LOUISVILLE, Ky., May 14, 2020 /PRNewswire/ -- Creative Realities,
Inc. ("Creative Realities," "CRI," or the "Company") (NASDAQ: CREX,
CREXW), a leading provider of digital marketing solutions,
announced its financial results for the first quarter ended
March 31, 2020.
Rick Mills, Chief Executive
Officer, remarked "Creative Realities entered 2020 with tremendous
momentum. As the COVID-19 pandemic drove unprecedented disruption
and volatility in the marketplace, our results were sharply
impacted, most notably through reductions in revenue as both
anticipated and previously planned large-scale capital expenditures
throughout our customer base were suspended, delayed until future
periods, or indefinitely placed on hold. As we adjusted to the
uncertainty of the global crisis, our first and foremost
responsibility has been to ensure the safety of our employees and
community. This focus along with the decisive actions taken by our
Management team during this period help preserve a strong future
for CRI as we look forward to a new normal."
COVID-19 Update
Creative Realities' actions to support its business during the
COVID-19 pandemic include the following:
- Business Operations – In response to the
COVID-19 outbreak and the guidance of government and public health
officials, Creative Realities closed all of its facilities and all
of CRI's employees are currently working from home and continue to
support the business.
- Supply Chain – To date, CRI has experienced only
limited supply-chain disruptions related to COVID-19 and have been
able to meet its customers' reduced needs. The limitations
experienced thus far primarily relate to the procurement of LED
displays manufactured in China.
With respect to our recently launched Thermal Mirror product, we
have experienced limitations on the daily quantity of exports from
our manufacturer partner in China;
however, this has not yet impacted our ability to meet customer
demand. In our experience, the export restrictions have been
loosening over the past several weeks and we are hopeful that such
constraints will not impact our ability to meet customer demand
through the remainder of the second quarter. CRI's supply chain and
logistics operations are functioning and Management believes CRI is
well-positioned to respond to demand when the economy
recovers.
- Executive and Other Compensation – CRI's senior
leadership team, including named executive officers, voluntarily
elected to temporarily reduce their base salaries by twenty percent
for a period of six months, commencing in March 2020. Management made several
personnel-related decisions to adapt to the continued economic
uncertainty, including (1) suspension of all non-essential hiring,
(2) elimination of select roles throughout the organization, (3)
temporarily reduced base salaries for remaining personnel, and (4)
suspending certain employee benefit programs, including the
Company's 401(k) match program. The Company did not suspend its
Company-paid health care coverage benefits for personnel as these
benefits were deemed to be even more critical during this crisis.
The Company continued health benefits for terminated personnel
through the Company through the month of April 2020.
- Cost Management Initiatives – CRI has and will
continue to take additional action to aggressively manage operating
costs, capital expenditures, and working capital, including (1)
working closely with its vendor partners to diligently manage
payments for the Company's outstanding accounts payable, (2)
allowing the expiration of facility leases set to expire by their
terms in the coming months, (3) negotiating the deferral of
payments and/or restructure of our long-term leases for our
facilities, and (4) suspending travel for personnel, including
attendance of any relevant trade shows during the year.
- Liquidity – The Company applied for and received a
Payroll Protection Program loan ("PPP") of approximately
$1.6 million on April 27, 2020. The Company currently has cash on
hand of approximately $3.0 million as
of the date of this press release, inclusive of the PPP funds.
- Sales Update – The COVID-19 pandemic has led to
increasing levels of uncertainty and has impacted our ability to
accurately forecast the results for the remainder of 2020. As a
result, at this time, the Company has elected not to provide a
full-year revenue forecast. While not providing an outlook, CRI
believes it is important to provide visibility into the current
sales environment. The Company has a strong set of diverse
customers across four key verticals: retail (including banking and
automotive), entertainment (including large venues, stadiums, and
theaters), food service (including quick serve restaurants and
campus dining venues), and convenience stores. With the exception
of convenience stores, the remainder of our customer base has been
severely impacted by the government-mandated and self-elected
facility closures. As a result, we are experiencing short-term
re-evaluations by our customers of their short-term capital
commitments, including the immediate delay and suspension of
ongoing and planned/anticipated projects. We anticipate challenges
in our core business through at least the third quarter of 2020, as
our customers re-open their businesses.
