Creative Realities Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 7 speakers on the call.

Operator

Good morning. At this time, I would like to welcome everyone to Creative Realities Incorporated 2023 Year End 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 Q4 and calendar year 2023 financial results along with additional industry and company updates. Joining me on the call today is Rick Mills, CEO and Will Logan, CFO.

Operator

Thank you very much. Mr. Logan, you may begin.

Speaker 1

Thank you, and good morning. I am Will Logan, Chief Financial Officer of Creative Realities Inc. Welcome to our financial results and earnings call for the year ended December 31, 2020 3. 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 or the negative versions of such words or expressions as they relate to us or our management are intended to identify forward looking statements.

Speaker 1

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 annual report on Form 10 ks filed with the SEC on March 21, 2024. 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 in our earnings release that was issued this morning.

Speaker 1

The use of non GAAP measures such as adjusted EBITDA and several other important KPIs will be discussed by management during today's conference call because we believe they represent meaningful ways to track our performance. After several years of economic, geopolitical and healthcare uncertainties, we are very pleased with the progress our business has made, particularly through the course of 2023. It is our intent to provide investors with appropriate disclosures and transparency to measure our success. With that, it is now my pleasure to introduce Rick Mills, CEO of Creative Realities Inc. To kick things off.

Speaker 2

Thanks, Will. Good morning, everybody. Thank you for joining the call. For fiscal 2023, we posted record quarterly and annual results in almost every aspect with which we measure our company today. I want to thank everybody at CR High for making it happen day in and day out.

Speaker 2

Let's get started. I'm really pleased to report the following. For Q4 2023, an all time quarterly record revenue of $14,500,000 an all time quarterly record gross profit of $7,500,000 an all time quarterly record of adjusted EBITDA of 2,800,000 dollars And for fiscal year 2023, all time annual record revenue of 45 point $2,000,000 all time annual record gross profit of $22,200,000 I know it sounds like a broken record, all time annual, but we are, we're achieving great results. Operating income of $1,300,000 dollars which marks the first time that the company has posted a positive result on an annual basis. All time annual record of adjusted EBITDA of $5,100,000 and an all time annual record of 11.2 percent of revenue for the EBITDA.

Speaker 2

Growth of annual recurring revenue or ARR to an all time record 16,300,000 run rate exiting 2023. Additionally, our ARR run rate as we sit today here in the middle of March now stands at an all time high of $17,700,000 This is an important metric as it provides enhanced visibility into our high margin revenues as well as the increasing trust our customers are placing in our enhanced solutions. I hope everyone can see the spectacular performance, tremendous execution and continued focus on profitability and debt reductions. Well done team. I will turn it back over to Will for a few notes on our business activities.

Speaker 3

Thanks Rick. I'd like to

Speaker 1

add some additional context and information about our financial statements and position. 1st, with respect to cash. As of December 31, 2023, the company had cash on hand of approximately $2,900,000 As of the date of this earnings release, the company has cash on hand of approximately 4,500,000 dollars despite repayment of approximately $1,000,000 in additional debt principal since January 1, 2024, driven in part by customers with annual SaaS billings at the start of each calendar year. As we stated when we completed our equity offering last August, we believe the company has sufficient cash to continue to repay its currently amortizing debt obligation until such time as the company generates free cash flows on a net basis. Next, I'll cover our net debt position.

Speaker 1

As of December 31, 2023, the company had outstanding principal debt of approximately $15,100,000 resulting in net debt of approximately $12,200,000 as of that date. This represents a reduction of approximately $7,000,000 in net debt as compared to December 31, 2022, at which point net debt was 19,000,000 dollars The company continues to repay approximately $370,000 in debt principal monthly with a focus to reduce its leverage ratio to between 1 point 0 and 1.5 times by December 31, 2024. As of the date of this earnings release, the company's net debt position is approximately $9,500,000 We continue to focus on strengthening our balance sheet by increasing revenue, improving profitability and managing our debt leverage. We entered 2023 with net debt of $19,000,000 and a leverage ratio of approximately 5 times. As of the end of 2023, our leverage ratio has reduced to approximately 2.4 times on trailing 12 month adjusted EBITDA.

