Creative Realities (NASDAQ:CREX) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.

View the webcast at https://edge.media-server.com/mmc/p/mewnvuha

Summary

Creative Realities reported a net loss of $4.6 million for Q2 2026, compared to a $1.8 million loss in the prior year, but adjusted EBITDA rose to $2 million from $1.1 million.

The integration with CDM is nearly complete, with expected annual synergies of $10 million; currently, $7.5 million of these synergies have been realized.

The company anticipates Q3 2026 will be the largest revenue quarter in its history, with Q4 expected to significantly exceed Q3 results.

A recent equity offering raised $12 million to strengthen the balance sheet, with the CEO and other executives personally investing in the company.

Sales for Q2 2026 increased to $21.5 million, up 65% from the same quarter in 2025, with service revenue more than doubling to $14 million.

Gross margins were slightly down due to changes in product mix and contract expirations, but margins are expected to improve with new business growth.

The going concern notice has been removed from financial statements, indicating improved financial health and confidence in future cash flows.

Key customer deals include Albertsons for an in-store media network and the Tennessee Titans' new stadium, contributing to significant revenue growth projections.

The company is transitioning existing clients to its platform to improve efficiencies and anticipates further growth in SaaS revenue in 2027.

Full Transcript

Rick, CEO

And as we previously discussed, we have somewhere between 4 and 5 million in backlog of ARR that will show up as we turn the clock and start 2027. So on January 1st, that number automatically goes up significantly. Net loss attributable to common shareholders was 4.6 million for the three months ended June 30, 2026, compared to a net loss of 1.8 million in the prior year period. Adjusted EBITDA rose to 2 million for the second quarter of 2026 versus 1.1 million last year.

Our financial results are improving and our team is putting in the hard work to increase operating efficiencies and leverage opportunities across our much larger, technologically advanced, customer-centric organization. We have now completed the majority of the integration with CDM we announced earlier this year. We expect to realize synergies of at least $10 million on an annualized basis. Currently, our run rate is approximately 75% of the total synergy number, or approximately 7.5 million has been realized.

This will help us to drive adjusted EBITDA margins in the quarters to come as we scale revenue. As we grow our adjusted EBITDA, we expect to use the free cash flow to further delever the balance sheet, as many of you know, exactly as we have done in the past. The bottom line is we remain on track for the best year ever, as we anticipate Q3 will be the largest quarter of revenue in the company's history. We expect Q3 this quarter to significantly exceed Q4 2025, when we achieved 9 in revenue.

And one other comment to note, we are also confident that Q4 will significantly exceed Q3 2026. So next two quarters, upward trajectory, tremendous growth. One other thing, we recently completed a follow-on offering, raising approximately 12 million in net proceeds to help strengthen the balance sheet and provide capital for future growth. One additional note about the capital raise: I personally, as the CEO, purchased 5% of the shares in the offering, and several other members of the leadership team participated in the offering.

Clearly, we believe in and are committed to growing this business. Creative Realities is on track to be well positioned for the next two quarters and 2027. I'll come back in a minute to talk about some customer updates, but we'll now turn it over to Tamara to share some additional comments on our second quarter financials.

Tamara, Chief Financial Officer

Thanks, Rick. An overview of our financial results for the second quarter of 2026 is provided in our earnings release filed this morning, which includes the condensed consolidated balance sheet as of June 30, 2026, the statement of operations and cash flows for the three and six months ended June 30, 2026, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended June 30, 2026, as well as the preceding four quarters.

We anticipate filing the Form 10-Q for the second quarter tomorrow. While Rick provided our operating results, briefly, let me provide more context related to our performance and outlook. Looking at the income statement, as Rick mentioned, second quarter sales rose to 21.5 million. This is an increase of 5.1 million compared to the first quarter and 65% higher than the same quarter in 2025. CDM contributed 7.4 million during the quarter, or 35% of the total.

Sales from our legacy Creative Realities business increased approximately 8% year over year, driven by new installs across multiple new customers, including catching up on some of the installs that were delayed from Q1. Hardware sales rose to 7.5 million versus 7.1 million in the prior year period, reflecting both new deployments and the inclusion of CDM. Service revenue more than doubled to 14 million from 6 million in fiscal 2025, reflecting 7 million of CDM service sales and positive growth in the legacy Creative Realities business from new installs.

