Creative Realities, Inc. (NASDAQ:CREX) Q2 2023 Earnings Conference Call August 4, 2023 9:00 AM ET Company Participants William Logan - CFO Richard Mills - CEO Conference Call Participants Brian Kinstlinger - Alliance Global Partners Howard Halpern - Taglich Brothers Operator Good morning. At this time, I would like to welcome everyone to the Second Quarter 2023 Creative Realities, Inc. Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at cri.com follo ...

The Credit Agreement also provides that the Company's outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $4,767 senior secured term loan and $2,418 secured convertible loan, with an aggregate of $7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan (the "Consolidation Term Loan"). The Consolidation Term Loan has an interest rate of 10.0%, with 75.0% warrant coverage (or 898,165 warrants). On the first day of e ...

Financial Data and Key Metrics Changes - The company's Q1 2023 revenue was $9.9 million, with a gross profit of $5.1 million and adjusted EBITDA of $960,000, marking a record for the first quarter [11] - Although revenue decreased by $800,000 compared to the same period in 2022, gross profit and adjusted EBITDA increased by over $1 million and $300,000 respectively, primarily due to a $1.3 million increase in services revenue [13] - The company reaffirmed its full-year 2023 guidance of $60 million in revenue and a 15% adjusted EBITDA margin, with a backlog of approximately $110 million [14][42] Business Line Data and Key Metrics Changes - The revenue mix is driving gross profit and adjusted EBITDA, with a significant increase in services revenue contributing to overall profitability [13] - The company expects its quarterly revenue to double from Q3 2023 onwards, driven by existing customer engagements and new contracts [22] Market Data and Key Metrics Changes - The company has seen a significant increase in outreach to fast-casual brands, with a focus on drive-thru solutions, indicating a growing market demand [35] - The company has a win rate exceeding 80% on a dollar value basis for RFPs since the beginning of 2022, reflecting strong market positioning [38] Company Strategy and Development Direction - The company is positioned to exploit growth opportunities in the digital signage industry, with a focus on expanding annual recurring revenue (ARR) to drive profitability [18][23] - The management team is optimistic about the transformational potential for profit in the coming years, particularly as they capitalize on expanding revenue streams [20] Management's Comments on Operating Environment and Future Outlook - Management anticipates a material increase in revenue and profitability starting in Q3 2023, with expectations of a significant step-up in performance [21][66] - The company has navigated supply chain issues effectively, ensuring that production rollouts are not hindered [65][67] Other Important Information - The company executed a 1:3 reverse stock split to comply with NASDAQ minimum bid rules, resulting in 7.4 million common shares outstanding [26] - The company received an updated offer from Pegasus Capital Advisors to acquire all outstanding shares at $2.85 per share, which is currently under evaluation by the Board of Directors [27] Q&A Session Summary Question: Market dynamics for drive-thru products - The company has significantly increased outreach and added sales assets, engaging with fast-growing QSR drive-thrus [35] Question: Economic challenges and deployment plans - Customers are concerned about cash outlay, but the ROI on digital investments is typically less than 12 months [46] Question: Status of the bowling contract - Contracts are executed, and significant deployments are expected to begin in July, potentially generating $1.5 million in additional revenue per month [51] Question: Cash conversion from EBITDA to cash flow - The company expects 70% of EBITDA to convert into cash as they move past the current investment period [55] Question: Sales mix between hardware and services - The company anticipates a 50/50 split between hardware and services in the current year, with a shift towards more services as they scale [71]

