Good morning. At this time, I would like to welcome everyone to the Creative Realities Incorporated 2022 Year-end 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. The company has prepared remarks summarizing the annual results, along with the additional industry and company updates. Joining me on the call today is Rick Mills, Chief Executive Officer; and Will Logan, Chief Financial Officer. Thank you very much. Mr. Logan, you may begin.

Thanks, Norma. Good morning. This is Will Logan, Chief Financial Officer of Creative Realities Inc. Welcome to our financial results and earnings call for the year ended December 31 2022. I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. The words anticipated, believes, expects, intends, plans, estimates, projects, should, may, propose and similar expressions of the negative versions of such words or expressions as they relate to us or our management are intended to identify forward-looking statements. 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 annual financial statements on Form 10-K and to be filed with the SEC later today March 30, 2023. 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 may 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 that was released this morning. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities Inc.

Thanks, Will. Good morning, everybody. I want to start by telling everyone that we're very pleased to announce our Q4 and fiscal year 2022 results. What a year it has been. Record revenue, record profits, exceeding the guidance that we previously provided to investors. Additionally, we have a number of important announcements and updates, including several new client acquisitions, and significant client expansions. The cumulative impact of which will be transformative for the company. As a result, we will be updating revenue, profit and ARR guidance for 2023 and also initiating communication of revenue backlog. There is a lot to cover all of its positive, and shareholders should be excited about our growth in value creation prospects. So let's get to it. We had a record fourth quarter revenue of $10.5 million, representing an increase of $5.1 million or 94% year-over-year growth. This brings our full year 2022 revenue to a record $43.4 million and that exceeds the guidance that we have provided for the same period and it represents an increase of 135% year-over-year. While the acquisition of Reflect in February 2022 is contributing to these results. The combined company revenue has grown organically greater than 40% as compared to the pro forma results of the combined company through December 31 2022. I want to thank all of the CRI team members for the dedicated focus to grow 40% year-over-year. It's their hard work and diligence that allow us to continue to show these remarkable gains. Adjusted EBITDA for Q4 2022 was a $1 million, with an adjusted EBITDA margin for the quarter of 9.8%. Substantially achieving our targeted exit run rate of 10%. Significantly outperforming the results for the same period in 2021 and providing the foundation for enhanced profitability as we move through 2023 on a post…

Thanks, Rick. There's no doubt that 2022 was a banner year for CRI, from the acquisition of Reflex Systems in February of 2022, the strong organic growth and improve profitability. Management executed upon its value creation objectives. While 2022 was a banner year and the next few years look to be transformational. We have a number of important updates and announcements to make including significant new client acquisitions, expanded relationships with existing clients and our drive-thru product that is gaining traction in the marketplace. As such, we'll be updating revenue profit and ARR guidance for 2023 and discussing backlog. Before we get to those updates. I'd like to comment on some recent activities. First or effect of the reverse stock split affected at the open of the NASDAQ Capital Market on March 27 2023. We effected a one for three reverse stock split. So done to regain compliance with the NASDAQ minimum bid rule. The company has previously communicated to investors its intent to retain this listing and access to the NASDAQ Capital Markets. Management believes that access to the NASDAQ Capital Markets is necessary to bridge the gap and the continued disparity between the observed trading price of the company shares and our intrinsic value. At some point, our stock price needs to reflect our intrinsic value and financial results and we believe that it will.

Hey, Will just one comment to the folks here. We felt it was very important that we do what was necessary to remain listed as we believe the public markets will ultimately recognize the value creation.

Yes, thanks Rick. Second point on the Pegasus offer. Earlier this week, we announced that the special committee of the company's Board of Directors rejected the proposal by Pegasus Capital Advisors to acquire all outstanding shares of the company's common stock. The proposal was for a post reverse split purchase price of $2.49 per share in cash. The Special Committee concluded that such a proposal significantly undervalued the company based on the committee's views of the intrinsic value, given the company's existing business and current and future prospects, further amplified by the recent positive developments announced today and it's not in the best interest of the company's current existing shareholders.

