Welcome to the CRI 2020 Financial Results and Earnings Call. All lines have been placed on mute to prevent any background noise. The company’s prepared remarks will include a brief presentation of company materials, which can be viewed during this webcast through the webinar by joining joinwebinar.com and entering the meeting ID 587674747. Following the company’s prepared remarks, there will be a live question-and-answer session. If you would like to ask a question during that time, please hit the raise hand button within the webcast control panel. Alternatively, questions can be submitted during the call via e-mail to [email protected]. This call including the presented materials will be recorded and a copy will be available on our website at cri.com following completion of the call. Joining me on the call today will be Rick Mills, CEO of CRI. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. The words anticipates, beliefs, expects, intends, plans, estimates, projects, should, may, propose and similar expressions or the negative versions of such words or expression as it relates 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 Risk Factors section on Form 10-K and our Annual Report. 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. It is now my pleasure to introduce Rick Mills, CEO of CRI.

Thanks, Will. As part of this call, we will be presenting a brief series of slides that provide an overview of 2020 and our current outlook and consideration for 2021. If you have not already, we encourage you to join the webinar so that you may follow along on screen. As a reminder, the slides will be filed and posted to our website following the meeting for reference. I want to start with some quick industry facts. We, as CRI, are lumped in the out-of-home space, it’s how we are viewed and measured in the sector. And as you see the pandemic was a setback for the industry, the consistent annual growth and momentum stopped and there was significant shrinkage in all of the public entities out there. CRI had the same type of reduction in 2020. The good news is as we move forward, we feel like the industry is coming out of COVID as we move into 2021 and we are very optimistic as we move forward. I want to cover some quick 2020 highlights. In January, we added Mike McKim as VP of Operations to bring some real international operational expertise. We changed our auditors to one of the big four providers, Deloitte & Touche. In March, of course, COVID hit and many of our customers, specifically in the theater industry and retail were very hard hit. We enacted some cost controls very quickly, and the bottom line is we reduced our core operating expenses from Q1 to Q4 by a 26% reduction, fully implemented by June. In Q2, we had a bankruptcy with a theater customer that cost us about $500,000. By the way, we did a significant recovery of that in Q1, and Will will talk about that a little bit later. We received a PPP loan of approximately $1.6 million, and in Q2, we pivoted and launched the Safe Space product that has been purchased by over 200 unique customers, with some customers having 40 to 60 units deployed across multiple facilities and states. We also established distributor relationships for our Safe Space solution with the three largest IT distributors in the United States today. In September, we completed one of the projects we had been awarded, which was SoFi Stadium, where our CMS is currently being used to control over 550 menu boards whenever that facility reopens. We exited a lease in Atlanta, which had come up. We rented some short-term space for our folks as we continue to evaluate a return to work, but elimination of that lease was a reduction of $25,000 in monthly expenses. In Q3 and Q4, we generated approximately $5 million per quarter in revenue with positive EBITDA in each of those two periods. We expanded our automotive software into the Middle East and executed a license for eight additional countries. We also relocated our Windsor office and exited our Dallas, Texas lease. There were some subsequent events that rolled into Q1. Will, do you want to cover those?

Sure. A few items that are not fully reflected in the 2020 financial statements include our ongoing activities here in the first quarter of 2021. First, on January 11, 2021, we received notice from the SBA that the full principal amount and accrued interest for our PPP loan, approximately $1.6 million, has been forgiven. That number remains on the balance sheet as of 12/31, but will be eliminated in the first quarter financial statements. We also completed a registered direct offering, previously announced, infusing about $2 million of cash into the business to support our continued R&D and growth opportunities in 2021. We announced this week that we have completed a refinancing of all of our term debt. We see several benefits stemming from this refinance: we have extended the maturity date of each of those facilities out to March 31, 2023; provided us with an additional $1 million availability under a multi-advanced line of credit; removed a very harmful or potentially harmful 3x liquidation preference on the company’s special convertible loan; and secured the ability to repay that loan in the future with cash or stock at the company’s discretion. Finally, we extinguished a small portion of legacy debt for about $200,000, which was converted into common equity. With that, Rick, I will turn it back to you to talk about the current opportunities.

