CREATIVE REALITIES, INC. Revenue Disclosure

NOTE 4: REVENUE RECOGNITION

 

The Company applies ASC 606, Revenue from Contracts with Customers, for revenue recognition. The table below disaggregates the Company’s revenue by major source as follows:

 

		For the Years Ended
		December 31,
		2025				2024			Recognition Policy:
Hardware		$	21,232			$	18,259		Point in time
Services:
Managed Services			17,896				19,547		Over time
Digital Media Advertising			9,549				-		Over time
Installation Services			5,617				8,968		Point in time
Other			2,938				4,080		Point in time
Total Services			36,000				32,595
Total Hardware and Services		$	57,232			$	50,854

 

Hardware

 

System hardware revenue is recognized at a point in time generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer in instances in which the sale of hardware is the sole performance obligation. Shipping charges billed to customers are included in hardware sales and the related shipping costs are included in hardware cost of sales. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. The Company sells extended warranties to its customers in connection with its hardware sales. The equipment manufacturer performs the warranty services, and therefore manufacturer is considered the principal and the Company is an agent for extended warranty sales. Accordingly, extended warranty sales are presented on a net basis (gross revenue less cost) within hardware revenue and are recognized at the time of the hardware sale.

 

Managed Services

 

Software as a service

 

Software as a service (“SaaS”) includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted by the Company. These services often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Contracts for these services are generally 12-36 months in length and typically have perpetual autorenewal terms. We recognize SaaS revenue ratably over the performance period.

 

Maintenance and support services

 

The Company sells support services that include access to technical support personnel for software and hardware troubleshooting. The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support our customers’ networks 7 days a week, 24 hours a day. These contracts are generally 12-36 months in length and typically have autorenewal terms. Revenue is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract. 

 

Maintenance services are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s network, supporting a sophisticated web-portal, or managing the end-to-end hardware and software of a digital marketing system. These agreements are renewable by the customer. Rates for maintenance, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net SaaS fees as set forth in the arrangement. These contracts are generally 12-36 months in length. Revenue is recognized ratably and evenly over the service period. In arrangements where the SaaS and maintenance are highly interrelated, they are combined as one performance obligation.

 

The Company also performs time and materials-based maintenance and repair work for customers. Revenue is recognized at a point in time when the performance obligation has been fully satisfied.

 

Digital Media Advertising

 

Digital media advertising revenues are derived from selling digital out-of-home, or DOOH, advertising on infrastructure assets owned or operated by the Company and located at retail malls, shopping centers, office buildings, and other commercial properties. The Company sells advertising placement opportunities to brands and advertising agencies through an exclusive sales agent, which solicits and engages in media sales agreements with end-customer advertisers on the Company's behalf. The Company has concluded that it acts as the principal in these arrangements under ASC 606, as it controls the specified advertising service before transfer to the customer. Accordingly, the Company reports digital media advertising revenues on a gross basis, with the full amount charged to advertisers recorded as revenue and the agent's commission, which ranges from ten percent (10%) to fourteen percent (14%) of annual gross revenue, presented as a component of cost of sales in the consolidated statements of operations.

 

Digital media advertising revenue is recognized over time in accordance with ASC 606-10-25-27(a), as the advertiser simultaneously receives and consumes the benefit of the advertising display service throughout each campaign period. The Company's performance obligation to each advertiser constitutes a single combined performance obligation encompassing the operation of advertising infrastructure and the presentation of advertising content over the contracted campaign period. Revenue is recognized ratably over each campaign period as content is displayed and commissions paid to the agent computed on a stated percentage of gross advertising revenue included in the consolidated statements of operations within cost of sales. 

 

Installation Services

 

The Company performs installation services associated with system hardware sales to customers and recognizes revenue upon completion of the installations. Installation services also include engineering and configuration services required to be performed to design and deploy a digital signage system that subsequently becomes an installation project.