Consolidated gross profit was 8.3 million in 2Q26 versus 5 million in the prior year period, and consolidated gross margin was 38.6% versus 38.5% in 2Q25. Gross margin on hardware revenue was 17.2% during the quarter, as compared to 25.1% in the prior year period, while gross margin on services amounted to 50.1% versus 54.4% in 2Q25. Hardware gross margins decreased year over year primarily due to mix, while service gross margin declined due to the expiration of higher-margin customer contracts in 2025.

We anticipate gross margin to increase quarter over quarter as we realize sales growth from new business. Sales and marketing expenses in the second quarter rose to 2 million versus 1.2 million in the prior year period, with CDM contributing approximately 500,000. General and administrative expenses were 9 million in the second quarter compared to 5.2 million in fiscal 2025, the increase driven by 3.8 million in CDM expenses during the quarter. Legacy Creative Realities G&A expenses were down approximately 400,000 year over year.

We remain on track to achieve the 10 million of synergies that Rick mentioned, and cost reductions that have previously been announced for fiscal 2026, while also investing in the business to accelerate growth going forward. We posted an operating loss of approximately 2.7 million in the second quarter of fiscal 2026, compared to an operating loss of 1.3 million in fiscal 2024, reflecting the items I just discussed. Creative Realities reported a net loss of 4.2 million and a net loss attributable to common shareholders of 4.6 million, or $0.43 per diluted share, in the quarter ended June 30, 2026, versus a net loss of 1.8 million, or $0.17 per diluted share, in the prior year period. Adjusted EBITDA rose to 2 million in 2Q26 as compared to 1.1 million in the prior year period and a loss of 494,000 in the first quarter. While adjusted EBITDA greatly improved over Q1 results, we continue to anticipate that it and associated cash flows will further improve during the second half of fiscal 2026, given the forecasted business growth and cost initiatives previously discussed. In terms of the balance sheet, as of June 30, 2026, the company had cash on hand of approximately 10.7 million versus 1.6 million at the start of 2026.

As Rick mentioned, we completed an equity offering that raised net proceeds of approximately 12 million to provide capital for growth and strengthen the balance sheet. Our debt stood at 46.6 million at the end of the second quarter, as compared to 44 million at the beginning of the fiscal year. We had approximately 12.8 million of available liquidity under our revolving credit facility as of June 30, 2026. We intend to use positive operating cash generation and the equity proceeds to support our growth projections, fund capital expenditures, and lower our debt when possible.

We remain dedicated to maintaining an optimized capital structure in support of financial flexibility. We believe, given our recent capital raise and general positive outlook for the business, we are in a strong position to continue supporting this growth while strengthening the balance sheet. One other item to mention: we provided a comprehensive financial model and corresponding documentation to our auditors in support of alleviating the going concern that has been on our financial statements for multiple periods.

The auditors have reviewed our analysis and have concluded that the going concern is no longer needed. When our 10-Q is released tomorrow morning, the going concern language will not be there. We are confident in the plan we have laid out for the second half of 2026 and 2027 that models our ability to generate profitable growth and adequate cash flow and liquidity to sustain the business. I will now turn it back to Rick for additional comments around customer activities.

Rick, CEO

Thanks, Tamara. Great news about the removal of the going concern. Thanks for all the hard work. Okay, now some customer updates. I previously announced that we were selected as the official digital signage provider for the Tennessee Titans and the new Nissan Stadium under construction in Nashville, Tennessee. As a reminder, this is about an 8.5 million deal that includes the installation of thousands of displays and a full IPTV solution throughout the venue.

We are on track for most of this revenue to be realized in 2026. Additional perspective on the Retail Media Network grocery client: I can now say that this new customer is Albertsons, an incredible brand, well-known company with thousands of locations across the U.S. To our knowledge, it is the largest retail media network being deployed in the United States this year. This is being measured by screen count. So why is Albertsons investing in this in-store media network?

Why do in-store media networks work, right? Well, all the reasons we've discussed on prior calls, but in Albertsons, think along these lines: 2,200 stores, 20 well-known store banners in 35 states. Think of the names Albertsons, Safeway, Vons, Jewel-Osco—premium brands with locations all across the country. They get 36 million customers per week, which equates to 543 million annual customer trips. Tremendous network. We're thrilled to be part of it and excited.

They are using our entire ad-tech stack, our CMS, all the things we talked about previously. Another customer, AMC. As a reminder, April 13th we announced a project to expand and modernize AMC Theatres’ in-lobby media footprint across about 285 locations nationwide. This is a partnership between Creative Realities and National CineMedia. They are the leading cinema advertising platform in the U.S. This media network utilizes our CMS platforms again, including ReflectView, and then our AdLogic ad-tech solution to provide ad serving for all the screens.