Speaker 1

We believe the risk profile of the company is substantially altered and will continue to significantly improve throughout 2024. In connection with entering into a significant new multiyear media sales contract during the Q4 of 2023, the company modified its accounting for media sales to be recorded at net rather than gross beginning in Q4 2023 and in forward periods. This change has and will continue to have the effect of recognizing revenues at a lower value than under previous reporting for similar transactions. Revenues were reduced by $900,000 for Q4 2023 and fiscal 2023, respectively, as a result of this change. While this change will not impact gross profit, operating income, adjusted EBITDA or net income in terms of absolute dollars over the life of the contracts, the percentage of such metrics as a factor of sales and the reporting period their book does change in a manner management believes is more appropriate depiction of the actual profitability of the company.

Speaker 1

The results reported in Q4 2023 are records under either reporting methodology and the company's calculation of ARR is completely unaffected by these contract amendments. I'll turn it back to Rick for additional comments on our results and customer activities.

Speaker 2

Thanks, Will. There is no doubt that 2023 was another transformable year for the company and the performance that we have reported for Q4 fiscal year 2023 are a solid foundation for ongoing growth going forward. I'd like to address certain results in more detail, how they tie into our strategy and value creation plan and how this represents momentum for our performance in 2024. As we have detailed previously, due to significant new customer acquisitions, we have projected a step function increase in revenue beginning with Q4 2023. This has been achieved and we see this continuing in 2024 and beyond.

Speaker 2

While we are not revising our revenue guidance for 2024 at this point in time, we project between 20% 40% revenue growth for each year over year quarter in 2024. This allows us to account for seasonality as Q1 is our traditionally slowest quarter with budget approvals happening and then project ramp ups. Then comes Q2 and Q3, where things tend to be moving at full speed. And finally, Q4, where you have a slowing of projects as Thanksgiving and Christmas appear on the horizon. Exceptions to Q4 can occur when customers have money to spend on equipment at year end and occasionally do.

Speaker 2

Let's talk about our over performance, over execution in our ARR against prior projections and how important it is with respect to meeting or exceeding our revenue helped the company to substantially achieve its revenue projections in Q4 with superior gross profit despite delayed rollouts of major customer deployments. In addition, new customer contracts and pricing changes have already driven our ARR on SaaS to 17,700,000 dollars well on its way to exceeding the $18,000,000 in guidance we had previously conveyed for fiscal 2024. Therefore, we are increasing the 2024 guidance for exit run rate ARR on our SaaS based subscription license revenue from $18,000,000 to $20,000,000 This will have a significant impact on future profitability. Increasing ARR will continue to drive improved profitability and free cash flow as we accelerate top line growth throughout 2024. In conjunction with this step change in revenue supported by new customer acquisitions and significantly higher ARR is improved profitability.

Speaker 2

We are at an inflection point where every new dollar in revenue is coming to us with improved margins. So we are beginning to benefit from meaningful operating leverage, which has further implications for improving our capital structure, investing in our platforms and potentially enabling future acquisitions. We've also discussed how we intend to pay down debt in 2024, delevering the company and strengthening our balance sheet. Since reporting our Q2023 results, we reduced gross long term debt to $15,100,000 dollars at the end of 2023 from 17,200,000 approximately $14,000,000 down another $2,000,000 since the start of the year. With 4 $500,000 in cash on hand at present, net debt stands at approximately 9,500,000 dollars And utilizing our trailing adjusted EBITDA at $5,100,000 as of the end of 2023, our leverage ratio amounts to 2.7 times on gross debt and 1.9 times on net debt.

Speaker 2

This is vastly improved from the 5.4 times and 5.0 times for gross and net debt at the end of 2022. We believe that the risk profile of the company has changed dramatically and is much more favorable. We intend to continue using cash to pay down debt and delever the company in the quarters to come. I cannot overstate the strategic importance of these accomplishments as they unlock numerous commercial and strategic options in the back half of the year and in dealing with the maturity of long term debt obligations in 2025. Now let's address a couple other items.

Speaker 2

Number 1, customer concentration. Number 2, customer retention. And then 3, just some updated customer activities. In 2022, there were 4 customers that accounted for 54% of the total revenue of the company. With additional customer acquisition throughout 20222023, no single customer exceeded 10% of the company's revenue in 2023.

Speaker 2

Customer retention on a dollar for dollar basis is in excess of 100% for 2023, all trending in the right direction for a company like us that is focused on the enterprise marketplace. Okay. Some other activities, channel program, we launched a channel program formally on February 1, starting small, but we already have we're already approaching 100 licenses. It's all pure SaaS play from SMBs that CRI would not otherwise penetrate. Goal is to ramp up to 1,000 licenses quickly, generating additional SaaS revenue.

