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.

Thanks, Rick. I will now summarize our financial results for the three months ended September 30th, 2022 as compared to the same period for 2021. Regarding the 2022 results, we note that the MD&A section of our quarterly report on Form 10Q, which we filed this afternoon, provide 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 four quarters therein. Investors are encouraged to review such reports and reconciliations. With respect to revenue, gross profit, and gross margin, revenues for the three months ended September 30th, 2022 were 11.2 million, representing an increase of 6.4 million, or 135%, as compared to the same period in 2021, driven in part by the acquisition of Reflect on February 17th, 2022, and the company's successful sales activities as a combined company post-merger. During the three months ended September 30th, 2021, the pro forma combined results of CRI and Reflect produced $7.7 million in revenues. The current year combined company results for the three months ended September 30th, 2022 represented an increase of $3.5 million or 45% over the pro forma combined results for the same period in 2021. This year to date organic revenue growth rate was 53% as compared to the pro forma combined 2021 nine months ended September 30th, 2021. Hardware revenues were $5 million in the three months ended September 30, 2022, representing an increase of $2.8 million, or 126%, as compared to the prior year, driven by continued large-scale LED deployments in the quarter by multiple customers. Services and other revenues were $6.2 million in the three months ended September 30, 2022, an increase of $3.6 million, or 143%, with the inclusion of Reflex Operations in the company's consolidated results for the full reporting period. Managed services revenue, which includes both our SAS and Help Desk technical subscription services, were $3.9 million in the three months ended September 30, 2022, as compared to $1.4 million in the same period in 2021, driven by the continued expansion in our SaaS software subscription base. The long tail of hardware ultimately continues to drive these SaaS revenues higher, period over period. This represents a year-over-year growth rate of 150% in our higher margin, typically subscription-based managed services revenue. Gross profit increased by 2.2 million, or 92%, during the three months ended September 30, 2022, as compared to the same period in 2021. driven by an increase in revenue, but offset by a reduction in gross profit margin. Gross profit margin decreased to 40.4% from 49.4%, driven by less favorable revenue mix during the three months ended September 30th, 2022, related to several material customer hardware rollouts during the year that had a lower gross profit margin than our software services. We expect this contraction in gross profit margin to be less severe as we move beyond 2022. We believe the gross profit margin for the three months ended September 30th, 2021 to be more representative of our normalized long-term gross profit margins. With respect to our operating expenses, sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses increased by 388 driven primarily by the acquisition of Reflect via the merger on February 17, 2022, and our continued enhancement and investments into sales and marketing activities post-COVID-19 pandemic. Immediately following the merger with Reflect, the company integrated the sales and marketing functions and did not disaggregate expenses between the two legacy companies. Following the merger and through the integration activities, the company has adopted certain tools, technologies, and processes particularly with respect to lead generation and brand marketing, that we believe were undercapitalized historically by the company and are now paying dividends. Additionally, the company engaged an investor relations firm and has increased its IR activities, including conferences and presentations. As a result, we expect the sales and marketing expenses of the company for the three months ended September 30, 2022, to adequately reflect the pace for spend in these areas in future reporting periods. Research and development expenses generally include personnel and development tools and costs associated with the continued development of the company's content management systems and other related application development. Research and development increased by effectively 5% in the three months ended September 30, 2022, as compared to the same period in 2021. The prior year included a benefit of $50,000 related to ERC credits, resulting in a net reduction in R&D expenses year over year for the three months ended September 30th, 2022. Through the merger with Reflect, we acquired a fully staffed experienced software development team and elected to keep that team intact, particularly given employment market conditions with respect to talented software engineers. We've integrated the pre-existing CRI development team with the acquired team and have experienced enhanced speed to market on new features and functionality development activities from increasing this resource pool. Companies' gross spending on research and development activities has increased in the current year as a result. However, the capitalized portion of those activities has also increased, specifically related to the investment into development and enhancement of specific products, features, and functionality associated with our customer acquisition strategy in key vertical markets, including the specific opportunity that Rick spoke to previously. We expect an elevated level of expense throughout the remainder of 2022 and 2023 as we develop our current and future product set. General and administrative expenses increased $1 million, or 54%, driven primarily by the acquisition of Reflect in February of 2022 and the prior year inclusion of approximately $200,000 of a benefit from employee retention credits. While the company anticipates carrying higher G&A, Moving forward as a result of the acquisition and subsequent expansion in our organic revenues, the company continues to execute integration activities, including but not limited to consolidation of CMS tools, cloud hosting environment, IT tools, and rightsizing of our leases and office space that we expect to be realized by the end of 2022 and into 2023. The company has improved EBITDA margins throughout the year as a result of these integration activities. With respect to operating loss, net loss, and EBITDA, operating loss was $284,000 during the three months ended September 30, 2022, which includes $800,000 and $500,000 in non-cash charges for both the amortization of intangible assets and non-cash employee and director stock compensation, respectively. Net loss was $600,000. during the three months ended September 30, 2022, which included a $400,000 gain on marking outstanding contingent liabilities to fair value and $800,000 in interest expense, including $400,000 in amortization of debt discount included within interest expense. EBITDA was $1.5 million and adjusted EBITDA was $1.2 million for the three months ended September 30, 2022. The adjusted EBITDA margin was 11.2% during this period. One other item of note in the financials, we did have a change in the fair market value of our contingent consideration during the three months ended September 30, 2022, with a mark-to-market contingent consideration issued in the Reflect merger, which resulted in a gain of $442,000, primarily driven by an increase in interest rates and volatility in the period. This liability is associated with the company's share price and will be marked to market quarterly until final assessment on February 17th, 2025, the three-year anniversary of the Reflect merger. At this point, I'll turn the call back over to our CEO, Rick Mills.

