Creative Realities(CREX) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Key Financial Highlights Q2 2025 total revenue was $13.0 million, a slight year-over-year decrease but a sequential increase from Q1, with gross profit and Adjusted EBITDA declining, while Annual Recurring Revenue (ARR) showed sequential growth | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Revenue | $13.0M | $13.1M | -0.8% | | Gross Profit | $5.0M | $6.8M | -26.5% | | Adjusted EBITDA | $1.2M | $1.5M | -20.0% | | ARR (end of quarter) | $18.1M | $17.3M (Q1 2025) | +4.6% (QoQ) | CEO's Outlook and Strategic Focus CEO Rick Mills anticipates a strong H2 2025 with accelerating top-line growth, expanding gross margins, and improved bottom-line results for 2026 and beyond, emphasizing debt reduction and a stronger balance sheet - Anticipated pickup in business with even stronger performance in the second half of fiscal 2025[3] - Commitment to an improved balance sheet to provide financial flexibility, support growth, and reduce interest expense[3] - Expect top line growth to accelerate and gross margins to expand due to improved product mix and increased service revenue[3] Detailed Second Quarter Financial Performance Revenue Breakdown by Segment Total sales for Q2 2025 were $13.0 million, a slight decrease from $13.1 million in Q2 2024, driven by a significant increase in hardware revenue to $7.1 million due to anticipated tariffs, offset by a decrease in service revenue to $6.0 million from reduced SaaS subscriptions and media sales exit | Revenue Segment | Q2 2025 (in millions) | Q2 2024 (in millions) | YoY Change | | :-------------- | :-------------------- | :-------------------- | :--------- | | Hardware | $7.1 | $5.0 | +42.0% | | Services | $6.0 | $8.1 | -25.9% | | Total Sales | $13.0 | $13.1 | -0.8% | - Hardware revenue increase primarily due to purchases from QSR and sports/entertainment verticals, reflecting hardware bought in advance of scheduled deployments later in 2025, due to pricing uncertainty of potential tariffs[4] - Service revenue decrease primarily due to a reduction in SaaS subscription services and the Company's prior exit from media sales effective October 1, 2024[4] Gross Profit and Margin Performance Consolidated gross profit for Q2 2025 was $5.0 million, down from $6.8 million in Q2 2024, resulting in a consolidated gross margin of 38.5%, with hardware and service gross margins also declining due to product mix and reduced SaaS subscriptions, ending with an ARR run-rate of approximately $18.1 million | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Consolidated Gross Profit | $5.0M | $6.8M | -26.5% | | Consolidated Gross Margin | 38.5% | 51.8% | -13.3 pp | | Hardware Gross Margin | 25.1% | 30.1% | -5.0 pp | | Service Gross Margin | 54.4% | 65.2% | -10.8 pp | - Gross margin on hardware revenue primarily reflected product mix[5] - Gross margin on service primarily due to a reduction in SaaS subscription services and the Company's prior exit from media sales[5] - Annual Recurring Revenue (ARR) run-rate of approximately $18.1 million at the end of Q2 2025[5][9] Sales, Marketing, and G&A Expenses Sales and marketing expenses decreased to $1.2 million in Q2 2025 from $1.7 million in the prior-year period, while general and administrative expenses rose to $5.2 million from $4.5 million, though excluding stock-based compensation, G&A expenses decreased by $678 thousand due to cost containment efforts | Expense Category | Q2 2025 (in millions) | Q2 2024 (in millions) | YoY Change | | :--------------- | :-------------------- | :-------------------- | :--------- | | Sales and Marketing | $1.2 | $1.7 | -29.4% | | General and Administrative | $5.2 | $4.5 | +15.6% | - General and administrative expenses decreased by $678 thousand, excluding stock-based compensation, reflecting cost containment efforts[6] Operating and Net Income/Loss The company reported an operating loss of approximately $1.3 million in Q2 2025, a significant decline from an operating profit of $0.6 million in Q2 2024, leading to a net loss of $1.8 million, or $(0.17) per diluted share, compared to a net loss of $0.6 million, or $(0.06) per diluted share, in the prior-year period | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Operating (Loss) Income | $(1.3) | $0.6 | N/A | | Net (Loss) Income | $(1.8) | $0.6 | N/A | | Diluted EPS | $(0.17) | $(0.06) | N/A | Adjusted EBITDA Performance Adjusted EBITDA for Q2 2025 was $1.2 million, a decrease from $1.5 million in the prior-year period | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Adjusted EBITDA | $1.2 | $1.5 | -20.0% | Balance Sheet Overview Balance Sheet Highlights As of June 30, 2025, cash on hand decreased to $0.6 million from $1.0 million at year-end 2024, while outstanding debt significantly increased to $20.1 million from $13.0 million, primarily due to contingent consideration settlement, leading to higher leverage ratios | Metric | June 30, 2025 (in millions) | Dec 31, 2024 (in millions) | Change | | :----- | :-------------------------- | :------------------------- | :----- | | Cash on Hand | $0.6 | $1.0 | -$0.4M | | Outstanding Debt | $20.1 | $13.0 | +$7.1M | | Gross Leverage Ratio (TTM Adj. EBITDA) | 4.53x | 2.59x | +1.94x | | Net Leverage Ratio (TTM Adj. EBITDA) | 4.40x | 2.39x | +2.01x | - Increase in outstanding debt primarily reflects the settlement of the contingent consideration liability[10] Conference Call Information Investor Conference Call Details Creative Realities hosted a conference call on August 13, 2025, at 9:00 am Eastern Time to discuss Q2 2025 results and provide additional commentary, featuring CEO Rick Mills, CSO George Sautter, and Interim CFO Ryan Mudd, with registration available online - Conference call held on August 13, 2025, at 9:00 am ET to review Q2 2025 results and provide commentary[11] - Participants included CEO Rick Mills, CSO George Sautter, and Interim CFO Ryan Mudd[11] - Registration and webcast details provided via a specific link, with an archived edition available on the company's website[12] Non-GAAP Financial Measures Definition and Rationale Creative Realities uses non-GAAP measures like EBITDA and Adjusted EBITDA to provide additional insights into its operating performance, believing they offer a more complete understanding when coupled with GAAP results, excluding items such as interest, income taxes, depreciation, amortization, stock-based compensation, and fair value adjustments - EBITDA is defined as earnings before interest, income taxes, depreciation, and amortization of intangibles[13][24] - Adjusted EBITDA further excludes stock-based compensation, fair value adjustments, and both cash and non-cash non-recurring gains and charges[13][24] - Non-GAAP measures are used internally for planning and evaluation and are believed to offer investors a more complete view of operations, but should not be considered alternatives to GAAP measures[13][25] Adjusted EBITDA Reconciliation The reconciliation table details adjustments made to GAAP net loss to arrive at EBITDA and Adjusted EBITDA for various quarters, including Q2 2025, where a GAAP net loss of $(1,817) thousand was adjusted to reach an Adjusted EBITDA of $1,228 thousand | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Q2 2024 (in thousands) | | :----- | :--------------------- | :--------------------- | :--------------------- | | GAAP Net (Loss) Income | $(1,817) | $3,368 | $(615) | | Interest expense | $513 | $321 | $304 | | Amortization of intangible assets | $1,165 | $1,136 | $878 | | Amortization of employee share-based awards | $1,249 | $2 | $3 | | Depreciation of property & equipment | $52 | $51 | $52 | | Income tax (benefit) expense | $(26) | $99 | $25 | | EBITDA | $1,136 | $4,977 | $856 | | Adjustments (e.g., stock-based comp - Director grants) | $93 | $0 | $0 | | Adjusted EBITDA | $1,228 | $467 | $1,525 | Company Overview Business Description Creative Realities, Inc. specializes in designing, developing, and deploying digital signage-based experiences for enterprise-level networks, providing recurring SaaS and support services across diverse markets like retail, automotive, QSR, and entertainment, utilizing its CMS and programmatic advertising platforms to help clients achieve business objectives - Designs, develops, and deploys digital signage-based experiences for enterprise-level networks[14] - Provides recurring SaaS and support services across diverse vertical markets including retail, automotive, DOOH, QSR, gaming, theater, and stadium venues[14] - Utilizes CMS platforms (Clarity™, ReflectView™, iShowroom™) and programmatic advertising platforms (AdLogic™, AdLogic CPM+™) to monetize on-premise foot traffic[14] Legal & Investor Information Forward-Looking Statements Disclaimer This section serves as a disclaimer regarding forward-looking statements, which are based on management's opinions and beliefs and are subject to known and unknown risks and uncertainties, cautioning readers not to place undue reliance on these statements, and the company assumes no obligation to update or revise them, except as required by law, with key risks discussed in SEC filings - Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, assumptions, and other factors[15] - Readers should not place undue reliance upon any forward-looking statements, and the company assumes no obligation to update them except as required by law[15] - Important factors affecting actual results are discussed in the 'Risk Factors' section of the Annual Report on Form 10-K for 2024 and Quarterly Report on Form 10-Q for Q1 2025[15] Media and Investor Relations Contacts Provides contact information for media inquiries (Christina Davies) and investor relations (Chris Witty), including email addresses, phone number, and the investor relations website - Media Contact: Christina Davies (cdavies@ideagrove.com)[16] - Investor Relations Contact: Chris Witty (cwitty@darrowir.com, 646-438-9385, ir@cri.com, https://investors.cri.com/)[16](index=16&type=chunk) Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $63.7 million, a decrease from $65.2 million at December 31, 2024, with current assets decreasing, total liabilities decreasing to $34.2 million from $39.8 million due to contingent consideration settlement, and shareholders' equity increasing to $29.4 million from $25.5 million | Balance Sheet Item (in thousands) | June 30, 2025 | Dec 31, 2024 | Change | | :------------------------------ | :------------ | :----------- | :----- | | Cash and cash equivalents | $569 | $1,037 | $(468) | | Total Current Assets | $13,114 | $14,496 | $(1,382) | | Total Assets | $63,653 | $65,210 | $(1,557) | | Short-term contingent consideration | $0 | $12,815 | $(12,815) | | Revolving credit facility | $16,093 | $13,044 | $3,049 | | Long-term debt | $3,409 | $0 | $3,409 | | Total Liabilities | $34,210 | $39,750 | $(5,540) | | Total Shareholders' Equity | $29,443 | $25,460 | $3,983 | Condensed Consolidated Statements of Operations For Q2 2025, total sales were $13.0 million, with hardware sales up 40.8% and services down 26.3%, resulting in a $5.0 million gross profit and $1.3 million operating loss, leading to a $1.8 million net loss or $(0.17) diluted EPS, while the six-month period reported $1.6 million net income or $0.15 diluted EPS, primarily due to a significant gain on contingent consideration settlement | Metric (in thousands) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Total Sales | $13,030 | $13,115 | $22,764 | $25,400 | | Gross Profit | $5,017 | $6,788 | $9,470 | $12,552 | | Operating (Loss) Income | $(1,331) | $592 | $(2,053) | $516 | | Gain on settlement of contingent consideration | $0 | $0 | $(4,775) | $0 | | Net (Loss) Income | $(1,817) | $(615) | $1,551 | $(724) | | Diluted EPS | $(0.17) | $(0.06) | $0.15 | $(0.07) | - Six-month net income of $1.551 million in 2025 was significantly influenced by a $4.775 million gain on settlement of contingent consideration[20] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $0.773 million, a decrease from $4.206 million in the prior year, with investing activities using $1.264 million and financing activities providing $0.023 million, resulting in an overall decrease in cash and cash equivalents by $0.468 million, ending the period at $0.569 million | Cash Flow Activity (in thousands) | 6M 2025 | 6M 2024 | | :------------------------------ | :------ | :------ | | Net cash provided by operating activities | $773 | $4,206 | | Net cash used in investing activities | $(1,264) | $(1,495) | | Net cash provided by (used in) financing activities | $23 | $(1,535) | | Increase (decrease) in cash and cash equivalents | $(468) | $1,176 | | Cash and cash equivalents, end of period | $569 | $4,086 | - Operating cash flow decreased significantly year-over-year, despite a positive net income for the six-month period in 2025[22] - Financing activities included $18.3 million in proceeds from revolving credit facility and $15.3 million in repayments, alongside a $3.0 million settlement of contingent consideration[22]