CREX Could Fill The Gap On Record Q1 Revenue And Operating Profits

On Monday, we alerted readers to Creative Realities, Inc. (CREX) in our report "CREX Could Fly On Record Q1 Revenue And Operating Profits". CREX went up 9% to $2.95 on Tuesday, but we think it can go a lot further. The company released its Q1 2019 results that saw it achieve record revenues and operating profits for the quarter last week. On top of that it has the possibility of multiple gap fills at $4.00 and above.  We are up to 863 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have nearly 4,000 followers on Twitter as well.

We think that this is an ideal time to look into CREX as an undervalued, small float gem that could really run on continued financial performance. CREX hit as high as $3.65 on Friday before closing at $2.86 on 2.7 million volume and dropped 6% to $2.70 on only 125,000 shares traded on Monday in response to the larger market collapse. As it has such a low float of 3.24 million shares and moves on such little volume, it makes an ideal candidate for a big run. Its rise on Tuesday was on only 202,000 volume, further supporting this idea once volume picks up again.

In addition to good fundamentals supporting the run, it was brought to our attention on Twitter by user StockAuthority that CREX has three gaps to fill in the $4.00 range and above:

We would also like to point out the big green bar representing Tuesday's trading. The stock looks ready to break out, and that with the combination of the first gap fill at $3.60 to $4.00 could see CREX move up quickly.

CREX announced the following results for Q1 2019:

Announces record quarterly revenue for 1Q19

- Achieves record quarterly revenue of $9.5 million

- Announces tripling in managed services revenue

- Reaffirms 1H19 revenue guidance of $18 to $20 million

- Earnings call scheduled for Friday, May 10th at 9am Eastern

LOUISVILLE, Ky., May 9, 2019 /PRNewswire/ -- Creative Realities, Inc. ("Creative Realities," "CRI," or the "Company") (NASDAQ: CREX, CREXW), a leading provider of digital marketing solutions, announced its financial results for the quarter ended March 31, 2019.

Rick Mills, Chief Executive Officer, remarked, "CRI achieved record quarterly revenue of approximately $9.5 million in the first quarter of 2019 and we are on track to our previously issued guidance for the first half. We produced a small operating profit during the quarter and positive EBITDA of $368 thousand. As we finalize the integration of financial and operating activities of Allure, we expect to drive reductions in operating expenses and take further advantage of the economies of scale achieved thus far. We are proud of the continued progress."

2019 First Quarter Financial Overview

• Revenues were $9.5 million for the three-month period ended March 31, 2019, an increase of $5.4 million, or 133%, compared to the same period in 2018.
• Hardware revenue grew approximately $0.4 million, or 33%, in the first quarter of 2019 as compared to the same period in the prior year. Gross margin on hardware revenue was 14%, compared to 11% in 1Q18.
• Services and other revenue grew approximately $5.0 million, or 177%, in the first quarter of 2019 as compared to the same period in the prior year. Gross margin on services and other revenue was 44%, compared to 49% in 1Q18. Excluding one engineering services project in the period, gross margin on services and other revenue would have been approximately 49%.
• Managed services revenue, which includes both SaaS and help desk technical subscription services, represented approximately $1.5 million revenue in the first quarter of 2019, an increase of $1.0 million, or 200%, as compared to the same period in the prior year.
• Gross profit was $3.7 million for the first quarter of 2019, an increase of $2.2 million, or 144%, compared to the same period in 2018. Gross margin increased to 39% in 1Q19 versus 37% in 1Q18, driven primarily by the aforementioned mix of hardware and services and other revenue.
• The company achieved operating breakeven during 1Q19 as compared to an operating loss of $1.8 million in 1Q18.
• General and administrative expenses increased $0.6 million to $2.3 million in 1Q19 versus 1Q18 as the result of incremental payroll, benefit and office expenses associated with the acquisition of Allure Global Solutions, Inc. in November 2018.
• EBITDA was $0.4 million for the first quarter of 2019 compared to an EBITDA loss of $1.2 million for the same period in 2018.

2019 Financial Guidance

The Company reaffirms its previous guidance of $18 to 20 million in revenue for the first half of 2019.

Mr. Mills concluded, "We continue to see strong and improving market demand for our products and services as clients look to take advantage of the benefits of digital marketing in their evolving ecosystems, including deployments of digital technology and development of integrated applications to support those deployments. We are pleased to see that our recurring portion of our revenue is increasing substantially and look forward to continued progress on this front.  We believe our end-to-end services offerings position us well within the industry to compete for new and growing opportunities with partners in a variety of key verticals including but not limited to retail, sports and entertainment venues, quick service restaurants and convenience stores. As we move through 2019, we remain committed to further execution of our strategy to gain more scale and act as a key participant in what we believe should be an industry rollup aimed at driving shareholder value."

CREX's market cap at $2.95 is only $29 million, which means that it is trading at just 0.76x of revenue at the $9.5 million per quarter run rate. The traction in the numbers can be more easily visualized by looking at the Q1 SEC filing:

Revenue and gross profits more than doubled and operations turned slightly profitable (still negative net income as there is interest on the debt). A lot of the growth is due to a recent acquisition, but investors can expect this to be the new starting point for the company from which it will grow.

Based on these numbers and projected growth rate, we expect CREX to trade at least at a 1x multiple to revenue run rate, or $38 million, in the short run. That would lead to around a $4.00 stock price, with much more room to grow as the company looks to increase profitability along with revenue growth in the next few quarters.

Disclosure: We are long CREX