Again, this is Rick, I just add one comment. Pegasus has been a great partner for more than a decade. They were here before I showed up and we value their input, we do not believe the offer was fair to the current shareholders. But we look forward to continue ongoing relationship with Pegasus, is a great partner.

One other note, on the secure promissory note. On February 11 2023 the company executed an amendment to the secured promissory note out to the Reflex stockholders. The amendment eliminated a balloon payment of $1.25 million that was due in February of 2023 and extended the maturity date for a one-year period to February 17 2024. During that extended period, we will continue to make monthly principal payments of about 104,000 consistent with what we've been doing for the last year and the annual interest rate moves from 0.59% to 4.6%, which will accrue and is payable in full on the new maturity date. This reduced the short term cash requirements for debt service and provided runway for us to execute on our operating plan for 2023. Rick, with that can you provide some insight into our strategic vision and what is driving the continued acceleration of our revenue growth and how we should think about our backlog from current customers?

Thanks, Will. So first and foremost, new ad supported networks. There's a growth in ad support networks across the country today, we have finalized our designation as the exclusive deployment partner for a new ad supported network that will be deployed across a key experiential leisure vertical. This company has a private equity sponsor that has agreed to fund a deployment of up to 1000 locations over an 18-month period, and a contract valued at up to $46 million in revenue to CRI over this same 18-month time period. This demonstrates once again, our unique end-to-end capability that differentiates CRI in the signage, omnichannel marketing and digital media industries. Given a material transaction of this magnitude in addition to other announcements that we will provide this morning, the company is poised to update revenue guidance for 2023. The company anticipates that substantial installation activities will begin in the second half of the year. RFP activity. We continue to win in the RFP market. We've been actively engaged in a number of RFP processes, many for national recognized venues, brands, or QSR C-store chain. During the third quarter of 2022, we competed in an RFP process for a national fast casual chain and was ultimately selected as the go forward digital signage provider for the chain. The ultimate scope of work scale of the deployment and timing, as communicated by the customer during the RFP process supports a total value of up to $55 million over a three-year period to CRI with ongoing annual SaaS in excess of $2 million annually, when fully deployed. We are currently prohibited from naming the customer we're working through the legal and marketing processes in an effort for a joint announcement in the upcoming months. Additional, digital-out-of-home network deployments. Again we talked about 2023 being…

Thanks, Rick. We've historically spent time on this call providing an overview of our financial results for the year. Those results were published this morning in our earnings release report which included the balance sheet as of December 31 2022. The statement of operations in the statement of cash flows for the year ended December 31 2022 and a detailed walk from net income to EBITDA and adjusted EBITDA. Regarding those results, we know that the MD&A section of our annual report on Form 10-K, which will be published later today provides additional audited financial information. We've also provided a reconciliation of GAAP net income to non-GAAP quarterly EBITDA and adjusted EBITDA for the current and previous four quarters therein. In the interest of time and the previous disclosures, we will apply as opposed to rehashing those numbers on this call, we will go straight into the Q&A. Norma, if you don't mind to open up the lines, we'd be happy to begin taking questions.

[Operator Instructions] Our first question comes from Brian Kinstlinger with Alliance Global Partners. Your line is now open.

Great, thanks so much. And some really great news that you guys are sharing. It's great to see. My question is demand, clearly is not an issue right now with all the wins you're announcing. Can you talk about the supply side your ability to locate screens players and your ability to deliver and will you need to invest in inventory in the first half of the year?

