Q2 2026 Creative Realities Inc Earnings Call

August 13, 2026

Speaker #2: Good morning. At this time, I would like to welcome everyone to CREATIVE REALITIES 2026 second quarter, earnings conference call. This call will be recorded, and a copy will be available on the company's website at C-R-I dot com.

Speaker #2: Following its completion, CREATIVE REALITIES has prepared remarks summarizing the interim reports for the quarter along with additional industry and company updates. Joining the call today is Rick Mills, Chief Executive Officer, Tamara Kashewa, Chief Financial Officer, and George Sautter, Chief Strategy Officer, and Head of Corporate Development.

Speaker #2: Ms. Kashewa, you may begin.

Speaker #3: 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.

Tamra Koshewa: Thank you, and good morning, everyone. Welcome to our earnings call for the second quarter ended 30 June 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.

Tamra Koshewa: Thank you, and good morning, everyone. Welcome to our earnings call for the Q2 ended 30 June 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.

Speaker #3: 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, or our operations, are intended to identify forward-looking statements.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Tamra Koshewa: 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?

Speaker #3: 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.

Speaker #3: Rick?

Speaker #4: Thanks, Tamara. 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.

Rick Mills: Thanks, Tamra. Good morning, everybody. We appreciate you joining today's call. I will 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 Cineplex Digital Media. 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.

Speaker #4: 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 revenue number and the second-largest revenue quarter ever in the history of CRI.

Speaker #4: We are pleased with the strong line 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.

Speaker #4: 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.

Rick Mills: All trends are pointing in the right direction, and we believe we have tremendous upward momentum into the H2 of the year. As of 30 June 2026, 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 and $5 million in backlog of ARR that will show up as we turn the clock and start 2027. So on 1 January, that number automatically goes up significantly. Net loss attributable to common shareholders was $4.6 million for the 3 months ended 30 June 2026, compared to a net loss of $1.8 million in the prior year period. Adjusted EBITDA rose to $2 million for the Q2 of 2026 versus $1.1 million last year.

Rick Mills: All trends are pointing in the right direction, and we believe we have tremendous upward momentum into the H2 of the year. As of 30 June 2026, 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 and 5 million in backlog of ARR that will show up as we turn the clock and start 2027. So on 1 January, that number automatically goes up significantly. Net loss attributable to common shareholders was $4.6 million for the three months ended 30 June 2026, compared to a net loss of $1.8 million in the prior year period. Adjusted EBITDA rose to $2 million for the Q2 of 2026 versus $1.1 million last year.

Speaker #4: 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.

Speaker #4: And as we previously discussed, we have about four somewhere between four and five million in backlog that will in backlog of ARR that will show up as we turn the clock and start 2027.

Speaker #4: So, on January 1, 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.

Speaker #4: 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.

Rick Mills: 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.

Speaker #4: 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 a run rate is approximately $75% of the total synergy number or approximately $7.5 million has been realized.

Speaker #4: 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.

Speaker #4: 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.

Rick Mills: 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 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.

Speaker #4: We expect Q3 this quarter to significantly exceed Q4 2025 when we achieve 2023.9 in revenue. And one other comment to note, we are also confident that Q4 will significantly exceed Q3 2026.

Speaker #4: So, the next two quarters, upward trajectory, tremendous growth. One other thing, though—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.

Speaker #4: 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 as well.

Speaker #4: 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.

Rick Mills: CRI 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 update, but will now turn it over to Tamra Koshewa to share some additional comments on our Q2 financials. Tamra?

Speaker #4: I'll come back in a minute to talk about some customer updates, but will now turn it over to Tamara to share some additional comments on our second quarter financials.

Speaker #4: Tamara?

Speaker #3: 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.

Tamra Koshewa: 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 30 June 2026, the statement of operations and cash flows for the three and six months ended 30 June 2026, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended 30 June 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Tamra Koshewa: 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.

Speaker #3: This includes 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.

Speaker #3: 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.

Speaker #3: Consolidated gross profit was $8.3 million in the second quarter of '26, versus $5 million in the prior year period. Consolidated gross margin was 38.6%, versus 38.5% in the second quarter of '25.

