Creative Realities, Inc.
Q2 2017 Earnings Call Transcript

Published: 15 Aug 2017

[John Walpuck:]

Thank you, Rick. First off, I’m going to talk about our 2Q ’17 highlights. Comparing 2Q ’17 to 2Q ’16. As Rick indicated 2Q ’17 was the third consecutive quarter of year-over-year revenue growth. Just for reference, 4Q ’16 growth we reported was approximately 70%, 1Q ’17, we reported revenue growth of approximately 160%. 2Q ’17 revenues increased approximately 20% to 3.6 million growing by about $0.5 million. Gross profit was 1.6 million for 2Q ’17, this is a slight decrease of $100,000 from the 2016 period primarily due to increased investment in our business associated with the growth that we’ve been talking about. While revenue increased approximately 20% total operating expenses in the second quarter increased by only 5%. As Rick indicated, the two most material components of our operating expenses our sales and marketing and G&A, general and administrative. Sales and marketing expense increased by approximately 75% or $170,000, primarily as a result of the ongoing expansion of our sales force and related sales activities. The net change of all other expenses was essentially zero due to expense optimization, expense controls and clean-up and capitalized expenditures. As Rick indicated, we also continue to evaluate on an ongoing basis with additional changes, we should be making to further streamline our operations, our organization, operating efficiency et cetera. CRI generated an operating loss of approximately $1 million for 2Q ’17. Regarding the balance sheet, our liquidity improved and deferred revenue increased to $6.8 million growing by approximately $6 million from the December 31, 2016, balance sheet measurement day. This is an important component of our 2Q ’17 results. As Rick mentioned earlier and as summarized in our press release, we have a timing difference with respect to certain anticipated revenue recognition and the matching of the associated cost of goods. This was caused by a timing issue with the third-party vendor dependency. To build upon Rick’s statement earlier regarding 2Q and revenue recognition, if CRI were able to recognize the anticipated revenue associated with that order, the cost of goods and related gross margin, our 2Q 2017 year-over-year revenue growth would be 115%, year-over-year gross margin growth would be 55% and we would have reported modest operating income for 2Q 2017. That’s it on the 2Q 2017 results. Now comparing the first half of 2017 to the first half of 2016. Revenues were $10 million approximately for the six months period ended June 30, an increase of 83% compared to the same period in 2016. Gross profit was $4.5 million for the first half of 2017, an increase of $1.6 million or 56% from the corresponding period in 2016. Total OpEx operating expenses were $5.4 million for the first half of 2017 up a $100,000 or only 2% from the corresponding period in 2016. Net loss declined by 50% whereas our first half of 2017 operating loss was $2.24 million our one half 2017 net loss was only $1.7 million. Regarding the balance sheet, due to a change in classification of the non-cash valuation of equity warrants from a liability to shareholders equity associated with an accounting of FASB Accounting Standards Update, the company's shareholders equity increased by $2.5 million as of June 30, 2017. At this point, I'll turn the call back over to our CEO Rick Mills.

[Rick Mills:]

Thanks John. Jus to wrap it up. We were pleased with our improving financial results and the steady and continuing progress we have made against our strategic plan in the second quarter. So, with that, I believe we've had a couple of questions come in and so John I'll let you address Q&A.

[John Walpuck:]

Sure. So, couple of question. One was, were we at DSE and how did that go?

[Rick Mills:]

DSE is Digital Signage Expo, that is a show that happens every year in March timeframe in Las Vegas. We typically take a group of people, we're not an exhibitor at Digital Signage Expo it is mainly for companies in the digital signage space there are very few end user customers at Digital Signage Expo. So, we do not have a boost but I think this year we had a team of six or seven out there we spent four days and network with budget vendors and is always successful attending DSE.

[John Walpuck:]

Okay. Another question is can you comment on any ongoing industry consolidation and your expected roles to play there?

[Rick Mills:]

Great question. We're starting to some consolidation appear in the industry in the last quarter, we've done due diligence on two companies, we have a third due diligence visit scheduled on another company and we’re doing that in early September. So, we expect to be an aggregator of these businesses as we move forward. Again, just a little bit about the industry. There are about 600 competitors in our space across the United States. Most of them 95% plus or between 3 million and 8 million in revenue, they tend to be a single location somewhere between 15 to 25 employees, they have one or two customers that primarily is 40% to 50% of the revenue and they have another 50 customers which makes up there somewhere between 3 million and 8 million in revenue. And they have been in business 10 to 15 years, they have no exit strategy and no way to grow the business. The fact today that we’re directionally running at a $25 million, $25 million run rate, when we recognize all the proper revenue, we’re already, one of the top five in this space in what we do. But we do see consolidation coming and we expect to participate in that on an ongoing basis.

[John Walpuck:]

Another question. Is that new automotive customer you reference have a standard program or type of installation that you’re installing or are they all different?

[Rick Mills:]

It’s a standard program, they have two options actually technically when we restate that. They have three options. Most of them are choosing option B and C, which is significant digital presence in their showroom. Again, it’s a luxury brand, associated with luxury goods, associated with luxury pricing and the inside of these dealerships are starting to reflect the digital nature of the buyer.

[John Walpuck:]

Other question that we have is what are you looking for, how do you envision additional personnel hires. If so in what areas?

[Rick Mills:]

As we’ve engaged, as our sales people become productive, in this industry, it takes a minimum of six months for your sales force to get engaged and about nine months, they start dropping orders into the system. So, we expect as we grow business, we will add more project management staff across the country. They will report up to Bill Lawrence and his team is VP of Services. But that’s the area where we see growth and then finally just simply technical resources on the ground. We’re getting density in various geographic areas around the country and when we get density in certain cities, we tend to bring on a local technical resource as a full time W2 instead of the 1099. So those are the areas we see for growth.

[John Walpuck:]

Okay. Great. Sorry, I didn’t say that was the last question.

[Rick Mills:]

You got it.

[Rick Mills:]

Got it. So that was the last question. Again, I’ll just wrap it up, I’d like to thank you all for your time today on the call. Please stay tuned for some press releases, I expect to have a number of ongoing exciting ones over the next couple of months. Thank you and look forward to talking to you soon. Have a great day. Bye.