Thanks, Will. Now that you all have the Q3 financial update, I want to take a moment, revisit our value creation points and how we are fulfilling and building on them. Point number one, grow revenue. And that's a commitment we made to our shareholders. Q3 and the year-to-date period each represent all-time records at $11.2 million and $32.9 million, respectively. Again, surpassing the previous quarterly record revenue produced in Q2 of this year. So we're gaining from quarter to quarter. We again reiterate our previously provided fiscal year 2022 guidance of at least $43 million in revenue, which does represent a 40% organic growth rate. And then today, we have announced our expectations to grow revenue at least 25% organically in 2023 and to exceed $54 million for 2023. Point number two, improved margins. Our adjusted EBITDA has risen 2.6%. SEQUENTIALLY QUARTER OVER QUARTER IN BOTH 2Q AND 3Q OF THE CURRENT YEAR, ACHIEVING 5.6% IN Q1 AND THEN GROWING THAT TO 11.2 IN THE THIRD QUARTER OF 2022. WITH OUR INCREASED REVENUE GUIDANCE ISSUE TODAY OF $54 MILLION FOR 2023 AND THE ANTICIPATED GROWTH IN OUR ARR, WE anticipate expanding our adjusted EBITDA margins to 15% in 2023. At scale, which we define as $100 million in revenue, we believe this is a 30% plus adjusted EBITDA margin business that will deliver significant free cash flow. Okay, point number three. grow annual recurring revenue, translate ARR to EBITDA, and free cash flow. We have grown our ARR from a $12 million run rate at the end of 2021 to an excess of $14.5 million as of quarter end September 30th. We remain on target to achieve our 25% growth rate to a target run rate of an excess of 15 million by the end of the year. Scaling our revenue and ARR run rate continues to translate to adjusted EBITDA at an increasingly marginal rate. Again, in 2023, we expect to exceed 15%. Point number four, pursue, review our capital stack for optimal structure and growth. As previously stated, the majority of our debt is non-amortizing for 2022. We have about a million in cash as of the end of Q3, which in addition to the $2 million loan closed in October, provides us a runway to realize the aforementioned effects to grow revenue and improve EBITDA. We will continue to evaluate our capital structure for opportunities to capture the unprecedented opportunities for growth while seeking to protect shareholder interest. Point number five, scale high-margin services and media. We have previously discussed how the company is much more than a pure play digital signage infrastructure company, especially given our expanded product set with high-margin services and media sales. This is a competitive advantage over the majority of pure infrastructure competitors for a variety of reasons. Many enterprise customers require a one-stop shop and single vendor model for their digital signage and place-based media needs, which our competition simply cannot offer. These enterprise customers require business solutions beyond a basic digital sign, And CRI provides such integrated offerings and can upsell and cross-sell other products for a competitive advantage. Given our solutions and extended capabilities, we believe the company is best viewed as a sum of highly synergistic parts well beyond hardware sales. And then finally, point number six, opportunistically pursue accretive M&A. The platform for organic growth is in place with significant prospects to scale. As we execute our plan, the company continues to evaluate opportunistic strategic plays that are accretive. I previously communicated a vision to scale the business, and our management team is focused on value creation in conjunction with this growth.

