Q2 2024 Creative Realities Inc Earnings Call

Good morning.

Operator: Second Quarter Earnings Conference Call. This call will be recorded, and a copy will be available on the company's website at CRI.com following the completion of the call.

Speaker Change: At this time, I'd like to welcome everyone to the Creative Realities 2024 Second Quarter Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at CRI.com following the completion of the call.

Speaker Change: The company has prepared remarks summarizing the interim results for the first quarter, along with additional industry and company updates. Joining me on the call today is Rick Mills, CEO , and Will Logan, CFO . Mr. Logan, you may begin.

Operator: The company has prepared remarks summarizing the interim results for the first quarter along with additional industry and company updates. Joining me on the call today are Rick Mills, CEO, and Will Logan, CFO. Mr. Logan, you may begin.

William Logan: Thank you and good morning everyone. Welcome to our earnings call for the second quarter ended June 30, 2024. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. The words anticipate, 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 or our management are intended to identify such forward-looking statements.

Speaker Change: Thank you and good morning everyone. Welcome to our earnings call for the second quarter ended June 30, 2024. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements.

William Logan: Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in our Form 10-Q filed with the SEC this morning, August 14, 2024, and in our annual report on Form 10-K filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release issued this morning.

Speaker Change: The words anticipates, 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 or our management are intended to identify forward-looking statements.

Speaker Change: Actual results may differ materially from those contemplated by these forward-looking statements.

Speaker Change: Factors that could cause these results to differ materially are set forth in our Form 10-Q filed with the SEC this morning, August 14th, 2024, and in our annual report on Form 10-K filed with the SEC.

Speaker Change: Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

Speaker Change: During this call, we will present both GAAP and non-GAAP financial measures.

Speaker Change: A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release issued this morning.

Speaker Change: We believe the use of certain non-GET measures, such as adjusted EBITDA and several other important KPIs, represent meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities.

William Logan: We believe the use of certain non-GAAP measures, such as adjusted EBITDA and several other important KPIs, represents meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities. Thanks, Will. And good morning, everybody.

Richard Mills: Thank you for joining this earnings call. Once again, we posted record quarterly results. In fact, this is the fourth consecutive quarter for which we have posted record quarterly revenue. Midway through fiscal 2024, we continue on a path toward our best year ever. With that said, I'm pleased to report the following results for the court: record second quarter revenue of $13.1 million, up 43% from $9.2 million in the prior year. Record Second Quarter Gross Profit of 6.8 million, up from 4.3 million in 2023. Record second quarter adjusted EBITDA of approximately $1.5 million, against $0.3 million last year.

Rick Mills: Thanks Will, and good morning everybody. Thank you for joining this earnings call. Once again, we posted record quarterly results. In fact, this is the fourth consecutive quarter for which we have posted record quarterly revenues.

Speaker Change: Midway through fiscal 2024, we continue on a path towards our best year ever. With that said, I'm pleased to report the following results for the quarter.

Speaker Change: Record second quarter revenue of $13.1 million, up 43% from $9.2 million in the prior year.

Speaker Change: Record second quarter gross profit of $6.8 million, up from $4.3 million in 2023.

Speaker Change: Record second quarter adjusted EBITDA of approximately 1.5 million against 0.3 million last year.

Richard Mills: And finally, Annual Recurring Revenue, or ARR, at an annual run rate of $18 million. We continue to make significant progress through the first two quarters of fiscal 2024 with strong revenue growth and improving margins. Most importantly, the rest of the year also remains encouraging with an active pipeline of opportunities being pursued to continue our growth. We're on track to deliver record results for the full year.

Speaker Change: And finally, Annual Recurring Revenue, or ARR, at an annual run rate of $18 million.

Speaker Change: We continue to make significant progress through the first two quarters of fiscal 2024 with strong revenue growth and improving margins.

Speaker Change: Most importantly, the rest of the year also remains encouraging with an active pipeline of opportunities being pursued to continue our growth.

Speaker Change: We're on track to deliver record results for the full year.

Richard Mills: Our Q2 revenue growth was up significantly over 2023 levels and also increased sequentially over the first quarter. While revenue can be lumpy at times, quarter to quarter, as a result of deployment timing, the long-term future remains bright for fiscal 2024 and beyond. Demand remains strong across all parts of the business, particularly for our quick serve restaurant vertical, which includes digital menu boards and our drive-thru solutions, as well as for our sports entertainment segment. Our consolidated gross margin rose to 51.8%.

Speaker Change: Our Q2 revenue growth was up significantly over 2023 levels and also increased sequentially over the first quarter.

Speaker Change: While revenue can be lumpy at times, quarter-to-quarter, as a result of deployment timing, the long-term future remains bright for fiscal 2024 and beyond.

Speaker Change: Demand remains strong across all parts of the business, particularly for our quick-serve restaurant vertical, which includes digital menu boards and our drive-thru solutions, our sports entertainment segments,

Speaker Change: also.

Speaker Change: Our consolidated gross margin rose to 51.8 percent.

Richard Mills: Compared to 46.7% in the Fiscal 2023 Second Corps, this largely reflects improved economies of scale and a stable pricing environment. We believe this enhanced margin trend will continue for the remainder of fiscal 2025. As I previously stated at the end of the second quarter, our ARR has grown to an all-time high of approximately 18 million on an annual run rate basis, and we remain on track to exit the current year with ARR of approximately $20 million.

Speaker Change: versus 46.7% in the fiscal 2023 second quarter. This largely reflects improved economies of scale and a stable pricing environment.

Speaker Change: We believe this enhanced margin trend will continue for the remainder of fiscal 2024.

Speaker Change: As I previously stated at the end of the second quarter, our ARR has grown to an all-time high of approximately 18 million on an annual run rate basis.

Speaker Change: and we remain on track to exit the current year with ARR of approximately 20 million.

Richard Mills: As we have stated in the past, we consider this a key metric as it provides visibility into our growth and profitability going forward, as well as underscoring the trust our customers place in the company's superior solution. I want to take a brief moment to discuss our debt refinancing, which we completed at the end of May. We have secured a conventional $22.1 million senior revolving credit facility with the potential for an additional $5 million being granted.

Speaker Change: As we have stated in the past

Speaker Change: We consider this a key metric as it provides visibility into our growth and profitability going forward, as well as underscoring the trust our customers place in the company's superior solutions.

William Logan: Utilizing this credit facility, we paid off $13.6 million of prior indebtedness that was scheduled to mature in February of 2025. This is a significant achievement for the company by shifting our debt from the short term to the long term in nature. We improved our working capital, bolstered our access to strategic capital, while adding increased financial flexibility as well as the potential for reduced cash interest expense going forward. Working in tandem with our disciplined approach to delever the company over this past year, we now have the capacity to accelerate the pursuit of strategic alternatives and growth initiatives with a more favorable capital structure.

Speaker Change: I want to take a brief moment to discuss our debt refinancing, which we completed at the end of May.

Speaker Change: We have secured a conventional $22.1 million senior revolving credit facility with the potential for an additional $5 million accordion.

Speaker Change: Utilizing this credit facility, we paid off $13.6 million of prior indebtedness that was scheduled to mature in February of 2025.

Speaker Change: This is a significant achievement for the company.

Speaker Change: By shifting our debt from short-term to long-term in nature, we improved our working capital, bolstered our excess to strategic capital,

Speaker Change: while adding increased financial flexibility as well as the potential for reduced cash interest expense going forward.

Speaker Change: Working in tandem with our disciplined approach to delever the company over this past year, we now have capacity to accelerate the pursuit of strategic alternatives and growth initiatives.

