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spk01: At this time, I'd like to welcome everyone to the Creative Realities 2024 Second 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 interim results of the first quarter, along with additional industry and company updates. Joining me on the call today is Rick Mills, CEO, and Will Logan, CFO. Mr. Logan, you may begin.
spk07: Thank you, and good morning, everyone. Welcome to our earnings call for the second quarter ended June 30, 2024. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. The words anticipates, will, believes, expects, intends, plans, estimates, projects, should, may, propose, and similar expressions or 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 Form 10-Q filed with the SEC this morning, August 14, 2024, and in our annual report on Form 10-K filed with the SEC. 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 issued this morning. We believe the use of certain non-GAAP measures, such as adjusted EBITDA and several other important KPIs, represent meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities.
spk08: Thanks, Will, and good morning, everybody. Thank you for joining this earnings call. Once again, we posted record quarterly results. In fact, this is the fourth consecutive quarter for which we have posted record quarterly revenues. Midway through fiscal 2024, we continue on a path towards our best year ever. With that said, I'm pleased to report the following results for the quarter. Record second quarter revenue of $13.1 million, up 43% from 9.2 million in the prior year. Record second quarter gross profit of 6.8 million, up from 4.3 million in 2023. Record second quarter adjusted EBITDA of approximately 1.5 million against 0.3 million last year. And finally, annual recurring revenue or ARR at an annual run rate of 18 million. We continue to make significant progress through the first two quarters of fiscal 2024 with strong revenue growth and improving margins. Most importantly, the rest of the year also remains encouraging with an active pipeline of opportunities being pursued to continue our growth. We're on track to deliver record results for the full year. Our Q2 revenue growth was up significantly over 2023 levels and also increased sequentially over the first quarter. While revenue can be lumpy at times, quarter to quarter, as a result of deployment timing, The long-term future remains bright for fiscal 2024 and beyond. Demand remains strong across all parts of the business, particularly for our quick-serve restaurant vertical, which includes digital menu boards and our drive-through solutions, our sports entertainment segments also. Our consolidated gross margin rose to 51.8% versus 46.7% in the fiscal 2023 second quarter. This largely reflects improved economies of scale and a stable pricing environment. We believe this enhanced margin trend will continue for the remainder of fiscal 2023. As I previously stated at the end of the second quarter, our ARR has grown to an all-time high of approximately 18 million on an annual run rate basis, and we remain on track to exit the current year with ARR of approximately 20 million. As we have stated in the past, We consider this a key metric as it provides visibility into our growth and profitability going forward, as well as underscoring the trust our customers place in the company's superior solutions. I want to take a brief moment to discuss our debt refinancing, which we completed at the end of May. we have secured a conventional $22.1 million senior revolving credit facility with the potential for an additional $5 million accordion. Utilizing this credit facility, we paid off $13.6 million of prior indebtedness that was scheduled to mature in February of 2025. This is a significant achievement for the company. By shifting our debt from short-term to long-term in nature, we improved our working capital, bolstered our excess to strategic capital, while adding increased financial flexibility, as well as the potential for reduced cash interest expense going forward. Working in tandem, With our disciplined approach to de-lever the company over this past year, we now have capacity to accelerate the pursuit of strategic alternatives and growth initiatives with a more favorable capital structure. Once again, we'd like to thank our prior creditor, Slipstream Communications, and its parent company, Pegasus Capital Advisors, for supporting our vision as lender and continuing as a shareholder to build a leading digital signage and digital media platform. I'll now turn it over to Will to share some additional comments on our financials. Will, back to you.