CD, I believe that's the end of our prepared remarks. We'd like to open the lines for any questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone.

And one moment for our first question.

Our first question comes from Brian Kinzinger of Alliance Global Partners. Please go ahead.

All right, great. Thanks for taking my questions. Nice results. I have a handful. The project related to the $2 million loan, I may have missed it. Can you just add a little bit more detail about this project and timing of adding that annual recurring revenue?

Yeah, Brian, this is Rick Mills. I'll take that. So it's a specific platform that we have one customer on. And the customer We have internationalized the platform, which was really what the project was all about. The customer's been on the platform in the U.S. centric for a number of years, wanted to expand and added Canada, which we had previously announced press release, and is now looking to add multiple countries around the globe and go global with the project. We believe we will be releasing the finished product in May of 2023, which there'll be some user testing around the world, et cetera. But in the fall of 2023, we expect to be signing up new subscriptions for other countries that will adopt it wholesale. And we expect those countries to bring additional SAS revenue starting January 1, 2024. We may get some on at the end of Q3. 2023, but we want to be conservative, so we're assuming that the revenue increase will occur in early 2024.

And when is the debt due, the $2 million?

The debt amortizes over the next year, so it will close by the end of September 2023. And we looked at this as an incremental bridge between the material annual SAS billings that we have at the beginning of the year. The Reflex structure was much more annual-billed SAS up front. The CRI model has been monthly and quarterly. So that's the position.

Great.

Great. Yeah.

And then can you comment on two things? First, the FREDI's contract, as well as the amusement park systems upgrade. Is there a major contribution this quarter from both? And maybe talk about the expectations of a ramp in the case of Freddy's or the cadence as it relates to the amusement parks over the next few quarters.

I'll take the first piece of that. There was about a million dollars of revenue in the quarter from incremental theme park customer activities. We expect that to probably increase in 2023. Fourth quarter tends to be a little bit slower for those folks, but there was about a million added in the current year. Rick, do you want to comment to the go forward on the Freddie side in 2023?

Yeah, I'm happy to. So the Freddies, they have adopted, as we announced, they have adopted our drive-through. And so it's easy to say that in 2023, will be our largest revenue year with Freddy's by a long shot. We have a double-digit number of drive-throughs on order and anticipate, of course that follows a construction schedule, but right now we believe we have 50 to 60 drive-throughs on the upgrade path over the next 12 to 18 months. And to put that in perspective, Brian, just as a ballpark, that in itself is 2 million worth of revenue, something like that. And then plus you add all the inside work and Freddie's is continuing to grow. Hope that answers the question.

Very helpful. And then as it relates to the customer you can't name that you're set to hopefully win and sign a contract with, I think we shouldn't assume that begins ramping until around the second quarter. And then is there any way to size that? Is it bigger than Freddie's? Is it about the same size? How should we think about that?

That's a great comment or great question, Brian. I can tell you how we look at it as the company. Based upon the preliminary discussions with them and the RFP process and what they ask us, we believe the revenue opportunity is between 30 and 40 million over the next two years. So it is significantly larger. This is one of the top five fast casual chains in the nation, maybe top 10, certainly with over 2,000 locations, and over 1,000 of those will contain drive-thrus. So the drive-thru revenue alone is north of 30 million. Oh, that's great. We're really, really excited about it. We are converting the proof of concept stores. They're all being converted as we speak. Will Logan and his team are working on the statement of work and the contract with the customer. We expect those to be executed certainly pre-Christmas, if not post-Christmas. And we look forward to a strong start in 2023.

And Brian, I think your assumptions on timing are correct. We believe that this would begin in earnest in 2Q.

That's fantastic. I have one more question. I'll get back into 2Q in case others have. In terms of challenges with all of this going on, can you talk about your ability to source media players? And if it remains a challenge, and I know it's been somewhat in the last quarter or so or two, Are there alternative suppliers you can work with to make sure you can meet the surge in demand?

