Digital signage tech provider Creative Realities reports full-year 2023 revenue $45.2 million, gross profit of $22.2 million

LOUISVILLE, Ky., March 21, 2024 — Creative Realities, Inc. (“Creative Realities,” “CRI,” or the “Company”) (NASDAQ: CREX), has reported its financial results for the fiscal fourth quarter and year ended December 31, 2023.

Highlights:

• All-time record revenue of $14.5 million ($15.4 million*) and $45.2 million ($46.1 million*) for the fourth quarter and full year 2023, respectively
• All-time record gross profit of $7.5 million and $22.2 million for the fourth quarter and full year 2023, respectively
• All-time record Adjusted EBITDA** of $2.8 million and $5.1 million for the fourth quarter and full year 2023, respectively
• Annual recurring revenue (“ARR”) rose to an all-time high of a $16.3 million run rate exiting 2023; Company increasing 2024 exit run rate guidance to $20.0 million from $18.0 million

“I am pleased to report that the Company generated all-time record quarterly revenue of $14.5 million in the last three months of fiscal 2023, up nearly 40% versus the prior-year period, bringing the full fiscal year to $45.2 million – also a new high mark for Creative Realities,” said Rick Mills, Chief Executive Officer. “At the same time, the Company generated all-time records in terms of gross profit – $7.5 million and $22.2 million, respectively, for the fourth quarter and full year – representing gross margins of 51.8% and 49.1%, respectively. In addition, due to the strong fourth quarter, we posted positive operating income in 2023, the first time in history. We also achieved record Adjusted EBITDA of $2.8 million in the quarter, reflecting the largest media sales transaction ever, and exited the year with an ARR of $16.3 million, exceeding expectations.

“As I have conveyed repeatedly, a key financial focus is to generate high-margin, subscription Software-as-a-Service (“SaaS”) revenue, with hardware sales and deployments being one means to this end. The fact that we were able to over-perform on ARR helped the Company achieve its revenue projections, with superior gross profit, despite delayed rollouts for certain major customer deployments. As of January 1, 2024, new customer contracts and pricing changes have already driven our ARR on SaaS to $17.7 million – leading us to increase the Company’s 2024 ARR exit guidance to $20.0 million from $18 million. I cannot overemphasize the magnitude of this accomplishment, as higher ARR should accelerate our growth trajectory, bolster margins, and improve cash flow generation in the year ahead.

“We believe these results, once again, underscore the strength of our platform and demonstrate the Company’s considerable potential to drive value for shareholders. Given the momentum within our current customer base – and as our pipeline for potential new customers continues to grow – we remain excited about the future and we are on track for our best year ever.

*Gross contracted revenue prior to net presentation
**Adjusted EBITDA is a non-GAAP financial measure. A reconciliation is provided in the tables of this press release.

2023 Fourth Quarter Financial Results

In connection with both entry into a significant new multi-year media sales contract and amending a related customer contract during the fourth quarter of 2023, the Company modified its accounting for media sales to be recorded net rather than gross beginning in Q4 2023 and forward, which resulted in recording revenues associated with these customer contracts at net beginning in this quarter and for all future periods. This will have the effect of recognizing revenue at a lower value than under previous periods for the same type of transactions. While this does not impact gross profit, operating income, Adjusted EBITDA or net income in terms of absolute dollars, the percentage of such metrics as a factor of sales does change, in a manner the Company believes is a more appropriate depiction of its actual profitability. The Company’s calculation of ARR is completely unaffected by these contract amendments.

Sales were $14.5 million for the fiscal 2023 fourth quarter, an increase of $4.0 million, or 38%, as compared to the same period in fiscal 2022. Hardware revenues were $7.7 million, more than double that in 2022, reflecting growth across the Company’s customer base. Gross margin on hardware revenue was 22.5% in fiscal 2023 as compared to a negative margin in the prior-year period, reflecting greatly improved efficiencies through purchasing power and product mix as well as the write-off of obsolete inventory in the fiscal 2022 fourth quarter.

Services and other revenues were $6.8 million in the fiscal 2023 fourth quarter, a decline of 13% year-over-year, reflecting contract timing. Gross margin on Services amounted to 85.2%, a 240 basis point improvement year-over-year, with the increase driven by higher software subscription run-rates and improved service mix, leading to a record ARR of $16.3 million as of December 31, 2023.

Consolidated gross profit was $7.5 million for the fiscal 2023 fourth quarter versus $4.7 million in the prior-year period, and consolidated gross margin increased to 51.8% from 44.5% in the fiscal 2022 fourth quarter, an increase of 73 basis points, driven by higher margins across the board, expansion of SaaS-based revenue, and entry into a material, long-term media sales contract for which revenue is recognized at contract inception on a net basis.

Sales and marketing expenses in the fourth quarter rose to $1.6 million, up 47% compared to the prior-year period, reflecting enhanced investment in business development activities. Research and development expenses in the fourth quarter were roughly flat year-over-year, at $0.4 million. Fourth quarter general and administrative expenses decreased $1.0 million, or 26%, largely driven by lower stock compensation expense.

Operating income was $2.0 million for the fiscal 2023 fourth quarter versus an operating loss of $1.2 million during the same period in 2022, reflecting the aforementioned higher gross profit and lower operating expenses. The Company reported net income of $1.4 million in the quarter ended December 31, 2023 versus a net loss of $1.3 million in the prior-year period.

Adjusted EBITDA (defined later in this release) was $2.8 million in the fourth quarter of 2023 as compared to Adjusted EBITDA of $1.0 million in the prior-year period.

Balance Sheet
As of the December 31, 2023, the Company had cash on hand of approximately $2.9 million. As of the date of this earnings release, the Company has cash on hand of approximately $4.5 million, driven in part by customers with annual SaaS billings at the start of each calendar year.

As of December 31, 2023, the Company had outstanding principal debt of approximately $15.1 million, resulting in net debt of approximately $12.2 million as of that date. This represents a reduction of approximately $7.0 million in net debt as compared to December 31, 2022, at which point net debt was $19.0 million. The Company continues to repay approximately $0.4 million in debt principal monthly, with a focus to reduce its leverage ratio to between 1.0x and 1.2x by December 31, 2024. As of the date of this earnings release, the Company’s net debt position is approximately $9.5 million.