Speaker 2

Bowling or BCTV, we did absorb some startup cost in 2023. It's $400,000 primarily consisting of onboarding and training of the team prior to installations beginning. We performed 8 installations in 2023 at an average sale price of $27,000 per location. Q1 2024 looks to be 50 to 60 locations installed with acceleration happening throughout Q2 and Q3. A new retail media network, We landed another customer at this point unnamed.

Speaker 2

This customer is in the financial sector and has chosen us as their deployment partner. This includes our Ad Tech software with initial deployment of 6 50 sites and approximately 1300 screens. It will generate $16,000 a month in SaaS once these are fully deployed by the end of Q2 this year. They will evaluate the success of media revenue over the summer and could deploy thousands of locations in the future. Starlight Media, this ad based network continues to transition from static to digital.

Speaker 2

We expect this network to convert and or add several 100 locations to digital every quarter throughout 2024 2025. Starlight's premium network is known for its big, bright and bold displays in outdoor shopping centers across the U. S. Our drive thru product introduced the product in 2021 just coming out of COVID. Today, this product line is continuing to accelerate and we believe we are one of the largest suppliers of drive through solutions in the QSR industry.

Speaker 2

On average, every business day in America, we are installing 1 or more drive through solutions somewhere. Finally, let's discuss our transition to a comprehensive company wide ERP solution.

Speaker 4

We are

Speaker 2

heads down in the middle of this project. We are in process of transitioning from the planning and setup stages to the implementation and utilize phase. Our first department or departments come online in Q2. More to come on this as the company completes the transition to this ERP solution this year. Will, any further commentary you'd like to add on our Q4 2023 annual results?

Speaker 3

Thanks, Rick. In the interest of time and in light of the insights and comments provided earlier on the call, I think we'll move into the Q and A portion of the call at this time.

Operator

The first question comes from Brian Kinstlinger with Alliance Global Partners. Your line

Speaker 5

is open.

Speaker 4

Hey guys, thanks for taking my questions. And 2023, congratulations, the company looks so much different than 2 or 3 years ago. Congratulations on that.

Speaker 2

Thanks, Brian.

Speaker 4

I want to start yes, I didn't hear a backlog number. It sounds like things are going fantastic and they have been for a while. And while it sounds like those trends are solid and I wait for the backlog, Over the last few quarters, we haven't seen that backlog increase. There's lots of puts and takes, I know. So maybe you can provide the backlog and talk about that as well as the opportunities with all that you've discussed of growing the backlog over the course of the year?

Speaker 2

Brian, yes, our backlog has remained relatively flat. We've been installing at about the same pace as we've been adding to it. We expect that to change over the next two quarters as we have a tremendous amount of opportunity that we're circling to close, but not much to say it's remained relatively flat. And there's certainly still 18 months to 24 months worth of revenue in that pipeline or in that backlog, sorry.

Speaker 4

Okay. And then you discussed the a lot of different great details on your businesses. You've had particular success early on in drive thru upgrades to digital. Are these successes leading to greater brand awareness in the market and therefore more enterprises looking to work with you than previously?

Speaker 2

Very much so. We're you talked about the improvement in the business over the last couple of years, right Brian? 2 years ago, at times, we were simply not invited, right? People didn't number 1, they didn't know to invite us. Number 2, their perception of our company wasn't that we weren't big enough or whatever the case may be.

Speaker 2

Today that is very different. If you're a midsize or large QSR brand from the biggest ones, the big four QSR brands down to the mid brands that got 400 or 500 locations. And you are in the process of evaluating drive thru, CRI's name comes up, we are included in the conversation.

Speaker 4

For the largest ones, the big four, but even slightly smaller, who is the competition? Is it system integrators? Is it I'm trying to think about who they are looking if it's not CRI in that space?

Speaker 2

There's several large ones, right, that we compete against every day. We compete against Stratocash literally on a daily basis. Stratocash software and solution drives McDonald's. Coats is a supplier out of Australia that has supplied a lot of McDonald's hardware. They have tried to penetrate other accounts, have not been so successful, okay?

Speaker 2

So those are really primarily the main 2. A third one and it's Sicom, they have Burger King. And so the big four are effectively taken. Wendy's has chosen somebody. It is not a name brand.

Speaker 2

I was totally surprised. So those are well on their way to rolling out, but where we really thrive and do an excellent job is in the companies that have 500 to 2000 locations. We are the head of the pack in those locations.

