Executive Summary / Key Takeaways

• Creative Realities (CREX) is a digital marketing technology leader, strategically pivoting towards high-margin AdTech and SaaS solutions in key verticals like QSR, Retail, and Sports & Entertainment.
• Recent financial performance shows revenue acceleration in Q2 2025, driven by hardware advance purchases, with management projecting stronger growth and a return to 15% Adjusted EBITDA margins by year-end 2025.
• The resolution of a significant contingent consideration liability has improved financial flexibility, yet the company faces an explicit "going concern" uncertainty, necessitating continued cash flow generation or external financing.
• Key growth catalysts include a major QSR national rollout, the Digi Point Media Network deployment, and substantial long-term expansion opportunities with 7-Eleven and in international markets.
• CREX's proprietary AdTech platforms (AdLogic CPM+) and recent SOC 2 Type 2 certification provide a competitive moat, enabling enterprise-grade solutions and higher-margin recurring revenue streams.

The Digital Experience Architect: Setting the Stage for Transformation

Creative Realities, Inc. (NASDAQ: CREX) stands as a specialized architect of digital experiences, providing innovative marketing technology and solutions across the United States and in select international markets. The company's core business revolves around transforming physical environments through digital merchandising systems, interactive shopping assistants, kiosks, and a suite of interactive marketing technologies including mobile, social media, point-of-sale, and web-based media. This comprehensive approach positions CREX as a "one-stop-shop" for clients, managing everything from design and deployment to ongoing support and monetization of digital signage networks.

The broader industry is undergoing a profound digital transformation, with businesses increasingly recognizing the imperative to enhance customer engagement and operational efficiency through technology. This trend is particularly evident in CREX's primary verticals: Quick-Serve Restaurants (QSR), Convenience Stores (C-Store), Retail, and Sports & Entertainment. For instance, QSR drive-thrus are under immense pressure to modernize, as digital solutions can significantly improve service times by 10-20 seconds per car, directly impacting revenue. Similarly, the explosion of Retail Media Networks (RMNs) represents a massive opportunity for retailers to monetize in-store traffic, creating a "third leg of the stool" alongside website and mobile app monetization.

CREX's strategic response to these market dynamics is to offer a full portfolio of products and services, leveraging its managed labor pool, in-house creative resources, and robust logistics expertise to deliver scalable and reliable solutions. This integrated approach is a key differentiator in a fragmented market. While larger technology conglomerates like Cisco Systems (CSCO) offer broader networking infrastructure, and programmatic advertising specialists like The Trade Desk (TTD) excel in data-driven ad targeting, CREX carves out a niche with its deep retail-specific customization and hardware-integrated interactive solutions. This allows CREX to provide more targeted, seamless omni-channel experiences that blend physical and digital interactions, potentially outpacing larger rivals in innovation speed for niche applications.

Technological Edge: Powering the Interactive Future

At the heart of Creative Realities' value proposition lies its differentiated technology stack, designed to create compelling and measurable digital experiences. The company's core platforms include ReflectView, a scalable Content Management System (CMS) capable of managing networks from 10 to 100,000 devices, and Clarity, a market-leading menu board solution for restaurants and convenience stores. Complementing these are Reflect Xperience for web-based content scheduling, Reflect Zero Touch for mobile-driven interactive screens, and specialized automotive platforms like iShowroomProX and OSx, which integrate with VIN-level inventory and improve customer satisfaction.

A critical technological differentiator and growth driver for CREX is its suite of AdTech platforms: AdLogic and AdLogic CPM+. These platforms are integrated digital advertising solutions specifically designed for monetizing in-store retail media networks. AdLogic CPM+ empowers clients with tools for targeted campaigns at significantly reduced costs, combining robust programmatic capabilities with a user-friendly self-serve interface. This innovation enhances targeting precision and eliminates unnecessary intermediation fees, fundamentally transforming how retailers can generate revenue from their physical spaces. CREX is currently delivering over 25 million ads daily through these platforms and has three customers actively testing AdLogic CPM+ for their in-store RMNs. The strategic intent behind these platforms is to unlock new, higher-margin monetization models, including platform access fees, user licenses, and direct participation in ad revenue, which are expected to yield "significantly increased margins."

