Good morning. At this time, I would like to welcome everyone to Creative Realities' 2025 Second Quarter Earnings Conference Call. This call will be recorded, and a copy will be available on the company's website at cri.com following its completion. Creative Realities has prepared remarks summarizing the interim results of the quarter, along with additional industry and company updates. Joining the call today is Rick Mills, Chairman and Chief Executive Officer; George Sautter, Chief Strategy Officer and Head of Corporate Development; and Ryan Mudd, Interim Chief Financial Officer. Mr. Mudd, you may proceed.

Thank you, and good morning, everyone. Welcome to our earnings call for the second quarter ended June 30, 2025. 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 version 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 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 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 will 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 issued this morning. We believe the use of certain non-GAAP measures such as adjusted EBITDA and several other important KPIs represent meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities.

Thanks, Ryan. Good morning, everybody. Thank you for joining the call. I'll start by giving some details of our Q2 financials. We posted revenue of $13 million in the second quarter, up 34% versus Q1 and roughly flat year-over-year. While gross profit was $5 million in Q2 2025 versus $6.8 million in Q2 2024. Q2 2024 gross margin of 6.8% was inflated due to the inclusion of $815,000 in media sales revenue as we exited the media sales business. Our consolidated gross margin was 39% versus 52% in the prior year period, with the lower profitability largely due to changes in revenue mix of more hardware versus services. This was driven by a few customers who chose to purchase hardware in advance due to the uncertainty of tariffs. We expect margins to rise in the third and fourth quarters as we are installing those products previously purchased in bulk. As of June 30, 2025, we had an annual recurring revenue run rate, or ARR, of $18.1 million versus $17.3 million at the end of the first quarter. As we have previously discussed, new deployments have a follow-on effect of growing SaaS-based ARR. Adjusted EBITDA rose to $1.2 million for the second quarter of 2025 from $0.5 million in Q1 and was down slightly versus last year's $1.5 million. We anticipate this will improve further going forward as revenue increases and we continue to manage overhead expenses. In fact, we expect adjusted EBITDA as a percent of revenue rising back to 15% by year-end. Notably, we were able to reduce approximately $3.1 million in debt this quarter due to operating cash generated during the period. While some short-term working capital issues impacted Q1, as previously discussed, we're pleased to now be able to once again focus on strategically using cash flow to pay down debt and deleverage the company whenever possible. Let me take this opportunity to address a question that we sometimes get. We have a lot of credit with a sweep account. At the end of Q2, the balance on that account was $16.1 million, down $3.1 million from the end of Q1 due to the cash generation that I just outlined. At the end of Q2, we had $600,000 in cash on hand with additional availability of $6 million. We do not keep excess cash on hand and the cash we have on hand at any point is not a proxy for our true working capital capacity. As stated last quarter, we have a very robust pipeline of opportunities on which we're bidding, reflecting strong demand for our technology as well as generally good economic conditions within our customer base. During Q2, we announced a significant engagement with a well-known upscale quick-service restaurant chain with over 1,000 locations across more than 25 states. We're currently implementing a pilot program in select locations during Q3 and Q4 and expect a national rollout to begin immediately following the completion of the pilot. This is another example of our ability to digitally transform an establishment's menu boards inside and out, shifting from static displays to dynamic digital engagement while increasing basket size and profitability and increasing throughput in the drive-thru operations. We are delivering a 100% turnkey solution, all powered by our proprietary CMS platform, Clarity, along with consulting, content strategy, hardware provisioning, deployment support and ongoing day 2 service. I'll keep everyone updated on the progress of this important implementation, which will result in a more agile connected restaurant environment that meets guest expectations and provides flexibility for enhanced applications in the future. Our AdLogic CPM+ platform continues to impress customers due to its power and flexibility, gives clients the tools to deliver targeted campaigns at significantly reduced cost, combining programming capabilities with a self-serve interface that simplifies campaign execution, enhances targeting precision and eliminates unnecessary intermediation fees. This past quarter, we saw increased traction and interest from existing and new customers. We currently have three customers who are in the testing evaluation phase of the platform, which, if chosen, would power their in-store retail media networks. We have been in the Retail Media Network business for some time and are currently delivering greater than 25 million ads daily. We expect in-store Retail Media Network to grow our revenue and recurring SaaS in 2026 and beyond. The bottom line is that we remain on track for another year of solid performance. As stated last quarter we expect revenue to accelerate in the second half, backlog to grow, and margins to improve, putting us in position for tremendous results in 2026. I'll turn it back over to Ryan to share some additional comments on our financials.