- Thermal Mirror – On April
28, 2020, we announced the joint launch of an AI-integrated
non-contact temperature inspection kiosk called Thermal Mirror with
our partner, InReality, for use by businesses as COVID-19 related
workplace restrictions are reduced or eliminated. The initial
reception for this solution in the marketplace has been strong and
we are optimistic about its potential. While we believe this
solution and our launch will be successful, we currently remain in
the pilot phase with the majority of our enterprise customers with
respect to the Thermal Mirror solution.
2020 First Quarter Financial Overview
- Revenues were $3.7 million for
the quarter ended March 31, 2020, a
decrease of $5.8 million, or 61%,
compared to the same period in 2019.
- Hardware revenue decreased approximately $0.3 million, or 17%, in the quarter ended
March 31, 2020 as compared to the
same quarter in the prior year. Gross margin on hardware revenue
was 28% in 1Q2020 as compared to 14% in 1Q2019.
- Services and other revenue decreased approximately $5.5 million, or 70%, in the quarter ended
March 31, 2020 as compared to the
same period in 2019. Gross margin on services and other revenue was
52% in the quarter ended March 31,
2020 compared to 44% in the same period in 2019.
- Managed services revenue, which includes both SaaS and help
desk technical subscription services, represented approximately
$1.3 million revenue in the
first quarter of 2020, a decrease of $0.2
million, or 11%, as compared to the same period in the prior
year.
- Gross profit was $1.6 million for
the first quarter of 2020, a decrease of $3.7 million, or 64%, compared to the same period
in 2019. Consolidated gross margin increased to 43% for the quarter
ended March 31, 2020 from 39% in the
same quarter in the prior year, driven primarily by a higher ratio
of managed services revenue to total revenue in the period.
- Excluding the effects of a non-cash charge for goodwill
impairment of $10.6 million and
incremental reserves recorded against our accounts receivable as a
result of COVID-19 of $0.4 million in
the quarter ended March 31, 2020,
operating expenses remained flat at approximately $3.6 million for the three months ended
March 31, 2020 as compared to the
same period in 2019. Total operating expenses were $14.6 million in the quarter ended March 31, 2020 as compared to $3.6 million in the same period in 2019 inclusive
of those charges.
- Excluding the effects of the goodwill impairment and the
incremental reserves recorded against our accounts receivable in
the quarter ended March 31, 2020,
operating loss was $2.0 million for
the three months ended March 31, 2020
as compared to breakeven for the same period in prior year.
- Net loss was $13.2 million in the
quarter ended March 31, 2020 as
compared to a net loss of $0.2
million for the same period in 2019. Excluding the
$10.6 million goodwill impairment
charge in the quarter ended March 31,
2020, net loss increased $2.4
million in the quarter ended March
31, 2020 compared to the same period in prior year.
- EBITDA was ($12.7) million for
the three months ended March 31, 2020
compared to $0.3 million the same
period in 2019. Adjusted EBITDA was ($1.9)
million for the three months ended March 31, 2020, compared to $0.4 million in Adjusted EBITDA for the same
period in 2019. See below for a description of these non-GAAP
financial measures and reconciliation to our net loss.
Mr. Mills concluded, "In adjusting to today's dynamic and
challenging environment, we understand that the unknowns outweigh
the knowns and that we face difficult decisions. The actions that
were taken during the first quarter of 2020 and which continue
through today allow us to focus on the controllable elements of our
operations. While we acknowledge the challenges our business faces
as a direct result of the challenges faced by our customers, we
remain optimistic about the Company's ability to pivot our offering
to remain relevant and to continue to assist our current and
potential customers in utilizing technology to enhance their
operations. We believe the long-term opportunity for both the
digital signage industry and CRI remain bright and we look forward
to supporting our customers in their pursuit to reopen as we move
forward together."
