Good morning. This is Will Logan, Chief Financial Officer of Creative Realities, Inc. Welcome to the CRI’s Year-End 2021 Financial Results and Earnings Call. All lines have been placed on mute to prevent any background noise. The Company has prepared remarks, summarizing the 2021 results along with additional industry and company updates.

The company's prepared remarks will include a brief presentation of company materials, which can be viewed through the webinar by logging into joinwebinar.com and entering the meeting ID 618107963. Following the company's prepared remarks, there will be a live question-and-answer session.

If you would like to ask a question during that time, please hit the raise hand button. Alternatively, questions can be submitted during the call via email to ir@cri.com. This call including the presented materials will be recorded and a copy will be available on our website at cri.com following the completion of the call.

Joining me on the call today is Rick Mills, CEO of CRI. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements.

The words anticipated, believes, expects, intends, plans, estimates, projects, should, may, propose and similar expressions or the negative versions of such words or expression as they 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 annual report on Form 10-K filed with the SEC on March 22, 2022.

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 measures is included in our public filings. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities, Inc..

Thanks, Will. Good morning, everybody. I want to take a little moment to go and discuss what we do in a little more detail. We have some new investors, new shareholders. And so I'd like to literally spend some time on that. First, you look at the company information here and all the different things that we do in digital signage.

Digital signage typically includes the display technologies and those type of things. We sell and install those devices and services. We own several proprietary digital signage software platforms, which generate significant SaaS revenue. One question we often get is where do you see our work? Well, frankly, it's all around you.

We serve market-leading companies. So there's a good chance if you leave your home today, to shop, work, eat, play. You will encounter one or more of our digital signage experiences.

Our work is in automotive dealerships, theme parks, the lobby of your doctor's office, retailers, movie theater lobbies, convenience stores, restaurants, including quick-serve drive-throughs, et cetera. Sources of revenue, we really have four core buckets of revenueOne, the first and most important bucket is recurring services.

These are sticky, long-term contractual agreements, we provide -- which provide subscription licensing and our support services for our digital signage software platforms. And all that is sold through a SaaS model, Software as a Service. Second bucket is services.

That's really assisting our customers in the hardware design and engineering of their solution to fit their space. The actual hardware installation, content development, content scheduling. And the last and not least is, post-deployment network and field support, what we commonly refer to as day two services.

Third bucket we -- of revenue is media sales, as part of the merger with Reflect. We acquired a media sales business. And that's through the direct and indirect sourcing of advertising revenue for client-owned networks. The fourth is obviously the hardware itself, the screen, the media player, the mount, these types of things.

But be very clear, our value proposition at our cohort, we are a software, as a service company. We are a SaaS company. We are focused on increasing the number of managed devices and leveraging our subscription-based digital signage platform, delivering ads on ad-supported networks, which ultimately results in driving higher annual recurring revenue.

That's really what we're all about. We do all of the services. We sell the hardware and install it, ultimately, to end-up with SaaS subscription revenue. Some quick examples of our work, typical shopping mall and this is a network monetization is a theme park, somewhere across America.

One of our many -- we actually install probably -- or we support thousands of digital menu boards and merchandiser displays, at dozens of sports arenas, stadiums around the country. We do a bunch of work in LED [Ph]. We started an LED early back in 2017, 2018, as the cost per square-foot had come down dramatically.

Here we are we installed this at the NFL running Combine. And -- but we've installed about -- in excess of 500,000 square feet of large-format LED in the past three years alone. Typical retail network, this is one of our wonderful customers Verizon.

This was a wireless voice activated 5G experience that was built and installed in Verizon stores all across America. This specifically was around pandemic-related non-touch activities. We are in a bunch of connected dealerships. Today, we're in 2,700 dealerships in 12 countries.

And I know in Q3 this year, we're adding another 440 approximate locations will come online in Q3 of 2022. So, now let's just talk a little bit about the market.

What is the update? What is the overview of the market? We sit in the middle of the intersection of event technology, retail technology and digital out of home, I think of digital out of home or I should say, out of home, think of that as the old billboard industry, which is now transcending or turning to digital, but we're right at the intersection of all three of those.

Let's talk a little bit about that $20 billion number, okay, because that's the active size of our market. It's typically broken down into two components. The first component is what we have historically done, which has sold all the technologies, supplied to services and manage and run the accounts.

And that's about $6 billion a year industry or business, it's got a combined annual growth rate. It's projected to be about 6.5% to 7% over the next four, five, six years. Hardware grows a little bit softer than the services and SaaS growth. That's a little bit higher. But typically, it's in that 6.5%, 7%.