Thank you, Rick. An overview of our financial results for the second quarter of 2025 was provided in our earnings release and Form 10-Q, which included the condensed consolidated balance sheet as of June 30, 2025, the statements of operations for the 3 and 6 months ended June 30, 2025, the statement of cash flows for the 6 months ended June 30, 2025, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended June 30, 2025, as well as the preceding 4 quarters. While Rick reviewed our operational results in detail, let me provide a couple of points of context related to our balance sheet. As of June 30, 2025, the company had cash on hand of approximately $600,000 versus $1 million at the start of 2025. As previously mentioned, our consolidated balance sheet reflects minimal cash on hand as the company has set up a sweep instrument to apply cash against the revolving debt facility to further manage our interest expense. Our gross and net debt stood at approximately $20.1 million and $19.5 million, respectively, at the end of the second quarter as compared to $13 million and $12 million, respectively, at the start of 2025. Our debt level was reduced by approximately $3.1 million during the period, as Rick previously discussed, due to operating cash flow as we continue to deleverage the company whenever possible to strengthen the balance sheet. At the end of the second quarter, our leverage on a gross and net basis was 4.53 and 4.4, respectively, versus 2.59 and 2.39 at the beginning of fiscal 2025. The increase in the leverage was caused by the settlement of the contingent liability in Q1 of 2025. We see this as continuing to improve going forward and remain dedicated to managing our debt as we evaluate and migrate to an optimized capital structure in support of our growth. I will now turn it back to Rick for additional comments on our results and customer activities.

Thanks, Ryan. In closing here, our engagement with prospects is at an all-time high. We are pleased with the pipeline and the sheer number of discussions going on with potential prospects. We continue to focus on our primary four vertical markets: QSR, C-store, retail, sports and entertainment. The demand for improved drive-thru performance in the QSR vertical continues to accelerate. We have introduced our latest drive-thru hardware and software solution, which features a 1-by-3 55-inch digital display at a market price of $14,999 fully installed. This represents a new price point in the drive-thru industry and a price reduction of 20% below most of our competitors. This will allow the smaller mid-market regional QSRs to adopt and implement digital drive-thrus. In the C-store vertical, our long-time customer, 7-Eleven, stated in a news release on August 6, they plan to open 1,100 new restaurants in its U.S. stores by 2030. The aggressive investment in restaurants is part of an updated transformation plan released by the retailer's Tokyo-based parent company, Seven & i Holdings. In addition to adding more than 1,000 restaurants over the next five years, 7-Eleven said it intends to open a total of 1,300 new larger format stores during that time frame, all of them with an enhanced focus on food service. Assuming this occurs and 7-Eleven continues as a customer, we would expect this to add an additional 17,000-plus displays, generating $30 million in revenue and an additional $5 million annually in SaaS over a 5-year period. One additional note on the C-store vertical, we did deploy our first C-store in Mexico. This is a proof of concept for Circle K Mexico. More to come on that opportunity in 2026. As the transition to digital continues to move forward in our key verticals, the adoption and conversion opportunities continue to grow in scope and complexity. This leads to increasingly long sales cycles and requires patience and persistence. As CRI's market share and influence continues to grow, we expect to be the provider of choice. Other areas of continued growth are coming from our live venue IPTV team. Along with growing our existing live venue customers through seasonal projects, highlights of Q2 would include the conversion of a large D1 college campus stretching across six athletic venues, the expansion of club level enhancements for two different NHL arenas and one NBA arena. And finally, the successful IPTV deployment to our first soccer stadium in Mexico. Menu board mobile phone to screen language translation for an NFL stadium that will be a host venue for several World Cup matches. And by the way, it's the first stadium to deploy this type of fan experience in the U.S. And finally, the award of two additional Minor League Baseball stadiums. With more than 12 net new logos or customers in the first half of the year, we expect to continue to secure our portion of the live venue market by providing IPTV solutions, digital signage, and content strategies throughout the United States as well as we will build on the recent wins in Canada and Mexico. One additional network we have previously announced is the Digi Point Media Network. This is a retail media network on ICE boxes across groceries and C-stores. The anticipated deployment, which we originally estimated to begin in Q3, is behind schedule. We now expect this network to begin deployment in Q4 of this year. This is expected to be approximately 2,000 sites and generate in excess of $4 million in hardware and installation revenue with additional SaaS revenue from our CMS and ad tech software solutions. One quick update on our SOC Type 2 certification. We achieved SOC 2 Type 1 compliance in Q1 and have now achieved SOC 2 Type 2 certification. This compliance is a valuable credential that demonstrates the trustworthiness and credibility of our products to enterprise customers. This is yet another indicator of our acceleration in the marketplace. We remain well positioned in the digital transformation landscape and look forward to delivering further improved operating results. With that, we'll now move to the Q&A portion of the call. Please go ahead, operator.