spk07: Thank you, Rick. An overview of our financial results for the second quarter of 2024 was provided in our earnings release and form 10Q filed this morning, which included the condensed consolidated balance sheet as of June 30th, 2024, the statement of operations and the statement of cash flows for the three and six months ended June 30th, 2024, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended June 30th, 2024 and the proceeding four quarters. I'm pleased with our progress halfway through fiscal 2024. particularly having completed our refinancing. As Rick mentioned, the senior revolving credit facility enhances financial flexibility and supports our growth trajectory. We remain committed to finishing the year with record results while continuing to evaluate our capital structure and strategic priorities. Now, a couple of additional points of context related to our balance sheet. Cash. As of June 30, 2024, the company had cash on hand of approximately $4.1 million versus $2.9 million at the end of 2023, even as we reduced our overall indebtedness by approximately $1.3 million since the start of the year. Moving forward, our consolidated balance sheet will reflect minimal cash on hand as the company has set up a sweep instrument to apply cash against the revolving debt facility to further manage our interest expense. For debt, our growth and net debt stood at approximately $13.8 million and $9.8 million, respectively, at the end of the second quarter as compared to $15.1 million and $12.2 million, respectively, at the start of 2024. On a trailing 12-month basis utilizing adjusted EBITDA, the leverage ratio on gross and net basis were 2.25 and 1.58, respectively, as of June 30, 2024, versus 2.97 and 2.40 at the beginning of the year. While our leverage ratio can change quarter to quarter in line with working capital needs and cash flow generation, We believe the overall trends will continue to move in the right direction, and we remain dedicated to managing our debt as we continue to evaluate and migrate to an optimized capital structure in support of growth. Operationally this quarter, we launched and transitioned to NetSuite ERP in July, as anticipated. This is already providing enhanced visibility into managing our business from new prospecting opportunities through invoicing, and we anticipate iterating on our implementation throughout the second half of 2024. This will allow us to further improve our processes and streamline our operations to drive efficiencies in 2025 and beyond, setting the company up for continued expansion and scaling. I'll turn it back to Rick for additional comments on our results and customer activities. Thanks, Will.
spk08: I'd like to add a few additional updates on customer and operational activities. But first, I want to say a few words about Dave Petrasig, who passed away suddenly in July. While most of our investors likely did not know Dave, Dave has been a pivotal member of the team operating as our director of channel sales. He brought a vigor and passion to the job, and the success of the launch of our channel program owes much to Dave's knowledge and drive to succeed. He is missed and will always be remembered by the folks here at CRI. Now, turning to our markets, late summer and early fall represent the busy season for our stadium, venue, and arena customers. The post-season for sports teams operating in these facilities have ended, and there is a rush by customers to launch projects and have them completed prior to the start of the following season. A tight window given the scale of these types of projects. We have continued to expand our presence in this market and have a growing reputation as a provider of choice for IPTV solutions and integrated digital menu board screens, bringing a single provider approach which is resonating across the board. We have established a strong partnership with the industry-leading hardware manufacturers in this space and are working closely on end customer engagements. In the past two weeks, we have received orders from three different sports venues for immediate delivery representing approximately $3 million of revenue that will be delivered over the balance of this year. We expect additional orders in the coming weeks, as CRI is a known quantity in this space and has tremendous momentum. With regard to BCTV, this project continues to move forward, crossing the threshold of 100 total installations during the second quarter. Many of the engagement-specific and market constraints that have slowed this deployment are beginning to subside. We completed 56 site installations in the second quarter at an average sales price of $27,500 per location, and we expect this number to increase moderately on a sequential quarter-over-quarter basis. During the quarter, we were thrilled to announce the hiring of David Schultz as our Vice President, New Business Development. David brings over 25 years of experience in sales and business development, notably having held leadership roles at Cisco Systems, AppSpace, and most recently with Stratacash, the largest company in our industry. A veteran in the digital signage space, David has a proven track record of implementing strategies that drive revenue growth, the conversion of new logos, and generating customer demand. His leadership managing large teams and developing enterprise-level strategies underscore his ability to navigate a complex sales environment, and finally, deliver results. David has hit the ground running with our team and is already making an impact in further developing and building our lead flow. Another addition to our team, we recently announced a strategic expansion into Mexico along with the appointment of Julian Arcilia to manage our immediate opportunities in Mexico. This move marks a significant development for us in the fast-growing digital signage market in Mexico. As we enhance our presence in this region and further strengthen our footprint across North America, we have immediate opportunities to expand via both existing US-based customers and partner relationships that are driving our entry into this market. With increasing inquiries from customers about our capabilities in Mexico, the decision to expand was driven by market demand as well as the immense growth opportunities within the region. Finally, and lastly, CRI was added as a member of the Russell Microcap Index effective July 1, 2024, as part of the Russell Annual Index Reconstitution. The Russell Reconstitution captures the 4,000 largest U.S. stocks as of Tuesday, April 30th, ranking them by total market capitalization. Membership in the Russell Microcap Index, which remains in place for one year means automatic inclusion in a number of appropriate growth and value style indices. A couple of other noteworthy items. We're scheduled to meet investors at several events in the coming quarters. This includes the SEMCO Capital Dinner in Chicago later on this week, LD Micro Conference in LA during late October, And finally, the Craig Hollam Conference in New York in the middle of November, following issuance of our third quarter results. We're excited to meet with new existing institutional investors to broaden our audience and help drive shareholder interest in the company's growth story. We look forward to meeting some or all of you at these events. With that, we'll now move to the Q&A portion of the call. Please go ahead, operator.