Further solidifying its competitive moat, CREX achieved SOC 2 Type 1 compliance in Q1 2025 and subsequently SOC 2 Type 2 certification by Q2 2025. This is a "valuable credential" that demonstrates the trustworthiness and credibility of its products to enterprise customers. Management notes that only the "top 20%" of competitors, typically the largest players, achieve this level of certification, effectively excluding the "mom-and-pop CMSs" and a "smaller population of industry constituents" from competing for enterprise-grade business, particularly in the burgeoning retail media network space. This certification enhances CREX's ability to secure large-scale, complex deployments, providing a distinct advantage over less sophisticated rivals.

Financial Performance: A Turnaround in Progress

Creative Realities' recent financial performance reflects a company in transition, navigating both strategic pivots and operational challenges while laying the groundwork for future growth. For the second quarter of 2025, the company reported revenue of $13 million, which was flat year-over-year but represented a 34% increase from Q1 2025. Hardware revenues surged by 41% year-over-year to $7.07 million in Q2 2025, primarily due to QSR and sports/entertainment customers making advance purchases of hardware, partly driven by tariff uncertainties. This shift in revenue mix, towards lower-margin hardware, contributed to a consolidated gross margin of 39% in Q2 2025, down from 52% in Q2 2024, despite hardware gross margin remaining consistent at 27%.

Conversely, services revenue, including SaaS, experienced a decline. Managed services revenue, which includes SaaS subscriptions, decreased by 7% year-over-year to $4.48 million in Q2 2025, largely due to a single customer insourcing a portion of their hosted environment. Installation services revenue fell by 39% to $1.24 million, attributed to fewer deployments during the period. Other services revenue saw an 81% reduction to $0.23 million, a direct consequence of the company's strategic exit from the lower-margin media sales business, effective October 1, 2024.

Despite these revenue mix shifts, CREX demonstrated diligent cost management. Sales and marketing expenses decreased by 31% in Q2 2025, driven by reductions in salaries, benefits, and marketing activities. General and administrative expenses increased by 15% due to a rise in stock-based compensation, but excluding this, G&A expenses decreased by $678 thousand, reflecting cost containment efforts, low-cost restructuring, vendor spend reductions, and the benefits of a unified NetSuite ERP system implemented in June 2024. These efficiencies contributed to an Adjusted EBITDA of $1.2 million in Q2 2025, a significant improvement from $0.5 million in Q1 2025.

From a liquidity perspective, CREX reported cash and cash equivalents of $569 thousand at June 30, 2025. The company employs a sweep instrument to manage interest expense by applying excess cash against its revolving debt facility, thus maintaining minimal cash on hand. Gross debt stood at $20.09 million and net debt at $19.90 million at June 30, 2025, an increase from year-end 2024 primarily due to the settlement of a long-standing contingent consideration liability related to the Reflect merger. This $12.815 million liability was resolved on March 14, 2025, for $3 million in cash, a $4 million subordinated promissory note, and warrants, resulting in a $4.775 million gain on settlement and removing a significant "overhang" on the company. While the company successfully reduced debt by $3.1 million in Q2 2025 through operating cash flow, it explicitly acknowledges "substantial doubt about the Company’s ability to continue as a going concern" within the next twelve months, underscoring its ongoing reliance on improved cash flow generation or external financing.

Outlook and Growth Catalysts: The Road Ahead

Creative Realities' management expresses strong confidence in an accelerating revenue trajectory and improved profitability for the second half of 2025 and into 2026. The company anticipates Adjusted EBITDA as a percentage of revenue to rise to 15% by year-end 2025 and expects to achieve a "breakeven quarter" as it exits 2025, driven by increased revenue and operational efficiencies. While not providing specific ARR growth forecasts due to recent customer adjustments, the underlying pipeline of opportunities remains robust.