We have completed the test locations and are moving to full deployment this month. As we mentioned in the earnings press release, we are in the contract stage with two additional customers. One is a national cellular organization which operates more than 900 retail locations across 45 states. The other is a fast-growing QSR which today operates more than 1,000 restaurants across 22 states. Both customers are converting existing screens with plans for significant growth over the next few years.

These conversions—actually, one conversion will be completed by the end of September. The other conversion will be completed by the end of the year. They will help us grow our SaaS revenue in 2027. One additional customer to talk about: we are in the process of migrating all of the Lexus Toyota dealerships in Canada to our CMS platform. This engagement includes significant creative work to be delivered by our team. It includes approximately 300 locations, and it will generate a couple hundred thousand a year in SaaS and creative services.

In closing, I want to take a moment and point out to everyone our plans to go big, scale up, and focus on the enterprise customer is working. We believe we have reached the stage where our profitability will grow quickly as we layer on additional business. Our sales pipeline is strong and, most importantly, continues to grow significantly. The combined teams in the U.S. and Canada are working well together and, frankly, delivering exceptional customer value.

The reception from the customer to the new combined Creative Realities has been significant. I want to do a quick shout-out to the new members of our C-suite who joined Creative Realities in the last seven months: Dan McAllister, Jackie Walker, and Tamara on this call. They're all having a significant impact in the business, and, as they take over the daily operations—and they truly are starting to run the business—I'm turning my focus on strategic growth areas in the marketplace where Creative Realities will have an advantage over our much smaller competitors.

Expect more to come in the future as I talk about that in future quarters. With that, we'll now move to the Q&A portion of the call. Please go ahead, operator.

OPERATOR (Operator)

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q and A roster. Our first question will be coming from the line of Jason Crayer of Craig-Hallum. Your line is open, Jason.

Jason Crayer, Analyst at Craig-Hallum

Great. Thanks, guys. Rick, great to hear all the deal flow that's happening, particularly on the Albertsons front. Good to hear things are moving in the right direction there. Can you maybe talk about what work, if any, has been done thus far? And then when you look at getting a big deal like that in the retail media sector, what does that do for prospects in the pipeline? Do you think that opens up more retail media opportunities, or does that accelerate conversations you're already having?

Rick, CEO

Certainly does. I'll come back to that, but I'll answer the first part of your question first. As of today, we have converted about 3,000 screens, and we're currently running at 3,000 screens across 220 to 250 locations. We take over the deployment of those screens and the deployment of players and all the technology here. Over the next 30 days that'll transition to us from—they've had a plethora of suppliers doing it. It'll all consolidate and we'll finish out the rest of phase one.

So currently today they're running about a million ads a day, Jason, so it's very successful for them. They're excited, they're using our CMS, our ad tech, etc. In terms of what it does for the pipeline, well, I got to tell you, it strengthens our position as we lay claim that we're one of the top three providers of retail media networks in the US or North America today—the US and Canada. Certainly having a customer like Albertsons backs it up. We again have three or four customers today that have chosen our ad tech. You've got Albertsons, of course; 7-Eleven using our ad tech at now over 2,000 stores; Macy's; Best Buy has adopted our ad tech. So with growing references of that type of blue-chip brand, we expect that to accelerate our retail media network pipeline.

Jason Crayer, Analyst at Craig-Hallum

That's great. We've also heard a lot about the challenges facing one of your competitors. Seems like that would create a great opportunity for Creative Realities. Can you just talk about the early discussions that you're having with customers in the pipeline and what the prospects look like there?

Rick, CEO

As I stated on the call earlier, Jason, again here we have two customers who are in contracting stages right now. Both have to be converted. One actually came from that competitor; the other was not. The other came from a different platform. So we are gaining customers. We do expect the pipeline was enhanced as that competitor ran into some trouble—or that other supplier or competitor of ours ran into trouble. So it certainly has helped our pipeline.

But we do expect to be closing multiple logos on a quarterly basis on a go-forward basis. We're excited about it.

Jason Crayer, Analyst at Craig-Hallum

Terrific. Last question for me. Given the deals that you've already won, the deployment pipeline you have today—if we combine that with the things that you have in your pipeline that you just alluded to—wondering if you can talk about how that changes your visibility as we look toward 2027 and gives you maybe a little bit better...