Speaker #3: 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 '25.

Tamra Koshewa: 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.

Speaker #3: 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 '25.

Speaker #3: 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 $2.0 million versus $1.2 million in the prior-year period, with CDM contributing approximately $500,000.

Speaker #3: General and administrative expenses were $9 million in the second quarter, compared to $5.2 million in fiscal 2025. The increase was driven by $3.8 million in CDM expenses during the quarter.

Speaker #3: 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 cost reductions other cost reductions that have previously been announced for fiscal 2026.

Tamra Koshewa: 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 30 June 2026 versus a net loss of $1.8 million or $0.17 per diluted share in the prior year period.

Speaker #3: 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.

Speaker #3: CRI reported a net loss of $4.2 million and a net loss attributable to common shareholders of $4.6 million or $43 cents per diluted share in the quarter ended June 30, 2026 versus a net loss of $1.8 million or $17 cents per diluted share in the prior year period.

Speaker #3: Adjusted EBITDA rose to $2 million in the second quarter of '26 as compared to $1.1 million in the prior year period. And a loss of $494,000 in the first quarter.

Tamra Koshewa: Adjusted EBITDA rose to $2 million in Q2 2026 as compared to $1.1 million in the prior year period, and a loss of $494,000 in Q1. While adjusted EBITDA greatly improved over Q1 results, we continue to anticipate that it and associated cash flows will further improve during the H2 fiscal 2026, given the forecasted business growth and cost initiatives previously discussed. In terms of the balance sheet, as of 30 June 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 Q2, as compared to $44 million at the beginning of the fiscal year.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Tamra Koshewa: We had approximately $12.8 million of available liquidity under our revolving credit facility as of 30 June 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.

Speaker #3: We remain dedicated to maintaining and optimize 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.

Speaker #3: 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.

Speaker #3: The auditors have reviewed our analysis and have concluded that the going concern is no longer needed. When our 10Q is released tomorrow morning, the going concern language will not be there.

Tamra Koshewa: 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 H2 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.

Speaker #3: 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.

Speaker #3: I will now turn it back to Rick for additional comments around customer activities.

Speaker #1: Thanks, Tamara. Great news about the removal of the growing concern. Thanks for all the hard work.

Rick Mills: Thanks, Tamra Koshewa. Great news about the removal of the going concern. Thanks for all the hard work. Okay, now some customer updates. I had previously announced that we were selected as the official digital signage provider for the Tennessee Titans in 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 in 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 US. 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.

Speaker #2: Okay, now some customer updates. I had previously announced that we were selected as the official digital signage provider for the Tennessee Stadium under construction in Nashville, Tennessee.

Speaker #2: As a reminder, this is about an $8.5 million deal. That includes the installation of thousands of displays in a full IPTV solution throughout the venue.

Speaker #2: 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.

Speaker #2: An incredible, well-known brand with thousands of locations across the U.S. To our knowledge, it is the largest retail media network deployed in the United States this year.

Speaker #2: 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?

Rick Mills: Why is Albertsons investing in this in-store media network? Why do in-store media networks work, right? Well, all the reasons we have 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 are 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, 13 April, we announced a project to expand and modernize AMC Theatres in lobby media footprint across about 285 locations nationwide. This is a partnership between CRI and National CineMedia. They are the leading cinema advertising platform in the US.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Tremendous network. We're thrilled to be part of it and excited. They use are using our entire ad tech stack, our CMS, all the things we talked about previously.

Speaker #2: Another customer, AMC. As a reminder, April 13th, we announced a project to expand and modernize AMC theaters in lobby media footprint across about 285 locations nationwide.

Speaker #2: This is a partnership between CRI and National Cinemedia. They are the leading cinema advertising platform in the US. This media network utilizes our CMS platforms again recruiting including ReflectView and then our ad logic ad tech solution to provide ad serving for all the screens.

Rick Mills: 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.

Speaker #2: We have completed the test locations in our moving to full deployment this month. As we mentioned in the earnings press release, we are in the contract stage with two additional customers.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 and Toyota dealerships in Canada to our CMS platform.