spk01: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. One moment for our first question. Our first question comes from Brian Kinslinger with Alliance Global Partners. Morning, guys.
spk05: Nice results. Hello?
spk08: Hey, Brian, how are you?
spk05: Good morning. Nice results, especially on the bottom line. Thank you. Assuming it's unchanged, can you remind us your revenue guidance and then talk about any insights to seasonality or things management knows about timing of deliveries over the next two quarters, so how we could think about maybe your thinking about the ramp?
spk08: Yeah, Brian, I would tell you, as we have stated previously, we believe on a quarter to quarter basis, we're going to exceed the prior year 20 to 40% every quarter. We expect to continue that throughout the year here. So very comfortable with that.
spk05: Okay. And is there, given the holiday season, given the sports, you know, NFL starting and maybe installs some other sports. Is there a way to think about the lumpiness of the third versus the fourth quarter and which might be more seasonally strong?
spk08: You know, to be honest, I expect them both to be right in the vein, as we've previously discussed, the 20 to 40%. The reason is Q3 is going to be relatively strong just because we're busy the entire quarter. You don't have construction delays, weather delays. the stuff that maybe hits you a little bit in the first quarter and some in the second. You just don't experience that in the third quarter. Fourth quarter, you have a moratorium as you get towards Thanksgiving, so activity is less. However, that is often offset by some companies have a little bit of budget left at year end, and then they want to go ahead and spend that extra money They take title to the equipment and we may do deliveries in January, February. So that always seems to offset it.
spk05: And then you had a press release this quarter about entering into Latin America. Maybe talk about if you have any anchor clients that are helping you more seamlessly enter this market and maybe talk about the market opportunity as well.
spk08: Okay, the market opportunity there is relatively significant. We've had a lot of companies as well, first off, as you know, Brian, we are already in Canada, and have a presence there had a presence there for years and etc. But our clients also asked us about Mexico. So that way, they've got one footprint over North America. So We continue to get asked that question, and that's the reason that we've really expanded. The focus is really on Mexico to launch LATAM, so think of it as Mexico specifically, number one. Number two, the quickest area of entry and where we see the largest possibility is in the C-Store environment and QSR. Our technology is far superior. and that seems to be an area where a lot of hands are raised. Come talk to me about what you're doing. So, we'll see. Nothing to announce yet, but the initial response to us putting somebody on the ground in there is very positive, and we're excited about it as we move into 2025.
spk07: Yeah, Brian, I would add that we're really taking a partner and existing client approach initially, right, to going into the country as opposed to a shotgun scattered approach to just entering the market. We've got some relationships pre-existing in the U.S. that are driving that activity into the country.
