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CREATIVE REALITIES, INC. (CREX)·Q2 2025 Earnings Summary

Executive Summary

  • Revenue accelerated sequentially to $13.03M, flat YoY, and materially above Wall Street consensus; EPS missed as mix shifted toward lower-margin hardware. Revenue beat consensus ($11.85M*) while EPS came in at $(0.17) vs $(0.07); hardware pre-buys ahead of tariff uncertainty and lower SaaS/media weighed on margins .
  • Gross margin compressed to 38.5% (vs 45.7% in Q1 and 51.8% YoY) on mix; management expects margin expansion in H2 as service deployments catch up and product mix normalizes .
  • Balance sheet deleveraging resumed: ~$3.1M debt reduction in Q2 via operating cash; revolver balance $16.1M at quarter-end with $0.6M cash on hand and additional availability; leverage ratios rose due to contingent liability settlement but are expected to improve .
  • Near-term catalysts: QSR pilot moving to rollout, live venue wins, Circle K Mexico PoC expansion potential, and anticipated H2 installs; management targets adjusted EBITDA margin returning to ~15% by year-end, supporting estimate revisions and potential stock re-rating on execution .

What Went Well and What Went Wrong

What Went Well

  • Sequential revenue growth of 34% vs Q1 on hardware demand (QSR and sports/entertainment); ARR improved to ~$18.1M, and ~$3.1M of debt was paid down using operating cash flow .
  • Strong pipeline and QSR drive-thru win: “We’re delivering a 100% turnkey solution... powered by our proprietary CMS platform, Clarity” with pilots in Q3/Q4 and national rollout expected thereafter .
  • Live venue momentum with multiple stadium/arena projects and Mexico expansion; Circle K Mexico PoC executed with plan to expand pilots and potential rollout to up to 200 stores .

What Went Wrong

  • Gross margin compression to 38.5% (vs 51.8% YoY) due to higher hardware mix and reduced SaaS/media; service margins also declined YoY (54.4% vs 65.2%) .
  • Q2 EPS of $(0.17) vs $(0.06) YoY and below consensus as operating income swung to a $(1.3)M loss vs $0.6M profit YoY; G&A increased partly from stock-based comp despite cost containment excluding SBC .
  • Media exit (effective Oct 1, 2024) and tariff-related pre-buys pressured service revenue ($6.0M vs $8.1M YoY) and hardware margins; working capital dynamics reduced cash on hand to $0.6M though sweep structure mitigates interest expense .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$13.115 $11.012 $9.734 $13.030
Gross Profit ($USD Millions)$6.788 $4.870 $4.453 $5.017
Gross Margin (%)51.8% 44.2% 45.7% 38.5%
Adjusted EBITDA ($USD Millions)$1.525 $0.5 $0.467 $1.228
Diluted EPS ($)$(0.06) $(0.27) $0.32 $(0.17)

Segment Revenue and Margins

MetricQ2 2024Q1 2025Q2 2025
Hardware Revenue ($USD Millions)$5.024 $3.394 $7.073
Services Revenue ($USD Millions)$8.091 $6.340 $5.957
Hardware Gross Margin (%)30.1% 32.1% 25.1%
Services Gross Margin (%)65.2% 53.0% 54.4%

Key KPIs and Balance Sheet

KPIQ1 2025Q2 2025
ARR (run-rate, $USD Millions)$17.3 $18.1
Cash ($USD Millions)$1.149 $0.569
Revolving Credit Facility Balance ($USD Millions)$19.238 $16.093
Total Debt ($USD Millions)$23.2 (incl. settlement/PN) $20.1
TTM Gross/Net Leverage (x, Adjusted EBITDA basis)4.91x / 4.67x 4.53x / 4.40x

Consensus vs Actual (Q2 2025)

MetricConsensusActual
Revenue ($USD)$11,851,000*$13,030,000
Primary EPS ($)$(0.07)*$(0.17)

Values marked with * retrieved from S&P Global.

Highlights:

  • Revenue beat consensus; EPS missed consensus. Hardware strength (QSR, sports/entertainment) drove the top-line, while service and SaaS softness plus mix pressured earnings .*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue trajectoryFY 2025 H2“Second half growth and momentum” commentary (Q1) “Top line growth to accelerate in H2 2025; stronger performance anticipated” Maintained/reiterated
Gross MarginFY 2025 H2Improve as deployments catch up (Q1) “Anticipate gross margins to expand going forward due to improved mix and increased service revenue” Maintained/reiterated
Adjusted EBITDA Margin (%)FY 2025 YENot previously quantified“Expect adjusted EBITDA as a percent of revenue rising back to 15% by year end” New quantitative target
Debt/LeverageFY 2025Focus on deleveraging post settlement Continuing to pay down revolver with operating cash; reduced ~$3.1M in Q2; working toward optimal capital structure Maintained/reiterated
ARRFY 2025~$17.3M at Q1-end; growth expected with deployments ~$18.1M run-rate; no explicit end-of-year ARR forecast due to lumpiness Maintained, cautious tone