And my first question today will be coming from the line of Jason Kreyer of Craig-Hallum.

Great. So Rick, for the last few quarters, we've talked about this growing pipeline and a bunch of volume kind of getting jammed up at the one yard line. It was great to see last quarter, you get that QSR win. Just curious if you can give general updates on the progression of those deals through the pipeline and any visibility in any unlock?

Jason, great question. Everything continues to move forward. They move forward, it seems like an inch at a time. The quality of our top 10 is really spectacular. But we just simply do not have anything that we are comfortable announcing at this time, but we do expect to make some announcements in this calendar year.

That's good to hear. So when you talk about the acceleration in the back half of the year in terms of revenue and profitability, what is that predicated on? Is that visibility that you have to those deals getting through? Is that pipeline of new wins that are going to roll out? Like just trying to understand what gives you that confidence.

What gives us confidence is that when we announced the QSR wins last quarter or the quarter before, those are all now coming together. We expected to start installing some of those right at the end of Q2, but that didn't happen because each of those restaurants had to pour a new footer for their drive-thru. Now that's getting resolved, and starting next month, we will begin deploying a significant quantity of new sites. This delay has held things up, but when it gets back on track, we'll be installing a large number of locations. Additionally, we have a couple of stadium announcements that contribute to our confidence. To clarify, Jason, when we announce wins this year, it typically takes several months from announcement to actual deployment.

Got it. Okay. Last question for me. So if you look across the different verticals that you serve, where do you see the most pressure on businesses to kind of modernize their technology and adopt the digital solutions that you guys can provide?

Clearly, the drive-thru is crucial in the quick-service restaurant sector, especially in the post-pandemic era. Transitioning to digital can reduce drive-thru times by 10, 15, or even 20 seconds per vehicle. When considering a busy drive-thru line that lasts for six hours, this time savings can significantly boost revenue for quick-service operators. Therefore, there is a strong incentive for them to update and innovate. Secondly, retail media networks are gaining a lot of attention. In-store digital technology is a game changer, but it requires substantial investment in physical retail space and a considerable amount of time to implement internally, not to mention the involvement of suppliers like us. Currently, we have three pilots running and are engaging with about six other retailers. We anticipate that by 2026, we will launch our first large-scale Retail Media Network, which will involve deployments worth tens of millions of dollars.

And the next question will be coming from the line of Brian Kinstlinger of Alliance Global Partners.

Just a follow-up. I was confused. The QSR installs in the second half of the year that give you confidence, is that 1,000 store location that you recently announced because I thought that was a pilot? Or is that a different one? I'm just trying to understand what the driver of that is.

The driver of that is the customer. We are deploying 50 POC locations, and we already have a queue of locations behind that. We're receiving sign-ups, deposits, and so on. It’s not a situation where we’ll deploy a certain number of locations and then wait for evaluation. They're moving full steam ahead because that project from the customer was delayed a year, making them feel like they're already behind. So, it's progressing at a relatively consistent pace now that we've navigated the construction issues of needing to pour new footers at the drive-thru.

Got it. And then I think last time we talked, there was an initial survey that had 600 locations on board or opting in. Has there been another survey? Has there been more commitments? Just kind of where are you with opt-ins?

I don't have an update on that, Brian, but it's still very consistent. So I can reach out to you and get an update, but I believe it is very consistent.

