Item 5. Market for Registrant’s Common Equity
ITEM 5 MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “CREX”. The transfer agent and registrar for our common stock is Computershare Limited.
Shareholders
As of March 10, 2025, we had 356 holders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to operate and expand our business and to finance the development and expansion of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions, and other factors deemed relevant by our Board of Directors.
Holders of our common stock are entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by our Board of Directors out of funds legally available for distribution.
Recent Sales of Unregistered Securities
None.
ITEM 6 [RESERVED]
Not applicable.
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ITEM 7 MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All currency is rounded to the nearest thousands, except share and per share amounts.)
The following discussion should be read in conjunction with the financial statements and related notes for the years ended December 31, 2024 and 2023, which are included elsewhere in this Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.
You should review the “ Cautionary Note Regarding Forward-Looking Statements; Risk Factor Summary ”, and “ Risk Factors ” sections of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
Overview
The Company transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:
●
Retail
●
Entertainment and Sports Venues
●
Restaurants, including QSRs
●
Convenience Stores
●
Financial Services
●
Automotive
●
Medical and Healthcare Facilities
●
Mixed Use Developments
●
Corporate Communications, Employee Experience
●
DOOH Advertising Networks
We serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital signage experiences. Our solutions are increasingly visible because we help our enterprise customers achieve a range of business objectives including:
●
Increased brand awareness;
●
Improved customer support;
●
Enhanced employee productivity and satisfaction;
●
Increased revenue and profitability;
●
Improved guest experience; and
●
Increased customer/guest engagement.
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Through a combination of organically grown platforms and a series of strategic acquisitions, the Company assists customers to design, deploy, manage, and monetize their digital signage networks. The Company sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts. Customer engagements focus on consultative conversations that ensure the Company’s solutions are positioned to help customers achieve their business objectives in the most cost-effective manner possible.
When comparing us to other digital signage providers, our customers value the following competitive advantages:
●
Breadth of solutions – Creative Realities offers a wide breadth of solutions to our customers. Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products and services required to implement and run an effective digital signage network. We leverage a ‘single vendor’ approach, providing customers with a one-stop-shop for sourcing digital signage solutions from design through day two services.
●
Managed labor pool – Unlike most companies in our industry, we have a curated labor pool of qualified and vetted field technicians available to service customers quickly nationwide. We can meet tight schedules even in exceptionally large deployments and still ensure quality and consistency.
●
In-house creative resources – We assist customers in creating new content or repurposing existing content for digital signage experiences, an activity for which the Company has won several design awards in recent years. In each instance, our services can be essential in helping customers develop an effective content program.
●
Network scalability and reliability – Our SaaS content management platforms power some of the largest and most complex digital signage networks in North America, evidencing our ability to manage enterprise scale projects. This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business customers.
●
AdTech platforms – The Company has developed and deployed the AdLogic and Adlogic CPM+ platforms, which, working in conjunction with our CMS platforms, present completely integrated digital advertising solutions for existing and prospective customers seeking to monetize their in-store retail media networks. These platforms anchor the Company's vertical expansion into AdTech bringing new, and expanding existing, addressable markets.
●
Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, QSRs, convenience stores, and DOOH advertising. Our expertise in these business segments enable our teams to provide meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives. These experts build industry relationship and create thought leadership that drives lead flow and new opportunities for our business.
●
Logistics – Implementing a large digital signage project can be a logistical nightmare that can stall an initiative, even before deployment. Our expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money.
●
Technical support – Digital signage networks present unique challenges for corporate IT departments. We simplify and improve end user support by leveraging our own NOC in Louisville, Kentucky. The NOC resolves many issues remotely and when field support is required, it can be dispatched quickly from the NOC, leveraging our managed labor pool to resolve customer issues quickly and effectively.
●
Integrations and Application Development – The future of digital signage is not still images and videos on a screen. We believe that interactive applications and integrations with other data sources will dominate the future. From social media feeds, mobile integrations, corporate data stores, or POS systems, our proven ability to build scalable applications and integrations is a key advantage that customers can leverage to deliver more compelling and engaging experiences for their customers.
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●
Hardware support – A number of digital signage providers sell a proprietary media player or align themselves with just one operating system. We utilize a range of media players including Windows, Android and BrightSign to provide customers the flexibility they need to select the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform, reducing complexity and improving the productivity of our customers.
Our Sources of Revenue
The three primary sources of revenue for the Company are:
●
Hardware sales from reselling digital signage hardware from original equipment manufacturers such as Samsung and BrightSign.