Financial Performance - For the three months ended March 31, 2023, sales were $9,944,000, a decrease of 8% compared to $10,757,000 in the same period of 2022[152] - Gross profit increased by 31% to $5,089,000 from $3,892,000 year-over-year[152] - Operating loss improved by 91%, decreasing to $(90,000) from $(1,014,000) in the prior year[152] - Net loss for the period was $(1,000,000), a 140% increase compared to a net income of $2,502,000 in the same quarter of 2022[152] - Sales for the three months ended March 31, 2023, were $9,944 million, a decrease of $813 million or 8% compared to the same period in 2022[154] - Hardware revenues decreased by $2,137 million or 33% year-over-year, while services and other revenues increased by $1,324 million or 31%[154] - Managed services revenue grew by 51% year-over-year, reaching $4,072 million, driven by expansion in SaaS revenue and full inclusion of Reflect revenue[154] - Gross profit increased by $1,197 million or 31%, with a gross profit margin rising to 51.2% from 36.2% year-over-year[156] Expenses - The company reported a 29% reduction in cost of sales, decreasing from $6,865,000 to $4,855,000[152] - Sales and marketing expenses increased by 61% to $1,136,000 from $707,000 year-over-year[152] - Research and development expenses rose by 52% to $366,000 compared to $241,000 in the previous year[152] - Sales and marketing expenses increased by $429 million or 61%, primarily due to the acquisition of Reflect and enhanced investments in sales and marketing activities[157] - Research and development expenses rose by $125 million or 52%, driven by the completion of the Reflect Merger and the integration of development teams[158] Cash Flow - Cash provided by operating activities was $3,868 million for the three months ended March 31, 2023, compared to $1,201 million for the same period in 2022[169] - Net cash used in investing activities was $1,034 million, significantly lower than $17,969 million in the same period in 2022 due to the completion of the Merger[170] - Net cash used in financing activities was ($562) million, a change from net cash provided of $19,873 million in the same period in 2022[171] Corporate Actions - The company executed a 1-for-3 reverse stock split effective March 27, 2023, reducing the total number of authorized shares from 200,000,000 to 66,666,666[144][145] - The company received an unsolicited acquisition proposal from Pegasus Capital Advisors at a price of $2.85 per share, which is currently under review by the Special Committee[148] Future Outlook - Recurring subscription licensing and support revenue is expected to grow continuously as digital signage adoption expands across various vertical markets[141] - The company anticipates continued elevated capital expenditures through the third quarter of 2023 for the modernization and internationalization of its automotive platform[170]

Creative Realities, Inc. (NASDAQ:CREX) Q4 2022 Earnings Conference Call March 30, 2023 9:00 AM ET Company Participants Will Logan - CFO Rick Mills - CEO Conference Call Participants Brian Kinstlinger - Alliance Global Partners Howard Halpern - Taglich Brothers Operator Good morning. At this time, I would like to welcome everyone to the Creative Realities Incorporated 2022 Year-end Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at CRI.com following ...

Revenue Growth and Sources - The company reported continuous growth in recurring SaaS revenue as digital signage adoption expands across various vertical markets [154]. - The company’s revenue sources include services revenue from digital signage network management and hardware sales from OEMs like Samsung and BrightSign [169]. - Managed services revenue grew by 156% year-over-year, reaching $14,320 in 2022, compared to $5,596 in 2021, due to Reflect's SaaS subscription revenue [184]. - Total sales increased by $24,913, or 135%, in 2022 compared to 2021, largely due to the Reflect acquisition and enhanced sales activities [204]. - Services and other revenues rose by $14,468 to $23,455 in 2022, attributed to the acquisition of Reflect and successful post-Merger sales activities [184]. - The company’s recurring subscription licensing and support revenue is primarily generated from its SaaS digital signage software platforms [307]. Acquisitions and Strategic Moves - The company acquired Reflect Systems, Inc. in February 2022 as part of its strategic acquisition strategy to enhance growth [302]. - The company rejected an unsolicited acquisition proposal from Pegasus Capital Advisors, stating it undervalued the company based on its intrinsic value and future prospects [157]. - The company’s management team continuously evaluates acquisition opportunities to accelerate growth in targeted markets [309]. Financial Performance - Net income for 2022 was $1,876, a significant increase of $1,644, or 709%, compared to $232 in 2021 [203]. - The company's EBITDA for the year was $9,220 million, with an adjusted EBITDA of $3,845 million, reflecting a significant increase from the previous year's adjusted EBITDA of $1,221 million [226]. - The company incurred a loss on debt waiver consent amounting to $1,212 million, which impacted the overall financial performance [226]. - The fair value of warrant