Rick Mills: 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 US and Canada are working well together and frankly, delivering exceptional customer value. The reception from the customer to the new combined CRI has been significant.

Speaker #2: 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 SAS and creative services.

Speaker #2: In closing, I want to take a moment and point out to everyone that our plans to go big—scale up and focus on the enterprise customer—are working.

Speaker #2: 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.

Speaker #2: The combined teams in the US and Canada are working well together and, frankly, delivering exceptional customer value. The reception from the customer to the new combined CRI has been significant.

Speaker #2: I want to do a quick shout out to the new members of our C-suite who joined CRI in the last seven months. Dan McAllister, Jackie Walker, and Tamara on this call.

Rick Mills: I want to do a quick shout-out to the new members of our C-suite who joined CRI in the last seven months. Dan McAllister, Jackie Walker, and Tamra on this call, they are all having a significant impact in the business. As they take over the daily operations, and they truly are starting to run the business, I am turning my focus on strategic growth areas in the marketplace where CRI 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 will now move to the Q&A portion of the call. Please go ahead, operator.

Speaker #2: 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 am turning my focus on strategic growth areas in the marketplace where CRI will have an advantage over our much smaller competitors.

Speaker #2: 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.

Speaker #2: Please go ahead, operator.

Speaker #3: 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.

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

Speaker #3: Please stand by while we compile our Q&A roster. Our first question will be coming from the line of Jason Crea of Craig Halem. Your line is open, Jason.

Jason Kreyer: 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? 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?

Speaker #2: Great. Thanks, guys. Rick, great to hear the all the deal flow that's happening. Particularly on the Albertsons front, good to hear things are moving in the right direction there.

Speaker #2: Maybe you can 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?

Speaker #2: Do you think that opens up more retail media opportunities or does that accelerate conversations you're already having?

Speaker #4: It 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 3,000 screens across 220 to 250 locations.

Rick Mills: 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 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 1 million ads a day, Jason, so it's very successful for them. They're excited. They're using our CMS, our ad tech, et cetera. In terms of what it does for the pipeline, well, I got to tell you, it strengthens our position.

Speaker #4: We take over the deployment of those screens and the deployment of players in all the technology here over the next 30 days that'll transition to us from they've had a proliferation of suppliers doing it.

Speaker #4: 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.

Speaker #4: 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's 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.

Rick Mills: As you know, we like 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's adopted our ad tech. So with growing references of that type of blue-chip brands, we expect that to accelerate our retail media network pipeline.

Speaker #4: The US and Canada. And certainly, having a customer like Albertsons backs it up. We, again, have three or four customers today that have chosen our ad tech.

Speaker #4: You've got Albertsons, of course, 7-Eleven, using our ad tech at now over 2,000 stores. Macy's, Best Buys adopted our ad tech. So with growing references of that type of blue chip brands, we expect that to accelerate our retail media network pipeline.

Speaker #2: That's great. We've also heard a lot about the challenges facing one of your competitors. It seems like that would create a great opportunity for CRI to talk about the early discussions that you're having with customers in the pipeline, and what the prospects look like there.

Jason Kreyer: 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 CRI. Can you just talk about the early discussions that you're having with customers in the pipeline and what the prospects look like there?

Speaker #4: As I stated on the call earlier, Jason, I mean, again, here we have two of two customers who were in contracting stages right now, both have to be converted.

Rick Mills: As I stated on the call earlier, Jason Kreyer, 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 was a new, came from a different platform. We are gaining customers. We do expect the pipeline was enhanced as that customer ran into some trouble, or that other supplier or competitor of ours ran into trouble. It certainly has helped our pipeline. But we do expect to be closing multiple quote logos on a quarterly basis on a go-forward basis. We're excited about it.

Speaker #4: One actually came from that competitor. The other was not. The other was a new came from a different platform. So we are gaining customers.

Speaker #4: We do expect the pipeline to was enhanced as that customer ran into some trouble, or that other supplier or competitor of ours ran into trouble.

Speaker #4: 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.