William Logan: Once again, we'd like to thank our prior creditor, Slipstream Communications, and its parent company, Pegasus Capital Advisors, for supporting our vision as lender and continuing as a shareholder to build a leading digital signage and digital media platform. I'll now turn it over to Will to share some additional comments on our financials. Will, back to you. Thank you, Rick.

Speaker Change: with a more favorable capital structure.

Speaker Change: Once again, we'd like to thank our prior creditor, Slipstream Communications, and its parent company, Pegasus Capital Advisors.

Speaker Change: for supporting our vision as lender and continuing as a shareholder to build a leading digital signage and digital media platform.

Speaker Change: I'll now turn it over to Will to share some additional comments on our financials. Will, back to you.

William Logan: An overview of our financial results for the second quarter of 2024 was provided in our earnings release and Form 10-Q filed this morning, which included the condensed consolidated balance sheet as of June 30, 2024, the statement of operations, and the statement of cash flows for the three and six months ended June 30, 2024, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended June 30, 2024, and the preceding four quarters As Rick mentioned, the senior revolving credit facility enhances financial flexibility and supports our growth trajectory.

Will: Thank you, Rick.

Will: An overview of our financial results for the second quarter of 2024 was provided in our earnings release and Form 10-Q filed this morning, which included the condensed consolidated balance sheet as of June 30, 2024, the statement of operations and the statement of cash flows for the three and six months ended June 30, 2024, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended June 30, 2024 and the preceding four quarters.

Will: I'm pleased with our progress halfway through fiscal 2024.

Will: particularly having completed our refinancing.

Will: As Rick mentioned, this senior revolving credit facility enhances financial flexibility and supports our growth trajectory. We remain committed to finishing the year with record results while continuing to evaluate our capital structure and strategic priorities. Now, a couple of additional points of context related to our balance sheet.

Will: Cash.

Will: As of June 30, 2024, the company had cash on hand of approximately $4.1 million versus $2.9 million at the end of 2023, even as we reduced our overall indebtedness by approximately $1.3 million since the start of the year.

Will: Moving forward, our consolidated balance sheet will reflect minimal cash on hand as the company has set up a sweep instrument to apply cash against the revolving debt facility to further manage our interest expense.

Richard Mills: For debt, our growth and net debt stood at approximately $13.8 million and $9.8 million, respectively, at the end of the second quarter, as compared to $15.1 million and $12.2 million, respectively, at the start of 2024. On a trailing 12-month basis, utilizing adjusted EBITDA, the leverage ratio on a gross and net basis was 2.25 and 1.58, respectively, as of June 30, 2024, versus 2.97 and 2.40 While our leverage ratio can change quarter to quarter in line with working capital needs and cash flow generation, we believe the overall trends will continue to move in the right direction, and we remain dedicated to managing our debt as we continue to evaluate and migrate to an optimized capital structure in support of growth.

Will: For debt, our growth and net debt stood at approximately $13.8 million and $9.8 million respectively at the end of the second quarter, as compared to $15.1 million and $12.2 million respectively at the start of 2024.

Will: On a trailing 12-month basis, utilizing adjusted EBITDA, the leverage ratio on gross and net basis were 2.25 and 1.58 respectively as of June 30, 2024, versus 2.97 and 2.40 at the beginning of the year.

Will: While our leverage ratio can change quarter to quarter in line with working capital needs and cash flow generation, we believe the overall trends will continue to move in the right direction, and we remain dedicated to managing our debt as we continue to evaluate and migrate to an optimized capital structure in support of growth.

Richard Mills: Operationally, this quarter, we launched and transitioned to NetSuite ERP in July, as anticipated. This is already providing enhanced visibility into managing our business from new prospecting opportunities through invoicing, and we anticipate iterating on our implementation throughout the second half of 2024. This will allow us to further improve our processes and streamline our operations to drive efficiencies in 2025 and beyond, setting the company up for continued expansion and scaling. I'll turn it back to Rick for additional comments on our results and customer activity. Thanks, Will.

Will: Operationally this quarter we launched and transitioned to NetSuite ERP in July as anticipated. This is already providing enhanced visibility into managing our business from new prospecting opportunities through invoicing and we anticipate iterating on our implementation throughout the second half of 2024.

Will: This will allow us to further improve our processes and streamline our operations to drive efficiencies in 2025 and beyond, setting the company up for continued expansion and scaling. I'll turn it back to Rick for additional comments on our results and customer activities.

Richard Mills: I'd like to add a few additional updates on customer and operational activities, but first, I want to say a few words about Dave Petrasig, who passed away suddenly in July. While most of our investors likely did not know day, Dave has been a pivotal member of the team operating as our Director of Channel Sales. He brought vigor and passion to the job, and the success of the launch of our channel program owes much to Dave's knowledge and drive to succeed. He is missed and will always be remembered by the folks here at CRI.

Rick Mills: Thanks Will. I'd like to add a few additional updates on customer and operational activities, but first I want to say a few words about Dave Petrasig who passed away suddenly in July . While most of our investors likely did not know Dave,

Speaker Change: Dave has been a pivotal member of the team operating as our Director of Channel Sales.

Speaker Change: He brought a vigor and passion to the job, and the success of the launch of our channel program owes much to Dave's knowledge and drive to succeed.

Speaker Change: He is missed and will always be remembered by the folks here at CRI.

Richard Mills: Now, turning to our markets, late summer and early fall represent the busy season for our stadium, venue, and arena customers. The Post season for sports teams operating in these facilities have ended and there is a rush by customers to launch projects and have them completed prior to the start of the following The Post season for sports teams operating in these facilities have ended and there is a rush, a tight window given the scale of these types of projects.

Speaker Change: Now, turning to our markets, late summer and early fall represent the busy season for our stadium, venue, and arena customers.

Speaker Change: The post-season for sports teams operating in these facilities have ended, and there is a rush by customers to launch projects and have them completed prior to the start of the following season.

Speaker Change: A tight window given the scale of these types of projects.

Richard Mills: We have continued to expand our presence in this market and have a growing reputation as a provider of choice for IPTV solutions and integrated digital menu board screens, bringing a single provider approach which is resonating across the board. We have established a strong partnership with the industry's leading hardware manufacturers in this space and are working closely on end customer engagement. In the past two weeks, we have received orders from three different sports venues for immediate delivery, representing approximately $3 million of revenue that will be delivered over the balance of this year.

Speaker Change: We have continued to expand our presence in this market and have a growing reputation as a provider of choice for IPTV solutions and an integrated digital menu board.

Speaker Change: Screens. Bringing a single provider approach which is resonating across the board.

Speaker Change: We have established a strong partnership with the industry-leading hardware manufacturers in this space and are working closely on end customer engagements.

Speaker Change: In the past two weeks we have received orders from three different sports venues for immediate delivery representing approximately 3 million of revenue that will be delivered over the balance of this year.

Richard Mills: We expect additional orders in the coming week, as CRI is a known quantity in this space and has tremendous momentum. With regard to BCTV, this project continues to move forward, crossing the threshold of 100 total installations during the second quarter. Many of the engagement-specific and market constraints that have slowed this deployment are beginning to subside. We completed 56 site installations in the second quarter.

Speaker Change: We expect additional orders in the coming weeks, as CRI is a known quantity in this space and has tremendous momentum.

Speaker Change: with regard to BCTV. This project continues to move forward, crossing the threshold of 100 total installations during the second quarter.

Speaker Change: Many of the engagement specific and market constraints that have slowed this deployment are beginning to subside.

Speaker Change: We completed 56 site installations in the second quarter, at an average sales price of $27,500 per location, and we expect this number

Speaker Change: to increase moderately on a sequential quarter-over-quarter basis.

