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Creative Realities, Inc. (CREX)

Q3 2017 Earnings Call· Wed, Nov 15, 2017

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Transcript

John Walpuck

Management

All right. Good morning everyone and thank you all for joining the Creative Realities Third Quarter 2017 Earnings Conference Call. On the call today are Rick Mills, Chief Executive Officer; and myself John Walpuck, Chief Financial Officer. Creative Realities issued its third quarter 2017 earnings press release yesterday which can be found on the company’s website at cri.com. Before we start I would like to remind everyone with some the statements that will be made today on the call will be forward-looking. These forward-looking statements are based on the company’s current expectations and believes, concerning future developments and their potential effects on the company. All forward-looking statements involve risk and uncertainties that could cause actual results or outcomes to differ materially. Such projections and statements of expectation should be interpreted in conjunction with the risk factors and other disclosures that may affect our results. All of which can be found on the company’s Form 10-k, Form 10-Q, Annual Report and other SEC related fillings. At this time, I would like to turn the call over to Rick Mills our CEO.

Rick Mills

Management

Thanks, John. Appreciate it, good morning everybody that’s on the call. And again thank you for joining our third quarter earnings call. Let’s start off with -- I'm very pleased to announce this is - the third quarter represents the fourth consecutive quarter that we've reported year-over-year revenue growth. And so, clearly we're headed in the right direction. We are not satisfied and we are continuing to work hard to move the needle and continue to grow the business. If you remember on our Q2 earnings call, we had a timing problem with the $6.1 million in revenue where we have an order that we can't recognize the revenue in 2017. And as we enter the Q4, we have a similar issue with an additional $1.8 million transaction. It involves a smart city infrastructure deployment in Toronto. So we have the order, the supplier is located in the Far East, and due to some last minute specification changes requested by our customer the product will not ship until first quarter of 2018. So adjusting our organic revenue growth is now expected to exceed 31% for 2017. And that translates to $18 million in revenue. Ultimately we're adjusting for the delay of two orders totaling $8 million our 2017 revenue would have met our original guidance of $26 million. So we're still learning a little bit as projects slip from quarter-to-quarter, but we're gaining on it steadily. As I stated in the last quarter and I will repeat it again, we are clearly set up for success when we can recognize these revenues, as the product ships. Earlier this year we announced a buyback program, 5 million shares over the next 24 months and the reason we did that is we continue to feel our share price is really not reflective…

John Walpuck

Management

Thank you, Rick. Let’s talk about 3Q ‘17 first. So, comparing 3Q ‘17 to 3Q ‘16 the three months period. As Rick indicated 3Q ‘17 was the fourth consecutive quarter of year-over-year revenue growth. 3Q ‘17 revenues increased 32% year-over-year to $3.6 million growing by $0.9 million. Gross profit was $1.4 million for 3Q ‘17, this was a slight increase of $0.1 million from 2016. Growth in revenue outpaced growth in gross profit as a result of our revenue mix. While 3Q ‘17 included a higher ratio of non-recurring hardware sales, services, and other gross margin percentage remain very strong at approximately 60%. Operating expenses increased 17% excluding the effects of onetime non-cash charges. Most importantly regarding our operating expenses we have rebuilt our sales leadership and sales team as Rick has discussed. So sales and marketing expense as a component of operating expenses increased by approximately 125% in 3Q ‘17 compared to 3Q ‘16. This was a direct result of expansion and rebuilding of our sales force and related sales activities. And as Rick mentioned earlier and also highlighted in our press release CRI booked $5 million in new sales orders during 3Q ‘17. Regarding the balance sheet, our liquidity improved, moreover the combination of deferred revenue and customers' deposits increased to $8.5 million growing by approximately $7.1 million or more than 500% from December 31, 2016. This in part reflects our growing backlog of booked sales orders associated with the rebuilt sales team and our new sales leadership. Now let’s talk about the first nine months of 2017 compared to 2016. Revenues for that period were $13.6 million, an increase of 66% compared to the same period in 2016. Gross profit was $5.9 million for the first nine months of 2017, an increase of $1.7 million or 41%…

Rick Mills

Management

Thanks, John. Appreciate the recap. Again I think you see a company that is extremely focused on number one expense control, we are not spenders, we're very focused on delivering value. Number two, we have taken every as we have optimized our expenses and we've put them right where it needs to be, which is in our sales generation and revenue generation. Number three, we are focused -- you look around the industry today at our public peers they are growing at somewhere between 1% to 4%, we grew 31% this year and we’re tremendously disappointed and it's set, but it has set as up for another tremendous organic growth easily exceeding 60% in 2018. So, with that I'll conclude my remarks and turn it back over to John, I don't know if we have any questions come in. I'll turn it back to you, if we have questions.

A - John Walpuck

Management

So, we had a couple of questions, I think two, let me run through them, I think they were partly already answered, this one was not. So, in the past, we've mentioned a deal acquisition and that we are looking at one or two or three, where are we with that process?

Rick Mills

Management

We continue to investigate acquisitions we have visited -- first off we have a number of companies under NDA, last counted was north of 15 that we had discussions with. Most recently we have done three visits for two day intense check, examination of three different companies, one of those companies was eliminated. We are in discussions with the other two and we expect to continue to move forward. Our goal is to be an aggregator in this business, and we think in 2018, we will begin to achieve that goal.

John Walpuck

Management

Got it. Another question, I believe you spoke to this earlier, how many sales reps we have today, I believe you mentioned 16, is that correct?

Rick Mills

Management

Yes, that is correct. That consists of 13 folks out calling on customers every day, a Senior VP of Sales. And then two insides sales folks who deal with kind of common core business every day orders in and out of the door. So it’s 16 sales assets all total calling on customers.

John Walpuck

Management

Got it. Third question was about ConeXus World stock acquisition issuance expense. I'll take that one. That is a non-cash charge that's related to hold back shares that were issued from the acquisition of ConeXus World by Creative Realities. It is non-cash, it's a $2 million charge, thereby reducing - improving our operating loss by 25% we mentioned earlier, pre-tax. Rick that's it on the questions. Do you want to wrap up?