Rick, CEO

...predictability around the financials. Certainly gives us better predictability because, you know, when you have seven, eight, nine additional customers come on that are doing deployments or SaaS, if you will, on a consistent monthly basis, we think we have entered a new stage where our revenue as we enter 2027 will be much more predictable than it has been in the past. We've been working on this for many years for this to catch up, and I would tell you that it's finally here.

It's finally caught up, or catching up. And we are incredibly bullish about 2027. And I would also point out the comments I made earlier: we expect our Q3 to be the largest quarter in the company's history. Oh, by the way, we expect Q4 to be significantly larger than Q3. Well, that tells you there is pending revenue coming our way.

Jason Crayer, Analyst at Craig-Hallum

Great to hear. Thanks a lot, Rick.

Rick, CEO

Thank you, Jason.

OPERATOR (Operator)

And our next question will come from the line of Brian Kinslinger of Alliance Global Partners. Your line is open, Brian.

Rick, CEO

Hey, Brian.

OPERATOR (Operator)

Your line is open.

Rick, CEO

Brian's never this quiet.

Brian Kinslinger, Analyst at Alliance Global Partners

Can you hear me?

OPERATOR (Operator)

There you go. We hear you now, Brian.

Brian Kinslinger, Analyst at Alliance Global Partners

Huh. Interesting. I never hit mute, and I was on mute. Sorry about that. I was saying hi to you, Rick. So, on the strong rewards and second-half ramp in revenue, I'm curious—with what's known—how you see the split between services and hardware.

Rick, CEO

We see the SaaS continuing to grow from a services perspective, Brian. There is some hardware in the second-half growth, but most of it is all services related, which leads to—in theory—you should see the composite margin of the company increase in Q3, but even particularly Q4.

Brian Kinslinger, Analyst at Alliance Global Partners

Yeah. Now that margin's improving on mix, maybe you could touch on—there were a few comments on each of the pieces, the services and the hardware. Obviously, there's inflation, supply chain issues. How are you adjusting prices? Will we see margin recover at all in hardware specifically? And then on the service side, maybe speak to pricing trends.

Rick, CEO

Pricing trends on the services—there's been some downward pressure, Brian, just due to when you have competitors suffering in the marketplace. As they lose market share or their business falters, that tends to put pressure on price. We've been able to withstand that to a great extent, but it's always a challenge. In terms of hardware, we expect hardware margins to continue to be under pressure through the balance of this year. But we do expect in 2027 to get some additional relief in hardware margins.

We believe we will expand them again in 2027.

Brian Kinslinger, Analyst at Alliance Global Partners

Got it. Just one more question, just to make sure I heard it right. One of your two pending negotiations or wins—it's August, and you expect to deliver by the end of September. Is it because you have the screens in inventory? I'm just trying to reconcile expecting to complete an installation that quickly.

Rick, CEO

That one is—there are no installs; it's conversion of every one of their stores over to our platform. So they already have hardware in place. They already have players in place. We've developed scripts to go take over every one of their thousand locations remotely, and it will deploy our CMS and all new content, and that literally will be done by the end of September. Now, out of that customer in November–December, I then expect to pick up new builds and new construction, new store openings all throughout 2027.

But there is no large hardware chunk that goes with the initial conversion. Make sense? Brian?

Brian Kinslinger, Analyst at Alliance Global Partners

Totally. Thank you so much. Great work on all the awards.

Tamara, Chief Financial Officer

Brian, let me just clarify a couple things that Rick was talking about with respect to your question on service versus hardware. In the second half, we do expect that the third quarter is going to have a higher percentage of hardware revenues given the installs that we're planning for the third quarter, in particular the Tennessee Titans. But then in the fourth quarter we expect it to get back to the level that it was in Q2. And also because in the fourth quarter, remember we have a large media revenue base that will come online that will experience similar to what we did last year with the CDM media business.

Brian Kinslinger, Analyst at Alliance Global Partners

Great, understood.

OPERATOR (Operator)

Thank you. And our next question will be coming from the line of John Hickman of Ladenburg. Your line is open.

John Hickman, Analyst at Ladenburg Thalmann

Hi. On the margin side of things, is there some longer-term target gross margin that you are after that you could share with us?

Rick, CEO

You know, John, I think ideally we’d like to, as we enter 2027, get back out of the 30s, back into the 40s. Tamara, I’ll let you comment, but just generally, you know, we’ve had margin compression of five or six, and we’re trying to get that, as we enter 2027, through enhanced product mix, etc. Tamara, anything to add?