Richard Mills: David has a proven track record of implementing strategies that drive revenue growth, the conversion of new logos, and in Generating Customer Domain. His leadership, managing large teams, and developing enterprise-level strategies underscore his ability to navigate a complex sales environment and, finally, deliver results. David has hit the ground running with our team and is already making an impact in further developing and building our lead flow.

Speaker Change: During the quarter, we were thrilled to announce the hiring of David Schultz as our Vice President, New Business Development.

Speaker Change: David brings over 25 years of experience in sales and business development, notably having held leadership roles at Cisco Systems, AppSpace, and most recently with Stratocash, the largest company in our industry.

Speaker Change: A veteran in the digital signage space, David has a proven track record of implementing strategies that drive revenue growth, the conversion of new logos, and generating customer demand.

Speaker Change: His leadership managing large teams and developing enterprise-level strategies underscore his ability to navigate a complex sales environment and finally deliver results.

Speaker Change: David has hit the ground running with our team and is already making an impact in further developing and building our lead flow.

Richard Mills: Another addition to our team, we recently announced a strategic expansion into Mexico along with the appointment of Julian Arcelia to manage our immediate opportunities in Mexico. This move marks a significant development for us in the fast-growing digital signage market in Mexico, as we enhance our presence in this region and further strengthen our footprint across North America. We have immediate opportunities to expand via both existing U.S.-based customers and partner relationships that are driving our entry into this market.

Speaker Change: Another addition to our team, we recently announced a strategic expansion into Mexico, along with the appointment of Julian Arcelia to manage our immediate opportunities in Mexico.

Speaker Change: This move marks a significant development for us in the fast-growing digital signage market in Mexico.

Speaker Change: as we enhance our presence in this region and further strengthen our footprint across North America.

Speaker Change: We have immediate opportunities to expand via both existing U.S.-based customers and partner relationships that are driving our entry into this market.

Richard Mills: With increasing inquiries from customers about our capabilities in Mexico, the decision to expand was driven by market demand as well as the immense growth opportunities within the region. Finally, and lastly, CRI was added as a member of the Russell Microcap Index, effective July 1, 2024, as part of the Russell Annual Index Reconstitution. The Russell Reconstitution captures the 4,000 largest US stocks, as of Tuesday, April 30th, ranking them by total market capitalization.

Speaker Change: With increasing inquiries from customers about our capabilities in Mexico, the decision to expand was driven by market demand as well as the immense growth opportunities within the region.

Speaker Change: Finally, and lastly, CRI was added as a member of the Russell Microcap Index effective July 1, 2024, as part of the Russell Annual Index Reconstitution.

Speaker Change: The Russell Reconstitution captures the 4,000 largest U.S. stocks as of Tuesday, April 30th, ranking them by total market capitalization.

Richard Mills: Membership in the Russell Micro-Cap Index, which remains in place for one year, means automatic inclusion in a number of appropriate growth and value-style industries, a couple of other noteworthy items. We're scheduled to meet investors at several events in the coming quarters. This includes the SEMCO Capital Dinner in Chicago later this week. L.B.

Speaker Change: Membership in the Russell Micro-Cap Index, which remains in place for one year, means automatic inclusion in a number of appropriate growth and value style indices.

Richard Mills: Micro Conference in L.A. during late October, and finally, the Craig Hollum Conference in New York in the middle of November, following the issuance of our third-quarter results. We're excited to meet with new existing institutional investors to broaden our audience and help drive shareholder interest in the company's growth story. We look forward to meeting some or all of you at these events. With that, we'll now move to the Q&A portion of the call.

Speaker Change: A couple of other noteworthy items.

Speaker Change: We're scheduled to meet investors at several events in the coming quarters. This includes the SEMCO Capital Dinner in Chicago later on this week.

Speaker Change: LD Micro Conference in LA during late October , and finally the Craig Hollum Conference in New York in the middle of November , following issuance of our third quarter results.

Speaker Change: We're excited to meet with new existing institutional investors to broaden our audience and help drive shareholder interest in the company's growth story.

Speaker Change: We look forward to meeting some or all of you at these events.

Speaker Change: With that, we'll now move to the Q&A portion of the call. Please go ahead, operator.

Richard Mills: Please go ahead, operator. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you wish to move yourself from the keypad, please press star 1-1 again.

Speaker Change: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A roster.

Speaker Change: Hello, I'm Richard Mills, I'm William Logan, I'm William Logan, I'm William Logan, I'm William Logan, I'm William

Speaker Change: Hello, everyone.

Speaker Change: One moment for our first question.

Speaker Change: Hello, I'm Richard Mills, I'm William Logan, I'm William Logan.

Speaker Change: [inaudible]

Speaker Change: Our first question comes from Brian Kinslinger with Alliance Global Partners.

Speaker Change: Thanks guys, nice results. Hello?

Brian Kinstlinger: Good morning, nice results, especially on the bottom line. Without filming, it's unchanged. Can you remind us of your revenue guidance and then talk about any insights into seasonality or things management knows about, timing of deliveries over the next two quarters, so we could think about, maybe you're thinking about the ramp. Yeah, Brian, I would tell you, as we have stated previously, we believe on a quarter to quarter basis, we're going to exceed the prior year's 20 to 40% every quarter. We expect to continue that throughout the year.

Speaker Change: Hey Brian , how are you?

Brian Kinslinger: Good morning, nice results, especially on the bottom line.

Speaker Change: Assuming it's unchanged, can you remind us your revenue guidance and then talk about any insights to seasonality or things management knows about?

Speaker Change: timing of deliveries over the next two quarters so how we could think about maybe you're thinking about the ramp.

Speaker Change: Yeah, Brian, I would tell you, as we have stated previously, we believe on a quarter-to-quarter basis, we're going to exceed the prior year 20 to 40 percent every quarter. We expect to continue that throughout the year. So, very comfortable with that.

Speaker Change: Okay.

Speaker Change: and answer given the holiday season, given the sports.

Speaker Change: NFL starting and maybe installs some other sports. Is there a way to think about the lumpiness of the third versus the fourth quarter and which might be more seasonally strong?

Richard Mills: You know, to be honest, I expect them both to be right in the vein as we've previously discussed, the 20 to 40 percent. The reason is Q3 is going to be relatively strong just because we're busy the entire quarter. You don't have construction delays, weather delays, the stuff that maybe hits you a little bit in the first quarter and some in the second. You just don't experience that in the third quarter.

Speaker Change: I, you know, to be honest, I expect them both to be.

Speaker Change: right in the vein as we previously discussed, the 20 to 40 percent.

Speaker Change: Q3 is going to be relatively strong just because we're busy the entire quarter. You don't have construction delays, weather delays, the stuff that maybe hits you some a little bit in the first quarter and some in the second. You just don't experience that in the third quarter.

Richard Mills: Fourth quarter, you have a moratorium as you get towards Thanksgiving, so activity is less. However, that is often offset by some companies having a little bit of budget left at the last at year end, and then they want to go ahead and spend that extra money. They take title to the equipment, we may do deliveries in January and February, so that always seems to offset, and then you had a press release this quarter about entering Latin America.

Speaker Change: Fourth quarter, you have a moratorium as you get towards Thanksgiving, so activity is less. However, that is often offset.

Speaker Change: by some companies have a little bit of budget left at the last year end and then they want to go ahead and spend that extra money. They take title to the equipment and we may do deliveries in January, February. So that always seems to offset it.

Richard Mills: Maybe talk about if you have any anchor clients that are helping you more seamlessly enter this market and maybe talk about the market opportunity as well. Okay, the market opportunity there is relatively significant. We've had a lot of companies as well. First off, as you know, Brian, we are already in Canada and have a presence there. We have had a presence there for years, etc. Our clients also ask us about Mexico. So that way, they've got one footprint across North America.