●
Services revenue from helping customers design, deploy and manage their digital signage network, including:
o
Hardware system design/engineering
o
Hardware installation
o
Content development
o
Content scheduling
o
Post-deployment network and field support
o
Media sales
●
Recurring subscription licensing and support revenue from our digital signage software platforms, which are generally sold via a SaaS model. Our platforms:
o
ReflectView , the Company’s core digital signage platform for most applications, scalable and cost effective from 10 to 100,000+ devices;
o
Reflect Xperience , a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while still maintaining centralized programming control;
o
Reflect AdLogic , the Company’s ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily;
o
Clarity , the Company’s menu board solution, which has become a market leader for a range of restaurant, including QSR and convenience store applications;
o
Reflect Zero Touch , which allows customers to turn any screen into an interactive experience by allowing guests to engage using their mobile device;
o
iShowroomProX , an omni-channel digital sales support platform targeted at original equipment manufacturers in the transportation sector, which integrates with dozens of key data services including dealer inventory at the VIN level; and
o
OSx+ , a digital VIN-level checklist used to assist in the tracking and delivery of new vehicles in the transportation sector, providing measurable lift in customer satisfaction scores and connected vehicle enrollments and subscription activations.
While hardware sales and support services revenues can fluctuate more significantly year over year based on new, large-scale network deployments, the Company is focusing on maintaining and increasing recurring SaaS revenue as digital signage adoption/utilization expands across the vertical markets we serve.
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Our Operating Expenses
Our operating expenses are comprised of sales and marketing, and general and administrative expenses. Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries, and benefits for our corporate officers and other expenses such as legal and accounting fees.
Recent Developments
Public Offering
On August 17, 2023, the Company conducted a public offering for the sale by the Company of an aggregate of 3,000,000 shares of common stock, par value $0.01 per share at a public offering price of $2.00 per share and received approximately $5,454 in net proceeds, after deducting underwriting fees of $478 and offering costs of $68.
Reverse stock split
On March 27, 2023, the Company effected a 1-for-3 stock split of the shares of the Company’s common stock, par value $0.01 per share.
As a result of the reverse stock split, effective 12:01 am on March 27, 2023, every three shares of common stock then-issued and outstanding automatically combined into one share of common stock, with no change in par value per share. All fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from 200,000,000 shares to 66,666,666 shares in proportion to the outstanding shares of common stock.
Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company’s equity compensation plans were reduced in proportion to the reverse stock split. The reverse stock split also resulted in the number of shares of shares of common stock issuable upon exercise of outstanding warrants, or the exercise or vesting of equity awards, in proportion to the reverse stock split and caused a proportionate increase in exercise price or share-based performance criteria, where applicable.
Rejection of unsolicited offers
On February 2, 2023 and May 1, 2023, we received unsolicited proposals from Pegasus, to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for purchase prices of $0.83 per share in cash (or, as a result of our 1-for-3 reverse stock split effectuated in March 2023, $2.49 per share), and $2.85 per share in cash, respectively. Pegasus is the beneficial owner of our common stock owned of record by Slipstream. The Special Committee concluded that each proposal undervalued the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and was not in the best interests of the Company’s existing shareholders. Consequently, the Special Committee advised Pegasus that it rejected each proposal, and since such time, Pegasus has not made any subsequent acquisition proposal.
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Results of Operations
Note: All dollar amounts reported in Results of Operations are in thousands, except per-share information.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The tables presented below compare our results of operations from one period to another, and present the results for each period and the change in those results from one period to another in both dollars and percentage change.
Year Ended December 31,
Change
2024
2023
%
Sales
$
50,854
$
45,166
$
5,688
13
%
Cost of sales
26,843
22,983
3,860
17
%
Gross profit
24,011
22,183
1,828
8
%
Sales and marketing expenses
6,015
5,247
768
15
%
General and administrative expenses
17,058
15,590
1,468
9
%
Total operating expenses
23,073
20,837
2,236
11
%
Operating income
938
1,346
(408
)
30
%
Other expense (income):
Interest expense, including amortization of debt discount
1,775
2,992
(1,217
)
41
%
Loss on change in fair value of contingent consideration
1,608
1,419
189
13
%
Loss on debt extinguishment
1,059
-
1,059
100
%
Other expenses (income), net
(102
)
(211
)
109
52
%
Total other expense (income)
4,340
4,200
140
3
%
Net loss before income taxes
(3,402
)
(2,854
)
(548
)
19
%
Income tax expense
(106
)
(83
)
(23
)
28
%
Net loss
$
(3,508
)
$
(2,937
)
$
(571
)
19
%
Sales
Sales increased by $5,688, or 13%. Hardware revenues were $18,259, a decrease of $2,044 or 10%. Services and other revenues were $32,595, an increase of $7,732 or 31%, driven by installation and managed services revenue. Managed services revenue, which includes both SaaS and help desk technical subscription services increased to $19,547 from $15,916. The increase is driven by increasing software subscription revenue, with the annual recurring run rate of our subscription license revenue growing from $16,336 as of December 31, 2023 to $16,785 as of December 31, 2024. This represents a year-over-year growth rate of approximately 6% in our higher margin, typically subscription-based, managed service revenue.