liability resulted in a loss of $7,902 million, indicating a significant adjustment in the company's financial statements [226]. - The company recorded a gain of $1,624 million related to the settlement of the Seller Note, which positively influenced the financial results for the year ended December 31, 2021 [224]. - The company has generally incurred losses and may never become or remain profitable [261]. Expenses and Cost Management - The company’s expenses are primarily categorized into sales and marketing, research and development, and general and administrative costs [155]. - General and administrative expenses rose by $4,571, or 62%, primarily due to increased headcount and operations following the Reflect acquisition [187]. - Research and development expenses increased by $701, or 127%, for the year ended December 31, 2022, driven by the acquisition of Reflect and the retention of its software development team [207]. - Sales and marketing expenses surged by $2,498, or 217%, in 2022, influenced by the Reflect acquisition and increased investments in marketing activities [206]. - Depreciation and amortization expenses increased by $1,469, or 108%, in 2022, due to the addition of $17,160 in amortizing intangible assets from the Merger [209]. Market Position and Competitive Advantages - The company emphasizes its competitive advantages, including a managed labor pool and network scalability, which enhance service delivery and customer satisfaction [147][148]. - The company’s digital signage solutions cater to various sectors, including retail, healthcare, and automotive, showcasing its market versatility [139]. - The company has in-house media sales expertise, which differentiates it from competitors and provides an additional revenue stream [232]. - The company has a curated labor pool of thousands of qualified field technicians, enabling quick service nationwide [303]. Risks and Challenges - The company is facing challenges in ensuring the long-term successful operation of its digital marketing business due to a rapidly changing market [233]. - The company faces significant risks related to the unpredictability in financing markets, which could impair its ability to grow through acquisitions [264]. - The company’s business operations are susceptible to interruptions caused by events beyond its control [294]. - The company’s reliance on information management and transaction systems exposes it to cyber incidents and hacking risks [269]. - The company faces risks related to the timely development of new technologies and the retention of key personnel in a competitive market [321]. Customer Concentration and Demand - In 2022, three customers accounted for 44.0% of the company's revenue, indicating a significant customer concentration risk [316]. - The company anticipates increased demand for its services due to new construction and remodeling activities in retail and event venues [314]. Stock and Financing - Following a reverse stock split effective March 27, 2023, the total number of authorized shares was reduced from 200 million to 66.67 million [156]. - The company relies on the continued support of a related party for adequate financing of its operations [241]. - The company does not intend to pay dividends on its common stock for the foreseeable future [251]. - The aggregate market value of the voting and non-voting common equity held by non-affiliates was $13,263,727 as of the last business day of the registrant's most recently completed second fiscal quarter [257]. Advertising and Engagement - The company’s ad management platform, Reflect AdLogic, currently delivers approximately 50 million ads daily, indicating strong engagement and monetization capabilities [170]. - The company achieved approximately 50 million ads delivered daily through its ad management platform, Reflect AdLogic [307].

Creative Realities, Inc. (NASDAQ:CREX) Q3 2022 Earnings Conference Call November 14, 2022 9:00 AM ET Company Participants Will Logan - Chief Financial Officer Rick Mills - Chief Executive Officer Conference Call Participants Brian Kinstlinger - Alliance Global Partners Howard Halpern - Taglich Brothers Operator Good morning. At this time, I would like to welcome everyone to the Creative Realities Inc. Third Quarter Earnings Conference Call. This call will be recorded and a copy will be available on the comp ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Minnesota 41-1967918 State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification No. Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share CREX The Nasdaq Stock Market LLC Warrants to purchase Common Stock CREXW The Nasdaq Stock Market LLC FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ...