Speaker Change: And then you had a press release this quarter about entering into Latin America. Maybe talk about if you have any anchor clients that are helping you more seamlessly enter this market and maybe talk about the market opportunity as well.

Speaker Change: Okay, the market opportunity there is relatively significant.

Speaker Change: We've had a lot of companies as well. First off, as you know, Brian , we are already in Canada and have a presence there, had a presence there for years, etc. But

Speaker Change: Our clients also ask us about Mexico, so that way they've got one footprint over North America.

Richard Mills: So we continue to get asked that question, and that's the reason that we've really expanded. The focus is really on Mexico to launch LATAM. So think of it as Mexico specifically, number one.

Speaker Change: So...

Speaker Change: We continue to get asked that question, and that's the reason that we've really expanded. The focus is really on Mexico to launch LATAM, so think of it as Mexico specifically, number one.

Richard Mills: Number two, the quickest area of entry and where we see the largest possibility is in the CSTOR environment and QSR. Our technology is far superior, and that seems to be an area where a lot of hands are raised. Come talk to me about what you're doing.

Speaker Change: The quickest area of entry and where we see the largest possibility is in the Seastore Environment and QSR.

Speaker Change: Our technology is far superior, and that seems to be an area where a lot of hands are raised. Come talk to me about what you're doing. So, we'll see. Nothing to announce yet, but the initial response

Richard Mills: So we'll see nothing to announce yet, but the initial response to us putting somebody on the ground in there is very positive, and we're excited about that as we move into 2025. Yeah, Brian, I would add that we're really taking a partner and existing client approach initially to going into the country as opposed to a shotgun scatter approach to just entering the market. We've got some relationships pre-existing in the U.S. that are driving that activity into the country.

Speaker Change: to us putting somebody on the ground in there is is very positive and we're excited about

Speaker Change: about it as we move into 2025.

Speaker Change: Yeah, Brian, I would add that we're really taking a partner and existing client approach initially, right, to going into the country as opposed to a shotgun scattered approach to just entering the market. We've got some relationships pre-existing in the U.S. that are driving that activity into the country.

William Logan: Great, and it wouldn't have been a call if I didn't ask about BCTD. So it's great to hear the pace of installations is picking up a little bit, and it sounds like I heard your comments right. It should be similar or increased in the third and fourth quarter. Can you talk about some of the constraints that are being used? And then when do you think?

Speaker Change: Great.

Ray: and it wouldn't be a call I didn't ask about BCTV, so it's great to hear the pace of installations that's picking up a little bit and it sounds like I heard your comments right, it should be similar or increased in the third and fourth quarter.

Speaker Change: Can you talk about some of the constraints that are easing and then when do you think

Richard Mills: that pace of installations might hit the original pace that you planned, which was, I think, much higher. Brian, the items that are easing a bit are access to electrical personnel in the market. It's not perfect still, but it had been Pediment for a long period of time.

Speaker Change: that pace of installations might hit the original pace that you planned, which was, I think, much higher.

Brian D.: Brian D. The items that are easing a bit are accessed to electrical.

Brian D.: personnel in the market that has subsided a bit. It's not perfect still, but that had been a huge impediment for a long period of time. We've gotten into a better ability to

Richard Mills: We've gotten into a better ability to advance schedule that activity and then follow on from there with Digital Signage Installation. So that part kind of was the last hurdle as far as market factors are concerned on the total deployment and installation activity scaling. We still have a customer that has a lot of change order activity on a per-site basis that inherently slows down the aggregate deployment.

Speaker Change: predict and advance schedule that activity and then follow on from there with the digital signage installation.

Speaker Change: So that part is...

Speaker Change: account was the last hurdle as far as market factors.

Speaker Change: on the Total Deployment and Installation Activity Scaling. We still have a customer that has a lot of change order activity on a per site basis.

Speaker Change: that inherently slows down the aggregate deployment. We do expect that it will grow in the third quarter and likely again in the fourth quarter, but don't expect it to hit that original.

Speaker Change: pace or expected pace at least until 2025, and there's an argument that it really won't get to that 60-plus-a-month spot in the near term.

Speaker Change: and I just want to add on to that, Will, because...

Speaker Change: The one thing we don't know, Brian ...

Speaker Change: is how, you know, we talk about third quarter, Will is spot on as we move into fourth quarter.

Brian: It is still up in the air what that will look like between Thanksgiving and Christmas.

Speaker Change: with the bowling centers and league and those kinds of things. There could potentially be even a, quote, slowdown in Q4. We just don't know because this will be the first winter that we go into that December .

Speaker Change: fully loaded, ready to go, and bowling centers may push back. So a little bit of unknown here as we navigate that. Will, you want to? Yeah, I agree with that. Okay.

Richard Mills: I agree with that. OK. Right. And then, in terms of business development, I guess. From a high level, how would you describe enterprises at the type right now for digital science and more so capital investment? And maybe talk about business development trends in general. And if it makes sense, you can break it down by vertical.

Speaker Change: and then in terms of business development, I guess from a high level, how would you describe enterprises at the type right now for digital science and more so making capital investments?

Speaker Change: and maybe talk about the business development trends in general. And if it makes sense, you can break it down by vertical. If it doesn't, that's okay, too.

Richard Mills: If it doesn't, that's OK. Yeah, I'll just talk generally. So what I would tell you is, as of today, we have not seen a waning of the appetite. The appetite for enterprise customers is still there. Of course, don't know what you know, current interest rates and those things and the market conditions could sway that. But as of right now, we have not seen any trickle down from any of that.

Speaker Change: Yeah, I'll talk generally. So what I would tell you is, as of today, we have not seen a waning of the appetite. The appetite for enterprise customers is still there.

Speaker Change: Of course, don't know what, you know, current...

Speaker Change: Interest rates and those things and the market conditions or you know could sway that but as of right now we have not seen any trickle-down from any of that that's number one. Number two

Speaker Change: I will tell you a lesson we have learned in 2024. First off, the strength of our pipeline is incredibly significant.

Richard Mills: Number one, the quantity of logos we are talking to is far greater than we've ever talked to before. We are engaged in very meaningful discussions. Number two, the quality of the logo.

Speaker Change: And why is that? Number one, the quantity of logos we are talking to is far greater than we've ever talked to before. We are engaged in very meaningful discussions.

Speaker Change: Number two.

Richard Mills: So not only quantity but quality. There was a time two, three years ago where we were dealing with potentially what you might call second tier or even third tier brands. Today, I'm talking to high-level, second and first tier brands, and we are meaningfully engaged, so we have really, God, seeded to the top of the food chain.

Speaker Change: The quality of the logo. So not only quantity, but the quality.

Speaker Change: There was a time two, three years ago, where we were dealing with potentially what you might call second tier or even a third tier brand.

Speaker Change: Today I'm talking to high-level, second- and first-tier brands, and we are meaningful engaged. So we have really

Richard Mills: Now, one of the things we learned throughout 2024: as you increase the quality of the logo and you're dealing with first-class organizations, their process tends to be a little longer, their diligence check tends to be extensive. So those are just some of the lessons we've learned. And so we've had two or three opportunities. We would have expected I would have been in deployment right now, but we are still on the cusp of. We're still there, but they just tended to move a little slower, so incredibly bullish as we move into 2025, but that's really kind of the overall picture.

Speaker Change: seated to the, you know, to the top of the food chain. Now, one of the things we learned throughout 2024

Speaker Change: As you increase the quality of the logo and you're dealing with first-class organizations,

Speaker Change: Their process tends to be a little longer. Their diligence check tends to be extensive.

