CREX Reports Mixed Q2 Earnings | The Motley Fool

Creative Realities (CREX 11.71%), a digital signage and AdTech solutions provider, released its Q2 FY2025 financial results on August 13, 2025. The company posted revenue of $13.0 million, beating the $11.85 million consensus by $1.15 million, driven by hardware sales. However, gross margin declined considerably, and earnings per share came in at $(0.17), missing the $(0.07) estimate. Management attributed reduced profitability to lower-margin hardware sales, a drop in service revenue, and higher operating expenses, particularly stock-based compensation.

Source: Creative Realities. Note: Analysts’ consensus estimates for the quarter provided by FactSet.

Company Overview and Business Model

Creative Realities operates as a one-stop provider of digital signage, combining hardware, design, and content management for retail, quick-service restaurant (QSR), and sports/entertainment brands. Its services range from initial strategy and design to software licensing, installation, and managed support, targeting clients looking to enhance in-person customer experiences with digital transformation initiatives.

The company’s strategy in recent periods has been to grow its recurring revenue streams. This includes its SaaS (software-as-a-service) platforms like Clarity and AdLogic, which deliver digital content management and AdTech solutions. Key factors for long-term success include boosting SaaS adoption for stable revenues, maintaining strong customer relationships, and executing new hardware and service deployments—especially with large enterprise accounts.

Quarter Highlights and Key Developments

Hardware revenue climbed to $7.1 million from $5.0 million, helped by advance purchases from major QSR and sports clients. These clients accelerated their buying due to tariff uncertainty, purchasing hardware ahead of scheduled deployments. Service revenue, which includes SaaS and media sales, fell to $6.0 million from $8.1 million a year earlier.

This shift toward hardware sales had a direct effect on profitability. Gross profit (GAAP) dropped to $5.0 million from $6.8 million a year earlier, and overall gross margin (GAAP) fell to 38.5% from 51.8% a year earlier. Hardware gross margin slipped from 30.1% a year earlier to 25.1%. Service gross margin also weakened, down to 54.4% from 65.2% a year earlier. According to management, the revenue mix and the exit from media sales were primary reasons for these declines. On the cost side, adjusted EBITDA—a measure of earnings that strips out certain non-cash and non-recurring items—declined to $1.2 million from $1.5 million a year earlier, despite management’s efforts to control operating expenses. Operating loss widened to $(1.3) million versus a profit of $0.6 million in the prior year period, while net loss (GAAP) was $(1.8) million compared to $(0.6) million a year earlier.

Recurring revenue trends provided a mixed signal. Annual recurring revenue (ARR), which principally captures contracted SaaS and support revenue, rose modestly to $18.1 million from $17.3 million at March 31, 2025. However, overall service revenue (GAAP) declined versus the prior year, which management attributed to both the planned media sales exit and SaaS churn. This development is important since growing ARR is central to the company’s goal of building stable, predictable revenue streams.

Management reported some key customer gains in the quarter, especially in the quick-serve restaurant and sports/entertainment verticals. One major QSR client covering over 1,000 locations advanced with pilots and is expected to reach “about 300 sites a year” for several years, according to management commentary during the Q1 2025 earnings call. The sports and entertainment segment also saw multiple proof-of-concepts (POCs) active. On the product side, the company’s platform solutions—Clarity (a content management software), ReflectView (workflow and monitoring tools), and AdLogic (AdTech for retail media)—are the foundation for future SaaS growth. Management is investing in security and compliance for these platforms, as seen by its progress towards SOC 2 certification, a data security standard favored by enterprise customers.

Diving deeper into the business, Creative Realities continued to reposition its warehouse and operations to support growth without a major rise in operating cost. The expansion in warehouse capacity aims to ease inventory handling and support larger project deployments, such as those expected in the second half of the year. In addition, the Digi Point Media Network project—a retail media network using IceBoxes across grocery and convenience stores—remains in the pipeline and could drive future hardware and SaaS revenue if deployed at advertised scale.

On the balance sheet, cash (GAAP) ended the period at $0.6 million, below $1.0 million at the start of the year. Debt rose to $20.1 million, with the leverage ratio increasing to 4.53 times adjusted EBITDA. Management highlighted efforts to use operating cash flow to reduce debt, but leverage remains a point of concern if margin recovery falters.

Looking Ahead

Management expects revenue and margin improvement to accelerate in the second half of FY2025. The company expects top-line growth to be supported by ramping hardware deployments in its key verticals, with management specifically guiding for strong growth and momentum. Gross margins are expected to improve due to a targeted shift toward higher-value SaaS and service engagements, as indicated by management commentary for upcoming quarters. Adjusted EBITDA as a percentage of revenue is projected to rise to 15% by year-end FY2025, up from 9.2%.

Key factors for future periods will include progress in converting the large project pipeline into revenue, boosting SaaS adoption to expand ARR, and controlling costs amid high debt levels. Investors should closely watch the performance and uptake of the company’s core platform products, as well as the financial impact of the ongoing transition away from media sales. No dividend is currently paid by Creative Realities (CREX 11.71%).

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.