Well, folks, as you can see from our 2020 activities, we spent a lot of time repositioning and managing through the COVID issues that affected not only our industry but also affected the globe. Let’s reflect today on our current opportunity, because COVID has caused market transformation that is ongoing. Today, more than ever, there is an enhanced focus by customers on transitioning to digital signage in particular. Look at the places we all continued to go during COVID: we went to stores, to retail, to drugstores, and grocery. Those four industries are really focused on how they can transition to digital. We expect to participate in that. Secondly, cost-efficient business offerings from CRI: we offer more choices in CMS solutions than any of our competitors with Clarity, BrightSign, and MagicINFO, which is the Samsung CMS. We are providing digital signage as a service; we have customers who are now including hardware as part of their monthly recurring revenue, which provides the lowest cost entry to the market, and we are in discussions with customers. Finally, we have a strong base of blue-chip customers. We are currently approaching 300 customers utilizing our SaaS services. That includes signage and Safe Space products. The customers we sold Safe Space products to are in discussions about expanding to signage, creating a robust customer base. With that, we will talk about a financial overview. Will, why don’t you take that?

Sure. Revenues for 2020 were $17.5 million, down from $14.1 million, a reduction of 45% compared to the same period in 2019. What we did see is hardware revenues were $9 million for the year ended December 31, 2020, which is an increase of $0.8 million or 9.3% compared to the prior year. This was partially driven by the introduction of the Thermal Mirror and other Safe Space Solutions products, which generated approximately $3.1 million in hardware sales during the year. Gross margin on the hardware revenue was 30% during 2020 compared to 24.1% during the same period in 2019, driven by a shift in the mix of hardware revenues from displays to the Thermal Mirror and other Safe Space Solutions products, which typically generate higher gross profit on a per unit basis. Services and other revenues were $8.5 million for the year ended December 31, down $14.9 million compared to the prior year, which was driven by reductions in installation services of approximately $4.9 million following a significant increase in suspended, delayed, and canceled customer project initiatives and capital expenditures as a direct result of the COVID-19 pandemic. Rick spoke briefly about those, and he will add a bit more color on customer activity today. We also had a reduction in software development services in 2020 as customers put on hold some expansions in projects. Managed services revenue, which includes both software-as-a-service and our help desk technical support subscription services for traditional digital signage and our new Safe Space Solutions product offerings, totaled $5.4 million for the year ended December 31, 2020, a reduction of $1.2 million in the current year, primarily related to customer contracts that were partially or permanently closed during the year as a result of the COVID-19 pandemic. Gross profit was $8.1 million for the year, a decrease of $5.6 million or 41% compared to the same period in 2019. Gross margin increased to 46.5% from 43.5% in the prior year, driven primarily by higher gross profit generated from the sale of the Thermal Mirror and Safe Space products. Looking at our operating expenses for the year ended December 31, 2020 compared to the same period in the prior year: sales and marketing expenses dropped by $0.7 million or 28.5%, while R&D expenses decreased by $0.3 million or 23.5%. This was driven by a reduction in employee-related expenses due to headcount reduction, salary reductions for retained personnel, and cuts in travel expenses, including the cancellation of participation in industry tradeshows. Our G&A expenses increased by $0.2 million in 2020, or 2.2% compared to 2019, primarily due to an increase of $0.3 million or 80% in non-cash charges related to share-based compensation awards for our employees, as well as a $0.6 million or 289% increase in bad debt expenses related to customer bankruptcies that Rick referenced previously. The company has entered a settlement agreement with the customer to recover a significant portion of those funds during 2021. Excluding the incremental year-over-year increases in those non-cash charges for G&A of share-based compensation and bankruptcy recoveries, our G&A decreased by $0.7 million or approximately 8% for the year ended December 31, 2020. The new base level of expenses is consistent with our expectations as we move through 2021, having reset our base level of expenses. In recap, as we mentioned in the second quarter, we felt that revenue had bottomed out and we had weathered the worst of the storm, which is reflected in our return to approximately $5 million of revenue in the third and fourth quarters and a return to positive EBITDA in both periods. As Rick mentioned, the total reduction in our core operating expenses was approximately 26% from Q1 to Q4. Turning to the balance sheet, a couple of brief highlights from 12/31/2019 to 12/31/2020: we had a total net working capital improvement of approximately $1.9 million, including a reclassification of current debt into long-term as a result of our recent refinancing activities of about $2 million. We continue to see consistent deposit and deferred revenue activity from our customers, which supports our backlog, and those previously delayed projects will continue moving forward in 2021. Lastly, if we adjust for the PPP loan, which is still reflected as of 12/31/2020, we reduced the total liabilities of the company throughout 2020. With that, I will turn it back to Rick for a 2021 update.

