Creative Realities announces financial results for 3Q15

Sequential Sales and Gross Margin Increases; Gross Margin Improves to 45%; Positive Adjusted EBITDA of $230,000; Positive Impact of ConeXus Acquisition not yet included

Nov 19, 2015, 08:00 ET from Creative Realities, Inc.

NEW YORK, Nov. 19, 2015 /PRNewswire/ -- Creative Realities, Inc. ("Creative Realities", "CRI", or the "Company") (OTCQB: CREX), a leading digital asset management and shopper marketing solutions provider, announced its financial results for the three months ended September 30, 2015.

  • Sequential revenues for the three-month period ended September 30, 2015 increased 25% over the prior three-month period.
  • While revenue declined 24% compared to the third quarter 2014, gross profit increased 14% compared to the same period.
  • Gross profit increased 127% sequentially from 2Q15, improving gross margin to 45% of revenue.
  • The cumulative impact of the Company's business realignment, integration and restructuring program initiated in 3Q14 has resulted in annualized operating expense savings of approximately $6.2 million.  
  • Adjusted EBITDA was $230,000 in 3Q15, turning positive this quarter.
  • These 3Q15 results do not include the ConeXus acquisition; Company's pro-forma results show substantial improvement.

Rick Mills, the Chief Executive Officer of the Company stated, "My work in the past month since joining has focused on speaking with customers and employees of the combined Creative Realities / ConeXus. I am pleased with those discussions and the overall direction the combined company is taking, with plenty of opportunity for growth. In addition to the improving results from Creative Realities, our ConeXus World subsidiary achieved year-to-date 3Q15 revenue growth of approximately 210% versus the same period in 2014. Our positive operating results for the quarter provides us with what we believe to be a solid new foundation and path to produce ongoing profitable growth."

Revenues and Gross Margin

Revenues for the three-month periods ended September 30, 2015 and 2014, were $3.4 million and $4.4 million, respectively. The decrease in revenue was primarily due to the booking of a large retail order in the third quarter of 2014. It also resulted from our decision not to renew certain legacy client relationships where the terms did not meet our profitability requirements and achieve our business objectives.  Sequential revenues for the three-month periods ended June 30, 2015 and September 30, 2015, compared to the prior three-month periods, increased 27% and 25%, respectively, continuing the Company's positive sales momentum.

In addition, the Company has recently acquired some new customers which it has begun servicing in the fourth quarter of 2015, including the upcoming production rollout of a digital marketing initiative for a large chain of retail stores. This opportunity initially represents over 1,000 store locations in 2016 and, if completed, is expected to have a significant positive impact on the Company's results in 2016. 

While revenue declined from 3Q14, gross profit for the three-month period ended September 30, 2015 increased 14% from the same period in 2014. The increase in gross profit was primarily due to the Company's ongoing program to improve operating efficiency and reduce costs summarized below. The Company's gross margin increased from 22% of revenue in the first quarter of 2015 to 45% of revenue in the third quarter of 2015.

Adjusted EBITDA and Operating Expenses

The Company uses certain non-GAAP financial measures to permit management, investors and other stakeholders to more fully understand how we measure and evaluate our ongoing operating performance on a consistent basis, independent from our consolidated GAAP financial results which we believe are not directly applicable to the operating performance of our core business.

Beginning in late June 2014, the Company began planning for and implementing a broad range of actions designed to improve the efficiency of our operations, reduce our cost structure, and/or increase our revenues. Our primary objective in undertaking these actions was to realign, integrate and restructure our operations on an ongoing basis to achieve non-GAAP operating profitability, and ultimately achieve and maintain positive cash flows from operations as soon as practicable. During the period beginning from late June 2014 through the October 15, 2015 closing date of the ConeXus World Global acquisition, we have reduced our average recurring monthly cost structure (i.e., excluding non-cash expenses, one-time severance and restructuring costs, and other one-time adjustments) by approximately 49% or $6.2 million annually.  

The aggregate cumulative effect of these actions has established a new fixed cost base and level of operating efficiency at the consolidated Company, re-positioned the Company for future profitable growth, and enabled us to achieve non-GAAP operating profitability beginning in the three-month period ended September 30, 2015.