Financial Data and Key Metrics Changes - The company reported record revenue of $10.9 million for Q2 2022, an increase of $7.6 million or 233% year-over-year, bringing year-to-date revenue to $21.7 million, a 162% increase year-over-year [8][40]. - EBITDA for Q2 2022 was $2.8 million, with adjusted EBITDA at $933,000, improving the adjusted EBITDA margin from 5.9% in Q1 to 8.5% in Q2 [10][67]. - The gross profit margin decreased to 42.7% from 57.2% year-over-year, primarily due to a shift in revenue mix towards hardware sales [45][46]. Business Line Data and Key Metrics Changes - Hardware revenues reached $5.7 million in Q2 2022, a 337% increase compared to the prior year, driven by the merger with Reflect and growth in large-scale LED deployments [42]. - Services and other revenues were $5.3 million, a 165% increase, with SaaS revenue contributing $3.8 million, up from $1.4 million in the same period last year, reflecting a 175% growth [43]. Market Data and Key Metrics Changes - The company has grown its annual recurring revenue (ARR) run rate to over $14.5 million, achieving 83% of its target growth for the year through the first half [12]. - The company anticipates significant revenue from a new partnership with the Bowling Proprietors Association of America, targeting over 3,000 member bowling alleys [20][21]. Company Strategy and Development Direction - The management's strategic initiative focuses on growing ARR, primarily through SaaS subscriptions, with a goal to increase the ARR run rate by 25% from approximately $12 million at the end of 2021 to $15 million by the end of 2022 [11][12]. - The company aims to enhance its market share in the fragmented digital signage industry by offering integrated solutions beyond basic digital signage, including media sales and ad monetization [75][76]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving at least $43 million in revenue for 2022, with expectations to exceed $52 million in 2023 [65][66]. - The company anticipates ongoing margin expansion and expects adjusted EBITDA margins to exceed 15% in 2023 and 20% in 2024 as it scales its operations [69]. Other Important Information - The company has a cash position of approximately $3 million as of June 30, 2022, which, combined with accounts receivable, provides sufficient runway to service its debt [61]. - The company is actively pursuing strategic partnerships and acquisitions to enhance growth opportunities [78]. Q&A Session Summary Question: Can you provide details around the announced bowling contract? - The contract is expected to be executed soon, with over 650 bowling centers signed up to participate, and minor revenue expected in Q4 2022, with significant revenue anticipated in 2023 [90][91]. Question: Has there been any changes to expected delivery rates in the theme park market? - There has not been a slowdown in demand for digital conversion, with an acceleration in ad monetization capabilities observed among theme park customers [93][94]. Question: What is the company's ability to source products to meet demand? - There are no issues with display capability, but media players are currently running about 90 days out, and the company is placing orders ahead of schedule [96]. Question: How have global shipping costs impacted the hardware business? - The company experienced significant gross margin erosion due to increased shipping costs during the pandemic, but costs are moderating now [99]. Question: What is the runway for media offerings with the existing customer base? - The media sales apparatus is in the early stages, with significant interest from existing customers in monetization opportunities [102][103].

PART 1. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Creative Realities, Inc. as of June 30, 2022, with detailed notes on accounting policies and the Reflect acquisition [Condensed Consolidated Balance Sheets](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) - Total assets increased significantly to **$68.5 million** as of June 30, 2022, from **$22.9 million** at December 31, 2021, primarily due to the acquisition of Reflect, which added substantial goodwill and intangible assets[6](index=6&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $17,193 | $9,772 | | **Goodwill** | $26,094 | $7,525 | | **Intangibles, net** | $23,227 | $4,850 | | **TOTAL ASSETS** | **$68,517** | **$22,881** | | **Total Current Liabilities** | $16,544 | $6,859 | | **TOTAL LIABILITIES** | **$42,080** | **$14,152** | | **Total Shareholders' Equity** | **$26,437** | **$8,729** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) - The company reported significant revenue growth for both the three and six months ended June 30, 2022, largely driven by the Reflect acquisition. Net income also increased, benefiting from a large non-cash gain on the change in fair value of warrant liability[9](index=9&type=chunk) Statement of Operations Summary (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Sales** | $10,923 | $3,277 | $21,680 | $8,281 | | **Gross Profit** | $4,662 | $1,875 | $8,554 | $4,109 | | **Operating Income/(Loss)** | $30 | $(411) | $(984) | $(624) | | **Net Income** | $1,262 | $1,025 | $3,764 | $2,297 | | **Diluted EPS** | $0.06 | $0.09 | $0.21 | $0.20 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) - For the six months ended June 30, 2022, cash used in investing activities surged to **$19.5 million** due to the acquisition of Reflect. This was funded by **$19.6 million** in cash provided by financing activities from new debt and equity issuances. Operating cash flow was a small use of **$63 thousand**[12](index=12&type=chunk) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(63) | $(363) | | **Net cash used in investing activities** | $(19,546) | $(204) | | **Net cash provided by financing activities** | $19,566 | $1,745 | | **Increase/(decrease) in Cash** | $(43) | $1,178 | | **Cash and Cash Equivalents, end of period** | $2,840 | $3,004 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Note 1: Nature of Organization and Operations](index=7&type=section&id=NOTE%201:%20NATURE%20OF%20ORGANIZATION%20AND%20OPERATIONS) - On February 17, 2022, the Company completed its merger with Reflect Systems, Inc., a provider of digital signage solutions. The transaction was financed through a combination of equity and debt[20](index=20&type=chunk) - To fund the Reflect merger, the company raised approximately **$11.0 million** in gross proceeds from an Equity Financing (private placement) and **$10.0 million** in gross proceeds from a new Debt Financing agreement with Slipstream Communications, LLC[29](index=29&type=chunk)[31](index=31&type=chunk) - Management believes the company can continue as a going concern through at least August 15, 2023, based on debt refinancing, operational forecasts, and a continued support letter from its lender, Slipstream[36](index=36&type=chunk) [Note 4: Revenue Recognition](index=15&type=section&id=NOTE%204:%20REVENUE%20RECOGNITION) - The company's revenue is disaggregated into Hardware and various Services categories, including Installation, Software Development, Media, and Managed Services. Managed Services, which includes recurring software licensing and support, is a significant component of service revenue[67](index=67&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) Disaggregated Revenue (in thousands) | Revenue Source | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Hardware** | $5,667 | $1,296 | $12,126 | $4,112 | | **Services** | $5,256 | $1,981 | $9,554 | $4,169 | | *Managed Services* | *$3,832* | *$1,391* | *$6,535* | *$2,730* | | **Total Revenue** | **$10,923** | **$3,277** | **$21,680** | **$8,281** | [Note 5: Business Combination](index=18&type=section&id=NOTE%205:%20BUSINESS%20COMBINATION) - The company acquired Reflect Systems, Inc. on February 17, 2022. The total consideration was approximately **$36.4 million**, consisting of cash, common stock, a secured promissory note, and a contingent earnout liability[81](index=81&type=chunk)[90](index=90&type=chunk) Preliminary Purchase Price Allocation for Reflect Acquisition (in thousands) | Assets Acquired / Liabilities Assumed | Fair Value | | :--- | :--- | | Identified intangible assets | $17,160 | | Goodwill | $18,569 | | Net tangible assets acquired | $(1,369) | | **Total** | **$34,360** | - The acquisition added significant definite-lived intangible assets, including customer relationships (**$11.0 million**), developed technology (**$5.1 million**), and trade names (**$1.0 million**), which will be amortized over 2 to 10 years[105](index=105&type=chunk) [Note 8: Intangible Assets, Including Goodwill](index=23&type=section&id=NOTE%208:%20INTANGIBLE%20ASSETS,%20INCLUDING%20GOODWILL) - Net book value of amortizable intangible assets increased to **$23.2 million** at June 30, 2022, from **$4.9 million** at year-end 2021, due to the Reflect acquisition[118](index=118&type=chunk) - A significant decline in the company's market capitalization below its book value as of June 30, 2022, was deemed an indicator of potential impairment for goodwill. However, management concluded no impairment was necessary at the time, attributing the stock price decline to macroeconomic factors and specific investor selling pressure rather than a decline in the underlying business value[121](index=121&type=chunk)[123](index=123&type=chunk) [Note 9: Loans Payable](index=24&type=section&id=NOTE%209:%20LOANS%20PAYABLE) - On February 17, 2022, the company refinanced its debt, resulting in a new **$10.0 million** Acquisition Loan and a consolidated **$7.2 million** Consolidation Term Loan, both maturing in February 2025. The company also issued a **$2.5 million** Secured Promissory Note related to the Reflect acquisition, due February 2023[132](index=132&type=chunk)[134](index=134&type=chunk)[130](index=130&type=chunk) Outstanding Debt as of June 30, 2022 (in thousands) | Debt Type | Principal | Maturity Date | | :--- | :--- | :--- | | Acquisition Loan | $10,000 | 2/15/2025 | | Reflect Seller Secured Promissory Note | $2,089 | 2/17/2023 | | Consolidation Term Loan | $7,185 | 2/15/2025 | | **Total Debt, Gross** | **$19,274** | | [Note 12: Warrants](index=28&type=section&id=NOTE%2012:%20WARRANTS) - In Q1 2022, the company issued **13,761,000** warrants classified as liabilities in connection with financing