spk05: Great. It wouldn't be a call if I didn't ask about BCTV. So it's great to hear The pace of installations is picking up a little bit. And it sounds, if I heard your comments right, it should be similar or increase in the third and fourth quarter. Can you talk about some of the constraints that are easing? And then when do you think that pace of installations might hit the original pace that you planned, which was, I think, much higher?
spk07: Brian, the items that are easing a bit are access to electrical personnel in the market. That has subsided a bit. It's not perfect still, but that had been a huge impediment for a long period of time. We've gotten into a better ability to predict and advance schedule that activity and then follow on from there with the digital signage installation. So that part is kind of was the last hurdle as far as market factors on the total deployment and installation activity scaling. We still have a customer that has a lot of change order activity on a per site basis that inherently slows down the aggregate deployment. We do expect that it will grow in the third quarter and likely again in the fourth quarter, but don't expect it to hit that original pace or expected pace at least until 2025. And there's an argument that it really won't get to that 60 plus a month spot in the near term.
spk08: And I just want to add on to that, Will, because the one thing we don't know, Brian, is how, you know, we talk about third quarter, Will, is spot on. As we move into fourth quarter, it is still up in the air what that will look like between thanksgiving and christmas with the bowling centers and league and those kinds of things there could potentially be even a quote slow down in q4 we just don't know because this will be the first winter that we go into that december fully loaded, ready to go, and bowling centers may push back. So a little bit of unknown here as we navigate that. Will, you want to?
spk07: Yeah, I agree with that.
spk08: Okay.
spk05: Great. And then in terms of business development, I guess from a high level, how would you describe enterprises' appetite right now for digital signage and more so making capital investments? And maybe talk about the business development trends in general. And if it makes sense, you can break it down by vertical. If it doesn't, that's okay, too.
spk08: Yeah, I'll talk generally. So what I would tell you is, as of today, we have not seen a waning of the appetite. The appetite for enterprise customers is still there. Of course, don't know what current interest rates and those things and the market conditions are. could sway that. But as of right now, we have not seen any trickle down from any of that. That's number one. Number two, I will tell you a lesson we have learned in 2024. First off, the strength of our pipeline is incredibly significant. And why is that? Number one, the quantity of logos we are talking to is far greater than we've ever talked to before. We are engaged in very meaningful discussions. Number two, the quality of the logo. So not only quantity, but the quality. There was a time two, three years ago where we were dealing with potentially what you might call second tier or even a third tier brand. Today, I'm talking to high level second and first tier brands. And we are meaningful engaged. So we have really seeded to the top of the food chain. Now, one of the things we learned throughout 2024, as you increase the quality of the logo and you're dealing with first class organizations, their process tends to be a little longer. Their diligence check tends to be extensive. So those are just some of the lessons we've learned. And so we've had two or three opportunities we would have expect I would have been in deployment right now that we are still on the cusp of, we're still there, but they've just tended to move a little slower. So incredibly bullish as we move into 2025. But that's really kind of the overall. And I would say that's overall about our QSR retail, retail media network type stuff, C-Store. Sports and entertainment, I would tell you in the S&E world, I would expect to see a spike potentially this year end, but certainly in 2025. Because we're seeing some real gains in that market. Hopefully that's helpful.
spk01: Great. Thanks so much. One moment for our next question. Our next question comes from Jason Kerr with Craig Hallam. Your line is open.
spk04: Great, thank you. This is Cal for Jason this morning. So I guess maybe to start, you know, you guys have had several new wins with stadiums lately. You know, that was a big kind of talking point in the call here so far. So just curious, you know, to what do you attribute that success? And are you seeing any additional monetization opportunities and new stadium wins that you're rolling out now?
spk08: This is Rick. I'll take that, Will. So, hey, Cal, how are you?
spk04: Doing good. How are you doing?