Gross Profit
Gross profit increased $1,828 to $24,011 from $22,183, or 8%, through a combination of a 13% increase in revenue partially offset by a 2% decrease in gross margin percentage. Gross margin decreased to 47% from 49% driven by revenue mix in our services revenue, which included an 83% increase in installation services in the current year.
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Sales and Marketing Expenses
Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses increased by $768, or 15%, for the year ending December 31, 2024 as compared to the same period in 2023, driven primarily by the Company’s enhanced investments into sales and marketing activities, including increases of (1) $582 in fixed and variable sales costs as the Company continues to invest in new business development to strengthen its pipeline, and (2) $171 in variable third party media-related commissions.
General and Administrative Expenses
General and administrative expenses increased $1,468, or 9%, for the year ending December 31, 2024 as compared to the same period in 2023. The change is driven by an increase of $1,999 in personnel costs, including both the Company’s portion of employee benefits and other administrative and processing costs associated with employment, in the current year driven by increased headcount in development and administrative functions to support active and anticipated deployments for a growing number of customers. Increases in general and administrative expenses were offset by a $550 decrease in stock compensation expense in the current period as all outstanding time vested and performance awards for employees and directors were fully expensed as of December 31, 2023.
Interest Expense
See Note 7 Debt to the Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.
Loss on change in fair value of contingent consideration
The Company has a contingent consideration arrangement related to the Merger to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock. See Note 2 Section 13 Summary of Significant Accounting Policies - Contingent Consideration to the Consolidated Financial Statements for a discussion of the Company's obligations related to the contingent consideration arrangement. The contingent consideration arrangement is recorded at fair value and is classified as a liability on the acquisition date and is remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model. The change in the period represents the mark-to-market adjustment as of the balance sheet date.
Loss on extinguishment of debt
The Company recognized a $1,059 loss on extinguishment of debt equal to the remaining unamortized portion of debt discount associated with the Acquisition Term Loan and Consolidation Term Loan as of May 23, 2024, the date the Company entered into the Credit Agreement.
Supplemental Operating Results on a Non-GAAP Basis
The following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure. Our management believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our Company in gauging our results of operations on an ongoing basis. We believe that earnings before interest, depreciation, and amortization (“EBITDA”) is a performance measure and not a liquidity measure, and therefore a reconciliation between net (loss) income, a GAAP financial measure, and EBITDA and Adjusted EBITDA has been provided. EBITDA should not be considered as an alternative to net (loss) income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP that are included elsewhere in this Report.
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Quarters Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
Quarters ended
2024
2024
2024
2024
2024
GAAP net (loss) income
$
(3,508
)
$
(2,838
)
$
54
$
(615
)
$
(109
)
Interest expense:
Amortization of debt discount
569
-
-
209
360
Other interest, net
1,206
296
303
304
303
Depreciation/amortization:
Amortization of intangible assets
3,877
1,128
1,081
878
790
Amortization of employee share-based awards
13
4
3
3
3
Depreciation of property and equipment
201
49
51
52
49
Income tax expense (benefit)
106
(120
)
192
25
9
EBITDA
$
2,464
$
(1,481
)
$
1,684
$
856
$
1,405
Adjustments
Loss (Gain) on fair value of contingent consideration
1,608
2,022
598
(408
)
(604
)
Loss on debt extinguishment
1,059
-
-
1,059
-
Other expense (income)
(102
)
(74
)
(11
)
18
(35
)
Adjusted EBITDA
$
5,029
$
467
$
2,271
$
1,525
$
766
Quarters Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
Quarters ended
2023
2023
2023
2023
2023
GAAP net (loss) income
$
(2,937
)
$
1,419
$
(1,931
)
$
(1,425
)
$
(1,000
)
Interest expense:
Amortization of debt discount
1,443
366
363
358
356
Other interest, net
1,549
302
371
429
447
Depreciation/amortization:
Amortization of intangible assets
3,055
781
766
754
754
Amortization of employee share-based awards
383
4
3
151
225
Depreciation of property and equipment
166
48
50
43
25
Income tax expense (benefit)
83
10
(15
)
45
43
EBITDA
$
3,742
$
2,930
$
(393
)
$
355
$
850
Adjustments
Loss (Gain) on fair value of contingent consideration
1,419
(42
)
1,369
16
76
Stock-based compensation – Director grants
150
21
43
43
43
Other expense (income)
(211
)
(79
)
3
(123
)
(12
)
Adjusted EBITDA
$
5,100
$
2,830
$
1,022
$
291
$
957
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Liquidity and Capital Resources
See Note 1 Nature of Organization and Operations to the accompanying Consolidated Financial Statements for a detailed discussion of liquidity and financial resources.