Okay. And then as it relates to sports and entertainment, clearly, we've got baseball, the only really sport going on right now, NHL and NBA obviously are in the off-season. Does that drive increased installs opportunities in the short term? Or is the sales cycle too long in the installation process? I'm just trying to understand how that impacts revenues in the short term?

Yes, we expect to engage during the off-season for those sports. We have several proposals out, and it depends on who has the budget available. These decisions typically happen quickly. Once they make a decision and sign, we can start installing about 60 days later. It's not a long wait time; these processes usually move swiftly.

And my last question is, you clearly had customers buying screens ahead of tariffs. How are tariffs now that are in place impacting decisions? Is it leading to longer sales cycles? Is it not impacting that much? Just trying to frame for how that changes, if at all, the discussions you're having right now.

We had a few customers who expressed concerns about uncertainty regarding tariffs. As a result, some of them purchased screens in bulk to secure their supply for the remainder of the year. Currently, none of the manufacturers that we work with have increased their prices due to tariffs. I believe we are nearing the end of the uncertain tariff period, as there seems to be some finalization of tariffs across different countries. However, we are unsure of the potential impacts these changes may bring in the future.

And the next question is coming from Jon Hickman of Ladenburg.

Rick, I want to follow up on Brian's question. Do the pre-buys of the screens put pressure on the hardware side for the next couple of quarters?

It does put some pressure on the hardware aspect, Jon, but it will also lead to increased services revenue since we are now deploying screens in the upcoming quarters, even though we didn't recognize the services revenue earlier because the service had not yet been performed.

Okay. So that doesn't affect your guidance for increased revenues over the back half of this year?

Not significantly. No.

Okay. So could you clarify if the 7-Eleven deployments are being counted over a 5-year period?

Yes.

The new.

7-Eleven recently announced changes after the unsuccessful bid from Couche-Tard. On August 6, they appointed new management and outlined their leadership changes to the market. They announced the addition of 1,100 new restaurants within the existing 7-Eleven stores that we service, alongside 1,300 new locations identified as enhanced stores. The initiative for the new enhanced store format began in 2024, and we have been installing these new enhanced store footprints for approximately the last year to 1.5 years.

Okay. So you're expecting that to happen over the next kind of some measured way over the next five years?

That is correct. Yes, they've been a very consistent customer. As we have mentioned in the past, every single business day in the U.S., we typically install one new store or between one and three stores each day. This includes either a new store location, a remodel, or a restaurant brand being introduced inside an enhanced 7-Eleven.

Okay. Are there any updates you would like to share about the Bowling Alley customer?

The Bowling Alley customer is currently not rolling out any additional sites. We have deployed between $330 million and $350 million. They have taken a long time to advance the Bowling Center project, which may have resulted in some funding issues with their private equity partner. However, I'm not involved in those discussions. Currently, we have no Bowling centers scheduled moving forward.

And our next question will come from the line of Howard Halpern of Taglich Brothers.

Congratulations on a great Q2. In terms of the digital retail networks, your expectations for 2026, what type of leverage can we expect even if one large deployment occurs?

When you say what kind of leverage? Significant. I mean, because, again, we know of two Retail Media Networks currently on the books for folks across the United States. So we know of two being rolled out. Each of them, well, one was an expected $180 million project over 24 months. The other is a $100 million project being rolled out in a 6-month period. So we obviously did not win those. We came very close second on one of them. So those are the first two we know that are being broadly deployed in the U.S., but you can see the dollar volume is highly concentrated and there would be tremendous flow-through to the bottom line just because of pure volume.

Okay. So circling back to ARR, with deployments happening now and the day 2 revenue coming in during the second half, should we anticipate that the run rate by the end of the year will exceed $19 million?

That's a great question. We've experienced some fluctuations in the annual recurring revenue because one of our customers, a medical network that had been operational for several years, chose to discontinue some of their services at their locations. At this time, we're not providing any forecasts regarding potential growth in annual recurring revenue.

Okay. Okay. Now in terms of the Circle K in Mexico, how important is that project? And how important is that project to potentially moving to other countries in Latin America?