Conference Call Details
The Company will host a
conference call to review the first quarter results and provide
additional commentary about the Company's recent performance, which
is scheduled for Friday, May 15, 2020
at 9:00 am Eastern Time.
Prior to the call, participants should register at
http://bit.ly/criearnings2020Q1. Once registered, participants can
use the weblink provided in the registration email to listen to the
live webcast. An archived edition of the first quarter
earnings conference call will also be posted on our website at
www.cri.com later that same day and will remain available to
interested parties via the same link for one year.
About Creative Realities, Inc.
Creative Realities
helps clients use the latest omnichannel technologies to inspire
better customer experiences. Founded over 15 years ago, CRI
designs, develops and deploys consumer experiences for high-end
enterprise level networks, and is actively providing recurring SaaS
and support services for more than fifteen diverse vertical
markets, including Automotive, Advertising Networks, Apparel &
Accessories, Convenience Stores, Foodservice/QSR, Gaming, Theater,
and Stadium Venues. The Company acquired Allure Global Solutions,
Inc. in November 2018, expanding the
Company's operations to five offices across North America with active installations in
more than 10 countries.
Use of Non-GAAP Measures
Creative Realities, Inc.
prepares its consolidated financial statements in accordance with
United States generally accepted
accounting principles ("GAAP"). In addition to disclosing financial
results prepared in accordance with GAAP, the Company discloses
information regarding "EBITDA" and "Adjusted EBITDA." CRI
defines "EBITDA" as earnings before interest, income taxes,
depreciation and amortization of intangibles. CRI defines "Adjusted
EBITDA" as EBITDA excluding stock-based compensation, fair value
adjustments and both cash and non-cash non-recurring gains and
charges. EBITDA and Adjusted EBITDA are not measures of performance
defined in accordance with GAAP. However, EBITDA and Adjusted
EBITDA are used internally in planning and evaluating the Company's
operating performance. Accordingly, management believes that
disclosure of these metrics offers investors, bankers and other
stakeholders an additional view of the Company's operations that,
when coupled with the GAAP results, provides a more complete
understanding of the Company's financial results.
EBITDA and Adjusted EBITDA should not be considered as an
alternative to net income/(loss) or to net cash used in operating
activities as measures of operating results or liquidity. Our
calculation of EBITDA and Adjusted EBITDA may not be comparable to
similarly titled measures used by other companies, and the measures
exclude financial information that some may consider important in
evaluating the Company's performance. A reconciliation of GAAP net
income/(loss) to EBITDA and Adjusted EBITDA is included in the
accompanying financial schedules.
For further information, please refer to Creative Realities,
Inc.'s Annual Report on Form 10-K to be filed with the Securities
and Exchange Commission on or about March
12, 2020, available online at www.sec.gov.
Cautionary Note on Forward-Looking Statements
This
press release contains certain statements that are deemed
"forward-looking statements" under Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and includes, among other things, discussions of our business
strategies, future operations and capital resources. Words
such as "may," "likely," "anticipate," "expect," "intend," "plans,"
"seeks," will," should," "future," "propose," "believe" and
variations of these words or similar expressions (or the negative
versions of such words or expressions) indicate forward-looking
statements. These forward-looking statements are not
guarantees of future performance, conditions or results, and
involve a number of known and unknown risks, uncertainties,
assumptions and other important factors, many of which are outside
the Company, that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking
statements. Some of these risks are discussed in the "Risk
Factors" section contained in Item 1A in our Annual Report on Form
10-K for the year ended December 31,
2019 and the Company's subsequent filings with the U.S.
