Analyst Summary
- Revenue increased by 13% to $50.85 million, driven by a 31% increase in service revenue, while hardware revenue decreased by 10%.
- Gross margin decreased from 49% to 47% due to a shift towards installation services revenue.
- Net loss decreased by 19% to $3.51 million, but the company remains unprofitable.
- Cash and cash equivalents decreased significantly from $2.91 million to $1.04 million.
- The company’s revolving credit facility increased to $13.04 million.
- The independent auditor’s report includes an explanatory paragraph indicating substantial doubt about the company’s ability to continue as a going concern.
- Management highlights a record year of performance and expresses optimism for fiscal 2025, emphasizing recurring SaaS revenue and the AdLogic CPM+ platform.
Opportunities and Risks
- Opportunity: Growth in service revenue, particularly recurring SaaS revenue, and the potential of the AdLogic CPM+ platform.
- Risk: The company’s ability to manage its debt and contingent consideration obligations.
- Risk: The ‘going concern’ warning from the auditors.
- Risk: Reliance on a few key customers for a significant portion of its revenue.
Potential Implications
Company Performance
- Continued focus on growing service revenue and managing debt is crucial for improving profitability.
- The company’s ability to diversify its customer base will impact its long-term stability.
- Success of the AdLogic CPM+ platform will be a key factor in driving recurring revenue.
Stock Price
- The ‘going concern’ warning may negatively impact the stock price.
- Positive developments in managing debt and improving profitability could lead to an increase in stock price.
- Growth in SaaS revenue and successful adoption of the AdLogic CPM+ platform could positively influence investor sentiment.
SEC Filing Analysis Report
Executive Summary
This report analyzes the Creative Realities, Inc. (CREX) 10-K filing for the fiscal year ended December 31, 2024. Key findings include a revenue increase driven by service revenue growth, offset by a decline in hardware sales. Gross margin decreased slightly due to a shift in revenue mix. The company reported a net loss, although smaller than the previous year. A significant risk remains regarding the company’s ability to meet its contingent consideration obligations and continue as a going concern. The overall assessment is a cautious hold, pending further evidence of sustained profitability and successful management of debt obligations.
Company Overview
Creative Realities, Inc. (CREX) provides digital signage and media solutions across various industries, including retail, entertainment, and restaurants. The company offers a comprehensive suite of services, including hardware sales, installation, content development, and SaaS-based content management platforms. Recent developments include a public offering in 2023 and a reverse stock split. The company faces competition from other digital signage companies and marketing service providers.
Detailed Analysis
Financial Statement Analysis
Income Statement
Key observations from the income statement:
- Revenue: Increased by 13% from $45.17 million in 2023 to $50.85 million in 2024.
- Hardware Revenue: Decreased by 10% from $20.30 million to $18.26 million.
- Service Revenue: Increased by 31% from $24.86 million to $32.59 million, indicating a shift towards service-based offerings.
- Gross Profit: Increased by 8% from $22.18 million to $24.01 million.
- Gross Margin: Decreased from 49% to 47%, primarily due to the increased proportion of installation services revenue.
- Net Loss: Decreased from $2.94 million to $3.51 million, a 19% improvement, but still indicating a lack of profitability.
Key Ratios:
- Gross Profit Margin: 2023: 49%, 2024: 47%
- Operating Margin: 2023: 3.0%, 2024: 1.8%
Balance Sheet
Key observations from the balance sheet:
- Cash and Cash Equivalents: Decreased significantly from $2.91 million to $1.04 million.
- Accounts Receivable: Decreased from $12.47 million to $10.61 million.
- Total Assets: Decreased from $70.78 million to $65.21 million.
- Total Liabilities: Decreased from $41.95 million to $39.75 million.
- Revolving Credit Facility: Increased from $0 to $13.04 million.
- Contingent Consideration: Short-term increased to $12.82 million from $0, long-term decreased to $0 from $11.21 million.
- Accumulated Deficit: Increased from $53.35 million to $56.85 million.