Speaker Change: So those are just some of the lessons we've learned.

Speaker Change: and so we've had two or three opportunities we would have expect I would have been in deployment right now that we are still on the cusp of we're still there but they've just tended to move a little slower.

Brian Kinstlinger: So very comfortable with that, and is there, given the holiday season, given the sports? NFL starting and maybe adding some other sports. Is there a way to think about the lumpiness of the third versus the fourth quarter and which might be more seasonally strong?

Speaker Change: So, incredibly bullish as we move into 2025.

Richard Mills: And I would say that's overall about our QSR retail, retail, retail media network type stuff, C-Store. Sports Center Attainment, I would tell you in the S&E world, I would expect to see a spike, potentially this year end, but certainly in 2025, because we're seeing some real gains in that market. Hopefully that's helpful. Great. Thanks so much.

Speaker Change: but that's really kind of the overall. And I would say that's overall about our QSR retail retail, retail media network type stuff, SeaStore.

Speaker Change: Sports Entertainment

Speaker Change: I would tell you in the S&E world, I would expect to see a spike, potentially this year end, but certainly in 2025, because we're seeing some real gains in that market.

Speaker Change: Hopefully that's helpful.

Speaker Change: Great, thanks so much.

Operator: One moment for our next question. Our next question comes from Jason Kerr with Craig Halum. Your line is open. Great, thank you. This is Cal for Jason this morning.

Speaker Change: Our next question comes from Jason Kerr with Craig Hallam. Your line is open.

Cal Bartyzal: So I guess maybe to start, you guys have had several new wins with stadiums lately. That was a big kind of talking point on the call so far. So just curious, you know, to what do you attribute that success? And are you seeing any additional monetization opportunities and new stadium wins that you're rolling out now? This is Rick. I'll take that wheel. So, hey Cal, how are you?

Cal: Great, thank you. This is Cal for Jason this morning. So I guess maybe to start, you know, you guys have had several new wins with stadiums lately, you know, that was a big kind of talking point in the call here so far. So just curious, you know, to what do you attribute that success? And are you seeing any additional monetization opportunities and new stadium wins that you're rolling out now?

Cal: This is Rick. I'll take that, Will. So, hey, Cal, how are you?

Richard Mills: I'm doing good. How are you doing? Good, great. Thanks for joining the call. So a couple of things, you know, we've been in this market for several years now with a real enhanced presence. And so we, again, are being introduced at the highest levels. So we're really dealing with now the larger tier stadiums. We were dealing with the 10,000-seat arenas, and then we moved into 15.

Rick Mills: Doing good. How are you doing?

Will: Good, great. Thanks for joining the call. So a couple of things, you know, we've been in this market for several years now with a real enhanced presence.

Will: And so we, again, are being...

Will: introduced at the highest levels, so we're really dealing with now the larger tier stadiums. We were dealing at the 10,000

Richard Mills: Now we're in the full 20, 25, and up stadiums. So we've climbed up the food chain in the stadium world. Okay. Number two, around the monetization of that. Whenever we typically take over or Win a Stadium, it typically comes with all of the food screens. A typical stadium will have about 600 food screens.

Will: seat arenas, and then we moved into 15. Now we're in the full 20, 25, and up stadiums. So we've climbed up the food chain in the stadium world.

Will: Okay? Number two, around the monetization of that. Whenever we typically take over or

Will: win a stadium, it typically comes with all of the food screens.

Richard Mills: Again, think of it as 10 different food concepts and about between four and 600 food screens. So we always start there. We do expect the balance of the screens over the next two to five years to migrate to an OPEX model and come on to some of our different SAS platforms. So that's why we're investing heavily in this market because we think two to five years from now, there will be tens of thousands of screens that will migrate to SAS platforms.

Will: typical stadium will have about 600 food screens. Again, think of it as 10 different food concepts and about between four and six hundred food screens. So we always start there.

Will: We do expect the balance of the screens over the next two to five years to migrate to an OPEX model and come onto some of our different

Will: SASS platforms. So that's why we're investing heavily in this market, because we think two to five years from now, there's tens of thousands of screens that will migrate to SASS platforms.

Richard Mills: Yeah, I would add that we're replicating our model and our success in non-sports and entertainment and that we spent the last two years building really strong relationships with the OEM partners in this space, specifically TriplePlay, like we have with Samsung and others in the other markets. And then, as Rick mentioned with the digital menu boards, we're going to market with a full total stadium offering, not just their IPT platform or their food platform, and that's responding. Well said; it makes a ton of sense.

Will: Yeah, Cal, I would add that we're replicating our model and our success in non-sports and entertainment, in that we've spent the last two years building really strong relationships with the OEM partners in this space.

Cal: specifically TriplePlay like we have with Samsung and others in the in the other markets. And then as Rick mentioned with the digital menu boards.

Speaker Change: we're going to market with a full total stadium offering, not just their IPT platform or their food platform, and that's resonating with those customers.

Cal Bartyzal: And then maybe secondly, you guys have talked a little bit on this call about seeing greater quality and greater quantity as some of these legal opportunities. So maybe if you could just kind of give a little more color on what you think is really driving your ability to move up market. And if that kind of trend is playing into some of this really strong demand that you see in the QS Harbor. Yeah, I mean, I think, you know. We're doing a quality job out in the marketplace, and that is responding.

Rick Mills: Well said.

Speaker Change: Makes a ton of sense.

Speaker Change: And then maybe secondly, you guys have talked a little bit on this call about seeing greater quality, greater quantity of some of these logo opportunities. So maybe if you could just kind of give a little more color on what you think is really driving your ability to move up market, and if that kind of trend is playing into some of this really strong demand that you cited in the QSR vertical.

Speaker Change: Yeah, I mean, I think, you know, we're doing a quality job out in the marketplace.

Richard Mills: The manufacturer partners are seeing it. You know, I had one manufacturer partner say, you know. You took over this customer, they don't call me anymore. I said, yeah, because we do a great job for you. And he said, you absolutely do.

Speaker Change: that is resonating. The manufacturer partners are seeing it. You know, I had one manufacturer partner say, you took over this customer, they don't call me anymore.

Richard Mills: You provide excellent customer service, so we're very focused on that. It shows in our DNA, and, frankly, word gets around.

Speaker Change: I said yeah because we do a great job for you and he said you absolutely do you provide excellent customer service so we're very focused on that it shows in our DNA

Richard Mills: Hey, that CRI team's doing a pretty darn good job, number one. Number two, I would also articulate, "We're getting big enough to matter, right? Size and scale add to credibility, and we are really now getting big enough to matter here in North America. So, a combination of those things.

Speaker Change: and, frankly, word gets around, hey, let's see our eye teams doing a pretty gag on good job. So, we're just seeing the natural expansion of that.

Speaker Change: number one. Number two, I would also articulate

Speaker Change: We're getting big enough to matter, right? Size and scale adds to credibility, and we are really now getting big enough to matter here in North America.

William Logan: Will, your thoughts? Cal, one other comment. In a couple of these vertical markets, and food in particular, some of the larger end customers engaged consultants to help them through their RFP or their digital menu board journey, and so we've performed well in a couple of those instances, which then seeds the downstream when new customers or potential prospects reach out to those consulting firms. They know who CRI is and indicate have your thoughts about CRI. So just getting more seeds at the table or more bites at the table.

Speaker Change: So a combination of those things. Will, your thoughts? Cal, one other comment. In a couple of these vertical markets, and food in particular,

Will: Some of the larger end customers tend to engage consultants to help them through their RFP or their digital menu board journey And so we've we've performed well in a couple of those instances

Speaker Change: which then seeds the downstream when new customers or potential prospects reach out to those consulting firms, they know who CRI is and indicate, have you thought of CRI? So just getting more seats at the table or more bites at the apple.