Total operating expenses for the three-month periods ended September 30, 2014 and 2015, were $2.8 million and $2.8 million, respectively. These GAAP operating expenses include non-cash charges, one-time restructuring and transaction costs, and other one-time adjustments. The Company's current report on Form 10-Q contains supplemental operating results on a non-GAAP basis, including the table presented below, that reconciles the Company's GAAP (Net Loss) to calculate an "Adjusted EBITDA" of $230,000 for the three-month period ended September 30, 2015.

We refer you to the Management's Discussion and Analysis section of the Company's 10-Q filed on November 16, 2015 for a more complete description of the Company's actions to realign, integrate and restructure our operations.

Pro forma Results for ConeXus Acquisition

As previously announced, on October 15, 2015, Creative Realities successfully completed its acquisition of ConeXus World Global ("ConeXus"). The results reported in this release and the Company's report on Form 10-Q for the period ended September 30, 2015 do not consolidate any of the financial results of the ConeXus acquisition. On a pro forma basis, assuming the acquisition took place on January 1, 2015, the Company would have reported pro forma estimated revenues of approximately $5.4 million and $12.5 million for the three and nine-month periods ended September 30, 2015, respectively.

Reconciliation of GAAP to Non-GAAP Adjusted EBITDA

The following table presents the Company's GAAP (Net Loss) measure, and the corresponding adjustments, to calculate "Adjusted EBITDA" for the three-month period ended September 30, 2015:

 

Creative Realities Inc

ADJUSTED EBITDA, RECONCILIATION TABLE

(Unaudited; in thousands)




Three months 30-Sep




2015






GAAP net (loss)  Plus:


$

(1,694)


Interest expense



302


Depreciation (includes accelerated depreciation)



439


EBITDA



(953)


Adjusted for:





Lease termination costs



638


Loss on contract renegotiation



230


Share-based compensation



39


Merger and acquisition expenses



32


Change in valuation of warrants



(15)


Amortization of debt discount related to warrants



153


D&O Tail insurance amortization



29


Purchase accounting adjustment



47


Settlement fees



30







Adjusted EBITDA


$

230


 

About Creative Realities
Creative Realities helps retailers and brands use the latest technologies to inspire shopper engagement in and around the Store.  Founded 16 years ago, the firm's evolving client base has led to recognized leadership in deploying technology aligned with strategic and consumer behavior goals at retailers.  The firm has delivered consumer/shopper experiences, and is actively providing recurring services today, across diverse categories: Automotive, Apparel & Accessories, Banking, Baby/Children, Beauty, CPG, Department Stores, Electronics, Fashion, Fitness, Foodservice/QSR, Financial Services, Gaming, Luxury, Mass Merchants, and Pharmacy Retail.

About ConeXus
The Company's ConeXus subsidiary designs, installs and services high-end audio-visual networks for global retailers, luxury brands, digital out-of-home (DOOH) companies, advertising networks, and outdoor clients. The company has four offices across North America and active installations in 40 countries.

Cautionary Note on Forward-Looking Statements
This press release contains certain statements that would be 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" and "believe" indicate forward-looking statements.

These forward-looking statements may reflect management's present expectations and estimates regarding future expenses, revenue and profitability, trends affecting our financial condition and results of operations, operating efficiencies, revenue opportunities, potential new markets, and the ability of the Company to effectively compete in a highly competitive market. Nevertheless, and despite the fact that management's expectations and estimates are based on assumptions management believes to be reasonable and data management believes to be reliable, the Company's actual results, performance, or achievements are subject to future risks and uncertainties, any of which could materially affect the Company's actual performance.  Risks and uncertainties that could affect such performance include, but are not limited to:  the adequacy of funds for future operations; future expenses, revenue and profitability; trends affecting financial condition and results of operations; ability to convert proposals into customer orders; the ability of customers to pay for products and services; the impact of changing customer requirements upon revenue recognition; customer cancellations; the availability and terms of additional capital; ability to develop new products; dependence on key suppliers, manufacturers and strategic partners; industry trends and the competitive environment; the impact of the Company's financial condition upon customer and prospective customer relationships; and the impact of losing one or more senior executives or failing to attract additional key personnel.  These and other risk factors are discussed in Company reports filed with the Securities and Exchange Commission.

Given these uncertainties, and the fact that forward-looking statements represent management's estimates and assumption as of the date of this press release, you should not attribute undue certainty to these forward-looking statements.  We assume no obligation to update any forward-looking statements publicly, or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements contained in this press release, even if new information becomes available in the future.

 

SOURCE Creative Realities, Inc.