spk08: Good. Great. Thanks for joining the call. So, a couple of things. You know, we've been in this market for several years now with a real enhanced presence. And so, we again are being introduced at the highest levels. So, we're really dealing with now the larger tier stadiums. We were dealing at the 10,000 seat arenas and then we moved into 15. Now we're in the full 2025 and up stadiums. So we've climbed up the food chain in the stadium world. Number two, around the monetization of that. Whenever we typically take over or win a stadium, it typically comes with all of the food screens. Typical stadium will have about 600 food screens. Again, think of it as 10 different food concepts and about between four and 600 food screens. So we always start there. We do expect the balance of the screens over the next two to five years to migrate to an OpEx model and come on to some of our different SAS platforms. So that's why we're investing heavily in this market, because we think two to five years from now, there's tens of thousands of screens that will migrate to SaaS platforms.
spk07: Yeah, Cal, I would add that we're replicating our model and our success in non-sports and entertainment, and that we've spent the last two years building really strong relationships with the OEM partners in this space, specifically TriplePlay, like we have with Samsung and others in the other markets. And then as Rick mentioned with the digital menu boards, we're going to market with a full total stadium offering, not just their IPT platform or their food platform. And that's resonating with those customers.
spk04: Well said. Makes a ton of sense. Um, and then maybe secondly, um, you know, you guys have talked a little bit on this call about seeing greater quality, greater quantity of some of these logo opportunities. So maybe if you could just kind of give a little more color on what you think is really driving your ability to move up market and if that kind of trend is playing into some of this really strong demand that you cited in the QSR vertical.
spk08: Yeah, I mean, I think, you know, we're doing a quality job out in the marketplace that is resonating. The manufacturer partners are seeing it. I had one manufacturer partner say, you took over this customer. They don't call me anymore. I said, yeah, because we do a great job for you. And he said, you absolutely do. You provide excellent customer service. So we're very focused on that. It shows in our DNA. And frankly, word gets around. Hey, that CRI team's doing a pretty daggone good job. So We're just seeing the natural expansion of that, number one. Number two, I would also articulate we're getting big enough to matter, right? Size and scale adds to credibility, and we are really now getting big enough to matter here in North America. So a combination of those things.
spk07: Will, your thoughts? Cal, one other comment. In a couple of these vertical markets, and food in particular, some of the larger end customers tend to engage consultants to help them through their RFP or their digital menu board journey. And so we've performed well in a couple of those instances, which then seeds the downstream when new customers or potential prospects reach out to those consulting firms, they know who CRI is and indicate, have you thought of CRI? So just getting more seats at the table or more bites at the apple.
spk08: Good point. One more comment, Cal. I'm just going to add one more thing. When we go into the stadium and arena, our competitions talk about menu boards and they put screens up and put pictures of hot dogs. We sit down with them and we go through an in-depth screen analysis. and at a much more complex level than our competitors do, and it resonates because they see true lift in their stadium food operations brought about by the expertise of the CRI team being involved. So I think it's a combination of all of those.
spk04: Great. Well, thank you guys for all the detail, and congrats on the continued momentum. Thanks.
spk01: One moment for our next question. Our next question comes from Howard Halpern with Tagwood Brothers. Your line is open.
spk06: Congratulations on the quarter, guys. Hey, Howard. How are you, sir? Doing well. Could you talk about, I guess, the opportunity over the next two to three years, you know, especially in C-Stores and with stadiums on the managed media part of, uh, of your business and the opportunity there?
spk08: We use the term to define that quote is a retail media network, whether it's going in a C-store, etc. The opportunity for retail media networks are enormous. The ad dollars are shifting away from traditional media markets. You know, everybody on this call knows TV ad spending is down and radio and some of the other historical forms of media. And where is it moving? It's moving into retail media networks. Why? As an advertiser, I want to talk to somebody when they are in the activity of procurement. So if I'm selling Pepsi, I want to sell it inside the C-Store. Somebody's already there buying something. So that resonates across all types of venues because people are out and about in activity or in active session with their lives. So that's where the advertiser wants to be. So the opportunity is enormous. Now, it is offset or not offset, but there is a hurdle, stumbling block, because it does require a large CapEx upfront expense. And there are now, so people have been managing that or trying to understand that. They are now starting to allocate real capital, number one. So we'll see real capital be allocated, we believe, in 2025, 26, 27, towards building out these enormous media networks, number one. Number two, We have also seen the rise or arrival of third party financing companies who didn't exist four or five years ago. They would not finance a media network. Today, there are multiple opportunities to finance a media network. You know, 40, 50, 60 million dollar capex spend. And I have three or four alternatives to take to customers today if they don't want to deploy their own capital. So complex answer to your question, but a lot of tremendous momentum and opportunity heading that away. And we're excited about 2025 and 2026. Okay.