Speaker #4: So we're excited about it.

Jason Kreyer: Terrific. Last question from 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 predictability around the financials.

Speaker #2: Terrific. Last question for me, just so 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 predictability around the financials.

Speaker #4: Certainly gives us better predictability because 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 the new stage where our revenue as we enter 2027 will be much more predictable than it has in the past.

Rick Mills: It certainly gives us better predictability because 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 the new stage where our revenue, as we enter 2027, will be much more predictable than it has 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. 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 in Q3. Well, that tells you there is pending revenue coming our way.

Speaker #4: 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 is catching up.

Speaker #4: And we are incredibly bullish about 2027. I would also point out the comments I made earlier: we expect our Q3 to be the largest quarter in the company's history.

Speaker #4: 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 Kreyer: All right. Great to hear. Thanks a lot, Rick.

Speaker #2: Great, great to hear. Thanks a lot, Rick.

Speaker #4: Thank you, Jason.

Rick Mills: Thank you, Jason.

Speaker #3: And our next question will come from the line of Brian at Kinslinger of Alliance Global Partners. Your line is open, Brian.

Operator: Our next question will come from the line of Brian Kinstlinger of Alliance Global Partners. Your line is open, Brian.

Speaker #4: Hey, Brian.

Rick Mills: Hey, Brian.

Speaker #3: And your line is open.

Operator: And your line is open.

Rick Mills: Brian's never this quiet.

Speaker #4: Brian's never this quiet.

Speaker #3: Okay.

Operator: Okay.

Speaker #4: Yes.

Rick Mills: Go ahead.

Brian Kinstlinger: Can you hear me?

Speaker #2: Can you hear me?

Speaker #4: There you go. We hear you now, Brian.

Rick Mills: There you go.

Brian Kinstlinger: Hello?

Rick Mills: We hear you now, Brian.

Speaker #2: Huh. Interesting. I never hit mute and now he's unmute. 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.

Brian Kinstlinger: Huh, interesting. I never hit mute, and I was on mute. Sorry about that. I was saying hi to you, Rick. On the stronger awards and H2 ramp in revenue, I am curious with what is known, how you see the split between services and hardware.

Rick Mills: We see the SaaS continuing to grow from a services perspective, Brian. There is some hardware in the H2 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.

Speaker #4: 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 in Q4.

Speaker #2: 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.

Brian Kinstlinger: 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? On the service side, maybe speak to pricing trends.

Speaker #2: 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 Mills: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #2: Got it. Just one more question, just to make sure I heard it right: one of your two pending negotiations or wins is August, and you expect to deliver by the end of September.

Brian Kinstlinger: Got it. Just one more question just to make sure I heard it right. One or 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.

Speaker #2: Is it because you have the screens in inventory? I'm just trying to reconcile how you expect to complete an installation that quickly.

Speaker #4: That one is, there are no installs. It's the conversion of every one of their stores over to our platform. So they already have hardware in place.

Rick Mills: That one is their quote or is no installs, its 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 1,000 locations, quote, 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?

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: Make sense, Brian?

Brian Kinstlinger: Totally. Thank you so much.

Speaker #2: Totally. Thank you so much. Great work on all the awards.

Operator: And-

Tamra Koshewa: And-

Operator: Great luck on all the awards.

Brian Kinstlinger: Great luck on all the awards.

Speaker #4: Yep.

Tamra Koshewa: Yep.

Rick Mills: Yep.

Tamra Koshewa: Brian Kinstlinger, let me just clarify a couple things that Rick was talking about with respect to your question on service versus hardware in the H2. We do expect that the Q3 is going to have a higher percentage of hardware revenues given the installs that we are planning for the Q3, in particular, the Tennessee Titans. But then in the Q4, we expect it to get back to the level that it was in Q2. Also because in the Q4, remember, we have a large media revenue base that will come online that we will experience similar to what we did last year with the CDM media business.

Speaker #3: Brian, let me just clarify a couple of things. That Rick was talking about with respect to your question on service versus hardware in the second half.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: With the CDM media business.

Brian Kinstlinger: Great. Understood. Thank you.