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
QSR drive-thru modernizationPipeline strength; AdLogic CPM+ launch; H2 acceleration expected Pilot underway with upscale QSR; national rollout expected; new drive-thru solution priced at $14,999 fully installed (20% below competitors) Positive momentum; near-term deployments
Retail Media Networks / AdTechAdLogic CPM+ positioned as game-changer Three customers testing; 25M ads daily; expects RMNs to drive revenue and SaaS in 2026+ Building; 2026 impact
Tariffs/Supply chainDeployment timing impacts Q4/Q1 Hardware pre-buys due to tariff uncertainty; no screen price hikes yet, uncertainty easing Near-term mix shift; normalization expected
Live venue/IPTVExpansion into live venue; projects referenced Multiple arena/stadium wins; first soccer stadium in Mexico; language translation for NFL stadium ahead of World Cup Expanding footprint
Geographic expansion (Mexico, LATAM)N/ACircle K Mexico PoC deployed; potential expansion to 200 stores; bids across Mexico sports Early-stage but promising
Capital structure & leverageSettled contingent consideration; deleveraging plan ~$3.1M debt reduction in Q2; revolver sweep structure; leverage up due to settlement, expected to improve Improving with cash generation
SOC 2 complianceAchieved SOC2 Type 1 in Q1 Achieved SOC2 Type 2; viewed as competitive advantage vs smaller CMS peers Strengthened credentials

Management Commentary

  • CEO on H2 acceleration and deleveraging: “Not only did revenue grow 34% sequentially… but we used operating cash flow to reduce approximately $3.1 million of debt during the period… We also anticipate gross margins to expand going forward” .
  • CFO on balance sheet mechanics: cash sweep structure reduces revolver interest; gross and net debt ~$20.1M and ~$19.5M; leverage up from contingent liability settlement, targeted to improve .
  • CEO on QSR rollout: “We’re currently implementing a pilot… expect a national rollout… delivering a 100% turnkey solution… powered by our proprietary CMS platform, Clarity” .
  • CEO on competitive positioning: SOC2 Type 2 certification enhances enterprise credibility; smaller CMS providers often lack resources to achieve it .

Q&A Highlights

  • Pipeline and deployments: Deals progressing “an inch at a time”; QSR pilot has deposits and queued sign-ups; construction (new footers) delayed late-Q2 installs but a “significant quantity” of new sites begins installing next month .
  • Tariffs impact: Customers bulk-bought screens ahead of tariff uncertainty; no manufacturer price hikes yet; uncertainty easing, future impacts unknown .
  • Mix/timing dynamic: Pre-buys pressure near-term hardware, but services increase as those screens are deployed; H2 acceleration guided as installs catch up .
  • Vertical updates: Seven-Eleven expansion could add >17,000 displays and ~$5M annual SaaS over five years if maintained; bowling alley rollout paused due to customer funding dynamics .
  • Capital allocation: Excess cash directed to revolver paydown; pursuit of “optimal cap structure”; still evaluating acquisitions with disciplined fit criteria .

Estimates Context

  • Q2 2025 revenue beat consensus ($13.03M vs $11.85M*), while EPS missed ($(0.17) vs $(0.07)). The beat was driven by hardware strength (QSR and sports/entertainment) and pre-buys; miss reflects margin compression from mix and lower SaaS/media .
  • With management targeting adjusted EBITDA margin ~15% by year-end and H2 installs, estimates for H2 revenue and margin likely need upward revision on the top-line and service mix, while EPS sensitivity remains tied to deployment timing and G&A discipline .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Sequential reacceleration and a clear revenue beat vs consensus, but margin compression and EPS miss; watch service deployments and mix normalization in H2 for a potential margin snapback .*
  • Hardware pre-buys ahead of tariffs likely reverse as installations convert to service revenue; this should expand gross margin in H2 if execution remains on track .
  • Debt paydown resumed; revolver balance reduced and sweep structure lowers interest expense; leverage elevated from settlement but expected to improve with cash generation .
  • QSR drive-thru solution at a disruptive price point and pipeline breadth create a near-term installation catalyst; execution of pilot-to-rollout is a key trading event .
  • Live venue and Mexico/LATAM expansion add diversified growth vectors; Circle K Mexico PoC offers scalable retail footprint optionality .
  • SOC2 Type 2 certification enhances enterprise competitiveness in RMNs and large accounts, potentially aiding share gains as smaller CMS providers cycle out .
  • Near-term positioning: consider trades around deployment milestones and margin inflection; medium-term thesis: recurring SaaS growth (ARR), RMNs, and operating efficiency lifting adjusted EBITDA margin toward ~15% by YE, supporting rerating on sustained execution .