spk06: And could you talk a little bit about how your channel partner program is pumping up, I guess, through the pipeline of your opportunities?
spk08: Sure. I mean, our channel pipeline program is up. It is operating today. We have channel partners who are actively buying licenses or adding to their own license count on a weekly, monthly basis. As we did articulate in the earnings call, we had a fellow who was really considered the best channel guy in the industry. of Dave Petrasig, who got a sudden illness and Dave passed on July 11th. Yeah, so it was a real shock to the company. And so we are currently in the process of evaluating the right person or restructure of our channel to continue the momentum going forward. But it is absolutely now becoming a growing part of our business. Not terribly significant today in the big numbers, but we are adding licenses every month, and that's what matters.
spk06: Okay. And one last one, I guess, for Will. Total operating expenses, $6.2 million should be a good number going forward for you to be able to leverage off of a growing revenue base.
spk07: Yeah, we wouldn't expect any material changes from 2Q into the second half of the year and beyond.
spk01: Okay.
spk06: Thanks, guys. Keep up the great work. Thanks, Howard.
spk00: One moment for our next question. Our next question comes from Sam McCoglin with Breakout Investors.
spk03: Hi, guys. Great quarter and enjoyed the call so far. I had a couple of questions. One was about your gross margins, particularly in the hardware. Your hardware gross margin came in at 30%. That's quite high compared to normal. And I was expecting that to come down to just product mix. But, you know, it was an interesting commentary in the press release which said it came down to kind of improved economies of scale. So I wondered if You know, are we expecting kind of a slow increase like these? I know the gross margins fluctuate depending on product mix, but could we see the fluctuations kind of at a higher level, you know, moving forward?
spk07: Sam, yeah, we had the prior year numbers which were slightly lower. as a result of more LED sales. In the current year, that's transitioned primarily to LCD. But we have taken advantage of a couple of opportunities over the last eight months to pre-purchase large quantities of displays that we are now using on a regular recurring basis across multiple customers. And the ability on the financial side for us to make those procurement commitments has driven a reduced screen purchase price. That's why you also see a slightly higher inventory quantity that we've been carrying over the last couple of quarters. We think that we'll continue to have opportunities to evaluate and take advantage of into the future. I'm not ready to say you should expect 30 points on hardware perpetually into the future. I still think we would guide folks to look in the low 20s for now. But those opportunities are there and in material deployments expect to be able to take advantage of those now that we have the new debt instrument in place.
spk08: And I would just add one comment to that, Sam. Scale matters, right? So as we continue to grow, we expect to be able to leverage more of that scale around procurement, et cetera, to continue to enhance our margins, whatever that may look like in the future.
spk03: Yeah, understood. Thank you. You also mentioned debt. And, you know, your cash flow and debt reduction was great this quarter. I mean, and also in the last six weeks, I think you said you reduced the debt by another $4 million, which I thought was really impressive. I just wondered, have your kind of goals in terms of leverage by the end of the year changed at all? Or are you still kind of just on track, or are you exceeding your expectations, I thought, perhaps?
spk07: Yes, Sam, I would tell you that the first half of the year is traditionally a little bit stronger in cash flow or net debt reduction than the second half, just with the way that some of our SAS contracts tend to have prepayments in the first half of the year. We're still on track and on target with prior net debt targets that we've shared. And what we've really been focused on is get that breathing room, get that incremental capital availability so that we can accelerate customer acquisition opportunities or strategic transactions if they present themselves.