Richard Mills: Good point. One more comment, Cal; I'm just going to add one more thing. When we go into the stadium and arena, our competitions talk about menu boards, and, you know, they put screens up and put pictures of hot dogs on them. We sit down with them, and we go through an in-depth screen analysis at a much more complex level than our competitors do, and it resonates because they see true value in their stadium food operations brought about by the expertise of the CRIT being involved. So I think it's a combination of all of them.

Speaker Change: Good point. One more comment, Cal. I'm just going to add one more thing.

Speaker Change: When we go into the stadium and arena, our competitions talk about menu boards and, you know, they put screens up and put pictures of hot dogs. We sit down with them and we go through an in-depth screen analysis.

Speaker Change: and at a much more complex level than our competitors do and it resonates because they see true lift.

Speaker Change: in their stadium food operations brought on brought about by the expertise of the CRI team being involved. So I think it's a combination of all of those.

Cal Bartyzal: Great. Well, thank you guys for all the detail, and congrats on the continued momentum. Thanks.

Speaker Change: Great, well, thank you guys for all the detail and congrats on the continued momentum.

Operator: One moment for our next question. Our next question comes from Howard Halpern with the Tagwitch Brothers. Your line is open. Congratulations on the quarter, guys. Hey, Howard. How are you, sir?

Speaker Change: Thanks!

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Howard Halperin with Tagwitz Brothers. Your line is open.

Howard Halperin: Congratulations on the quarter, guys.

Howard Halpern: Well, could you talk about, I guess, the opportunity over the next two to three years, especially in C-stores and with stadiums on the managed media part of your business and the opportunity there? Okay, so what we use the term to define that quote is a retail media network, whether it's going on in a C store, etc. So the opportunity for retail media networks is enormous. Okay, the ad dollars are shifting away from traditional media markets.

Speaker Change: Hey, Howard. How are you, sir?

Howard Halperin: Doing well. Could you talk about, I guess, the opportunity over the next two to three years?

Speaker Change: especially in C-stores and with stadiums, on the managed media part of your business and the opportunity there.

Speaker Change: Okay so what we we use the term to define that quote is a retail media network whether it's going in a c-store etc. So the opportunity for retail media networks are enormous.

Speaker Change: Okay, the ad dollars are shifting away from traditional media markets.

Howard Halpern: You know, everybody on this call, TV ad spending is down, and radio and some of the other historical forms of media, and where is it moving? It's moving into the Retail Media Network. Why? Because I am an advertiser. I want to talk to somebody when they are in the activity of procurement.

Speaker Change: You know everybody on this call knows TV ad spending is down and and radio and some of the other historical forms of media

Speaker Change: and where is it moving? It's moving into retail media networks.

Speaker Change: Why?

Speaker Change: is an advertiser. I want to talk to somebody when they are in the activity of procurement.

Richard Mills: If I'm selling... Pepsi, I want to sell it inside the C-Store because somebody's already there buying something. So that resonates across all types of venues because people are out and about in activity or in an active session with their lives. So that's where the advertiser wants to be. So the opportunity is enormous. Now.

Speaker Change: So, if I'm selling Pepsi, I want to sell it inside the C-Store. Somebody's already there buying something. So...

Speaker Change: that resonates across all types of venues because people are out and about in activity or in active session with their lives. So that's where the advertiser wants to be.

Richard Mills: It is offset or not offset, but there is a hurdle stumbling block because it does require a large CapEx upfront expense. And there are now so many people that are trying to understand that they are now starting to allocate real capital. Number one.

Speaker Change: So the opportunity is enormous.

Speaker Change: It is offset, or not offset, but there is a hurdle, stumbling block, because it does require a large capex up front expense.

Richard Mills: So we'll see real capital allocated. We believe in 2025 2627 towards building out these enormous media networks. Number one.

Speaker Change: and there are now, so people have been managing that or trying to understand that. They are now starting to allocate.

Speaker Change: real capital, number one. So we'll see real capital be allocated, we believe in 2025, 26, 27, towards building out these enormous media networks.

Speaker Change: number one. Number two,

Speaker Change: We have also seen the rise, or arrival, of third-party financing companies.

Richard Mills: Number two, we have also seen the rise or arrival of third-party financing companies that didn't exist four or five years ago; they would not finance a media network. Today, there are multiple opportunities to finance a media network, you know, 40, 50, 60 million dollar capex expenses. And I have three or four alternatives to take to customers today if they don't want to deploy their own capex. So a complex answer to your question, but a lot of tremendous momentum and opportunity are heading that way, and we're excited about 2025 and 2026.

Speaker Change: who didn't exist four or five years ago.

Speaker Change: They would not finance a media network.

Speaker Change: Today, there are multiple opportunities to finance a media network, you know, 40, 50, 60 million dollar cap expend.

Speaker Change: and I have three or four alternatives to take two customers today if they don't want to deploy their own capital.

Speaker Change: So, complex answer to your question, but a lot of tremendous momentum and opportunity heading that away.

Richard Mills: Okay, and could you talk a little bit about how your channel partner program is? Pumping it up, I guess, through the pipeline of your opportunity. Sure. I mean, our channel pipeline program is up and running today.

Speaker Change: and we're excited about 2025 and 2026.

Speaker Change: Okay and could you talk a little bit about how your channel partner program is

Speaker Change: pumping up, I guess, through the pipeline of your opportunities.

Richard Mills: We have channel partners who are actively buying licenses or adding to their own license count on a weekly, monthly basis. As we did articulate in the earnings call, we had a fellow who was really, Considered the best channel guy in the industry, Dave Petrissig, who... got a sudden illness, and he passed. I love it.

Speaker Change: Hello.

Speaker Change: Sure, I mean our channel pipeline program is up, it is operating today. We have channel partners who are actively buying licenses or adding to their own license count on a weekly, monthly basis.

Speaker Change: As we did articulate in the earnings call, we had a fellow who was really

Speaker Change: considered the best channel guy in the industry, Dave Petrusik, who got a sudden illness and Dave passed on

Richard Mills: Yeah, so it was a real shock to the company, and so we are currently in the process of evaluating the right person or restructuring our channel to continue the momentum going forward. But it is absolutely now becoming a growing part of our business, not terribly significant to get in the big numbers today. But we are adding licenses every month, and that's what matters, and one last one, I guess, for Will.

Speaker Change: It's July 11th.

Speaker Change: Yeah so it was a real shock to the company and so we are currently in the process of evaluating the right person or restructure of our channel to continue the momentum going forward.

Speaker Change: but it is absolutely now becoming a growing part of our business. Not terribly significant today in the big numbers, but we're adding licenses every month and that's what matters.

William Logan: Total operating expenses, $6.2 million, should be a good number going forward for you to be able to leverage off of the growing revenue base. Yeah, we wouldn't expect any material changes from 2Q into the second half of the year. Okay. Thanks, guys. Keep up the great work.

Speaker Change: Okay, and one last one I guess for Will. Total operating expenses, 6.2 million should be a good number going forward for you to be able to leverage off of a growing revenue base.

Will: Yeah, we wouldn't expect any material changes from 2Q into the second half of the year and beyond.

Howard Halpern: Thank you, Howard. One moment for our next question. Our next question comes from Sam McAughlin with Breakout Investors. Hi guys.

Speaker Change: Okay, thanks guys. Keep up the great work.

Speaker Change: Our next question comes from Sam McCoglin with Breakout Investors.