Hey, Brian, this is Rick. Great question. Now we're effectively ahead of the supply chain issue. Our screen suppliers are well ahead of the curve, no issue. The metal vendors, the mount manufacturers, et cetera, have now clucked back up. We did suffer a little price increase over the past several years. But other than that, no, not an issue. The player market has effectively caught up in Q2, and so we're very comfortable. We do have in this -- in one network, we have partnered with Cisco as a supplier, their route switch has historically been a number of months out. And that looks too we expect the land the Cisco route switch equipment needed for the network end of May early June. So once that hits, we're off to the races and do not expect any issue for the balance of this year.

And Brian, with respect to the investment into inventory. With the size and nature of the opportunities that are coming to CRI, our contracts are increasingly shifting to material upfront cash deposits from those customers, so that we don't have the same working capital, churn or build up or degradation if you will, at the start or launch of those deployments.

Wow, that's great. That would be the issue. Right?

Yes.

My follow up question. We heard about a lot of big opportunities, so trying to pretend there are lots of them. But I didn't hear anything about strike 10. Is that signed, sealed and you're delivering? Have any expectations changed there? Thank you.

No expectations have changed. We actually executed the contract on our end, and are waiting for the signature. The launch meeting is in -- the launch kickoff is in the next 10 days. So, we talked about it here as 1000 location experiential rollout. But as you know, we've talked about it prior, that is now finally kicked off after four years.

Great. Thanks so much.

Thank you. One moment for our next question, please. Next question comes from Howard Halpern with Taglich Brothers, your line is now open.

Congratulations, guys. Great job. Now, in terms of what you've been talking about deployments, and then the ARR, is there additional opportunity? And how is the like the mobile, digital advertising part of the business? So how do you see that sitting in over the next couple of years?

Well, when you talk about mobile, yes, mobile in web has historically occupied or commanded the greatest presence of those media dollars in the marketplace. That is, you are now seeing how a dramatic shift in that spend to digital out-of-home networks. A simple example. And you know, again, this is a made up example, but just gives you a sense. If you're Coca Cola, you're going to run a $50 million ad spend across TV, and convince somebody to get out of their couch and run to the nearest store to buy Coke, you have that option. Today, you have an option to run that same $50 million ad spend across out-of-home networks contained in all major retailers where somebody is actively in the act of shopping, they can see a Coke special on the screen, and they can walk 10 feet to the cooler and pick up a 12 pack of Coke. And Coke gets immediate POS feedback on their $50 million spend versus a brand advertise it, say across TV or print. Dramatic dollars are shifting to out-of-home networks. And that's why we're seeing tremendous opportunity in out-of-home network or ad supported networks. Will, anything to add?

Yes, Howard, as we continue to work with these partners developing and deploying these ad-based networks, we are certainly positioning CRI as the full services provider, both the hardware installation activities, the software support to manage and run the network, but also as an option and full capability service provider to assist in the sale of those ads, the media revenue component. So we're seeing a lot of traction, again, with our continued focus as a full services provider at the enterprise level.

Okay. And with all the upcoming deployments, are you comfortable with the operating expense structure you have, as you enter 2023?

Yes, the short answer, Howard is, yes. We're very comfortable and confident, we continue to believe and our models will tell us that, the larger our revenue gets, the more profitable that we will become on the bottom line. We're at a point an inflection point in that model internally as we cross $60 million $70 million. And certainly as we progress towards $100 million, we see this continuing to get to 25% on an adjusted EBITDA basis at that scale, and we're in the middle of that journey.

Okay. Well, guys, keep up the great work.

Thanks, Howard.

Thank you. That completes the question from the phone lines today. Mr. Logan, are there any additional inquiries from the investor relations inbox that would you would like to address?

Norma, it does not appear that there are any at this time.

And I will now turn the call back over to Mr. Logan for closing remarks.

Great. Let me conclude the call by thanking all of our shareholders, clients, partners and employees for their continuing efforts commitment and support as we work together to transform CRI to the leading brand in digital signage solutions. This concludes the CRI 2022 earnings call.

Ladies and gentlemen this concludes today's conference. Thank you for your participation. You may now disconnect everyone have a wonderful day.