Speaker 4

And then you gave some clear path forward on the Strike 10 contract, Bowling TV. Has installs in the Q4 and early Q1 going a little bit slower than expected? And what gives you the confidence of the significant ramp over the course of the year?

Speaker 2

Couple of things. A lot of learnings really on BCTV's part and certainly some of CRIs, but we're gaining speed. We're literally as we speak at the end of March deploying an entire 2nd install team and a 3rd install team are starting to hit the ground running. So we see by mid April is when we think there'll start to be some increased velocity. And certainly by the end of Q2, we'll be at full stride.

Speaker 2

Now there is one of the other things that we just bring out and I noted in the call, originally we projected BCTV, this was a $35,000,000 project. It was expected to be 35,000 per location, 1,000 locations, right, Brian? So far, just due to the uniqueness of the bowling centers that we've done, which is Will Logan is at 40 to 50 now approximately?

Speaker 3

Yes, we're approaching our 60th install.

Speaker 2

Approaching our 60th install. They've come in about 27,000. So it's a little bit lower than the original expectation. But it is moving forward relatively quickly, Brian.

Speaker 4

Yes. Yes. Great. And then you mentioned at a high level customer delays. Is that outside of Strike 10?

Speaker 4

And are you seeing any changes to that or any commonalities and why there are delays?

Speaker 2

I think what I was attempting to articulate was when I was talking about the fluctuation from quarter to quarter, right? Everybody starts and launches January. Well, there's a full 30 days of planning and getting the budget approved. And then so it's not like on January 3, everybody's moving forward. Everybody stands still most of January.

Speaker 2

So it's February that we start to really get going, right? And that's just the industry that we're in, right? So the year always starts off a little slower just because of that. Q2 and you also have weather, right? By Q2, weather's warmed up, construction Q2 and Q3, construction and all the other trades that we have to interface with are in full swing.

Speaker 2

So that's when you tend to see our revenue bounce up, accelerate. And then as you get into Q4, things usually are going pretty strong. And then as we get up to Thanksgiving, people start to wind down because you got Thanksgiving and Christmas. That was what the attempt was to articulate.

Speaker 4

Okay. Last question I have maybe for Will. On the 4th quarter results, the gross margin percentage on hardware and services seem to have abnormalities to the past. Services much higher than usual, hardware much a little bit lower than usual. I think that's what I remember.

Speaker 4

Can you help us understand those dynamics? And then you've talked about the change in media sales. So maybe help us understand what reasonable assumptions are going forward for the gross margins of these two lines of revenue?

Speaker 3

Yes, great question, Brian. I think that the best proxy is to use the full year figures. In the Q4, we had some cleanup in gross to net accounting, particularly with media that removed some COGS and brought in some revenue, which kind of gave you a little distortion there on the services line. On the hardware line, we do have a couple of newer ad tech or ad based network customers that did some very large purchasing with some additional budget here in the November December timeframe. Those were in some instances some very expensive displays.

Speaker 3

The top end displays in the market tend to have a slightly tighter margin, but that's not the normal profile moving forward I would model off of the year to date figures.

Speaker 4

Typically, you've been in the mid-60s and low-20s, something like that. Is that about right? I have to go back and get into it.

Speaker 3

Yes. I think that low 20s for hardware and 60 low 60s on the services is a good proxy. We'll continue to update and reevaluate that based on mix as the SaaS grows.

Speaker 4

Great. Thanks guys.

Speaker 3

Thanks, Brian.

Operator

One moment for the next question. The next question comes from Howard Halpern with Taglich Brothers. Your line is now open.

Speaker 6

Congratulations guys. Great execution.

Speaker 2

Hey, Howard, how are you? Good to hear

Speaker 6

your voice. Doing well. In how you just really started the channel partner program and you already have 100 licenses. What is the feedback you're getting from them? And how excited are you that it seems to be ramping fairly quickly with higher margin SaaS revenue?

Speaker 2

I mean, we're excited about it. The feedback is they love what we're doing. They love our software package. I mean, that's really all the success of a channel program is all built upon 2 things. Number 1, the actual software platform and that's getting rave reviews and the guy that's running the channel.

Speaker 2

And we think we've got the best channel guy in the business, Dave Petrosig joined us and we're just excited to have him. He's doing a great job. He was here for about 8 months or so, finally launched the channel program and we expect it to grow fast.

Speaker 6

Okay. And in terms of the cost structure operating expenses, do you basically have that in place and now that with the Boeing contract and other contracts, is just basically layering and leveraging going forward?