Thanks, Will. Okay, so talking about 2021, this is a year of significant growth. I have to tell you, we are incredibly excited to return to a growth phase as we all kind of emerge from this COVID. I believe we entered the post-COVID phase as vaccines become widely distributed. We are exceptionally excited. We are on track to add 4,000 media players in Q1 to our record revenue stream. We think we announced this in Q3; we expect to stay on track and add an additional 4,000 media players in Q2. To put it in perspective, if you had 2,000 media players in a year, that’s a pretty good year. We are going to add approximately 8,000 in the first half of this year alone. Our Safe Space Solution continues to sell as customers recognize and embrace what we call a new standard of care for their employees. We expect that solution to continue to gain strength and engage with customers throughout 2021. I want to talk about an important pending contract that has been on hold for about 13 months. We are moving towards executing the contract and expect that to happen in a very brief period, within a matter of a few weeks or maybe a month at most. Once launched, this is expected to add $6 million in revenue for each quarter for the next four to six quarters. First off, the contract must be executed. Second, a decision must be made to launch. We currently believe that’s in the June-July timeframe, and we will keep the market updated. Our sales funnel is absolutely starting to refill. It’s a combination of several factors. Number one, many customers are coming back online. So, we had thousands of players that went dark in 2020 just in the theater industry alone due to closures. With theaters, stadiums, and arenas reopening, a lot of customers are coming back online. And as they come back, there’s always the discussion of whether to refurbish, update, or add. So, we have many of those discussions happening as we speak. Secondly, we are reengaging with projects that were on hold or interrupted. For instance, we had a project started in 2019 at the American Dream Mall, which we think we will finally finish this project in March of 2021 after being stalled for 15 or 18 months. Finally, new customer acquisition engagement and RFP activity is increasing. To have new customer acquisition, customers must be receptive and open to discussions. In 2020, there was simply not a lot of discussions about signage since many of our customers were worried about their core businesses. Today, customers are receptive, excited, and engaged. According to data provided from Peter J. Solomon, global out-of-home revenue growth did shrink in 2020 but is expected to grow in 2021, with a forecasted 8.9% aggregate growth rate. We are excited for the industry to get back to growth and, more importantly, for CRI to return to growth. Now, let’s talk about our revenue forecasts. We expect the first two quarters of this year to be steady and stable. We will continue to grow based on our prior two quarters of 2020, as the country and our customers emerge from COVID. Our recently announced C-stores customer will be fully converted by the end of Q2, which will add recurring revenue and hardware purchases as they continue to install additional locations throughout Q3 and Q4. This assumes we execute the pending contract in Q2 and once launched, it is expected to add $6 million per quarter in revenue for four to six quarters. The expected deployment will begin in the June-July timeframe of that contract. COVID recovery continues at its current pace; we saw a resurgence in COVID in Q4 when we anticipated a return to normalcy. This re-emergence of COVID in Q4 pushed the country back a couple of quarters. While we do not currently feel that we are at that point, we are nonetheless excited about our revenue forecast and the return to growth. With that, I think, Will, I will throw it back to you.