$14 billion of that $20 billion number is the ad revenue that is generated by ads running across those screens. That is an area we have not historically participated in. But now on a go-forward basis, we're participating in it due to the acquisition and merger with our friends at Reflect in the media sales unit.

So we're excited to enter the actual largest part of that market. Growth drivers -- you can read and understand everybody talks about retail transformation, et cetera. I will tell you one post-COVID, if we can say we're in post-COVID times or post-pandemic times, many companies are allocating capital much quicker than before the pandemic.

Before the pandemic, it was usually a small test, and then they would look at it for a quarter or two, they would measure results, and then it might be a year or two before they allocated more capital. We've seen a dramatic change. Obviously, the world has changed.

And post-pandemic, we're seeing companies, again, allocate capital much quicker as they know they have to do something. An additional growth driver here, first bullet on this particular slide is monetization of the network. Five years ago, as we installed these systems, very few customers were interested in monetization.

A couple of the large retailers were. But other than that, your run of the mill network that might have 2,000 or 4,000 screens, they were not interested in monetization. Today, every single customer with the exception of some high-end ultra luxury brands.

Other than that, every single customer is talking to us, how can you help me monetize my investment and get a richer ROI. So we have those discussions on a daily, weekly, monthly basis, and it's why we're excited to have entered the monetization space with the addition of the media unit. Yes, I talked a little bit about this.

Where do you see this stuff? Well, it's everywhere. As I say and I tell Will and some of the folks here at CRI, nobody came into the office this morning and said, let's take down these digital screens and put up posters, just doesn't happen.

Somewhere in America today, somebody is going to walk in an office and say, we're taking down these posters and we're putting up digital. There's about 2.8 million or 3 million screens a year are added in what is called the LFD or Large Format Display market, okay? And they're literally everywhere as you walk through these environments.

We're also going to see an explosion of small display environments. Think of when you go in a grocery store and there on the shelf is going to be a small four-inch shelf monetization or shelf talker that is digital, okay? You're going to see an explosion of that in retail, C-stores, grocery stores.

And these screens are going to be four, five, six, eight inches, they are going to be everywhere. We anticipate millions of those screens going in, in the future. And it's one of the reasons we have built our platform for scale, and we'll talk a little bit more about that. Some of the market dynamics, this industry is still a very fragmented industry.

It does support a combination of an acquisition and growth strategy. We believe, we have built this platform as a solid platform for accretive acquisitions. Talk about the competitors out there. Most of our competitors are in the -- they're somewhere between 200 and 600 companies in the US that do what we do. We think the number is close to 200.

And -- they all typically look the same, sales of $3 million to $10 million, maybe 18 to 30, 40 employees. They have one or two large customers that are typically 30% to 40% of their revenue. And then they got another 20. They are geographically close, that make up the balance of the revenue.

They have 8 to 10 years in the business, maybe with a background in AV or a background in creative, right? They're focused on maybe one vertical. And they really -- at that size, they just don't have a deep technical bench, because you can't in that smaller company.

And they really lack what we call the chops in strategic and scalability to grow to multi-location, multi city across the US. We believe with our ongoing acquisition strategy, along with strong organic growth, it results in the following. Number one, you get to cross-sell products and services.

And we've already seen that in our merger with the reflect folks and cross-selling some products and services. Many of you on this call may remember, we issued a press release to talk about one that we immediately did soon after the announcement that was, I believe, north of $10 million in revenue approximately.

We expect to expand engagements with all of those customers, consolidate them all on our digital signage platform, again, greater scale. It reduces overhead, again, drive scale, increases profitability, which ultimately results in an uplift in valuation. Industry consolidation is happening. Now this slide is from Peter J. Solomon.

On the AV side, you got AVI and SPL doing some acquisitions, diversified doing some acquisitions, obviously, Creative and Reflect. And then Spectrio one of the other customers. But there's a lot of M&A going on in this space, and we are positioned to be a winner.

Specifically, why we will win? We always talk about the four Ws here, right? Number one, our technology platforms. It's real simple. We have ReflectView, which is a world-class, best-in-class digital signage platform. That platform has been in existence and upgraded 20 years, and it is rock solid. We now have a patented AdLogic platform.

This is our proprietary ad management platform for digital signage network. Today, as we speak, every day, our AdLogic platform delivers approximately 50 million ads a day, every day today. We expect to scale that dramatically. Our Reflect Clarity, which is -- that was our product, CRI’s legacy product that we built from the ground up.

We've renamed that Reflect Clarity as all of our platforms carry the Reflect brand. And that's a market leader in the QSR and convenience store space. And then last, iShowroom platform, which is an automotive platform. And it provides a number of key services in the dealer -- automotive dealer channel.