Securities and Exchange Commission. Important factors, among
others, that may affect actual results or outcomes include: the
inability to recognize the anticipated benefits of the Allure
Acquisition; the ability to meet Nasdaq's continued listing
standards; our ability to execute on our business plan; our ability
to retain key personnel; potential litigation; and general economic
and market conditions impacting demand for our products and
services, including those as a result of the COVID-19 pandemic.
Except where required by law, the Company assumes no obligation
to update forward-looking statements to reflect actual results or
changes in factors or assumptions affecting such forward-looking
statements.
RECONCILIATION OF GAAP NET LOSS TO
ADJUSTED EBITDA
(in thousands, unaudited)
Creative Realities, Inc. prepares its consolidated financial
statements in accordance with United
States generally accepted accounting principles ("GAAP"). In
addition to disclosing financial results prepared in accordance
with GAAP, the Company discloses information regarding "EBITDA" and
"Adjusted EBITDA." CRI defines "EBITDA" as earnings before
interest, income taxes, depreciation and amortization of
intangibles. CRI defines "Adjusted EBITDA" as EBITDA excluding
stock-based compensation, fair value adjustments and both cash and
non-cash non-recurring gains and charges.
EBITDA and Adjusted EBITDA are non-GAAP financial measures and
should not be considered as a substitute for net income (loss),
operating income (loss) or any other performance measure derived in
accordance with United States
generally accepted accounting principles ("GAAP") or as an
alternative to net cash provided by operating activities as a
measure of CRI's profitability or liquidity. CRI's management
believes EBITDA and Adjusted EBITDA are useful because they allow
external users of its financial statements, such as industry
analysts, investors, lenders and rating agencies, to more
effectively evaluate its operating performance, compare the results
of its operations from period to period and against CRI's peers
without regard to CRI's financing methods, hedging positions or
capital structure and because it highlights trends in CRI's
business that may not otherwise be apparent when relying solely on
GAAP measures. CRI presents EBITDA and Adjusted EBITDA because it
believes EBITDA and Adjusted EBITDA are important supplemental
measures of its performance that are frequently used by others in
evaluating companies in its industry. Because EBITDA and Adjusted
EBITDA exclude some, but not all, items that affect net income
(loss) and may vary among companies, the EBITDA and Adjusted EBITDA
CRI presents may not be comparable to similarly titled measures of
other companies.
The following table presents a reconciliation of EBITDA and
Adjusted EBITDA from net loss, CRI's most directly comparable
financial measure calculated and presented in accordance with
GAAP.
|
|
March
31,
|
|
|
March
31,
|
|
Quarters
ended
|
|
2020
|
|
|
2019
|
|
GAAP net
loss
|
|
$
|
(13,183)
|
|
|
$
|
(184)
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Amortization of debt
discount
|
|
|
85
|
|
|
|
156
|
|
Other interest,
net
|
|
|
142
|
|
|
|
48
|
|
Depreciation/amortization
|
|
|
366
|
|
|
|
286
|
|
Income tax
expense/(benefit)
|
|
|
(155)
|
|
|
|
21
|
|
EBITDA
|
|
$
|
(12,745)
|
|
|
$
|
327
|
|
Adjustments
|
|
|
|
|
|
|
|
|
Change in warrant
liability
|
|
|
-
|
|
|
|
1
|
|
Change in fair value
of Special Loan
|
|
|
151
|
|
|
|
-
|
|
Gain on settlement of
obligations
|
|
|
(40)
|
|
|
|
(7)
|
|
Gain on earnout
liability
|
|
|
-
|
|
|
|
-
|
|
Loss on goodwill
impairment
|
|
|
10,646
|
|
|
|
-
|
|
Stock-based
compensation
|
|
|
50
|
|
|
|
42
|
|
Adjusted
EBITDA
|
|
$
|
(1,938)
|
|
|
$
|
363
|
|
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SOURCE Creative Realities, Inc.