Sam McAughlin: Great quarter and enjoyed the call so far. I had a couple of questions. One was about your gross margins, particularly in hardware. Your hardware gross margin came in at 30%. That's quite high compared to normal.

Sam McCogland: Hi guys, great quarter and enjoyed the call so far. I had a couple of questions, one was about your gross margins, particularly in the hardware.

Sam McCogland: Hardware gross margin came in at 30% that's that's quite high compared to normal and I was expecting that to come down to just a product mix but you know it was an interesting commentary in the press release which said it came down to kind of improved economies of scale so I wondered if

Sam McAughlin: And I was expecting that to come down to just product mix. But, you know, it was interesting commentary in the press release, which said it came down to kind of improved economies of scale. So I wondered if, you know, are we expecting kind of a slow increase like this? I know that gross margins fluctuate depending on product mix, but could we see the fluctuations kind of at a higher level, you know, moving forward?

Speaker Change: Are we expecting kind of a slow increase like these?

Speaker Change: I know the gross margins fluctuate depending on product mixed but could we see the fluctuations kind of at a higher level, you know, moving forward.

Sam McAughlin: Sam, yeah, we had the prior year numbers which were slightly lower as a result of more LED sales. In the current year, that's transitioned primarily to LCD, but we have taken advantage of a couple of opportunities over the last eight months to pre-purchase large quantities of displays that we are now using on a regular recurring basis across multiple customers.

Sam McCogland: Sam, yeah, we had the prior year numbers which were slightly lower as a result of more LED sales. In the current year that's transitioned primarily to LCD, but we have taken advantage of a couple of opportunities over the last eight months.

Sam McCogland: to pre-purchase large quantities of displays that we are now using on a regular recurring basis across multiple customers.

William Logan: And the ability on the financial side for us to make those procurement commitments has driven a reduced screen purchase price. That's why you also see a slightly higher inventory quantity that we've been carrying over the last couple of quarters. We think that we'll continue to have opportunities to evaluate and take advantage of into the future. But I'm not ready to say that you should expect 30 points on hardware perpetually into the future.

Sam McCogland: and the ability on the financial side for us to make those procurement commitments has driven a reduced screen purchase price. That's why you also see a slightly higher inventory quantity that we've been carrying over the last couple of quarters.

Sam McCogland: We think that we'll continue to have opportunities.

Speaker Change: to evaluate and take advantage of into the future. I'm not ready to say you should expect 30 points on hardware perpetually into the future. I still think we would guide folks.

William Logan: I still think we would guide folks to look in the low 20s for now, but those opportunities are there, and in material deployments, expect to be able to take advantage of those now that we have the new debt instrument in place. And I would just add one comment to that, Sam. Scale matters.

Speaker Change: to look in the low 20s for now but those opportunities are there and in material deployments expect to be able to take advantage of those now that we have the new debt instrument

Richard Mills: Right? So as we continue to grow, we expect to be able to leverage more of that scale around procurement, etc., to continue to enhance our margins, whatever that may look like in the future.

Speaker Change: And I would just add one comment to that, Sam. Scale matters, right? So as we continue to grow, we expect to be able to leverage more of that scale around procurement.

Sam McCogland: etc. to continue to enhance our margins, whatever that may look like in the future.

Sam McAughlin: Thank you. You also mentioned debt and, you know, your cash flow and debt reduction was great this quarter. I mean, and also in the last six weeks, I think you said you reduced the debt by another four million, which I thought was really impressive. I just wondered, do you have any kind of goals in terms of?

Sam McCogland: Yeah, understood. Thank you.

Speaker Change: You also mentioned debt and, you know, your cash flow and debt reduction was great this quarter. I mean, and also in the last six weeks, I think you said you reduced the debt by another four million, which I thought was really impressive. I just wondered, have your kind of goals in terms of...

Speaker Change: um, leverage, uh, by the end of the year changed at all, um, or you're still kind of just on track or you're exceeding your expectations, I thought, perhaps.

Sam McCogland: Yes, Sam, I would tell you that the first half of the year is is traditionally a little bit stronger in Cashflow or net debt reduction than the second half just with the way that some of our SAS Contracts tend to have prepayments in the first half of the year. We're still on track and on target with prior net debt

Sam McAughlin: We're still on track and on target with prior net debt, targets that we've shared, and what we've really been focused on right now is getting that breathing room, getting that incremental capital availability so that we can accelerate customer acquisition opportunities or strategic transactions if they present themselves. Great. Last one for me, it's a quick one.

Sam McCogland: targets that we've shared and what we've really been focused on right is get that breathing room, get that incremental capital availability so that we can accelerate customer acquisition opportunities or strategic transactions if they present themselves.

Sam McAughlin: I don't know if it's mentioned on the call, but I think your backlog was hovering around $110 million. Is there any kind of notable change there? I would tell you that it has come down, certainly some, as we've fulfilled some of the bowling commitments and others. Again, as we've stated in the past, we've moved away from articulating the backlog as we go; we've converted to a new accounting system, a new ERP, and we expect to reintroduce that concept, all right, in the future, but right now, it's not something that we focus on publicly. Yeah, OK, understood. Other than that, that's all for me.

Sam McCogland: Bye

Speaker Change: Last one for me is the quick one, I don't know if it's mentioned on the call. I think your backlog was hovering around 110 million. Does any kind of notable change there?

Speaker Change: I would tell you that it has come down, certainly some, as we fulfilled some of the bowling commitments and others.

Speaker Change: Again, as we've stated in the past, we've moved away from articulating backlog as we're going, we've converted to the new accounting system, a new ERP, and we expect to reintroduce that concept.

Speaker Change: In the future, but right now it's not something that we focused on publicly.

Jason Weintraub: So thank you very much, guys. Great quarter. Thanks, Sam. Thanks. Our next question comes from Jason Weintraub with Titan Partners Group. Your line is open. Hey, guys, congratulations on the quarter and our team's condolences on Dave's passing.

Speaker Change: discussing.

Speaker Change: Yeah, okay, understood. The other than that, that's all for me. Thank you very much, guys. Great work that.

Speaker Change: Thanks, Sam. Thanks. One moment for our next question.

Speaker Change: Our next question comes from Jason Wyntrop with Titan Partner's Group and your line is open.

Jason Wyntrop: Hey guys, congrats on the quarter and our team's condolences on Dave Passing.

Jason Weintraub: Just a quick question kind of coming off of Sam's question there. You talked about the debt refi in the quarter. Maybe just provide a little bit more color on this and maybe just the operational flexibility that this gives you going forward. Thanks.

Jason Wyntrop: Just a quick question kind of coming off of Sam's question there. You talked about the debt refi in the quarter. Maybe just provide a little bit more color on this and maybe just the operational flexibility that this gives you going forward. Thanks guys.

William Logan: Sure. The new debt instrument is $22.1 million of total availability. It's got the flexibility to rise over time as we perform on an EBITDA basis. So today, I think in the earnings, it was $13 million or so in debt. That's $8-9 million of availability to make decisions that are good for the business. Historically, our debt had no revolver, no ability to flex up or down for opportunities. It was just a fixed instrument.

Speaker Change: Sure, the new, the new debt instrument's 22.1 million of total availability. It's got flexibility to rise over time as we perform on an EBITDA basis.

Speaker Change: So today with the, I think in the earnings it was $13 million or so in debt, that's $8-9 million of availability to make decisions that are good for the business.

Speaker Change: Historically, our debt had no revolver, no ability to flex up or down for opportunities. It was just a fixed instrument. So this has created tremendous flexibility, both on evaluating

Richard Mills: So this has created tremendous flexibility, both in evaluating procurement opportunities, investing in particular engagements with customers, and then looking at strategic alternatives as well. And I would also add the other factor, Jason, that folks should certainly look at. It's really normalized our balance sheet, moving it all from short term, which made no sense, and that was really an optics issue, not a reality issue, but now that it's moved it back into the long term sector, so our balance sheet is much more normalized. Excellent Great, guys! Thank you. And I'm not showing any further requests at this time.