Cash Flow Statement
Key observations from the cash flow statement:
- Operating Activities: Net cash provided by operating activities decreased from $5.17 million to $3.38 million.
- Investing Activities: Net cash used in investing activities decreased from $4.03 million to $2.80 million, primarily due to reduced capital expenditures.
- Financing Activities: Net cash used in financing activities was $2.45 million, compared to net cash provided of $0.14 million in the prior year, primarily due to debt repayment.
Management’s Discussion and Analysis (MD&A) Insights
Management highlights the record year of performance and expresses optimism for fiscal 2025. They emphasize the importance of recurring SaaS revenue and the potential of the AdLogic CPM+ platform. However, the MD&A also acknowledges the challenges related to contingent liabilities and the need to accelerate growth.
Red Flags and Uncommon Metrics
- Going Concern: The independent auditor’s report includes an explanatory paragraph indicating substantial doubt about the company’s ability to continue as a going concern.
- Contingent Consideration: The contingent consideration liability related to the Reflect acquisition remains a significant financial risk.
- Customer Concentration: The company relies on a few key customers for a significant portion of its revenue.
Comparative and Trend Analysis
Compared to 2023, Creative Realities showed revenue growth, but profitability remains a concern. The shift towards service revenue is a positive trend, but the decrease in gross margin needs to be addressed. The company’s reliance on debt financing and the contingent consideration liability pose significant risks.
Conclusion and Actionable Insights
Creative Realities is showing signs of growth, particularly in its service offerings. However, the company’s financial stability is still uncertain due to its net losses, debt obligations, and contingent liabilities. The “going concern” warning from the auditors is a serious concern. The company needs to focus on improving profitability, managing its debt, and diversifying its customer base.
Overall Assessment: Cautious Hold
Recommendations:
- Monitor the company’s progress in managing its debt and contingent consideration obligations.
- Track the growth of SaaS revenue and the success of the AdLogic CPM+ platform.
- Assess the company’s ability to diversify its customer base and reduce its reliance on key customers.
Financial Analysis of Creative Realities, Inc.
1. Commentary
Creative Realities, Inc. (CREX) experienced a mixed financial performance. Revenue increased, but profitability declined. The increase in revenue was driven by growth in services, offsetting a decline in hardware sales. The net loss increased, driven by higher other expenses, including losses on debt extinguishment and changes in the fair value of contingent consideration.
2. Financial Ratio and Metric Analysis
Profitability
Gross Profit Margin
Metric: Gross Profit / Total Sales
2024: 47.21%
2023: 49.12%
Trend: -3.89%
Industry: The digital signage industry typically has gross profit margins ranging from 30% to 50%. CREX is within this range.
Operating Profit Margin
Metric: Operating Income / Total Sales
2024: 1.84%
2023: 2.98%
Trend: -38.26%
Industry: The operating profit margin for the digital signage industry is typically between 5% and 15%. CREX is below this range.
Net Profit Margin
Metric: Net Loss / Total Sales
2024: -6.90%
2023: -6.50%
Trend: 6.15%
Industry: The net profit margin for the digital signage industry is typically between 3% and 7%. CREX is below this range.
Return on Assets (ROA)
Metric: Net Loss / Total Assets
2024: -5.38%
2023: -4.15%
Trend: -29.64%
Industry: The ROA for the digital signage industry is typically between 5% and 10%. CREX is below this range.
Return on Equity (ROE)
Metric: Net Loss / Total Shareholders’ Equity
2024: -13.78%
2023: -10.19%
Trend: -35.23%
Industry: The ROE for the digital signage industry is typically between 10% and 20%. CREX is below this range.
Earnings Per Share (EPS) – Basic and Diluted
Metric: Net Loss / Weighted Average Shares Outstanding
2024: Basic: $(0.34), Diluted: $(0.34)
2023: Basic: $(0.35), Diluted: $(0.35)
Trend: 2.86%
Industry: EPS varies widely depending on the company’s profitability and capital structure.
