Creative Realities, Inc.

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 company's website at CRI.com following the completion of the call. The company has prepared remarks summarizing the third quarter results along with the additional industry and company updates. Joining me on the call today are Rick Mills, CEO, and Will Logan, CFO. Thank you very much. Mr. Logan, you may begin.

Thanks, DeeDee. Good morning. This is Will Logan, Chief Financial Officer of Creative Realities. Welcome to our financial results and earnings call for the three and nine months ended September 30, 2022. 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, project, should, may, propose, and similar expressions of 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 at 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 and in our earnings release that was released this morning. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities.

Thanks, Will. Good morning, everybody. I want to start this call with a shout out to all the CRI employees. Wow, what a great quarter. I am pleased to announce our Q3 2022 results and our continued progress towards our goals this year. Let's start with a focus on three key points. Number one, we had record revenue of $11.2 million during Q3. That represents an increase of $6.4 million or 135% year over year. Our year-to-date revenue is $32.9 million, which is also a record for nine months ended September 30th and represents an increase of 152% year-over-year. Our year-to-date revenue eclipses our pre-pandemic 2019 full year of 31.6, which was then a record for the company. But now we've exceeded that in just the first nine months of 2022. The combined company has grown organically greater than 50% as compared to the pro forma results of the combined company through September 30th, 2021. The results are in line with our previously stated target of achieving at least 43 million of revenue in the current year. a 40% organic growth rate from the pro forma combined company results in 2021. Again, let me state that again. Our year-over-year organic growth rate exceeds 40%, inclusive of the prior year with reflect results included. Point number two, EBITDA and adjusted EBITDA for the third quarter of 2022 was $1.5 million, and $1.2 million respectively, improving our adjusted EBITDA margin from 8.5% in Q2 to 11.2% in Q3, bringing our year-to-date adjusted EBITDA for the nine months ended September 30, 2022, to 8.6%. EBITDA and adjusted EBITDA results are also a 194% and 328% improvement over the same period in 2021. On a year-to-date basis through the end of September, the adjusted EBITDA of 2.8 million is a 131% improvement over the same period in 2021. As discussed on our prior call, we expect to continue to drive improvements in adjusted EBITDA and adjusted EBITDA margins as we scale this business and complete the integration of Reflect. Point number three, the key strategic initiative of this management team remains growing our annual recurring revenue, or ARR, which is primarily comprised of software as a service, or SaaS subscriptions, to our enterprise grade software solutions. Our stated goal entering 2022 was to increase our ARR run rate by 25%. From 12 million on a pro forma consolidated basis for CRI and Reflect exiting 2021 to 15 million entering 2023. Through the September 30th, We have grown our ARR run rate to be in excess of 14.5 million, and we remain on track to achieve the growth targeted for the current year based on known and expected commitments anticipated for the fourth quarter of 2022. We will get into the Q3 results in more detail, but before I do, I want to speak on a few important events for the company. The bowling transaction. We've talked about this in the past, and we have received an anticipated deployment schedule from the customer and are in process today of updating the final pricing and contract. This has been a three-year journey, and the customer has reconfirmed its commitment to CRI as its vendor of choice and has provided a preliminary deployment schedule beginning in Q2 next year. Stay tuned for a press release with more information, but we anticipate to execute an agreement in the fourth quarter and begin deployment in 2Q of 2023. Let's also talk about RFP activity. CRI continues to win in the market. have been actively engaged in a number of RFP processes over the past quarter, many for nationally known venues, brands, and or chains. During the third quarter, we competed in an RFP process for a national QSR chain, and were recently informed that we were selected as the go-forward digital signage provider for the chain. The ultimate scope of work, scale of the deployment, and timing remain subject to active discussions with the customer, but we anticipate this will be announced prior to filing our annual financial statements and that this will be a significant win for our company and our shareholders. We are currently prohibited from naming the customer, but are working through the legal and marketing processes in an effort to jointly announce. Bridge loans. I want to take a moment to address the additional debt transaction announced on October 31st. We borrowed $2 million on a short-term amortizing loan from our current lender. The company was afforded an opportunity to accelerate a material software development project for which there is currently pent-up unaddressed demand in the market with an existing customer. We believe the opportunity represents incremental SaaS-based software subscription revenues in excess of $5 million annually. In Q1 of 2023, the company expects to collect $5 million of its annual SaaS billings, which we anticipate will solve for these short-term incremental investments. However, we wanted to accelerate the development project and we borrowed funds with full anticipation we will repay this loan in the short term. Given the unreasonably low share price, we did not believe it was appropriate to sell equity to capture this significant opportunity. We anticipate material increases in our ARR from this existing customer beginning in January of 2024. And finally, 2023 guidance. We have completed our initial 2023 budget process and are pleased to announce our 2023 revenue and adjusted EBITDA targets or guidance. Based on known and anticipated customer commitments for the coming year, we are increasing our previously communicated revenue target to $54 million, representing a 25% organic growth rate, incremental to the 40% organic growth rate we have achieved in 2022. With the expected integration savings and increases in ARR, we expect adjusted EBITDA to grow to 15% in 2023. As you can see from these announcements, Creative Realities is well positioned to exploit high growth opportunities in the marketplace. Now for the full Q3 2022 review, I will turn it back to Will Logan.