activities. These warrants were initially recorded at fair value, with subsequent changes recognized in the statement of operations[152](index=152&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - Effective June 30, 2022, the company amended the terms of these liability warrants. The amendments resulted in the warrants being reclassified from liability to equity. This led to a final gain on fair value change of **$2.4 million** and a loss on amendment of **$345 thousand** in Q2 2022, with the remaining **$5.7 million** liability reclassified to additional paid-in-capital[158](index=158&type=chunk)[159](index=159&type=chunk) [Note 14: Significant Customers/Vendors](index=34&type=section&id=NOTE%2014:%20SIGNIFICANT%20CUSTOMERS%2FVENDORS) - The company has significant customer concentration. For the six months ended June 30, 2022, three customers accounted for **54.3%** of total revenue[182](index=182&type=chunk) - As of June 30, 2022, one customer accounted for **25.7%** of accounts receivable[181](index=181&type=chunk) - Vendor concentration is also present, with two vendors accounting for **48.3%** of accounts payable at June 30, 2022[183](index=183&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, highlighting revenue growth from the Reflect acquisition, impacts on margins, expenses, liquidity, and Adjusted EBITDA [Results of Operations - Three Months Ended June 30, 2022 vs 2021](index=40&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030,%202022%20vs%202021) - Total sales for Q2 2022 increased by **233%** to **$10.9 million** from **$3.3 million** in Q2 2021, driven by the Reflect acquisition and **74%** organic growth compared to pro forma combined results[219](index=219&type=chunk) - Gross profit margin decreased to **42.7%** from **57.2%** year-over-year due to a higher mix of hardware sales (**52%** of revenue), but improved from **36.2%** in Q1 2022[222](index=222&type=chunk) - Operating expenses increased by **103%** to **$4.6 million**, driven by the inclusion of Reflect's operations, increased investment in sales and marketing, and the absence of Employee Retention Credits (ERC) that benefited the prior year[218](index=218&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - Net income was **$1.3 million**, compared to **$1.0 million** in the prior year, largely due to a **$2.4 million** non-cash gain on the change in fair value of warrant liability[218](index=218&type=chunk)[229](index=229&type=chunk) [Results of Operations - Six Months Ended June 30, 2022 vs 2021](index=44&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030,%202022%20vs%202021) - Total sales for the first six months of 2022 grew **162%** to **$21.7 million** from **$8.3 million** in the prior-year period, reflecting the Reflect acquisition and **58%** organic growth[235](index=235&type=chunk) - Managed services revenue, a key recurring revenue stream, grew **139%** year-over-year to **$6.5 million** for the six-month period[236](index=236&type=chunk) - Gross profit margin for the six-month period decreased to **39.5%** from **49.6%** due to a higher mix of hardware sales[238](index=238&type=chunk) - Net income for the six months was **$3.8 million**, compared to **$2.3 million** in the prior year, primarily driven by a **$7.9 million** non-cash gain on the change in fair value of warrant liability[234](index=234&type=chunk)[246](index=246&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2022, the company had cash and cash equivalents of **$2.8 million** and a working capital surplus of **$0.6 million**[35](index=35&type=chunk) - For the first six months of 2022, net cash used in operating activities was minimal at **$63 thousand**. Net cash used in investing activities was **$19.5 million**, primarily for the Reflect acquisition. Net cash provided by financing activities was **$19.6 million** from debt and equity raises to fund the acquisition[257](index=257&type=chunk)[259](index=259&type=chunk)[261](index=261&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Quarter | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | **GAAP Net Income (Loss)** | $1,262 | $2,502 | $(1,722) | $(343) | $1,025 | | **Adjusted EBITDA** | $933 | $635 | $(31) | $292 | $286 | [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[264](index=264&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[265](index=265&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) This section reports no new material legal proceedings - The company reports no new material legal proceedings[267](index=267&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) Creative Realities, as a smaller reporting company, refers to its Form 10-K for a discussion of risk factors - The company, as a smaller reporting company, refers to its Form 10-K filed on March 22, 2022, for a discussion of risk factors[268](index=268&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including officer certifications, a press release, and stock option agreements - A list of filed exhibits is provided, including officer certifications (31.1, 31.2, 32.1, 32.2), a press release dated August 15, 2022 (99.1), and various stock option agreements[271](index=271&type=chunk)