Speaker 3

Yes, Howard. I mean, if you look back, we've probably added 40 or 50 roles over the last 12 to 18 months in the company to really build the baseline and the infrastructure of this business to take it to the next level. We're where we need to be and the top line is catching up quickly. So we've been carrying that cost since the second half of 2023. We feel like we've got the team in place and the infrastructure that we require to move forward throughout 2024 with limited change.

Speaker 6

Okay. And just one last one on different opportunities out there. What do you view as some of the newer opportunities? Is it in convenience stores or and even in like deli departments and supermarkets? Can you describe what the various opportunities that I guess are potentially in your pipeline?

Speaker 3

Sure. QSR remains hot particularly on the digital drive through. We see continued acceleration of inflow of capital into supporting digital out of home or advertising networks. A lot of folks transitioning to point of purchase funding right away from mobile ads or other television and other products into that point of view, which is resulting in networks like Starlight Media and BCTV being built out. We see continued shift in that direction and strong demand for years to come.

Speaker 3

Supermarkets is absolutely in play, Howard. Several of them are trying to figure out whole store ecosystems with both potentially outside the building digital advertising, inside the building digital menu boards, way finding, price shelf stickers, still early stages on that because there are a lot of moving pieces, but see that being an area of focus over the next 24 months. Beyond that, retailers are also trying to figure out incremental digital engagement, but that one's probably 4th on

Speaker 5

the list of those that I named. Okay.

Speaker 6

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

Speaker 3

Thanks, Howard.

Operator

One moment for our next question. Our next question comes from Chris Tuttle with Caterpillar Capital.

Speaker 5

Congratulations on like some good old fashioned Louisville execution down there.

Speaker 3

Thanks, Chris. Appreciate

Speaker 5

it. I wanted to just ask, there's a couple of things you've announced that I'd love to learn a little bit more about. One of them is, is Icebox Media. And I was reading through that one again yesterday and I was trying to figure out, is that more of a software arrangement? Is there incremental hardware, a lot more incremental hardware involved?

Speaker 5

Just wondered if you could give me some of the moving parts on that one so I understand it better.

Speaker 3

Sure. That's actually a digital display, but think of it as about it's about 8 inches to 12 inches tall and about 3 feet wide with a small mounting fixture that goes on top of those ice boxes outside of convenience locations. It is a digital advertising network, so there are a lot of posters in those locations now. There is funding from private equity that has come in and said we're going to build out a digital ad network right there at the icebox. We're the hardware provider, although it's a limited amount of hardware, Chris, on that since it's one kind of small screen and then the software provider behind that.

Speaker 3

So ultimately a software play for us in the grand scheme. That is in a test of about 85 locations that started rolling out here in the last 2 months, running to speed. They'd love to do 5,000 and we'd love to help them with it. So we're waiting to see results on how that goes as deployed.

Speaker 5

Okay. And is that when if they do that broadening out, will they just go with you guys or would they re or they would? Okay.

Speaker 3

No, that's we've already been through the front end process to be evaluated as the partner, been selected. We helped actually design and engineer the solution on the hardware side and have tested that with our software. So we're queued up. We're the partner of choice. Now it's just a matter of how quick will they scale.

Speaker 5

Got it. And then similar question just on you announced a deal with Black Rifle and I wanted to understand particularly like your this QSR thing is kind of it's interesting, right? There are companies like PAR Technologies out there that are going after that market and then you have Toast and restaurants that are more back end and infrastructure focused. But I'd love to learn more about what you're doing with Black Rifle operationally as well, like sort of how you guys see yourself playing more deeply in that market?

Speaker 3

Yes. So with respect to Par, Toast, those folks, we actually have our Clarity software, our food based platform integrated to those partners at the on the POS side, so that there is a single source of truth, a change in one system or the other will automatically reflect on the digital menu board. So that's typically something that we're doing at the start of an engagement with the QSR and hasn't frankly been a lot of competition. It's more of an integration with those folks for a combined solution for the customer. In the case of Black Rifle in particular, they actually had digital signage already.

Speaker 3

They had rolled out with a very bare bones Samsung Magic Info license that comes embedded in the display, but does not have any kind of dynamic capabilities. That's been in the field for 6 months or a year. They indicated it wasn't giving them what they need and we're doing a virtual conversion of their existing units. I think it's about 600 displays live in the field that will come over to our software platform here in 2Q, 1Q and 2Q. We did some testing in 1Q, the rest will go this quarter.

Speaker 3

Any new locations will then be deployed, our hardware and our software solution.

