CREATIVE REALITIES, INC. Q3 FY2024 earnings call

• Record third quarter revenue of $14.4M, up 25% y-o-y. Gross profit $6.6M, up 24.5% y-o-y. Adjusted EBITDA ~$2.3M, up 53% y-o-y. ARR at $18.1M annual run rate. • Robust pipeline of opportunities with multiple large contracts expected in coming months. • IPTV division reorganized and expanded, with plans to double stadium deployments in 2025. • BCTV project has 200+ installations and ongoing efforts to find efficiencies. • NetSuite ERP migration finalized, completed first full financial quarterly close. • SOC compliance project underway, anticipating type one SOC audit in late Q4 2024 or early 2025. • Participated in investor meetings and will attend Craig-Hallum Conference next week.

Third quarter revenue was a record $14.4 million, up 25% from $11.6 million in the prior year. Gross profit was $6.6 million, up 24.5% from $5.3 million in 2023. Adjusted EBITDA was approximately $2.3 million, a 53% increase from the prior year. Annual recurring revenue (ARR) was at an annual run rate of $18.1 million. The IPTV division completed its largest deployment in Q3 2024, an entire NHL arena. BCTV project crossed 200 total installations. QSR, retail (especially retail media networks), C-Store, and IPTV/ sports and entertainment are key verticals with strong demand.

• Fourth quarter revenue visibility is murky due to delays in large customer deployments; unable to provide specific estimate. • Confident 2024 will be a record year despite Q4 uncertainties. • ARR goal of $20M by year-end impacted by potential Q4 order/deployment slips. • Anticipate providing further details on 2025 performance early next year. • Operating leverage evident with adjusted EBITDA as % of revenue at 15.8% in Q3 and 11.5% YTD, ahead of 2024 exit run rate projections.

• Delays in large customer orders and deployments impacting fourth quarter revenue and ARR goals. • Timing issues with customer decision-making processes, particularly related to evaluating additional factors like retail media networks, which can slow down deal progress. • Potential impact of holiday season on bowling center deployments leading to sequential Q4 lag.

Q: Any bottlenecking in opportunities as they progress through the pipeline?

A: Rick Mills states it's due to customers evaluating additional factors like retail media networks, not install issues. The impetus of retail media networks can increase per-customer deployment volume.

Q: Pivot to profitability despite deals not timing as expected?

A: Will Logan mentions current quarter shows operating leverage, with adjusted EBITDA as % of revenue at 15.8% in Q3, and they'll reevaluate 2025 budget to assess long-term profit model.

Q: Pipeline context, large contracts, and verticals?

A: Rick Mills says pipeline is fuller than ever with 5-10 significant projects. Key verticals include QSR, retail (retail media networks), C-Store, and IPTV/sports and entertainment, with IPTV expecting strong results in 2025.

Q: IPTV restructuring and stadium upgrade cycle?

A: Rick Mills clarifies restructuring is allocating more resources, expecting to double stadium deployments in 2025. Last year had 3-6 stadium deployments, 2025 expects double that.

Q: Bowling contracts and 2025 deployments?

A: Will Logan mentions all hands meetings for bowling projects, with some software-side items out of control but CRI interested in scaling; fourth quarter will lag due to holiday season.

Q: G&A drop in Q3 and expense base?

A: Will Logan says Q3 G&A drop due to personnel reallocation to growth drivers, with some one-time items; expects to reset for 2025 and sees upside in reduced expense model. Rick adds cost structure flattening and SG&A not keeping pace with rapid revenue expansion.

Q: Screens/devices under control and retail media?

A: Rick Mills states ~400,000 screens, with discussions to transition legacy contracts to SaaS. Retail media networks are a key growth area as retailers seek to monetize physical locations.

Q: International expansion to Mexico?

A: Rick Mills reports first PO from Mexico for a C-store chain proof of concept, with talks of other opportunities; expects Mexico to bear fruit in 2026.

Q: M&A appetite?

A: Rick Mills says appetite is significant with favorable debt leverage, but challenges finding suitable $20-25M acquisitions; continues to discuss with competitors with no announcements today.

Q: Impact of Couche-Tard acquiring 7-Eleven?

A: Will Logan states belief transaction likely won't occur, historical experience with Couche-Tard, and no material change anticipated in relationships if it did consummate.