Sure. One other note on the prepared materials we have provided in the back of the material is a reconciliation of net income or loss to adjusted EBITDA for both 2020 and 2019. We have provided 2019 as a point of reference for what this business looks like as it returns to scale, from which you can glean insights into our current operating leverage as we return to growth in 2021. With that, we will now open the phone lines to respond to any questions. As a reminder, if you would like to ask a question, you can use the raise hand function within the webcast or send those questions to [email protected]. We have some questions that have come into the mailbox during the call. I will start there. From Brian Kinstlinger at AGP. Could you provide Rick some more detail around the recent convenience store chain signage project that you won? Specifically, are you saying that this is a new customer where you are upgrading the first 8,000 menu board displays, and some context around how long that will take to get all these displays up and running and revenue expectations?

Got it. Great question, Brian. So yes, it is a new customer for the CMS and supply of hardware. We have actually been doing installations for this customer for the last 2 or 3 years, but they finally decided to give us the CMS, manage all of their screens and content, and also procure all their hardware through us. So all that will generate new revenue. We expect to convert all of the screens currently in the field and media players to our system by the end of April, rolling into mid-May. We expect installations to begin in Q3 and Q4 at approximately 120 to 150 stores per quarter on a go-forward basis, with significant opportunities as they enter 2022.

Great. Thanks, Rick. Regarding the general broad digital signage outlook, which industries do we see as having the strongest current demand? Where are we seeing that RFP activity?

Well, a couple of things: we talk about the places where people go, especially during the pandemic. Specifically, people continued to visit convenience stores, grocery stores, and pharmacies. Those are three strong initiatives. Finally, people have a yearning to return to public spaces. Thus, all the sports and stadium facilities are looking at refurbishing and enhancing the fan experience. These areas represent key opportunities for us. We are also participating in a large RFP for a couple of banks right now, so the scope of potential projects is widespread.

Thanks, Rick. A couple more questions to wrap up those received from AGP. We discussed how the digital signage industry and business faced challenges during COVID. Any thoughts on competition regarding whether they are struggling, keeping up, valuations, or M&A, similar to what we've talked about in the past? Do you have any current outlook on these aspects?

Well, first off, in discussions with all of my peers throughout this industry, everyone experienced a severe downturn. There was no one exempt from the downturn. The industry is quite fragmented with a plethora of small operators, most having businesses between $6 million and $12 million. Many of these operators have felt significant pain. Therefore, we expect activity in the space in 2021 as people finally realize they need to make changes.

Great. One last question here from the AGP team regarding the Thermal Mirror and Safe Space Solutions products: how does that sales process work and how do we fare in competition? Are we testing various solutions? We have observed in the initial phases of many customer processes that they go through either a trial period or a competitive process. What we have seen over time is two things: firstly, our product performs exceedingly well in head-to-head competition. Secondly, in many cases, when a customer has initially purchased a competitor's hardware, we are beginning to receive interest from those customers since our software platform and integrations far exceed those of competitors.

Yes, I would just add one point: our Safe Space Solution is what I would call enterprise-grade. When we meet with an enterprise customer—someone who will deploy 40, 60, or 80 solutions across multiple buildings—we win those engagements essentially every time.

Okay, great. I will now look to the phone. It looks like we have a question from Arthur Morgan. Arthur, are you with us?

Yes, sir. I am. Hi, this is Arthur Morgan with MM Experts Group LLC. I have a question regarding the article on March 3 about your current deal with the 14,000 stores. Can you confirm whether or not that chain is 7/11?

It’s neither confirmed nor denied.

Okay, and since you cannot do that, do you have a timeframe for when that news regarding the name will be released?

Unfortunately, Arthur, this is common in our industry, especially at the enterprise level. We have legal obligations not to name those customers in our marketing or public disclosures. Although in some cases, we can make joint press releases, we have asked to do so, but it is not something that is expected to happen with this specific engagement.

Awesome, understood. I appreciate it.

Thanks, Arthur. That appears to be all of the questions we received today. Let me conclude by thanking all of our shareholders, clients, partners, and employees for their ongoing efforts, commitment, and support as we work together to transform CRI into the leading brand in digital marketing solutions. This now concludes the CRI 2020 earnings call.