Speaker #2: Great. Understood. Thank you.

Speaker #3: And our next question will be coming from the line of John Hickman of Ladenburg. Your line is open.

Operator: Our next question will be coming from the line of Jon Hickman of Ladenburg. Your line is open.

Jon Hickman: 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?

Speaker #2: 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 Mills: John, I think ideally we would like to, as we enter 2027, get out of the 30s, back into the 40s. Tamra, I will let you add comments, but just generally, we have had margin compression of 5% or 6%, and we are trying to get that back as we enter 2027 through enhanced product mix, et cetera. Tamra, anything to add?

Speaker #4: John, I think ideally we'd like to, as we enter 2027, get back in out of the 30s, back into the 40s. Tamara, I'll let you kind of add comments, but just generally, we've had margin.

Speaker #4: Impression of five or six. And we're trying to get back as we enter 2027 through enhanced product mix, etc. Tamara, anything to add?

Speaker #3: 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.

Tamra Koshewa: Yeah, I think that is correct. We have seen both the inflation as well as the mix of our revenues bring the margins down compared to last year. As we build that SaaS space, then we can start to get back closer to that 40% plus target. We are still going to be short of that this year. Certainly, in the second half we will see some improvements, but really not until 2027 when we get more of that SaaS revenue flowing through the P&L that will start to get a lift on the margin rate.

Speaker #3: But as we build that SaaS base, we can start to get back closer to that 40%+ target. But we're still going to be short of that this year, certainly in the second half.

Speaker #3: We'll see some improvements, but really not until 2027, when we get more of that SaaS revenue flowing through the P&L. That's when we'll start to get a lift on the margin rate.

Speaker #4: Yeah. I would just.

Rick Mills: Yeah.

Speaker #2: So if you had.

Jon Hickman: If you had

Speaker #4: John, let me just add one fact. I mean, the point is, 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 "magically turn on" on January 1.

Rick Mills: Jon, let me just add one thing.

Jon Hickman: Go ahead.

Rick Mills: The point is, if you think to my earlier comments, we have got about 4 million, certainly 3.5 to 4 million of seated SaaS already that is will quote "magically turn on 1 January." So that in itself brings incredible high margin to the mix right away. That alone could push us up. We have not done the math. That could push us up, the composite up 2 points. Keep in mind that turns on 1 January. Go ahead and ask your question. Sorry.

Speaker #4: So that in itself brings incredible high margin to the mix right away. So that alone could push us up. We haven't done the math to push us up the composite up two points at that turns on January 1.

Speaker #4: Go ahead and ask your question. Sorry.

Speaker #2: Okay. So if you have the kind of margins you would like in the, say, low 40% range, so you would need if you had that now, you would need another 6 million or so in revenues to break even on an operation basis.

Jon Hickman: Okay. If you have the kind of margins you would like in the, say, low 40% range, if you had that now, you would need another $6 million or so in revenues to break even on an operation basis. Does that math work out?

Speaker #2: Do I have that is that math work out?

Speaker #3: Yeah. I think that's reasonable to assume.

Tamra Koshewa: Yeah, I think that is reasonable to assume.

Speaker #2: Okay. Then any comments on COVID and on the lottery stuff that's going on?

Jon Hickman: Okay. Any comments on Culver's and on the lottery stuff that is going on?

Speaker #4: Yep. COVID continues to go well. We continue to deploy every month. We are installing new drive-throughs. There is, I think, a three-year target to complete all of their restaurants.

Rick Mills: Culver's, it continues to go well. We continue to deploy every month. We are installing new drive-throughs. There is, I think, a three-year target to complete all of their restaurants. That's their target, not ours. We are 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 Education 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 and continue to grow their lottery network in 2027. We would expect to have some announcements as we get closer to year-end about a lottery expansion in 2027.

Speaker #4: 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.

Speaker #4: 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 in our looking to continue to grow their lottery network in 2027.

Speaker #4: And we would expect to have some announcements as we get closer to year-end about a lottery expansion in 2027.

Speaker #2: Okay. Thank you.

Jon Hickman: Okay. Thank you.