Liquidity
Current Ratio
Metric: Total Current Assets / Total Current Liabilities
2024: 0.55
2023: 0.92
Trend: -40.22%
Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. CREX is below this range.
Quick Ratio (Acid-Test Ratio)
Metric: (Total Current Assets – Inventories) / Total Current Liabilities
2024: 0.47
2023: 0.79
Trend: -40.51%
Industry: A quick ratio of 1.0 or greater is generally considered healthy. CREX is below this range.
Cash Ratio
Metric: Cash and Cash Equivalents / Total Current Liabilities
2024: 0.04
2023: 0.14
Trend: -71.43%
Industry: A cash ratio of 0.5 or greater is generally considered healthy. CREX is below this range.
Solvency/Leverage
Debt-to-Equity Ratio
Metric: Total Liabilities / Total Shareholders’ Equity
2024: 1.56
2023: 1.46
Trend: 6.85%
Industry: A debt-to-equity ratio of 1.0 or less is generally considered healthy. CREX is above this range.
Debt-to-Assets Ratio
Metric: Total Liabilities / Total Assets
2024: 0.61
2023: 0.59
Trend: 3.39%
Industry: A debt-to-assets ratio of 0.5 or less is generally considered healthy. CREX is above this range.
Interest Coverage Ratio (Times Interest Earned)
Metric: Operating Income / Interest Expense
2024: 0.53
2023: 0.45
Trend: 17.78%
Industry: An interest coverage ratio of 1.5 or greater is generally considered healthy. CREX is below this range.
Activity/Efficiency
Asset Turnover
Metric: Total Sales / Total Assets
2024: 0.78
2023: 0.64
Trend: 21.88%
Industry: The asset turnover ratio for the digital signage industry is typically between 0.5 and 1.0. CREX is within this range.
Valuation
Price-to-Earnings Ratio (P/E)
Metric: Stock Price / EPS
2024: N/A (Negative Earnings)
2023: N/A (Negative Earnings)
Trend: N/A
Industry: P/E ratios are not meaningful for companies with negative earnings.
Price-to-Book Ratio (P/B)
Metric: Market Cap / Total Shareholders’ Equity
Market Cap = Shares Outstanding * Stock Price = 10,446,659 * $1.88 = $19,649,719
2024: 0.77
2023: 0.68
Trend: 13.24%
Industry: P/B ratios vary widely depending on the industry and company’s growth prospects.
Price-to-Sales Ratio (P/S)
Metric: Market Cap / Total Sales
Market Cap = Shares Outstanding * Stock Price = 10,446,659 * $1.88 = $19,649,719
2024: 0.39
2023: 0.43
Trend: -9.30%
Industry: The P/S ratio for the digital signage industry is typically between 0.5 and 2.0. CREX is below this range.
Enterprise Value to EBITDA (EV/EBITDA)
Metric: (Market Cap + Total Debt – Cash) / EBITDA
Market Cap = Shares Outstanding * Stock Price = 10,446,659 * $1.88 = $19,649,719
Total Debt = $13,044
Cash = $1,037
EBITDA = $2,464
2024: 12.85
2023: 3.74
Trend: 243.58%
Industry: The EV/EBITDA ratio for the digital signage industry is typically between 10 and 15. CREX is within this range.
Growth Rates
Revenue Growth
Metric: (Current Year Revenue – Prior Year Revenue) / Prior Year Revenue
2024: 12.6%
Net Income Growth
Metric: (Current Year Net Income – Prior Year Net Income) / Prior Year Net Income
2024: -19.4%
EPS Growth
Metric: (Current Year EPS – Prior Year EPS) / Prior Year EPS
2024: -2.9%
Other Relevant Metrics
Adjusted EBITDA
Metric: Earnings Before Interest, Taxes, Depreciation, and Amortization, adjusted for certain non-cash items and one-time expenses.
2024: $5,029
2023: $5,100
Trend: -1.39%
Significance: Adjusted EBITDA is a non-GAAP metric that management uses to assess the company’s operating performance. It excludes certain items that may not be indicative of the company’s core operations.
⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️