Operating Activities
The cash flows provided by operating activities were $3,381 and $5,167 for the years ended December 31, 2024 and 2023, respectively. The Company generated a net loss of $3,508, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $4,647, a loss on the extinguishment of debt of $1,059, and a loss on the change in fair value of contingent consideration of $1,608. The Company had a $531 decrease in cash provided by operating activities due to changes in operating assets and liabilities, primarily due to decreases in accounts payable, and customer deposits, partially offset by a decrease in accounts receivable.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2024 was $2,801 as compared to $4,027 for the same period in 2023. We currently do not have any commitments for capital expenditures as of December 31, 2024. The reduction in capital expenditures in 2024 compared to prior period was anticipated as the Company has been reducing third-party development resources utilized for the modernization and internationalization of our automotive platform, which launched to user acceptance testing during the second quarter of 2024.
Financing Activities
Net cash used in financing activities during the year ended December 31, 2024 was $2,453 compared to net cash provided by financing activities of $137 for the same period in 2023. Net cash used in financing activities during the year ended December 31, 2024, is primarily the result of the repayment of related party term debt totaling $15,147, partially offset by net proceeds of $13,044 from borrowings and payments under the Company's revolving credit facility.
Off-Balance Sheet Arrangements
During the year ended December 31, 2024, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.
Critical Accounting Policies and Estimates
Our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation. Our management believes these policies are reasonable and appropriate. The Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies of the Company’s Consolidated Financial Statements included within Part II, ITEM 8 of this Report. The following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements, the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates.
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Revenue Recognition
We recognized revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, we account for revenue using the following steps:
●
Identify the contract, or contracts, with a customer;
●
Identify the performance obligations in the contract;
●
Determine the transaction price;
●
Allocate the transaction price to the identified performance obligations; and
●
Recognize revenue when, or as, we satisfy our performance obligations.
See Note 2 Summary of Significant Accounting Policies and Note 4 Revenue Recognition in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a complete discussion of our revenue recognition policies.
Goodwill
Goodwill is evaluated for impairment annually as of September 30 and whenever events or circumstances make it more likely than not that impairment may have occurred. We have no other indefinite-lived intangible assets. We have one reporting unit, and therefore the entire goodwill is allocated to that reporting unit.
Using the quantitative approach, fair value of the reporting unit is estimated using both (1) a market approach, leveraging recent industry merger and acquisition activity as well as comparable public company information, and (2) a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. If the carrying amount exceeds the fair value, further analysis is performed to measure the impairment loss.
Using the qualitative approach, the Company reviews macroeconomic conditions, industry and market conditions and entity specific factors, including strategies and financial performance for potential indicators of impairment.
Our market capitalization could fluctuate from time to time. Such fluctuation may be an indicator of possible impairment of goodwill if our market capitalization falls below its book value. If this situation occurs, we perform the required detailed analysis to determine if there is impairment.
No impairment was recorded as a result of our annual assessment completed as of September 30, 2024.
The valuation of goodwill is subject to a high degree of judgment, uncertainty and complexity. We believe the future estimates and assumptions used to test for impairment losses on goodwill are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
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Income Taxes
Accounting for income taxes requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date, including the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”).
We recognize in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.
As of December 31, 2024, a full valuation allowance is recorded against our deferred tax. The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of federal and state tax loss carryforwards, and credits and the expiration dates of such tax loss carryforwards. Significant assumptions are used in developing the analysis of future taxable income for purposes of determining the valuation allowance for deferred tax assets which, in our opinion, are reasonable under the circumstances.
Impact of Recently Issued Accounting Pronouncements
Refer to Note 2 Summary of Significant Accounting Policies in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1 .
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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