Yeah, there's alternative suppliers, number one. However, on a hardware-based media player, we've standardized and we have really two form factors. One is a company called BrightSign, which is also transitioning its product line. So, They have some sourcing issues or supply chain challenges, but they're also switching product line. The new product line will be fully introduced and fully available in March of 2023. We see no obstacles between now and March that we can't overcome. We also, a number of our deployments use a software base. player, if you will, or SOC, system on a chip. And so Freddy's and our other QSR significant customer that we've just talked about both use SOC, software on a chip, so there will be no supply issues there.

Great. I have another question or two, but I'll see if others have, and I'll get back in the queue. Thank you.

Sure. Sure. Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. And one moment for our next question. Our next question comes from Howard Halfburn of Taglik Brothers. Please go ahead.

Congratulations, guys. Great quarter. Thanks, Howard.

Thanks, Howard. How are you?

Okay, I'm doing well. And my question is in terms of the advertising now piece of the business, which you're starting to ramp. What is the current pipeline or backlog that you see going forward on the existing screens that you have?

That business is, you know, we acquired that as part of Reflect. We have now evaluated, we've retooled it, we've added additional resources to it as we come into 2023. We expect some growth in 2023, Howard, but in all honesty, we expect moderate growth in 2023. Where we expect significant growth is in 2024 because you need to invest six to eight months in advance because In the summer of 2023, we will be selling 2024 contracts. So today our media business is maybe $3 million, $3.5 million a year. Ballpark is somewhere in there. But we expect that to explode in 2024. So we're making significant investments now that will be ready for 2024. Okay.

Are you seeing any kind of maybe tuck-in acquisition opportunities to help advance the growth in that particular segment?

I would not call them additional tuck-in acquisition opportunities. That's really about finding the right, quote, employees, sales staff, and also the right partners. And so we've expanded our contractor relationship and partner relationship to drive results in that area. Now, if a tuck-in acquisition came along with four, five, six million in media sales, we'd jump on it. But today, currently none in our active pipeline.

Okay. And since I'm still relatively new, to this story, is there any sequential seasonality between the third and the fourth quarter in terms of, I guess, I guess it would be more in terms of the hardware deployments that would occur?

Yeah, Howard, I think historically on the retail side of the house, there has been a bit of a moratorium in certain areas through the holiday season. So post Thanksgiving into Christmas, there is significantly less installation activity. As we've grown and scaled, we haven't seen as material of an impact in that regard, but it is still there. There is still some.

Okay. And, Howard, I would add on, too. I mean, if you think about it, between Thanksgiving and Christmas and New Year's, life gets busy for a whole lot of people, including our customers. Just generally speaking, I probably don't install quite as many C-stores. I probably won't install quite as many bowling alleys, right? Just stuff like that just gets in because people are on vacation. That's all.

Okay. And just one last one with, you know, what you taught, what Will talked about in his prepared remarks about gross margin. is what's gonna also help gross margin on your new large contract. You just talked about the software on a chip. Is that something that will help in the initial deployment phase will also help gross margin out as we look at 2023?

Yeah, that tends to mean that there is less hardware in the transaction in aggregate, right? It takes a component out of play. So, yes, generally speaking, that drives the percentage of hardware as a total of the sale lower, improves the mix, and improves the margin.

Okay. Well, thanks, guys, and keep up the great work.

Thanks, Howard. Thank you, Howard.

Thank you. One moment for our next question. And our next question is a follow-up from Brian Kingslinger of Alliance Global Partners. Please go ahead.

Mr. Kingslinger, the line is open. Mr. Kingslinger, if you're muted, please unmute. One moment for our next question. And our next question is from Jack Frid, and he is a private investor.

Please proceed.

Great quarter, Rick and Will. Anything on the acquisition side? Can you give us any update on that?

We could spend the day talking about it. So let's just say this. We have a very, very active pipeline of companies that we are in discussions with. You know, CRI is kind of winning everywhere in the marketplace. People want to align themselves with winners. A lot of the marketplace now CRI is truly being one of the real enterprise suppliers across the North America. So a lot of interest. Our challenge today simply is a reflection of our share price. Our market cap today is really disconnected from the true intrinsic value of the company, right? So we're looking at buying companies, you know, 10%, 15% of our size, and to buy them the market cap, the dollar amount we have to pay, darn near equals our entire market cap as a company today. So there's just a disconnect, and as that disconnect improves, expect us to be more active with accretive transactions only?