spk03: Great. Last one for me, it's a quick one. I don't know if it's mentioned on the call. I think your backlog was hovering around 110 million. Is there any kind of notable change there?
spk08: I would tell you that it has come down certainly some as we fulfilled some of the bowling commitments and others. Again, as we've stated in the past, we've moved away from articulating backlog as we're going. We've converted to the new accounting system, the new ERP, and we expect to reintroduce that concept in the future, but right now it's not something that we focused on publicly discussing.
spk03: Yeah. Okay. Understood. Other than that, that's all from me. Thank you very much, guys. Great quarter. Thanks, Sam. Thanks.
spk01: One moment for our next question. Our next question comes from Jason Weintraub with Titan Partners Group. Your line is open.
spk02: Hey, guys. Congrats on the quarter and our team's condolences on Dave's passing. Just a quick question kind of coming off of Sam's question there. You talked about the debt refi in the quarter. Maybe just provide a little bit more color on this and maybe just the operational flexibility that this gives you going forward. Thanks, guys.
spk07: Sure. The new debt instrument is $22.1 million of total availability. It's got flexibility to rise over time as we perform on an EBITDA basis. So today with the, I think in the earnings, it was $13 million or so in debt. That's $8-9 million of availability to make decisions that are good for the business. Historically, our debt had no revolver, no ability to flex up or down for opportunities. It was just a fixed instrument. So this has created tremendous flexibility, both on evaluating procurement opportunities, investment into particular engagements with customers, and then looking at strategic alternatives as well.
spk08: And I would also add the other factor, Jason, that folks should certainly look at is it's really normalized our balance sheet, moving it all from short-term, which made no sense, and that was really an optics issue, not a reality issue, but now that it's moved it back into the long-term sector, so our balance sheet is much more normalized.
spk02: Excellent. Great, guys. Thank you.
spk01: And I'm not showing any further questions at this time. I'd like to turn the call back over to Will for some further commentary.
spk07: Great. I'm taking a look at the IR inbox. There was one question, Rick, that came in just about a hypothetical transaction. We've talked a little bit about strategic opportunities and potential M&A. There was a question about hypothetically, how does M&A impact the company and how do you look at that? Any comment you would like to make there?
spk08: Well, number one, the debt refinancing has put us in a position now. We've cleaned up the balance sheet. We've cleaned up so many operational issues over the last couple of years, getting on the new ERP software has really put us in a position to start to go look at the market more aggressively, number one. Number two, the function of M&A, particularly when we buy or acquire a company that is in an existing vertical, which is really what we look for, because a company like that typically is going to have a 50% minimum cost of goods. If it's a $10 million company, they're going to have a 50% cost of goods, right? And we believe we're going to save them 20% out of that cost of goods with our purchasing power. So right there, there's a million dollars additional that goes to the bottom line. So if it's a $10 million organization, maybe their EBITDA is a half a million. We just took it from a half a million to a million and a half, and that's just on the procurement side. Then on the SG&A side, maybe they have 45% of top-line revenue involved in SG&A. We typically would expect to take out 25% of that, okay, because we're going to keep the sales and relationships and the customer parts intact, customer support, service, will consolidate where appropriate, but all the G&A will come out of that. So what was a $10 million acquisition with a half a million dollar EBITDA suddenly grew to a $10 million acquisition with a $40 million EBITDA, assuming you keep the same, you take 25% out of the SG&A, you take 10% out of the procurement, and you have the 5% they were already doing. So the math is very compelling. The challenge is every one of them wants 10 times revenue, right, which is unrealistic. But we continue to search, and every now and then we expect to find a diamond in the rough.
spk07: Thank you, Rick. Appreciate that. There are no more questions at this point from the IR inbox. Rick, any closing comments?
spk08: You know, first and foremost, thanks. Let me conclude the call by thanking all the shareholders, clients, partners, and our employees here at CRI for the continuing efforts, commitment, and support as we work together to transform creative realities into the leading brand of digital signage solutions. We look forward to speaking with everybody again next quarter. Thank you.
spk01: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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