Additional reasons, our best-in-class, we call it, execution and support. It's all performed in-house. All of these functions are performed on-premise at a CRI facility somewhere, the design engineering, warehouse, finally our state-of-the-art NOC is located here in Louisville, Kentucky.

We do additional, the Creative, the analytics data integration and network monetization strategy. So we assist clients in creating new content or repurposing existing content. And at the end of the day, we deliver measurable results. Our scale matches that of our clients' footprint.

We are not the best digital signage provider to go to maybe a small regional retail chain that has 16 stores in three cities across two states. We are not the best choice to do that. There is a small regional partner that might be wonderful to support that. We are built for scale.

We call it -- we look at our franchise customers and many of our customers are franchised their household names, minimum capability of 2,000-plus endpoints, multi-location and within the locations multi-lanes across the customer journey, so four, five, seven, 10 screens within a physical location.

Another criteria, are they growing, expanding, investing? Okay. Maybe franchise or franchisee, several things like that, that we look at. So that defines our customer strategy as we go after competitive advantages. I'm not going to go through all these. I would just identify one of them. And again, I would talk scalability, scalability, scalability.

Our platforms are all built up in the cloud. Today, they are running hundreds of thousands of devices, and we'll talk a little bit more about that. But we are prepared today to add millions of shelf talker devices, millions of LFD, large-format displays, as we enter this exceptional growth phase. Now a little bit about 2021 review.

I wanted to kind of take everybody through that. And for the 2021 review, I'm going to turn it back over to Will Logan..

Thanks, Rick. We've put a few quarterly highlights on the page. I just picked a few to talk about, and then we'll go through some of the financial performance. We had a couple of debt activities in the period receiving forgiveness for our PPP loan and the elimination of a seller note.

We had an announcement in 2Q about the win of a C-store customer, which we converted through the balance of 2Q and added up to 7,000 incremental displays onto our network in the current year.

In the third quarter, we performed an installation project, which we hope expands in 2022 by rolling out 1,300 C-store locations on behalf of a large tobacco chain in a period of only eight weeks. And we think that speaks to the size and scale of what we can accomplish and deliver in the market as a single vendor sole source provider.

In the fourth quarter, we announced the three-year renewal of an OEM automotive contract, which increased the annual SaaS revenue by 300% versus the prior contract.

We obviously announced the merger with Reflect that has closed in February of 2022 and gone ahead and entered our first sales activity, which reflected -- that resulted in a win that frankly, we've talked about neither company likely would have won that on our own.

It was the combined performance and the full services offering that managed to deliver and land that customer. Turning to the balance sheet. We've compared 2020 to 2021 here. And I just wanted to provide a couple of highlights. First, we've got a net working capital improvement year-over-year of about $3.2 million, driven by a few things.

We've reduced our inventory balances by $0.5 million year-over-year. We'll continue to expect those to reduce throughout 2022. During the period, we did get forgiveness of a PPP loan of about $1.6 million, eliminating net debt from the balance sheet.

And we also were able to negotiate a settlement agreement in relation to a seller note from a prior acquisition, where the company paid $100,000 to eliminate $1.7 million of total debt, resulting in a gain of about $1.6 million.

Throughout the year, we saw more of a return to normal operations and look at our D&B supplier risk evaluation ratings, and we're low risk in all categories and look to continue to leverage that to improve our working capital position. We've got the 2021 balance sheet here.

But given the recent capital activities and acquisition completed in February 2022, I wanted to provide a quick update on our current debt and cash positions. For debt, as of today, there's three tranches of debt. And the first is a $10 million term loan with 8% interest maturing in February of 2025.

The second is a $7.2 million term loan at 10% interest maturing in February 2025 as well. That instrument has scheduled amortization payments for 1/18th of the principal balance beginning in September 2023.

We also have a $2.5 million escrow note, which relates to the merger with Reflect, which deferred some cash consideration in the acquisition and that's amortizing monthly over the next 12 months. So, in aggregate, the company has $19.7 million in debt today, inclusive of the seller note.

Our monthly debt service is about $230,000 a month for the next year, at which point that will reduce to $127,000 a month after we pay off the seller note. The total leverage today based on our internal projections of adjusted EBITDA at our base budget of $43 million revenue is about four times.

We expect that leverage to reduce to below three times as we progress through 2023. The cash position on the balance sheet showed about $2.8 million.

As a result of the capital activities and the integration of our business thus far, we currently expect to end the first quarter with approximately $5 million in cash on hand, providing sufficient runway to execute on the remainder of our integration plans and to continue to grow our business.

The last comment I want to make with respect to the cash position of the company is that in order to effectuate the Reflect acquisition, we issued certain warrants with strike price below $3 to execute the financing of that transaction.

And assuming that those warrants were all exercised, the company would expect to receive additional cash proceeds of $21 million to support the business, which is in excess of the current debt balance of the business.

Turning to the statement of operations, year-over-year, we showed a 5.6% topline growth in total revenue and one thing I wanted to parse which is included in the filing, is that when you peel that back, we entered into some incremental business activities with our Safe Space Solutions products and services in 2020 in response to the COVID-19 pandemic.

As we -- as the vaccine has been deployed, we've seen that business kind of dissipate a little bit, still strong and ongoing and still have material SaaS subscriptions. But I wanted to point out that the core digital signage revenue has really roared back to life.

And excluding the Safe Space Solutions year-over-year, our core digital signage growth was 21% year-over-year. We maintained our margins despite some headwinds in both the labor and hardware markets.

For the most part, our hardware margins are insulated from price increases from our manufacturers because we do not have fixed cost arrangements with our end customers. Those are sold on an ad hoc go-forward basis.

And then finally, if you look at the operating expenses of the business, if you remove the non-cash goodwill impairment, loss on fixed assets, some of the non-recurring items, we drove reductions in core operating expenses of greater than $1 million year-over-year. And as Rick said, this business is all about scalability.

And as we continue to grow, we expect that the incremental leverage or increased margin there will expand over time. Next, we're going to talk a little bit about 2022 and beyond, and I'll turn it over to Rick Mills to cover that..

Thanks Will. 2022, let's start with the Reflect merger. What we gained? Well, we gained some customers. These are great customers, they're enterprise customers, they were generating revenue of -- or SaaS revenue of $7 million approximately. We gained some great technology, ReflectView, world-class -- world-class, digital signage management system.

AdLogic, patented world-class ad serving capability that is today delivering 50 million ads per day. So, you look at that and wow, what a great fit. What -- then the synergies, okay, are all there. So, there's enhanced revenue opportunities. So those come into play.

Long-term value creation of the company and think about, number one, it prevents the downside realities of in action. We are one of the leaders in the industry due to the acquisitions we've done. And so we continue to keep pace or we're actually ahead of the rest of the industry in growth and in size due to our consolidation assets.

And we've got some great marketing capability in some new markets, but I got to tell you, the real win here is the talent. The real win is the talent. The folks at Reflect add tremendous depth and breadth to our talent pool inside the company. And as you all know, what separates winners from losers, people. We go back to the 4Ws, why we will win people.

And so we're really glad and there's probably some -- by the way, some Reflect people on this call, some employees today, and I want to take a moment and welcome all the Reflect folks who are on this call who have joined our company. Thank you for joining. Thank you for your contribution, and welcome to our combined company.

Now let's talk about the real revenue. Our pro forma 2021 revenue coming out of COVID, between both companies combined, was $30.7 million. We anticipate 2022 we will grow 40% year-over-year. We anticipate a minimum of $43 million in revenue, representing organic growth of about $12 million a year -- in excess of $12 million a year.

Our ARR -- the pro forma run rate, again, the combined companies, as we exited 2021, was approximately $12 million and some odd change. We anticipate that growing 25% year-over-year. We will exit this year with an annual recurring revenue in excess of $15 million as a run rate. We're currently managing in excess of 120,000 endpoints.

Those are specific players, if you will. But those are attached in the combined devices we are managing or touch with our network today exceeds 300,000 devices. Our target adjusted EBITDA margin of 5% in 2022, we see that rising to 10% in 2023.

Why? What's going on? Well, number one, we're starting to achieve scale, the additional growth drivers, cross-sale of services. By the way, we can sell media to CRI customers and to Reflect customers. We can sell additional hardware to Reflect customers, who historically have not bought their hardware through the reflect channel.

Expansion of our LED business this year, we are installing LED screens literally in customer premises every single day. You are seeing a significant increasing of the ad dollars allocated to this digital out-of-home. And then last but not least, our existing customers are continuing to expand their networks.

So our vision, where do we see this going? What are we trying to do? Well, we thought, we'd hit our stride in 2019. We had a record year back then and record profitability and then COVID hit and knocked us off our socks for about two years. We're now coming out of that. We're back in a highly accelerated growth mode.

Our vision is to scale to a $150 million global marketing solutions provider through a combination of organic and acquisition. We have, by de facto become the go-to acquirer in the industry I can tell you our phone rings off the hook, right? We expect to leverage this infrastructure to generate significant profitable growth.