Yeah, Jack, I would add that the volume of activity in the markets and in our industry remains high. There are several companies out there seeking potential partners, and we have not seen the impact in pricing that the public markets have seen. Most of these are private transactions, right? We don't have many peer public companies. And we've seen the dislocation even between what the public markets are doing and what the private transaction market is doing. So we continue to evaluate.

Well, thank you, and keep it going. Great quarter. Thanks, Jack.

Thank you.

Thank you. One moment for our next question. And our next question, we have a follow-up, again, from Brian Kinnesinger of Alliance Global Partners. Please go ahead.

Oh, good. Okay. Yeah, so I apologize. I don't know why I wasn't on mute, but can you talk about the services margin, why it was low in the third quarter compared to historical, how that bounces back, and then On the hardware margin, it improved, but with the easing of supply chain and the lower international freight costs that most companies are seeing right now, should we see improvement there as well?

So two components there, right? I think that the hardware side of the house, we expect to continue to stay relatively consistent in the low 20s. 18 to 22 tends to be the sweet spot. There are certainly transactions above or below that, depending on the scale. The freight market has not typically moved our margins materially, given the way that we purchase just-in-time and then also sell through on a just-in-time basis for the vast majority of the transactions. On the services side of the house, We continue, as Rick mentioned, on the media side, while it's still a smaller component of our revenue, that's grown in the third quarter and will in the fourth quarter as well. We still have some legacy contracts that we're working to evaluate, renew, and alter some of the economics. They're not exactly where we think they should be in the long term from those inherited contracts. So we'll see a little bit of lumpiness on that side, depending on how large the media revenues are in a given quarter. Those are the two kind of main things in 3Q, but expect that to right size moving into 2023 as we renew contracts and alter economics.

Sorry, just to be clear, the third quarter services margin was down because you had more I was confused by the third.

Yeah, we had an increased percentage of media revenues, Brian, which, given the customer that they came from in the current quarter, had some downward pressure on the margin. Okay.

We shouldn't think about that going forward in the 50s if you get back to the 60s.

I believe that is correct.

Great. Okay. Thank you so much. Yeah, absolutely.

Thank you.

One moment for our next question. Our next question comes from Shervin Zand of Alliance Global.

Please go ahead.

I couldn't take myself off the queue. I don't have any more questions.

Thank you. That completes the questions from the line today. Mr. Logan, are there any additional inquiries from the investor relations inbox that you would like to address?

Sure. It looked like we had just two quick ones. The first question was with respect to kind of the market cap of the company and the dynamics at play, have we received inquiries or are people reaching out with respect to the acquisition of CRI? You know, I think as everybody is aware on this call, the equity markets have been very challenging throughout 2022, seeing significantly reduced valuations. We're a nano-cap company. We're a tech company. Both have been challenged in the current year. We continue to believe that the public markets are not properly valuing our equity despite our growth and our efforts to educate the market on the true value of the company. In our specific industry, we've seen a lot of companies pursuing combination other M&A strategies. As we've disclosed in our own public filings with the SEC, we want to be a part of the consolidation efforts. At this time, CRI has not received any offers or overtures with respect to an acquisition of our business, but I think in part that's because we've posited ourselves as an enterprise player that wants to be an acquirer. The only other question that's come in, you know, we previously, I think probably about 12 months ago, had talked about an award-winning deployment with a customer, Petco, and whether there were any specific plans around that customer to deploy further. I think, as with any customer where we've done a proof of concept and we've been successful, we push those customers as hard as we can. We're working with them as a strategic advisor. trying to translate that POC into a national rollout. We're still the sole provider of choice. There's nothing else going on on that front. But at the current moment, no announced plans for a further expansion of that program. It remains in the pipeline, and we continue to work it, but nothing specific at this time.

This is Rick. I'll just add on to that. We've had discussions about potentially a flagship New York City location. They're considering it, but at this time have not made a decision to move forward. And we have a strong partnership on that account with Samsung, who is our partner at Petco.

So those are all the questions from the IR inbox. Let me conclude the call by thanking all of our shareholders, clients, partners, and employees for their continuing efforts, commitment, and support as we work together to transform CRI into the leading brand in digital signage solutions. This concludes the CRI 2022 third quarter earnings call.

This concludes today's conference call. Thank you for participating and you may now disconnect.