter of 2020, we previously discussed the comparison reduction versus the prior year.

However, I further wanted to highlight the reductions during the quarter versus the immediately preceding quarter. As you know, we began significant cost cutting exercises in March 2020, and saw benefits throughout the second quarter.

We continued on that trend in the third quarter, removing the one time and non-cash charges from both periods, including bad debt, amortization, stock comp, depreciation and amortization. We reduced our operating expenses in the third quarter by about 250,000 quarter-over-quarter from an already reduced position in the second quarter.

As we look forward into the fourth quarter, we've already transitioned one additional lease to more affordable accommodations, taking advantage of lower demand for office facilities in the marketplace, which we believe will generate at least 60,000 in additional savings quarterly and continue to analyze our business for incremental savings opportunities.

With respect to our debt, I want to take a few minutes to provide an update and some additional color. On October 1, our convertible special loan with Slipstream Communications was amended and the mandatory conversion date of the note was extended 60-days to November 30, 2020.

We continue to work with both Slipstream and other potential third party partners to achieve refinancing of this instrument. The amended and restated seller note represents debt from our acquisition of Allure Global Solutions from Christie Digital in 2018, and is reflected as current debt in the financial statements.

We have formally disputed these amounts and arbitration and anticipated preliminary mediation to occur prior to the end of the year. If mediation did not result in an agreeable outcome between the parties, this one for arbitration in 2021 and we would expect resolution by the end of 2Q 2021. The company currently does not anticipate paying this note.

Lastly, on April 27, 2020, received a PPP loan of $1.5 million that is eligible for forgiveness. Based on our calculations through the 24-week expenditure period, we believe that we have qualified for full forgiveness.

The company anticipates filing an application for loan forgiveness in November and have received confirmation of forgiveness prior to the end of 2020. Until that is formally forgiven these amounts will remain classified as debt in the balance sheet. At this point, I'll turn the call back over to our CEO, Rick Mills. .

Thanks, Will. Appreciate the update. As you can tell folks on the call, I am very bullish on our business and expect to return to a growth mode throughout 2021.

We believe that we have weathered the worst of the COVID-19 pandemic with respect to its impact on our business, and are optimistic about our opportunities with our core digital signage business and the immediate opportunities for the Safe Space Solutions product line.

CRI has remained open, flexible and transparent business partner to our vendors and customers. And we believe this flexibility and responsiveness during this crisis will contribute to our success as businesses reopen in the marketplace stabilizes. We believe the long-term opportunity for both the digital signage industry and CRI remain bright.

And we look forward to supporting our customers in their pursuit to reopen as we move forward together. We stated on our previous call this year and we continue to believe that this pandemic will be and is an accelerator for digital change that was already underway.

As we pick up the pace and enter the new year, we believe it will just simply move much faster. We are firmly committed to our long-term vision of being one of the go to enterprise providers of these digital solutions in the U.S. We continue to expect industry consolidation in the digital signage space.

We have seen and heard from several of our peer companies, and understand the challenges that many of our smaller competitors have and are facing in these difficult times. And last, as I always do, I want to compliment the team that I work with every day at CRI.

As I stated previously, the last few quarters have been some of the most challenging of my career. However, I have witnessed the effort our team has put in to pivot our business in order to alter our market offerings to stay relevant for new and existing customers. I and CRI are grateful for your efforts and your commitment. Thanks.

And I'm going turn it back over to Will, we will now open the phone lines in order to respond to any questions. .

Yes. [Operator Instructions] Here we have a couple of questions that have come in with the email. We'll start there. Brian Kinsler from Alliance Global has asked you mentioned the pickup and expected installations for the digital signage business.

Can you comment on what industries are the driver of this demand?.

Great question Brian. Two industries specifically we're seeing rapid expansion in the C-store space. And then also entertainment venues while not fully engaged today in terms of signing POs, they're in advanced planning stages of large deployments to re-engage their customers as they flow back into entertainment spaces.

So those are really the two that we're seeing primary drivers in. And then the third one, I would probably articulate QSR space, a lot of emphasis on Drive Thru, and a lot of emphasis on in-store tax in the QSR. space. .

Is there any context you can provide to the backlog of quarters that you discussed that we'll be working from and any dollar value that you would share around opportunities?.

Well, we tend to look at each installation each. We call it a screen/ player combination. And as it relates to our revenue, each screen/player combination equates to about 3,000 in revenue as a onetime installation, and then of course, there's the recurring fast and it leaves behind.

Today, so with each, each screen player being in 3,000, today, we have a backlog or are in discussions, significant advanced discussions for over 15,000 new screens to be deployed in 2021. So, I think folks can do the math. .

Great.

And then are you seeing are we seeing any pricing differences in signage products today and moving forward versus what we have typically seen pre pandemic?.

Not really have not seen much of any price degradation. We are seeing screens come on board with more advanced features. But the actual price points tend to stay the same. We transitioned from 46 inch to 49 inch glass over a three year period, but the price effectively stayed about the same.

Now we're seeing a transition from 49 inch glass to 50 inch glass price is going to be about the same. .

Great, those were the questions via the email inbox. We will now look to the phones to see if there anyone that has raised their hand. It appears that there are no other questions at this time have responded to all questions.

Let me conclude today's call by thanking all of our shareholders, clients, partners and employees for their continuing efforts, commitment and support during these unprecedented times. This now concludes the Creative Realities third quarter 2020 earnings call..