Speaker Change: procurement opportunities, investment into particular engagements with customers, and then looking at strategic alternatives as well.

Speaker Change: And I would also add the other

Speaker Change: Factor Jason that folks should certainly look at is

Speaker Change: It's really normalized our balance sheet, moving it all from short-term, which made no sense, and that was really an optics issue, not a reality issue, but now that it's moved it back into the long-term sector, so our balance sheet is much more normalized.

William Logan: I'd like to turn the call back over to Will for some further commentary. Okay. I'm taking a look at the IRM box.

Speaker Change: Excellent. Great, guys. Thank you.

Speaker Change: And I'm not showing any further requests at this time. I'd like to turn the call back over to Will for some further commentary.

William Logan: There was one question, Rick, that came in about a hypothetical transaction. We've talked a little bit about strategic opportunities and potential M&A. There's a question about, hypothetically, how does M&A impact the company? And how do you look at that?

Will: Great. I'm taking a look at the IRM box. There was one question, Rick, that came in just about a hypothetical transaction. We've talked a little bit about strategic opportunities and potential M&A. There was a question about hypothetically how does M&A impact the company and how do you look at that? Any comment you would like to make there?

Richard Mills: Any comment you would like to make there? Well, you know, number one, the debt refinancing has put us in a position now, we've cleaned up the balance sheet, we've cleaned up so many operational issues over the last couple of years, getting on the new ERP software has really put us in a position to start to look at the market more aggressively, number one. Number two, the function of M&A, particularly when we buy or acquire a company that is in an existing vertical, which is really what we look for, because a company like that is typically going to have a 50% minimum cost of goods.

Rick Mills: Well, you know, number one, the debt refinancing has put us in a position now, we've cleaned up the balance sheet, we've cleaned up...

Rick Mills: So many operational issues over the last couple of years, getting on the new ERP software has really put us in a position to start to go look at the market more aggressively, number one. Number two,

Rick Mills: the function of M&A, particularly when we buy or acquire a company that is in an existing vertical, which is really what we look for, because a company like that.

Richard Mills: If it's a $10 million company, they're going to have a 50% cost of goods. We believe we're going to save them 20% off that cost of goods with our purchasing power. Right there, there's a million dollars additional that goes to the bottom line. If it's a $10 million organization, maybe there are, but there's a half a million, we just took it from a half a million to a million and a half, and that's just on procurement.

Rick Mills: typically is going to have a 50% minimum cost of goods.

Rick Mills: You know, if it's a $10 million company, they're going to have a 50% cost of goods, right? And we believe we're going to save them 20% out of that cost of goods with our purchasing power.

R.: So right there, there's a million dollars additional that goes to the bottom line. So if it's a $10 million organization, maybe their EBITDA is a half a million, we just took it from a half a million to a million and a half and that's just on the procurement side.

Richard Mills: Then on the SG&A side, maybe they have 45% of top line revenue involved in SG&A. We typically would expect to take out 25% of that, Okay, because we're going to keep the sales and relationships and the customer parts intact; customer support service will consolidate where appropriate, but all the GNA will come out of that. So what was a $10 million acquisition with a half-million dollar EBITDA suddenly grew to a $10 million acquisition with a $40 million EBITDA, assuming you keep the same, you take 25% out of the SGNA, you take 10% out of the procurement, and you have the 5% they were already doing. So the math is very compelling. The challenge is, every one of them wants 10 times the revenue, right, which is unrealistic.

R.: Then on the SG&A side, maybe they have 45% of top-line revenue involved in SG&A. We typically would expect to take out 25% of that.

R.: Because we're going to keep the sales and relationships and the customer parts intact. Customer support service will consolidate where appropriate.

R.: But all the DNA will come out of that.

R.: $10 million acquisition with a half a million dollar EBITDA.

R.: Suddenly grew to a $10 million acquisition with a $40 million EBITDA, assuming you keep the same, you take 25% out of the SG&A, you take 10% out of the procurement, and you have the 5% they were already doing.

R.: So, the math is very compelling.

R.: The challenge

R.: is, every one of them wants ten times revenue.

Speaker Change: right, which is unrealistic, but we continue to search and every now and then we expect to find a diamond in the rough.

Speaker Change: Thank you, Rick. Appreciate that. There are no more questions at this point from the IR inbox. Rick, any closing comments?

Richard Mills: But we continue to search, and every now and then, we expect to find a diamond in the rough. Thank you, Rick. I appreciate that. There are no more questions at this point from the IRM box. Rick, any closing remarks, First and foremost, thanks. Let me conclude the call by thanking all the shareholders, clients, partners, and our employees here at Sierra for the continuing effort, commitment, and support as we work together to transform creative realities into the leading brand of digital signage solutions. We look forward to speaking with everybody again next quarter. Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Rick Mills: You know, first and foremost, thanks. Let me conclude the call by thanking all the shareholders, clients, partners, and our employees here at CRI for the continuing efforts.

Speaker Change: commitment and support as we work together to transform creative realities into the leading brand of digital signage solutions.

Speaker Change: We look forward to speaking with everybody again next quarter. Thank you.

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Sam McAughlin: Leverage by the end of the year, had changed at all, or you were still kind of just on track, or you were exceeding your expectations, I thought perhaps. Yes, Sam. I would tell you that the first half of the year is traditionally a little bit stronger in cash flow or net debt reduction than the second half, just because of the way that some of our SAS contracts tend to have prepayments in the first half of the year.

Richard Mills: In average sales price of 27,500 per location, and we expect this number to increase moderately on a sequential quarter over quarter basis. During the quarter, we were thrilled to announce the hiring of David Schultz as our Vice President, New Business Development. David brings over 25 years of experience in sales and business development, notably having held leadership roles at Cisco Systems, AppSpace, and most recently with Stratasys, the largest company in our industry, a veteran in the digital signage space.

Operator: We'll pause for a moment while we compile our Q&A routes. One moment for our first question. Our first question comes from Brian Kinstlinger with Alliance Global Partners. More lives, nice results. Hello? Hey, Brian, how are you?

Richard Mills: That's number one. Number two. I will tell you a lesson we have learned in 2024. First off, the strength of our pipeline is incredibly important. And why is that?

Richard Mills: We do expect that it will grow in the third quarter and likely again in the fourth quarter, but don't expect it to hit that original pace or expected pace, at least until 2025 and get to that 60 plus a month spot in the near- and I just want to add on to that will because the one thing we don't know, Brian, is how, you know, we talk about the third quarter, will be spot on as we move into the fourth quarter. It is still up in the air what that will look like between Thanksgiving and Christmas with the bowling centers and leagues and those kinds of things.

William Logan: We remain committed to finishing the year with record results while continuing to evaluate our capital structure and strategic priorities. Now, a couple of additional points of context related to our balance sheet. Cash. As of June 30, 2024, the company had cash on hand of approximately $4.1 million versus $2.9 million at the end of 2023, even as we reduced our overall indebtedness by approximately $1.3 million since the start of the year. Moving forward, our consolidated balance sheet will reflect minimal cash on hand as the company has set up a sweep instrument to apply cash against the revolving debt facility to further manage our interest expense.

Richard Mills: There could potentially be even a, quote, slow down in Q4, we just don't know because this will be the first winter that we go into that December fully loaded, ready to go, and bowling centers may push back. So a little bit of an unknown here as we navigate that. Would you want to?