Boxlight Corporation

Thank you and welcome to the BoxLight full year 2019 and first quarter 2020 earnings conference call. By now, everyone should have access to the full year 2019 earnings press release issued on May 12th and the first quarter 2020 press release issued on May 15th. The call is being webcast and is available for replay. The remarks today will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about future results of operations, business strategies and plans, customer relationships, market trends, and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10Q, Form 10K and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, management will refer to non-GAAP measures, that when used in combination with GAAP results provide additional analytical tools to understand the company's operations. The company has provided reconciliations to the most directly comparable GAAP financial measures in the earning press release, which will be posted on the investor relations section of the company's website at investors.boxlight.com. And with that, I'll hand the call over to BoxLight's Chief Executive Officer, Michael Pope.

Good morning, everyone. Thank you for joining the call. I'd like to especially thank our shareholders, partners, and customers for their confidence and support during this critical time as a company. We've gone through significant transitions since our 2016 merger of Mimeo and the Boxsite Group and our subsequent IPO in 2017. Since that time, we've attracted a tremendous management team, assembled a global channel partner network, closed the acquisitions of Cohaba, Quizdom, EOS Education, Modern Robotics, Robo3D, and MySTEM kits, continued to innovate with award-winning products and services, consolidated our operations and supply chain, and organized our systems and accounting under one ERP system. We are proud of our progress, and I believe we are well positioned as a company for future growth. We had a slower than expected fourth quarter, but we are pleased with our progress during the first quarter. For Q1 2020, we reported that revenues increased by 15%, to $5.7 million and orders increased by 85% to $7.6 million over the same period in 2019. Additionally, our adjusted EBITDA loss improved by 41% to $1 million and our adjusted EPS improved by 51% to a loss of $0.08. Our CFO, Takesha Brown, will provide more financial details shortly. During the quarter, we delivered on several key contracts including San Diego Unified in California, Montgomery County in Maryland, Jefferson County in Colorado, Frederick County in Maryland, and Penn Manor in Pennsylvania. We were also selected by Shelby County Schools in Tennessee and Netherland Independent School District in Texas for our interactive displays and by Union County Public Schools in North Carolina for our Mimeo MyBot robotics and coding system. During the first quarter, we introduced new channel partners including JB&A as a national partner, AISIS in Texas, and CT International in Mexico. We continue to win opportunities with strong partners including Trox, Howard Technology Solutions, CDWG, Visual Techniques, DHE Computer Systems, Central Knox, and Digital Age Technology, among others. In March, we entered into an agreement with D&H Distributing, a 100-year-old technology distributor with warehouses across the U.S. and Canada. We expect this distribution relationship will allow us to better meet the needs of our reseller channel. During the quarter, we announced that Dan Leese had accepted the position as Senior Vice President of Global Sales and Marketing. With more than 25 years of experience, