Good morning. This is Will Logan, Chief Financial Officer of Creative Realities Inc. Welcome to our first quarter 2022 financial results and earnings call. All lines have been placed on mute to prevent any background noise. The company has prepared remarks summarizing the Q1 results along with additional industry and company updates.

The company's prepared remarks will include a brief overview of our financial results, which can be seen and heard through this webinar by logging into the 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 will be recorded and a copy will be available on our website @cri.com following the completion of the call.

Joining me on the call today is Rick Mills, CEO of Creative Realities Inc. I'd like to take this opportunity to remind you that our remarks today will include forward looking statements.

The words anticipated, believes, expects, intents, plans, estimates, projects, should, may, propose and similar expressions or the negative versions of such words or expressions 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 quarterly financial statements on form 10-Q and 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 those GAAP to non-GAAP measures is included in our public filings and in our earnings release that was released yesterday. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities Inc..

Thanks. Will. Good morning, everybody. I want to start this call and just tell you that we're very pleased to announce record Q1 2022 revenue of $10.8 million. That's $5.8 million increase, or 115% year-over-year. Revenue from our core digital signage and services increased $6.8 million, or 133% over 2021.

And, our annual recurring revenue is at a record $13.5 million run rate at the end of Q1. These results are in line with our previously stated expected targets of $43 million this year in revenue for 2022. And we expect to end the year in an ARR run rate of $15 million heading into 2023.

Will Logan and I are going to provide more detail around our Q1 results, as well as expectations for the balance of 2022. But first, I would like to build on thoughts I've shared on our previous earnings calls. On our last call, I discussed in some detail who we are and what we do.

I did so because we have just completed a merger with Reflect Systems, which added important new capabilities and a number of new investors and shareholders. Is my understanding, many people found this to be incredibly helpful. So today I'd like to build on that discussion by articulating our strategy for value creation for all of our shareholders.

First, we'll briefly recap what I said on the last call. I talked about all the things that we do in the digital signage industry, and importantly, several key high value adjacencies.

I detailed how we sell and install digital signage display technology devices, as well as provide a considerable array of services that build off this installation services and business. We own several proprietary software platforms, which generate significant software as a service or SaaS revenue.

We serve market leading companies across many prominent verticals. And if you leave your home today to shop work, eat, play it's highly likely you will encounter one or more of our digital signage experiences. We have a number of revenue sources with the first and foremost being managed services.

These revenues primarily represent sticky long-term contractual agreements comprised of subscription licensing and support services for our digital signage software platforms, which is sold through a subscription or SaaS model.

Other services include assisting our customers and the hardware design, and the engineering of their solution to fit the specific space. And that includes hardware installation, content development and content scheduling. We also provide post deployment network and field support services, which we commonly referred to as day two services.

Through our merger with Reflect, we acquired an additional revenue stream. Our media sales and ad trafficking business, through which we conduct the direct and indirect sourcing of advertising revenue for client owned networks.

This is both a critical technology demanded by the advertiser in digital-out-of-home community, and a capability for the company's entry into a high margin high growth space to deliver network monetization products for our clients. Finally, we sell the hardware itself, primarily screens, media players, and related items.

And we're currently managing in excess of 120,000 endpoints. The combined devices that we are managing, or touch with our network today exceeds 300,000. Thus, I'd like to underscore that we, indeed are a software-as-a-service company.

We focus on increasing the number of managed devices, and leveraging our subscription based signage platform, related services, delivering ads on ad supported networks. This is extended product set ultimately results in driving higher annual recurring revenue through an enhanced and broader software lineup. That's really what we're all about.

We sell a hardware and install it ultimately, to end up with the SaaS subscription. Managed services and media sales revenue, follow on. On our last call, we discussed the cross section of all the products and services that we supply, it's about a $20 billion industry. Projected growth rate to that industries in the 8% to 12% over the coming years.

And as you all know, our projected growth rate far exceeds the industry average. We're excited as to how our company is now even more favorably positioned to acquire and defend significant market share in a highly fragmented industry. Owning to our extended product set technology stack and importantly, our people.

All driven by this very compelling business model. We believe we are built for scale and ultimately profit and free cash flow. We addressed this on the last call and are summarizing again to reinforce how we will use this competitive advantage for the benefit of all of our shareholders. I'm pleased to share our six-point plan for value creation.

That is the focus of the company strategy and multi-year strategic thought process and planning. Our value creation focus will be to do the following; number one, grow revenue. Number two, improve margins. Number three, grow annual recurring revenue or SaaS and translate that ARR to EBITDA and free cash flow. Number four, reduce our debt leverage ratio.

Number five, sustained and consistent focus on investor relations activities, folks on traveling all over. Number six, opportunistically pursue accretive M&A if appropriate. I'll discuss specifics around each of these value creation points. After Will Logan provides the Q1 '22 results. For the Q1 '22 review, I'll turn it back over to Will Logan..

Thanks, Rick. I will now summarize our financial results for the three months ended March 31 2022, as compared to the same period for 2021.

Regarding the 2022 results, we know that the MDNA section of our quarterly report on form 10-Q provides unaudited 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 quarters they're in as well as our earnings released out yesterday.

As I review the quarterly financial information, all references to 2022 and 2021 represent results for the three months ended March 31 for each period unless specifically indicated otherwise. Our revenues were $10.8 million, representing an increase of $5.8 million or 115% as compared to the same period in 2021.

Revenues generated from our core digital signage products and services increased $6.6 million or 133% in 2022, as compared to 2021. Despite continued supply chain disruptions related to semiconductor chips, delaying the delivery of digital displays, and media players to the company.

The supply disruption for digital displays prevented the company from delivery of hardware and execution of installation activities during the quarter of about $1.2 million. That revenue has not been lost, but rather simply shifted to 2Q 2022 delivery.

CRI acquired Reflect on February 17, 2022, and the Company's consolidated results for the three months ended March 31, 2022 include 44 days of Reflect's operations. Had the companies completed the Merger as of December 31, 2021, the combined company would have revenue in excess of $12 million during the three months ended March 31, 2022.

Hardware revenues were $6.5 million in 2022, an increase of $3.6 million, or 129%, as compared to the prior year. Services and other revenues were $4.3 million in 2022, an increase of $2.1 million, or 96% with the inclusion of 44 days of Reflect in the consolidated results.

Managed services revenue, which includes both software-as-a-service SaaS and help desk technical subscription services, were $2.7 million in the three months ended March 31, 2022 as compared to $1.3 million in the same period in 2021, which included $0.8 million contributed by Reflect for the 44 days from February 17 through March 31, 2022.

The Company's annual recurring revenue run-rate now exceeds $13.5 million as of March 31, 2022. Gross profit increased by $1.7 million, or 74% driven by an increase in revenue but offset by a reduction in gross profit margin.

Gross profit margin decreased to 36.2% from 44.6% driven by a shift in revenue mix to 60% hardware in the first quarter of 2022 related to a material customer rollout that are actively underway.

We expect this contraction in gross profit margin to be less severe as we move into the second quarter of 2022 and beyond, with significant pressure in the current quarter driving by a single, large-scale/hardware-heavy deployment. With respect to our operating expenses.

Sales and marketing expenses increased by $0.4 million, or 111%, from $0.3 million and to $0.7 million in 2022, driven by the acquisition of Reflect during the period. Immediately following the acquisition of Reflect, the company integrated the sales and marketing functions and does not disaggregate these expenses between the two legacy companies.

Through the acquisition and integration activities, the Company has adopted certain tools, technology, and processes particularly with respect to digital marketing utilized to generate demand and qualified sales leads that were only minimally invested into by Creative Realities in the past.

Additionally, the Company formally 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 combined company to continue at the current pace for future periods.

Research and development expenses increased $0.1 million, or 41% in 2022, from $0.1 million during the three months ended March 31, 2021 to $0.2 million during the three months ended in 2022, driven primarily by the acquisition of Reflect.

Through the acquisition of Reflect, we acquired a fully staffed, experienced software development team and elected to retain these resources intact, in full, 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 speed to market on feature and functionality development activities from enhancing this resource pool. We expect this elevated level of expense to continue into the future as we continue to develop our current and future product set.

Our general and administrative expenses excluding bad debt expense, increased $0.6 million, or 31%, from $2.1 million during the three months ended March 31, 2021 to $2.7 million during the three months ended March 31, 2022.

While the company anticipates carrying higher general and administrative expenses moving forward as a result of the acquisition of Reflect, the integration activities include several projects that we expect will be realized by the end of 2022 and will produce flattening or reducing general administrative expenses overtime.

Bad debt expense returned to a more normalized rate of $0.1 million during the three months ended March 31, 2022, representing an increase of $0.6 million as compared to the prior year as the result of a bankruptcy recovery in the same period in 2021.

Our general and administrative expenses also include $0.6 million in non-cash stock compensation expenses. Now looking at our operating loss and net income and EBITDA. Our operating loss was $1.0 million during the three months ended March 31, 2022, inclusive of the following $1.7 million in non-cash charges.

Amortization of intangible assets was $0.7 million, with $0.4 million the result of one-half of one quarter of incremental amortization related to intangible assets recorded during the acquisition of Reflect. Those assets are still going to reform a third-party valuation and maybe updated in the second quarter.

We incurred deal and transaction costs of $0.4 million in expenses incurred to facilitate the Reflect acquisition and related financing activities, which should minimally continue and dissipate through the second quarter.

We had non-cash employee and director stock compensation expenses of $0.6 million for both time and performance vesting options in the current year.

Our net income was $2.5 million during the three months ended March 31 2022, and included a $5.5 million gain on marking outstanding warrants to fair value, a $1.2 million non-cash charge related to the issuance of warrants in exchange for a debt waiver, a $0.5 million of interest expense $0.2 million of which represents non-cash amortization of debt discount, recorded in conjunction with the issuance of warrants and $0.3 million loss related to amending and extending our debt facilities.

EBITDA was $4.1 million in 2022. With adjusted EBITDA of $0.6 million, bringing our adjusted EBITDA margin to 6% during the period. A couple of other quick notes on transactions in the period.

Through our debt and equity offerings to facilitate the reflect transaction, we issued certain warrants that were deemed to be classified as liabilities for accounting purposes. From the date of issuance through the end of the first quarter, we've recorded the gain on marking those warrants to fair value at the balance sheet date.

The company is evaluating its ability to mend these instruments to alter their balance sheet classification for accounting purposes only which would not impact their life or strike price.

In executing our debt offering, we issued warrants to certain equity holders which resulted in a non-cash P&L charge of $1.2 million in the period as a result of the Black Scholes calculation the grant date, fair value of those awards, we would not expect that to repeat in future periods.

Lastly, the company incurred numerous costs associated with the M&A activities and its debt and equity financings, two, total deal and transaction costs were $0.4 million in the first quarter of 2022. These primarily represent one-time transaction related expenses which we do not expect will return.

We expect some immaterial revenue and expenses in the second quarter associated with audit and tax related activities, but then expect those to dissipate for the rest of the year.

For balance sheet highlights the company's unrestricted cash position as of March 31 2022, was approximately $6 million, which we believe when combined with our accounts receivable and SaaS contract billings provides sufficient cash runway to service our debt and operate our business moving forward.

The company also produced a net working capital surplus of approximately $2.2 million as of March 31 2022. At this point, I'll turn the call back over to our CEO Rick Mills..

Thanks, Will. Great detail. Now, everyone, now that you've got the Q1 financial update, let's take a moment and discuss each of our value creation points in more detail. Number one, we talked about grow revenue. Growing revenue may seem like a fairly obvious objective for any growth company.

We believe the platforms that we have assembled, have put the company in a position to enjoy revenue growth rates in excess of the industry norms in 2022 and beyond. As Will Logan, just detailed, this is already evident organically and strategically with our Q1 results.

I previously provided fiscal year 2022 guidance of at least $43 million in revenue, which is 40% more than the $30.7 million 2021 pro forma combination of CRI and Reflect. We believe this classifies us as a rule of 40 SaaS company. We reiterate this guidance with confidence and see the number climbing above $50 million in 2023.

We expect to provide formal guidance for 2023 as we approach year end. Number two the second point, improve margins. We have previously communicated expectations for an adjusted EBITDA margin of approximately 5% of revenue for 2022.

EBITDA for Q1 is impacted by a number of one-time merger transaction expenses, and other related items as detailed by Will. We expect ongoing margin expansion throughout the year as these effects subside and do not reoccur. Additionally, there are other effects that will continue to drive margin improvements.

We fully expect to reach our synergy target for the CRI merger or CRI Reflect merger by the end of the year. And also please keep in mind how hardware sales which produce additional SaaS, media sales and other high margin services downstream, it affects the sales mix and temporarily margin mix in the short run.

As we scale organically and realize the value of the merger and the scaling of our new lines of business, we would expect to see adjusted EBIT margins above 15% as soon as 2023. Just to be clear at scale, we believe this is a 20% adjusted EBITDA margin business that will deliver significant free cash flow.

Third bullet point, growing our annual recurring revenue, and at the bottom -- at the end of the day when you grow your ARR that translates ARR to EBITDA and free cash flow. So, we previously conveyed an ARR run rate of $12.8 million, with a target run rate of $15 million by the end of this year.

Well, I'm here to tell you we're ahead of schedule, we are now at an AR$ run rate of $13.5 million and on our way to a year -- to our year-end target. Our 2023 goal will be to scale ARR to a point that it covers and exceeds our operating expenses. In this manner, ARR will translate the EBITDA at an increasing rate.

Once we cover operating expenses with ARR every incremental dollar will flow to the bottom line at a significantly better incremental margin percentage. Scaling ARR should also have a beneficial impact on revenue, predictability, and volatility, which are obviously key reasons why SaaS companies are often valued at attractive multiples.

Number four, we want to talk about reducing our debt leverage ratio. We took on debt to acquire the Reflect transaction. But we believe as we grow, and as our EBITDA expands, it will reduce leverage.

We have $6 million in cash as of the end of Q1, which gives us plenty of runway to realize all the aforementioned effects to grow revenue and improve EBITDA. We expect to reduce our leverage to less than three times EBITDA within the next 12 months on a run rate basis. A little bit of also about our equity.

The majority of outstanding warrants do not have a currently exercisable cashless feature. And if such warrants are exercised would generate significant cash, which could further reduce debt.

As we continue to scale the business, we will look to mitigate -- migrate to an optimal structure to reduce our cost of capital in a manner aligned with our business plan for growth. Set bullet for value creation. Sustained and consistent focus on investor relations activity.

We have already discussed how we view the company is much more than a pure play Digital Science infrastructure company, especially given our expanded product set with the high margin services and media sales. This is a competitive advantage over the majority of our pure infrastructure competitors for a variety of reasons.

Many enterprise customers require a supplier with scale across the U.S. for their digital signage and place based media needs, which the competition simply cannot offer. Indeed, these customers require business solutions beyond a basic digital sign.

CRI provides such integrated offerings, and in most instances, the competition has minimal ability to upsell or cross sell other products as a result of a singular product or service delivery.

One excellent example is our company's network monetization program which provides an array of services that allow our clients to traffic paid content on their networks. We have an entire team helping clients to realize these newly found revenue streams from the reach of millions of impressions.

Other solution - similar solutions for Omni channel and ad tech, also speak to the company's expanded their extended capabilities. And there is an optionality to continue to grow this from the core, the company is best viewed as a sum of highly synergistic parts well beyond hardware, and software sales.

And so, we believe that it will require a consistent focus on investor relations to drive these points home to many shareholders, and private equity firms who might own our shares and stock. Expect Rick Mills myself to be on the road with Will Logan at times, attending many conferences throughout the year.

And our sixth bullet point for value creation, is opportunistically pursue accretive M&A. We continue to look for the right synergistic opportunities throughout the market. Our phone rings off the hook, and we continue to talk to folks.

Now before I turn it back over to Will Logan to close, we do have another a number of other noteworthy activities and achievements to share.

As Will mentioned, the company is formally engaged in investor relations firm and has increased IR activities to ensure that we communicate the company's strategy, the strength and positioning of our products and platforms that we have assembled in our plan for material value creation for our shareholders.

We have held a number of one to one calls with existing and prospective investors. This March we participated in a virtual growth conference. I personally in scheduled to attend a number of conferences throughout the balance of 2022. So I look forward to those discussions and hope to see some of you listening on this call. Another event.

Creative Realities was recognized by Samsung. At an event this was happened in March, as the breakout partner of the years for sales and also the retail installation partner of the year, honoring us as a top performing digital signage partner to watch in 2022. Because of Samsung's market presence and expansive sales team and partner network.

The recognition is a particularly important achievement as it acknowledges and raises aware throughout the ecosystem of the unique capabilities that continue to help us accelerate business growth.

Number three, we've ramped up our marketing engine to remain in the front end or in the viewpoint of our end user buyers, through organic paid search, SEO, digital marketing, and end user attended events, and deliver top of funnel and qualified sales leads to our sales team.

Since our acquisition, we've accelerated our share of voice in the industry media from 15% in 2021, as Creative Realities alone to 52%. Now as a combined entity, one out of every two people who's looking at signage, certainly sees now CRI. With that, I'll turn it back over to Will Logan to close..

Great, thanks, Rick. We will now open the phone lines in order to respond to any questions. If you would like to ask a question, please use the raise hand function within the webcast. It looks like we've had a few questions that have come in via the ir@cri.com mailbox, so I'll address those first, and then anyone on the phone.

First question was, at the current share price was the company consider a stock buyback? I'll take that one, Rick. While our focus has been reinvestment of capital and free cash flow into growth of the business, we are actively evaluating all options that could impact our share price positively.

We're aware of the disconnect in the valuation in the marketplace and our internal valuation. And that would include a stock buyback. We don't have any immediate plans to effectuate a buyback. But the tool is in our toolbox. Should we not achieve traction through financial results alone? So it's something that we continue to evaluate.

Second question from the inbox. You have an after-market offering in place. Can you provide some context in your plans? Yes, I'll take that one as well. So, you have most micro-cap NASDAQ companies do have an ATM in place. The goal of that typically is to facilitate opportunistic capital activities that lower fundraising costs if those become available.

In the case of our ATM, it is actually not currently active, it's registered, but we haven't kept it current. And we have not utilized that ATM since October of 2020. Our current strategy does not include any plan to utilize the ATM. But we have kept it in place given legal costs associated with reopening should we close.

That said, consistent with the thought on stock buybacks, we are evaluating whether the closure of the ATM would create positive momentum in the market with respect to eliminating the possibility that we are in the market looking to do equity offerings. Third question here that's come into the mailbox.

Can we expect any additional M&A activity in 2022? Rick, will you?.

Yes, I'll take that one. So, the answer is yes, we have an active buy-side program. And we continue to talk to folks throughout the marketplace. As I stated earlier, we've become a go to acquirer of these assets. But obviously, today, our stock price is currently disconnected and depressed.

And so our focus is bringing the stock price up so that we can achieve or be in a place for accretive M&A. So, that's how we'll kind of address M&A.

Any other questions Will that have come in?.

Yes, we've got a few here that have been written in during the call.

So the next one says, do you foresee the chip supply issues being a hindrance going forward with completing contracts currently sad?.

Boy, that's a great question. The answer is yes. They -- it's a challenge. It's a challenge every day the supply chain, we have had some cost increases from a couple of the key components.

In our business the key components are the display and a player technology, if you will, and we have seen cost increases in those two, the panel the display problem has mostly been mitigated and we have plenty of supply, but the players tend to remain tricky, and we are very proactively ahead of the game with our ordering, so that we do not have an issue.

Okay.

Any other questions that have come in?.

No, and currently there are no hands raised on the call. So with that, let me conclude by thanking all of our shareholders, clients, partners and employees for their continuing efforts commitment and support as we continue to work together to transform Creative Realities into the leading brand in Digital Signage solutions.

This concludes the 2022 first quarter Creative Realities Inc. earnings call..