Hi Abi, really enjoyed this write-up and I've been following this name as well. Just out of curiosity, where are you getting those endpoint figures that you mentioned, specifically for their retail customers?
By the way, what's your take on their latest contract with IceBox? Based on locations and end points, seems like one of their more significant contracts to date
Love it, differentiated use case, and step in the right direction to get to 1M connected devices. Up to 85k units is massive, has the chance to be their biggest customer over time. As reference points, Best Buy is 75k devices, Panera has the potential to be 16k units (2k locations x 8 devices per location). Realizing these 85k devices is an execution game and will take time, but all in all a very positive development.
Great write-up, thanks for sharing Abi. If you don't mind, where did you find this number? "Our estimates suggest that $8 to $10 per month per device would be market rate pricing"?
They're currently at $4.3m per quarter in SaaS, coming from around 380k or so licenses. That puts their revenue per screen per month at under $4. This is well under the $8 number you're quoting. My assumption is not all screens are generating equally, and some licenses perhaps not generating SaaS at all. Any idea why the huge discount to market rates?
Hi Sam - the divergence is due to legacy contracts inherited from the Reflect acquisition. As these contracts come up for renewal, there is an opportunity to get more in-line with market-rate pricing.
The $8 to $10 estimates were based on discussions with industry execs / competitor pricing.
Abi - any insight into how long before some of these legacy contracts are up for renewal? I would also assume any new contracts with brand new clients are closer to that $8-$10 range? But any additional thoughts/details you can provide? Thanks
I was not able to get this level of detail, but my best guess is these contracts expire in the next 1-3 years. Reflect had some meaningful customer concentration so the upside of this could occur very unevenly.
Since the market is so fragmented, the potential to gain more market share seems low on an organic growth basis. Inorganic growth thru M&A could be an option (but requires financing thru debt vehicles.) But what is your opinion on them growing this market instead of gaining market share?
Gaining market share will require both organic growth and M&A. Organically, there are a lot of small players who have 1 big customer, and as the those contracts are up for renewal, CREX has a big opportunity to win those RFPs. On the M&A front, this becomes more plausible as the stock price moves up, will be challenging at today's price.
As far as growing this market, the ROI proposition needs to be clear to retailers. If a retailer doesn't see the value prop, they won't invest in the capex to fit out these digital signs. For example, Starbucks still uses static boards. Entry into some of these large, unpenetrated logos is certainly a start to growing the market
Time based. The earnout is calculated as the delta between the Volume Weighted Average Price for a given period before Feb 2025 and $19.20 / share. The earnout can either be triggered in Feb 2025 or Aug 2025, depending on whether CREX utilizes the extension option.
Yes, great point. Please see this note in the post: One other notable call-out: in connection with the company’s November 2021 acquisition of Reflect Systems, a part of the purchase consideration included a future earnout, of which the amount is subject to Creative Realities’ stock p[rice as of February 17, 2025, with a potential option held by the company to extend this date by six months to August 17, 2025. The earnout is calculated as $19.20 per share less the average closing price per share of Creative Realities common stock in the fifteen (15) consecutive trading day period ending February 2, 2025 multiplied by the number of shares issued to Reflect shareholders (~778k). This essentially serves as a true-up to $19.20 per share for Reflect shareholders. This future earnout liability is valued simplistically, by subtracting $19.20 from the midpoint of the fair value range highlighted in the Valuation Summary ($19.20 less $6.65 x 778K shares), equaling about $9.7M in total value, reducing equity value by ~$1/share.
Hi Abi, really enjoyed this write-up and I've been following this name as well. Just out of curiosity, where are you getting those endpoint figures that you mentioned, specifically for their retail customers?
Thanks! Convos with Mgmt & from a podcast that Rick did with Planet Microcap earlier this year.
By the way, what's your take on their latest contract with IceBox? Based on locations and end points, seems like one of their more significant contracts to date
Love it, differentiated use case, and step in the right direction to get to 1M connected devices. Up to 85k units is massive, has the chance to be their biggest customer over time. As reference points, Best Buy is 75k devices, Panera has the potential to be 16k units (2k locations x 8 devices per location). Realizing these 85k devices is an execution game and will take time, but all in all a very positive development.
Great write-up, thanks for sharing Abi. If you don't mind, where did you find this number? "Our estimates suggest that $8 to $10 per month per device would be market rate pricing"?
They're currently at $4.3m per quarter in SaaS, coming from around 380k or so licenses. That puts their revenue per screen per month at under $4. This is well under the $8 number you're quoting. My assumption is not all screens are generating equally, and some licenses perhaps not generating SaaS at all. Any idea why the huge discount to market rates?
Hi Sam - the divergence is due to legacy contracts inherited from the Reflect acquisition. As these contracts come up for renewal, there is an opportunity to get more in-line with market-rate pricing.
The $8 to $10 estimates were based on discussions with industry execs / competitor pricing.
Abi - any insight into how long before some of these legacy contracts are up for renewal? I would also assume any new contracts with brand new clients are closer to that $8-$10 range? But any additional thoughts/details you can provide? Thanks
I was not able to get this level of detail, but my best guess is these contracts expire in the next 1-3 years. Reflect had some meaningful customer concentration so the upside of this could occur very unevenly.
This would be great if it pans out. I'll try to get an answer from management on this possibility if I get a chance.
Thanks Sam!
Since the market is so fragmented, the potential to gain more market share seems low on an organic growth basis. Inorganic growth thru M&A could be an option (but requires financing thru debt vehicles.) But what is your opinion on them growing this market instead of gaining market share?
Gaining market share will require both organic growth and M&A. Organically, there are a lot of small players who have 1 big customer, and as the those contracts are up for renewal, CREX has a big opportunity to win those RFPs. On the M&A front, this becomes more plausible as the stock price moves up, will be challenging at today's price.
As far as growing this market, the ROI proposition needs to be clear to retailers. If a retailer doesn't see the value prop, they won't invest in the capex to fit out these digital signs. For example, Starbucks still uses static boards. Entry into some of these large, unpenetrated logos is certainly a start to growing the market
For those reasons, it would be apt to keep this stock on a watchlist. I am not sure if it is a buy right now. Thanks for the input.
Stupid ? But to clarify, what triggers the earnout mentioned?
Time based. The earnout is calculated as the delta between the Volume Weighted Average Price for a given period before Feb 2025 and $19.20 / share. The earnout can either be triggered in Feb 2025 or Aug 2025, depending on whether CREX utilizes the extension option.
There is a contingent acquisition consideration of $11.2 mill. I assume you saw it?
Yes, great point. Please see this note in the post: One other notable call-out: in connection with the company’s November 2021 acquisition of Reflect Systems, a part of the purchase consideration included a future earnout, of which the amount is subject to Creative Realities’ stock p[rice as of February 17, 2025, with a potential option held by the company to extend this date by six months to August 17, 2025. The earnout is calculated as $19.20 per share less the average closing price per share of Creative Realities common stock in the fifteen (15) consecutive trading day period ending February 2, 2025 multiplied by the number of shares issued to Reflect shareholders (~778k). This essentially serves as a true-up to $19.20 per share for Reflect shareholders. This future earnout liability is valued simplistically, by subtracting $19.20 from the midpoint of the fair value range highlighted in the Valuation Summary ($19.20 less $6.65 x 778K shares), equaling about $9.7M in total value, reducing equity value by ~$1/share.