Adrian J Cotterill, Editor-in-Chief
Creative Realities, Inc. (NASDAQ: CREX, CREXW), a leading provider of digital marketing solutions has announced its financial results for the three- and six-months ended June 30, 2020.
Probably not surprisingly given the current climate, Creative Realities had a Q2 net loss of USD 2.5M on revenue of USD 3.7M.
Rick Mills, Chief Executive Officer was quoted as saying “Entering the second quarter, we anticipated that the COVID-19 pandemic would disrupt the digital signage industry and the business operations in each of the vertical markets we serve as it forced companies to address both stay-at-home orders along with social distancing, increased sanitation protocols, masks, temperature checks and other procedures. In response, we implemented a series of cost-cutting measures and, more importantly, adjusted our product offering to launch the Thermal Mirror to assist businesses responding to newly developed COVID-19 protocols.”
Business Update
- Business Operations – In response to the COVID-19 pandemic and the guidance of government and public health officials, Creative Realities closed all of its facilities in April 2020 and the majority of CRI’s employees are currently working from home and continue to support the business.
- Cost Management Initiatives – CRI has and will continue to take additional action to aggressively manage operating costs, capital expenditures, and working capital. Our actions throughout the second quarter of 2020 and through today include (1) personnel and salary reductions, (2) working closely with vendor partners to enter payment plans for the Company’s outstanding accounts payable, (2) exiting, negotiating the deferral of payments, or restructuring existing long-term leases for our facilities, and (3) suspending travel for personnel.
- Liquidity – On April 27, 2020, the Company applied for and received a Paycheck Protection Program loan (“PPP”) of approximately $1.6 million, which is eligible for forgiveness. Our initial internal calculations and analysis indicate that we have achieved 75% forgiveness as of the date of this press release and expect to achieve 100% forgiveness by the end of the third quarter of 2020, at which point we plan to apply for forgiveness. If forgiveness is granted, the Company would recognize a gain of approximately $1.6 million and eliminate an equivalent amount of long-term debt. On June 19, 2020, the Company entered into a Sales Agreement under which the Company may offer and sell shares of its common stock. As of June 30, 2020, the Company has not sold any shares of common stock under the Agreement. Through August 13, 2020, the Company received net proceeds under the Sales Agreement of approximately $1.2 million from the issuance of approximately 550,000 shares of our common stock. The Company currently has cash on hand of approximately $1.1 million as of the date of this press release.
Second Quarter Financial Update
- Revenues were $3.7 million for the quarter ended June 30, 2020, a decrease of $5.7 million, or 61%, as compared to the same period in 2019.
- Hardware revenues were $1.6 million for the quarter ended June 30, 2020, a decrease of $0.1 million, or 3%, as compared to the same quarter in the prior year. Gross margin on hardware revenue was 19.1% in 2Q2020 as compared to 20.7% in 2Q2019.
- Services and other revenues were $2.1 million for the quarter ended June 30, 2020, a decrease of $5.6 million, or 73%, in the quarter ended June 30, 2020 as compared to the same period in 2019. Gross margin on services and other revenue was 73.6% in the quarter ended June 30, 2020 compared to 50.7% in the same period in 2019.
- Managed services revenue, which includes both SaaS and help desk technical subscription services, were effectively flat at $1.6 million in the second quarter of both 2020 and 2019.
- Gross profit was $1.8 million for the second quarter of 2020, a decrease of $2.4 million, or 57%, compared to the same period in 2019. Consolidated gross margin increased to 49.7% for the quarter ended June 30, 2020 from 45.4% in the same quarter in the prior year, driven primarily by a higher ratio of managed services revenue to total revenue in the period in part as a result of a reduction in installation services.
- With respect to operating expenses for the second quarter of 2020 as compared to the same period in the prior year:
- Sales and marketing expenses reduced by $0.2 million, or 39% while research and development expenses reduced by $0.1 million, or 38%, each driven by a reduction in employee-related expenses as a result of a combination of headcount reductions, salary reductions implemented for retained personnel, and a reduction in travel-related expenses in the current year including the elimination of participation in industry trade shows.
- General and administrative expenses were flat year-over-year; however, this is not reflective of the Company’s cost-cutting measures. During the second quarter of 2020, the Company’s employee-related expenses decreased by approximately $0.6 million as compared to the same period in 2019, representing a 45% reduction versus the prior year. These reductions were offset by an increase of $0.5 million in the Company’s reserve for bad debt related to a customer bankruptcy that was filed during the second quarter of 2020 and an increase of $0.2 million related to deal and transaction costs associated with the Company’s entry into an at-the-market offering. Excluding the effects of these discrete events, general and administrative expenses decreased by $0.6 million, or 25%, during the second quarter of 2020 as compared to the same period in 2019.
- Operating loss was $1.6 million in the quarter ended June 30, 2020 as compared to operating income of $0.5 million during the same period in 2019. Excluding the effects of discrete charges in 2Q20 and adjusting for the potential impact of the forgiveness of our PPP loan as calculated today, adjusted operating income would have been approximately $0.1 million. See below for a description of these non-GAAP financial measures and reconciliation to our operating loss.
- Net loss was $2.5 million in the quarter ended June 30, 2020 as compared to net income of $0.4 million for the same period in 2019. Net loss in the second quarter 2020 included a discrete, non-cash charge of $0.6 million related to fair value accounting for the Company’s Convertible Special Loan.
- EBITDA was ($1.7) million for the three months ended June 30, 2020 compared to $0.9 million the same period in 2019. Adjusted EBITDA was ($1.1) million for the three months ended June 30, 2020, compared to $1.1 million for the same period in 2019. See below for a description of these non-GAAP financial measures and reconciliation to our net loss.
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