Speaker 5

I got it. I got it. And then ultimately, how big could they be after the 600 units are converted?

Speaker 3

Yes, great question. I think that they have intentions, if you read about them, to scale up. Not sure if that where that gets to, but they do have about, I believe, 6 to 8 screens per location, right? So if they end up at 1,000 locations at some point in the future, a good proxy would be 6 to 8 displays per.

Speaker 5

Okay. Got it. And then my last question, I've seen some talk about this is that because you guys have made some acquisitions and it's relating to your software pricing.

Speaker 4

Is

Speaker 5

increasing pricing for your software an important factor in the growth there, like when some of these older contracts renew? I'd love to get a feel for what that looks like. And then if you have as you add module, you have the opportunity to go back to your base and offer them additional functionality at higher essentially higher subscription

Speaker 4

prices. So, I'd

Speaker 5

love to just get a little bit more insight from you on that.

Speaker 3

So, I would say, yes, on all fronts. On the incremental services and upsell, particularly with respect to adding our AdLogic platform for network monetization, we go to existing infrastructure accounts and offer them that added layer of SaaS, which we think will be additive to existing customers, additional incremental subscription price. We are also seeing 2 other things that are important, Chris. 1 is new customers with new devices added, we are adding those today at a higher price per endpoint per month than our existing average today. So each new endpoint is slowly bringing up my average SaaS per device per month.

Speaker 3

We're also lapping some longer term renewals. It's part of what you saw in our disclosures around where we are today in March versus where we were at twelvethirty one. We've had a couple of contracts where we've gone back, renegotiated and we're successfully able to increase prices on the existing SaaS customers. We're still we believe as this market continues to consolidate and some of the smaller kind of bottom feeder players dwindle out over time that there will be a slow rise as those renewals occur over the next 1 to 2 cycles.

Speaker 5

Okay. I got it. That's really helpful. Thanks guys. I'll leave it there and I'll follow-up with you later on.

Speaker 3

Thanks, Chris.

Operator

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?

Speaker 3

Thanks, Michelle. We did have two quick questions. I'll just run through them and then we can close the call. The first was just an inquiry about generative AI developments at CRI. The company's strategy with respect to generative AI is to provide for integration points with its software platforms to address opportunities associated with the production and delivery of contextual content.

Speaker 3

That's where we see the first play on the customer side and we are exploring several partnerships at this time. There are obviously other use cases internally for operating effectiveness, but from a customer standpoint that's where we're focused.

Speaker 6

Also had

Speaker 3

a question about the cap table and just the warrants that were outstanding. There are 2 tranches, with an exercise price of $4.23 $6 Those both are do not feature a cashless exercise option. So those would be incremental cash to the company if exercised and the value if exercised is in excess of the current total debt of the company, which was the inquiry that came in. That concludes the questions from the IR inbox. So 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 Creative Realities into the leading brand in digital signage solutions.

Speaker 3

This concludes the Creative Realities 2023 year end earnings call.

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Key Takeaways

  • Record Financial Results: Q4 2023 delivered all-time highs with $14.5 M in revenue, $7.5 M in gross profit and $2.8 M in adjusted EBITDA, while FY 2023 posted $45.2 M in revenue, $22.2 M in gross profit, $5.1 M in adjusted EBITDA and the company’s first annual operating profit of $1.3 M.
  • ARR Growth and Guidance Raise: Annual recurring revenue rose to a $16.3 M run rate at year-end and $17.7 M in mid-March, leading management to increase 2024 exit ARR guidance from $18 M to $20 M and project 20–40% year-over-year quarterly revenue growth.
  • Balance Sheet Strengthening: Cash on hand increased from $2.9 M to $4.5 M despite $1 M of debt repayments, net debt fell from $19 M to $9.5 M, and leverage dropped from ~5× to ~2.4× on gross debt (1.9× net), with a target of 1.0–1.5× by end 2024.
  • Strategic Growth Initiatives: The company launched a channel partner program with nearly 100 licenses (aiming for 1,000), accelerated digital drive-thru installs, secured major contracts (e.g., a 650-site financial sector media network and BCTV deployments), and is rolling out a new ERP to scale operations.
  • Accounting Change Transparency: A switch to net reporting for media sales reduced reported revenues by $0.9 M in Q4 and FY 2023 but had no impact on gross profit, operating income, adjusted EBITDA or ARR.
A.I. generated. May contain errors.
Earnings Conference Call
Creative Realities Q4 2023
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