Creative Realities, Inc.

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 following the completion of the call. The company has prepared remarks summarizing the interim results along with additional industry and company updates. Joining me on the call today is Rick Mills, CEO, and Will Logan, CFO. Thank you very much. Mr. Logan, you may begin.

Thank you and good morning. This is Will Logan, Chief Financial Officer of Creative Realities, Inc. Welcome to our financial results and earnings call for the three and six months into June 30th, 2023. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. The words anticipated, will, believes, expects, intends, plans, estimates, projects, 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 filed with the SEC earlier today. August 3, 2023, and in our annual report on Form 10-K, filed with the SEC on March 30, 2023. 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 will 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, Inc.

Thanks, Will. Good morning, everybody. Thanks for joining the call. In addition to discussing our second quarter 2023 results, we will cover some important updates and new developments. So let's jump into it. I am pleased to report Q2 2023 revenues of $9.2 million with gross profit of $4.3 million. Our gross profit margin for the second quarter came in at 46.7%. That's a 400% basis point improvement over last year and building on improved profitability in the year over year in the first quarter. This brings the year-to-date gross margin percentage to 49% on a gross profit for the first six months of the year of $9.4 million, both CRI records. On a year-to-date basis, our gross margin percentage has increased by nearly 1,000 basis points. owing to the revenue mix shifting towards SAS and other higher margin services, along with an approximately 600 basis point improvement in hardware margins owing to continued economies of scale. We believe our second quarter results continue to demonstrate the ongoing growth in our revenue as this is the sixth quarter. consecutive quarter for which revenues have approximated or exceeded 9 million benefiting in large part from the expansion in our annual recurring revenue run rate which is now at a record of 15.2 million and continuing to grow this stability within our business is important as it highlights the reduction in reliance on any single individual customer to perform large-scale hardware deployments or refresh activities to produce revenue and profitability. This reduces risk with respect to customer concentration and enhances our operating leverage. As our ARR is approaching a level where it covers our operating expenses, we project significant improvements in our adjusted EBITDA margins as every new dollar flows through to the bottom line at higher, more favorable margins. While the current quarter revenue is within the range of our prior expectations, we had approximately $2 million in revenue shift from the second quarter into the back half of the year as a result of an unexpected supply chain challenge for certain route switch equipment that has been procured and delivered by a third party. This supply chain issue, which has been alleviated in full in the third quarter, delayed the start for the deployment of the bowling project from April of this year to August of this year. and will affect the timing of revenue recognition for this project. This delay will cause some revenue recognition to shift what was projected in the third quarter to the fourth in 2023, and then possibly shift additional revenue from the fourth quarter to the first quarter in 2024 as we attempt to catch up to the installation schedule. Importantly, understand this revenue has not vanished. It is just experiencing a shift in timing. This revenue will be realized and we continue to project a significant change in our run rate revenue on a go-forward basis, beginning in the third quarter. With an increasing effect in subsequent quarters, thereafter for the foreseeable future. The company expects to generate between $60 and $80 million in revenue for the next 12-month period, beginning in third quarter of 2023, but expects that generating an $80 million run rate may take an additional quarter or two as a result of the third-party supply chain delays that have been recently resolved. Our pipeline continues to strengthen, and our backlog remains steady at $110 million. As a reminder, our calculation is comprised of the anticipated rollout of projects as indicated by our current customers under contract and include all revenues that would be received by the company by deploying the projects and services necessary to service such projects. and includes projected revenues that are not currently subject to binding purchase orders or commitments. The backlog also has no timeline and includes projects that may be realized, if at all, in the near future or a much later date. Revenue growth continues to be driven by the fastest rate of new customer acquisition that the company has experienced during my tenure with CRI. We are experiencing wins in CRA key verticals, including retail, digital out-of-home ad networks, food service, sports and entertainment venues, and media contracts. As noted in the press release, our RFP win percentage approximates 70% over the past 12 months. CRI's presence in the market is widely acknowledged by vendors and customers, and we experience inbound sales referrals and or inquiries on a weekly basis. For context, there has been a 300% increase in the past six months. These inbound referrals and inquiries are coming from both vendors who recognize that CRI is the best partner for signage solutions today, and direct inbound from end user customers. We are actively competing in a significant number of new customer engagements for which an award of business is currently pending and our pipeline has never been stronger. Our vendor partnerships continue to expand. Samsung recently recognized CRI as its 2022 Gold Partner of the Year. marking the second year in a row that CRI has received this award from Samsung. Finally, I want to be very clear and explicit. CRI is not a $40 million revenue company moving forward. On a go-forward 12-month basis, we project between $60 to $80 million in revenue, and both digital signage as an industry and CRI as a company have tremendous tailwinds. This revenue expansion will have a profound effect upon continued improvements in profitability and is working in parallel with paying down our debt. The compound effect of revenue increases, profitability improvements, and reduced debt translates to significant improvements in free cash flow for 2024 as we grow into an optimal leverage ratio and capital structure. We have terrific momentum in the business and are seeing productivity from our business strategy. We continue to win in the market with a corresponding reduction in the timeline to new customer acquisitions and believe the company is uniquely situated to exploit the tremendous growth and opportunity in the industry. I will now turn it back over to Will for a few notes on our business activities.