We're going to continue to expand our expertise in our verticals. And I suspect, we'll get to a million endpoints under management generating high-margin annual recurring revenue. With that, I'll turn it back over to Will Logan to close..

Great. We've got several questions that have come in via the IR inbox that will run through Rick, and then we'll open the phone lines in order to respond to any questions that we may have on the call..

So the first question, I received was how is the integration going of the two companies. So I'll take that one, Rick, and then you can chime-in if you have any additional. So always some bumps and bruises with integration, but overall, I would report integration has gone spectacularly thus far.

We're only about 30 days in, but members from both organizations are clearly aligned on our business model, how to streamline it for further efficiencies and how to grow. We truly approach this transaction with reflect from a merger mentality.

We learned throughout the diligence phase the reflect as a company has some incredible processes, people and fundamental talent to fill gaps in our organization and vice versa. Our focus through the integration has been to identify the best of each company adopts and modify.

We're well down the path with respect to integrating operations, procurement, warehouse, fulfillment, order entry, project management. We're in process on evaluating the combined company branding and marketing approach, including our go-to-market strategy and pricing structures.

We are seeing strong responses from existing customers on the cross-sell opportunities and our single-vendor approach for enterprise customers. There will be continuing step changes, but we currently expect to have completed the bulk of the planned integration activities no longer -- no later than probably the end of the third quarter 2022.

And when fully implemented, we targeted about $2 million in cost synergies between the companies. Many of those won't be fully recognized in the statement of operations this year until 2023, as we kind of close out that integration process. Okay.

Rick anything to add there?.

No..

Okay. Great.

Next question that we got was, Rick, could you give an update, what are the other areas within your industry and your company where an acquisition might strengthen your expertise or product offering to potential customers?.

We continue to look for what we call edge activity. Those are things that happen at the edge of the network. It might be analytics. It might be camera work. It might be some of that type of thing. So those are where we look to add those incremental services.

But at the end of the day, we're all about customer acquisition by doing -- by acquiring a competitor, we want to acquire their customers, cross-sell them are rich depth of current services and put them on our platforms to achieve greater scale and lower cost..

Perfect. Thanks, Rick. Okay. One year, are companies using COVID relief monies to invest in the digital marketing industry. So, I'll take that one. We have experienced some utilization of COVID relief monies for investments in digital transformation. I'd say most of those funds were utilized in 2020 and early 2021.

What we are seeing now, which is really a reflection of the COVID pandemic is the recognition by clients of the value of digital transformation. So, our conversion time line for onboarding a new client and deploying has really shortened. We used to talk about an 18-month cycle. That's really shrunk down.

And we're seeing increases in corporate budgets for the use in digital projects really across the board and across our vertical markets. Next question received. Rick, I'll ask you to provide an update here.

Where is the large contract that we've discussed in the past stand today?.

That contract has been on hold as we have transitioned through the pandemic. We hope to be able to give news over the next two quarters on that contract beginning. It currently has not, but it is soon scheduled, but it's been delayed several times in the past and we look forward to giving news on that in the next two quarters..

Would you say there has been any movement, Rick, in that discussion with the customer or client?.

Yes, ongoing movement. They are at the absolute finish line. We have rebegun weekly conference calls actively discussing the launch markets, et cetera. So, yes, lots of activity, nothing to make an announcement about at this time..

And just to clarify for folks on the call, Rick, as far as the revenue projections for 2022 that we've provided, does this contract influence those projections? How is it incorporated or not?.

It is currently not contemplated in our 2022 numbers. If we were to ultimately execute that. And the plan is or remains to roll that out, we would expect to give an update in guidance in the future quarters..

Great. Thanks. We got a question here that says, what's the projected stock price of the company once the meaningful mergers and acquisitions are completed? I'll take that. I think based on our internal valuation models, we certainly have an expectation for the stock, probably not something that we're ready to share publicly.

What I will say is that we recognize that there's a dislocation in the markets and that we, as a management team, have some work to do and surfacing the value of our company. We've got a strategy in place to surface that value. We'll be launching and engaging an IR firm in the next 30 days.

We're executing on our operational plan to deliver at or above budget, and we're continuously evaluating the capital structure for potential efficiencies. So, I would say, based on the ARR of the company at the current market multiples, it implies we're trading well below the intrinsic value of the company, probably by a factor of multiples..

I might add many multiples..

Fair enough. So, those were the written questions. We'll turn to the phone line here. Are there any additional questions? It does not appear that anyone has raised their hand at this time..

Let me conclude the call by thanking all of our shareholders, clients, partners, and employees for their continuing efforts, commitment, and support as we work together to transform CRI into the leading brand in digital signage solutions. This concludes the CRI 2021 earnings call..