We are currently in discussions with a few other retailers that operate in Central America, but nothing is finalized yet. This serves as a proof of concept where they aim to see how the network and signage in their stores impact revenue and basket size. We do not anticipate any further Circle K deployments in Mexico until possibly 2026. Additionally, we completed a project at a Mexican soccer stadium this past quarter, utilizing IPTV. We have several bids for various stadiums in Mexico and believe that our focus will be on sports, entertainment, and convenience stores in the region.

And our next question will be coming from the line of Kevin Sullivan, private investor.

I wanted to touch base on the last call, you had mentioned about being aggressive in the acquisition marketplace. And now I was wondering if there was any update on anything like that, that's occurring?

It's a great question. We have been very clear about our goal to pursue an acquisition. We still have the same mindset that it needs to be the right fit for the company. It remains our objective to achieve something this year, but there is nothing to discuss at this time.

I appreciate that. For the second question, based on your debt reduction in the second quarter, can you tell me if it's reasonable to expect that to continue through the end of the year, and are you anticipating another $6 million reduction in debt?

I don't know if we would reduce debt that much for the rest of the year. It's just about the timing between payables and receivables. We generated cash in Q2 and expect to continue generating cash in the upcoming quarters. We also don't have plans for increased investments, so any cash we generate will be used to pay down our credit facility. George, do you have anything to add or comment on that?

No. As we stated, Kevin, great. Thank you for the questions. As we've stated, we continue to work towards what we deem to be the optimal cap structure. And it is a function of our working capital needs and reinvestment into the business, obviously, to drive organic growth. But it's fair to say that if there's any excess cash, and we talked about that earlier on the call, that essentially, we're going to be paying down the balance on the line of credit. We pursued a very disciplined strategy and financial management over the past couple of years to decrease our leverage, and that works hand-in-hand with pursuing those strategic opportunities that you alluded to. So we obviously want all the tools in the tool chest to pursue both strategic and organic growth. And part of that playbook is maintaining an appropriate leverage ratio. But we also know that debt is one of the most inexpensive ways to finance the activities of the company. So it's not a 0 debt thing. It's the optimal cap structure, but a great question.

And my last question is, you talked about the SOC 2 compliance. Based upon your competition, how many of your competitors do you think are at that same level of SOC 2 compliance versus yourselves percentage-wise or number-wise, I'm fairly flexible.

That's a great question, Kevin. I'm speaking from instinct here, as I don't have any specific data to share. The top two to four competitive CMSs are at the same level and have achieved that certification. On the other hand, many smaller CMS companies around the country, those with $8 million to $10 million in revenue, lack the staying power needed to obtain that type of certification. Consequently, the bottom 80% have not achieved it, while the top 20%, which consists of four, five, or six of us, have succeeded. This is based on my instincts.

And Rick, maybe I should add on to that because we do deem it to be a competitive advantage. And per Rick's comments, the fact that so many companies that are in the industry will never achieve it, simply don't have the resources, don't have the competencies to achieve it means that for the types of enterprise clients that we're dealing with, the types of processes that we're in, particularly with respect to retail media networks, it's just the smaller population of industry constituents who can actually go after that type of business. So there are a number of smaller companies out there that actually do have very large customers. And we think when those opportunities are presented again when those contracts expire, that we're going to be in a terrific position to compete tenaciously with that business.

I totally agree that I believe it is a competitive advantage. I don't disagree with that. And my last question is, do you have a speculation as to when you'll first get to your breakeven quarter?

We think as we exit this year, Kevin, we will have achieved that. And it's through a combination of increased revenue and also operating efficiency. You look at our last six quarters, we've continued to manage our SG&A expenses down. And it's not managing people out of the business. What it is? It's a consolidation of our multiple systems into one. We talked a lot about a year, 1.5 years ago, the conversion to NetSuite. So today, we're already full lap. We're in our second year on our full ERP, our shipping software and our shipping solutions. So all of those things, we're managing those and becoming much more efficient along with revenue growth has us achieving that as we exit this year.

And this does conclude today's Q&A session. I would like to go ahead and turn the call back over to Rick Mills for closing remarks. Please go ahead.

Well, first, let me conclude the call by thanking all the shareholders, clients, partners, and our employees for the 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 everyone again in the next quarter. Thank you.

Thank you all for joining today's conference call. This does conclude today's meeting. You may now disconnect.