Tamara, Chief Financial Officer

Yeah, I think that's correct. I mean, we have seen both the inflation as well as the mix of our revenues bring the margins down compared to last year. But as we build that same, then we can start to get back closer to that 40% plus target. But we're still going to be, you know, short of that this year. Certainly in the second half we'll see some improvements, but really not until 2027 when we get more of that SaaS revenue flowing through the P&L that we'll start to get a lift on the margin rate.

Rick, CEO

Yeah, I would—so if you had, John, let me just add one fact. I mean, the point is, you know, if you think to my earlier comments, we've got about $4 million—certainly $3.5 to $4 million—of seeded SaaS already that will turn on January 1st. So that in itself brings incredibly high margin to the mix. So that alone could push us up—we haven't done the math—that pushes up the composite two points the moment that turns on January 1st. Go ahead and ask your question.

John Hickman, Analyst at Ladenburg Thalmann

Sorry. Okay, so if you have the kind of margins you would like in the, say, low 40% range, you would need—if you have that now—you would need another $6 million or so in revenues to break even on an operating basis. Do I have that—does that math work out?

Tamara, Chief Financial Officer

Yeah, I think that's reasonable to assume.

John Hickman, Analyst at Ladenburg Thalmann

Okay then. Any comments on Culver's and on the lottery stuff that's going on?

Rick, CEO

Culver's continues to go well. We continue to deploy every month. We are installing new drive-thrus. You know, there is, I think, a three-year target to complete all of their restaurants—that's their target, not ours. And we're certainly well on track. In terms of the lottery, we're seeing a lot of traction. We're in significant discussions with seven, eight additional lotteries right now. North Carolina Lottery has talked about some significant expansion in 2027.

I don't have orders today as we speak, but they continue to be extremely pleased and are looking to continue to grow their lottery network in 2027. And we would expect to have some announcements as we get closer to year-end about a lottery expansion in 2027.

John Hickman, Analyst at Ladenburg Thalmann

Okay, thank you.

OPERATOR (Operator)

And our next question will be coming from the line of Kevin Sheldon, a private investor. Your line is open.

Rick, CEO

Hey Kevin. How are you, sir?

Kevin Sheldon, Private Investor

Doing great. Yourself?

Rick, CEO

All things considered.

Kevin Sheldon, Private Investor

Just quick. I guess it's a two-part question, or multiple, but regarding the SG&A being at $9 million, where do you need to be revenue-wise to be able to cover that? Or are there plans to improve efficiency so that that number isn't as large?

Rick, CEO

It's really a combination of both. We expect the next two quarters to add significant ongoing revenue to the business, that we will certainly, you know, be north of 25, closer to 30, if not exceed $30 million on a quarterly basis. We believe that's in the imminent future, Kevin. Number two, we've taken out $7.5 million. It has not all showed up, but it's already been done, and so it will show up as we enter 2027. And we've got a couple million of additional costs that we want to take out throughout 2027 as we migrate.

We have customers on other networks—they're not running our software today, they're our customer—but they're running on third-party platforms that do cost us money, and the goal is to migrate them over to our platforms in 2027. It's a combination of taking some SG&A out, leaving our expenses flat as the top line grows fairly significantly here over the next three, four quarters.

Kevin Sheldon, Private Investor

Thank you.

Tamara, Chief Financial Officer

Just one other thing I'd like to mention with respect to the G&A: what rolls in there is a fairly large amortization accounting expense for leases that we have in our mall network. And that amortization changes as we go throughout the year. And it's a non-cash amortization that is just required for the way that we book that. So that certainly increases in certain periods of the year and then decreases back down. So it's not related to, you know, actual hard G&A costs that we can, you know, take out.

Rick, CEO

Thanks for the clarification. Yeah, well said, Tamara.

OPERATOR (Operator)

And I would now like to turn the call back to Rick for closing remarks.

Rick, CEO

Okay, I just do want to do a quick shout out. I'm going to give special thanks. There's about. At Creative Realities, we have about 230 employees. Now I want to thank all of them for their incredible effort this year. I use the term, you know, what a great, sometimes crazy journey, this acquisition of CDM and putting the companies together and emerging as one of the top three competitors in North America. It's been pretty special. It's been fun. But we couldn't have gone without the hard work of all the Creative Realities employees.

So, special shout-out to them. So let me conclude the call by thanking all our shareholders, clients and partners for your continuing efforts, commitment and support as we work together to transform Creative Realities into the leading brand in digital signage solutions. We look forward to speaking with you again next quarter. Thanks.

OPERATOR (Operator)

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.