 

When system hardware sales include installation services to be performed by the Company, the goods and services in the contract are, in certain instances, not distinct as the customer contract contemplates an installed solution, inclusive of system hardware, and the two activities are highly interrelated. In those instances, the arrangement is accounted for as a single combined performance obligation. Our customers may control the work-in-process and can make changes to the design specifications over the contract term. In these circumstances, revenues are recognized over time as the installation services are completed based on the relative portion of labor hours completed as a percentage of the budgeted hours for the installation. Alternatively, in certain large scale deployments that include installation services, the contract terms segregate performance obligations related to hardware sales and installation services by providing for different legal transfer of title and risk of loss and the two activities are not highly interrelated. In those circumstances, installation services are deemed to be a separate performance obligation. In each instance, installation services are recognized at the time of completion.

 

Other Services

 

Software design and development services

 

Software design and custom development sales represent fixed fee orders for work on a time and materials basis and are recognized as revenue when the application, feature, or custom software code has been received and delivery has occurred to the customer. Revenue is recognized generally upon customer acceptance (point-in-time) of the software product and verification that it meets the required specifications. Software is delivered to customers electronically.

 

Media sales

 

Media revenues are derived from selling (i) promotion and sponsorship packages to monetize customer infrastructure assets, including mobile takeover or physical presence, or (ii) digital advertising inventory to advertisers on digital displays or other outdoor structures, owned or controlled by our customers, each within physical venues. We sell advertising or sponsorship opportunities on behalf of our media network owner customers to brands and advertisers. This revenue stream is separate from the digital media advertising revenue stream described above. For digital media advertising, we own or control the digital displays and accordingly, we are the principal. For media sales described here, we do not own the devices that display the sold digital advertising. The Company has concluded that it acts as an agent for these arrangements and reports media revenues on a net basis, with the Company recording its commission, which typically is between thirty percent (30%) and forty percent (40%) of the total media sales contract, as revenue in the consolidated financial statements.

 

The media sales contracts we facilitate on behalf of our customers range from a single day to eight years. The Company invoices advertisers on behalf of our customers and remits the net cash to our customer after the advertiser has paid the Company the fees owed for such advertising. Media revenue services are recognized when the Company has completed its performance obligations under the contract with our customers, which typically has concluded upon facilitating execution of contracts between our customer and a brand/advertiser. The Company applies time-based constraints in accordance with ASC 606 to evaluate the earned portion of the contract to record at execution.

 

For revenues generated through the use of a subcontracted advertising agency, commissions are calculated based on a stated percentage of gross advertising revenue and reported in the consolidated statements of operations within cost of sales.

 

The following table presents the activities in deferred revenue for the year ended December 31, 2025:

 

		2025
Balance, January 1			1,137
Amounts assumed in CDM business combination			7,368
Amounts billed and deferred during the year			10,066
Revenue recognized that was included in the beginning balance			(1,137	)
Revenue recognized from amounts deferred during the year			(9,345	)
Foreign currency translation adjustment on Canadian deferred revenue			26
Balance, December 31,		$	8,115

 

There were no significant revenues recognized in 2025 or 2024 from performance obligations that were satisfied (or partially satisfied) in prior periods as a result of contract price changes, changes in estimates or variable consideration true-ups.

 

As of December 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations (i.e., unsatisfied or partially unsatisfied performance obligations) was $10,564. The following table presents the expected timing of recognition of that amount:

 

Recognition Period		Amount
Within 1 year		$	6,846
Between 1 and 2 years			3,404
Between 2 and 3 years			314
Thereafter			-
		$	10,564

 

The remaining performance obligations in the table above primarily consist of non-cancellable multi-year SaaS and maintenance agreements, under which the Company recognizes SaaS and maintenance revenue ratably over the contract term. The Company has elected the optional exemption under ASC 606-10-50-14 and does not disclose information about remaining performance obligations for contracts with an original expected duration of one year or less, which primarily consist of short-term digital media advertising contracts, month-to-month support agreements, media revenue, and transactional arrangements (e.g., hardware and installation, software design and development, content creation).