Several key projects are poised to act as significant growth catalysts:

• Upscale QSR Chain Rollout: Following successful pilot programs in Q3 and Q4 2025, a national rollout is expected immediately thereafter for a well-known upscale QSR chain with over 1,000 locations. Over 600 locations have already expressed interest, with the project anticipated to span three years, deploying approximately 300 sites annually. This represents a substantial, multi-year revenue stream.
• 7-Eleven Expansion: A long-term customer, 7-Eleven (SVNDF), plans to open 1,100 new restaurants and 1,300 new larger format stores in the U.S. by 2030. CREX projects this could add over 17,000 displays, generating $30 million in revenue and an additional $5 million annually in SaaS over a five-year period, assuming the continued partnership.
• Digi Point Media Network: This retail media network, deploying on ICE boxes across groceries and C-stores, is now expected to begin its rollout in Q4 2025 (delayed from Q3). It is projected to encompass approximately 2,000 sites, generating over $4 million in hardware and installation revenue, alongside additional SaaS revenue from CREX's CMS and AdTech software solutions.
• Sports & Entertainment (IPTV): The company's IPTV division expects to double the number of stadium and arena projects (ranging from partial to full deployments) in 2025 compared to 2024. There is also strong adoption of CREX's menu board program within stadium venues.
• International Expansion: Initial proof-of-concept projects are underway in Mexico, including a C-store for Circle K (ATD) and an IPTV deployment for a soccer stadium. Management anticipates these efforts will begin contributing revenue in the 2026 timeframe, with a focus on sports/entertainment and C-stores.

Operationally, the completion of the NetSuite ERP migration and the revamp of warehouse facilities in Q1 2025 have significantly increased capacity at minimal cost, positioning CREX to efficiently handle the anticipated surge in deployments. Furthermore, the company maintains a strong appetite for strategic acquisitions, particularly targeting larger organizations with $20-$25 million in revenue, aiming to leverage its optimized capital structure and "dry powder" for inorganic growth.

Risks and Challenges: Navigating the Path

Despite the optimistic outlook, Creative Realities faces several pertinent risks and challenges that warrant investor attention. The most significant is the explicit "going concern" uncertainty, stemming from projected liquidity needs and the unfinalized nature of plans for debt facility amendments or equity financing. While management is proactive in managing cash flow and debt, the reliance on these factors introduces an element of risk.

The company's business is characterized by increasingly long sales cycles, particularly for large-scale enterprise projects, which can lead to delays in revenue recognition, as seen in Q4 2024 and Q1 2025. This requires patience and persistence from both the company and its investors. Customer concentration also presents a risk, with two customers accounting for 29% and 11% of accounts receivable and one customer representing 20% of Q2 2025 revenue. Any significant changes in these relationships could materially impact financial results.

Globally, trade uncertainties and potential tariffs, particularly on steel mounts, could introduce cost pressures, although screen manufacturers' Mexico-based production currently mitigates direct tariff impacts on displays. The company also performed a quantitative goodwill impairment test in Q1 2025 due to a decline in stock price, and while no impairment was recorded, future changes in performance could necessitate further adjustments. Lastly, recent amendments to the revolving credit facility's borrowing base margin, which will decrease over time, may reduce future borrowing availability, potentially impacting liquidity. The indefinite pause of the Bowling Alley project due to funding issues also highlights the vulnerability to customer-specific challenges.

Conclusion

Creative Realities is at a pivotal juncture, transforming from a company grappling with legacy financial uncertainties to a focused leader in digital experience and AdTech. The successful resolution of the Reflect contingent liability has cleared a significant hurdle, allowing management to sharpen its focus on growth and operational efficiency. With its proprietary AdTech platforms like AdLogic CPM+ and the strategic advantage of SOC 2 Type 2 certification, CREX is uniquely positioned to capitalize on the burgeoning demand for in-store retail media networks and digital transformation across its core verticals.

While the explicit "going concern" risk and the inherent long sales cycles for large enterprise projects demand careful monitoring, the company's robust pipeline, significant QSR and 7-Eleven expansion opportunities, and disciplined cost management provide a compelling narrative for future growth. The projected acceleration in revenue and a return to 15% Adjusted EBITDA margins by year-end 2025 underscore management's confidence in its strategic direction and technological leadership. For investors, CREX represents an opportunity to participate in the digital evolution of physical spaces, with its future success hinging on the effective execution of its strategic initiatives and continued innovation in a dynamic competitive landscape.