CREATIVE REALITIES, INC. 2026 Q2 Earnings Call

Thank you, and good morning, everyone. Welcome to our earnings call for the second quarter ended June 30, 2026. I would like to take this opportunity to remind you that remarks today will include forward-looking statements. The words anticipated, will, believes, expects, intends, plans, estimates, projects, should, may, propose, and similar expressions or the negative versions of such words or expressions as they relate to us, our management, our operations, are intended to identify forward-looking statements. Actual results may differ materially from those contemplated by such statements. Factors that could cause these results to differ materially are set forth in our Form 10-K and other filings with the SEC. Any forward-looking statements that we make on this call are based on assumptions and information as of today, and we undertake no obligation to update these statements after today. During this call, we will present both GAAP and non-GAAP financial measures.

We believe the use of certain non-GAAP measures, such as adjusted EBITDA, ARR, and several other important key performance indicators, represent meaningful ways to track our performance. A reconciliation of GAAP to certain non-GAAP measures is included in our public filings and in our earnings release that was issued this morning. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities.

Rick? Thanks, Tamra. Good morning, everybody.

We appreciate you joining today's call. I'll start by giving some highlights of our quarterly financials and other recent developments. We posted revenue of $21.5 million in Q2 versus $13 million in the prior year period, including roughly $7.4 million from CDM. This is our best ever Q2 quarter revenue number and the second-largest revenue quarter ever in the history of CRI. We are pleased with the strong top-line growth and improved gross margins, which we expect this top-line growth and margin enhancement to continue for the balance of the year. Our second quarter gross profit was $8.3 million as compared to $5.0 million in fiscal 2025 quarter, and our consolidated gross margin was 38.6% versus 38.5% in the prior year period.

All trends are pointing in the right direction, and we believe we have tremendous upward momentum into the second half of the year. As of June 30, we had an annual recurring run rate, or ARR, of $20.5 million, up from $20.1 million last quarter. As we previously discussed, we have somewhere between $4 million and $5 million in backlog of ARR that will show up as we turn the clock and start 2027. So on January 1, 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 de-lever 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 $23.9 million in revenue. 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 to note, 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.

CRI is on track to be well-positioned for the next two quarters and 2027. I will come back in a minute to talk about some customer update, but will now turn it over to Tamra to share some additional comments on our second quarter financials.

Tamra? Thanks, Rick. An overview of our financial results for the second quarter of 2026 was provided in our earnings release filed this morning, which include 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 CRI 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 CRI business from new installs. Consolidated gross profit was $8.3 million in the second quarter of 2026 versus $5 million in the prior year period, and consolidated gross margin was 38.6% versus 38.5% in the second quarter of 2025.

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 the second quarter of 2025. 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 CRI 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 other 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. CRI 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.