Financial Data and Key Metrics - Operating income for 2023 was $1.3 million, marking the first time the company achieved a positive annual result [6] - Adjusted EBITDA reached an all-time annual record of $5.1 million, representing 11.2% of revenue [6][7] - Annual Recurring Revenue (ARR) grew to a record $16.3 million run rate exiting 2023 [7] - Cash on hand as of December 31, 2023, was approximately $2.9 million [8] - Net debt reduced to $12.2 million as of December 31, 2023, down from $19 million at the end of 2022 [9] - Leverage ratio improved to 2.7 times on gross debt and 1.9 times on net debt, down from 5.4 and 5.0 times respectively at the end of 2022 [14] Business Line Data and Key Metrics - The company performed eight installations in 2023 at an average sale price of $27,000 per location [16] - Q1 2024 is expected to see 50 to 60 installations, with acceleration throughout Q2 and Q3 [16] - The new retail media network secured another customer in the financial sector, chosen as their deployment partner [16] - Starlite Media is transitioning from static to digital, with several hundred locations expected to convert or add digital displays every quarter through 2024 and 2025 [17] Market Data and Key Metrics - The company projects 20% to 40% revenue growth for each year-over-year quarter in 2024, accounting for seasonality [12] - The company's debt stood at approximately $14 million as of the call date, down $2 million since the start of the year [14] - The leverage ratio improved to 2.4 times on trailing 12-month adjusted EBITDA by the end of 2023 [28] Company Strategy and Industry Competition - The company is at an inflection point where new revenue is coming with improved margins, benefiting from operating leverage [13] - The company is focusing on strengthening its balance sheet by increasing revenue, improving profitability, and managing debt leverage [27] - The company competes with STRATACACHE and Coates in the digital signage market, particularly in the QSR industry [42] Management Commentary on Operating Environment and Future Outlook - Management believes the risk profile of the company has substantially improved and will continue to do so throughout 2024 [10] - The company is increasing its 2024 guidance for exit run rate ARR on SaaS-based subscription license revenue from $18 million to $20 million [34] - Management expects to continue paying down debt, deleveraging the company, and strengthening the balance sheet in 2024 [35] Other Important Information - The company modified its accounting for media sales to be recorded at net rather than gross beginning in Q4 2023, which will continue to affect revenue recognition [10] - The company launched a channel program on February 1, 2024, and is already approaching 100 licenses [36] - The company is transitioning to a comprehensive company-wide ERP solution, with the first departments expected to come online in Q2 2024 [18] Q&A Session Summary Question: Backlog and Opportunities - The backlog has remained relatively flat, with 18 to 24 months of revenue in the pipeline [40] - The company expects the backlog to change over the next two quarters as they close significant opportunities [40] Question: Drive-Thru Success and Brand Awareness - The company's success in drive-thru upgrades has led to greater brand awareness and more enterprises looking to work with them [59] - The company is now included in conversations with midsize and large QSR brands evaluating drive-thru solutions [59] Question: Gross Margin Dynamics - Gross margin percentages on hardware and services in Q4 2023 were affected by cleanup in gross-to-net accounting, particularly with media sales [81] - Full-year figures are a better proxy for gross margins, with hardware typically in the low-20s and services in the low-60s [82] Question: Channel Partner Program Feedback - The channel partner program has received positive feedback, with 100 licenses already secured [67] - The company expects the program to grow quickly, driven by higher-margin SaaS revenue [67] Question: New Opportunities in Convenience Stores and Supermarkets - QSR remains a hot market, particularly for digital drive-thru solutions [71] - Supermarkets are exploring whole-store ecosystems with digital advertising, menu boards, and wayfinding solutions [72] Question: IceBox Media and Black Rifle Deals - IceBox Media is a digital advertising network with limited hardware and a focus on software [74] - The Black Rifle deal involves converting existing digital signage to the company's software platform, with potential for significant scale [92] Question: Software Pricing and Growth - The company is increasing software pricing for new customers and renegotiating existing contracts to drive growth [94] - New customers are being added at higher prices per endpoint, contributing to an increase in average SaaS revenue [102]
Creative Realities(CREX) - 2023 Q4 - Earnings Call Transcript