Speaker #3: And our next question will be coming from the line of Kevin Sheldon, a private investor. Your line is open.

Operator: Our next question will be coming from the line of Kevin Sheldon, a private investor. Your line is open.

Kevin Sheldon: Hello?

Speaker #5: Hello?

Speaker #4: Hey, Kevin.

Rick Mills: Hey, Kevin.

Speaker #5: How are you, sir?

Kevin Sheldon: How are you, sir?

Speaker #4: Doing great. Yourself?

Rick Mills: Doing great. Yourself?

Kevin Sheldon: All things considered, not bad.

Speaker #5: All things considered, not bad. So just quickly, I guess it's a two-part question, or multiple: 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 Mills: Good.

Kevin Sheldon: 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?

Speaker #4: 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 be north of 25, closer to 30, if not exceed 30 million on a quarterly basis.

Rick Mills: It is really a combination of both. We expect the next 2 quarters to add significant ongoing revenue to the business that we will certainly be north of $25 million, closer to $30 million, if not exceed $30 million on a quarterly basis. We believe that is in the imminent future, Kevin. Number 2, we have taken out $7.5 million. It has not all showed up, but it has already been done. It will show up as we enter 2027. We have a couple million of additional costs that we want to take out throughout 2027 as we migrate. We have customers on other networks. They are not running our software today. They are our customer, but they are running on third-party platforms that do cost us money. The goal is to migrate them over to our platforms in 2027.

Speaker #4: We believe that's in the imminent future, Kevin. Number two, there are we've taken out seven and a half million it has not all showed up, but it's already been done.

Speaker #4: And so it will show up as we enter 2027. We've got a couple million dollars of additional costs that we want to take out throughout 2027 as we migrate—we have customers on other networks.

Speaker #4: They're not running our software today. They're our customer, but they're running on third-party platforms that do cost us money. The goal is to migrate them over to our platforms in 2027.

Rick Mills: It is a combination of taking some SG&A out, leaving our expenses flat as the top line grows fairly significantly here over the next 3, 4 quarters.

Speaker #4: So, 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 or four quarters.

Speaker #5: Thank you. I'm good.

Kevin Sheldon: Thank you. I am good.

Speaker #3: And just one other thing I'd like to mention with respect to the G&A. Within there is a fairly large amortization accounting expense for leases that we have in our mall network.

Tamra Koshewa: Just one other thing I would 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. That amortization changes as we go throughout the year. It is 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. It is not related to actual hard G&A costs that we can take out.

Speaker #3: 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.

Speaker #3: So that certainly increases in certain periods of the year and then decreases back down. So it's not related to actual hard G&A costs that we can take out.

Speaker #5: Thanks for the clarification.

Kevin Sheldon: Thanks for the clarification.

Speaker #4: Yeah. Well said, Tamara.

Rick Mills: Well said, Tamra.

Speaker #3: And I would now like to turn the call back to Rick for closing remarks.

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

Speaker #4: Okay. I just do want to do a quick shout-out. I'm going to give special thanks there's about at CRI, we have about 230 employees now.

Rick Mills: Okay. I just do want to do a quick shout-out. I am going to give special thanks. At CRI, we have about 230 employees now. I want to thank all of them for their incredible effort this year. I use the term, what a great, sometimes crazy journey, this acquisition of Cineplex Digital Media and putting the companies together and emerging as one of the top three competitors in North America. It has been pretty special. It has been fun, but we couldn't have gone without the hard work of all the CRI employees, so special shout-out to them. 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 CRI into the leading brand in digital signage solutions. We look forward to speaking with you again next quarter. Thanks.

Speaker #4: I want to thank all of them for their incredible effort this year. I use the term what a great sometimes crazy journey this acquisition of CDM and putting the companies together.

Speaker #4: And emerging is one of the top three competitors in North America. It's been pretty special. It's been fun, but we have gone without the hard work of all the CRI employees.

Speaker #4: So, special shout-out to them. 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 CRI into the leading brand in digital signage solutions.

Speaker #4: We look forward to speaking with you again next quarter. Thanks.

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

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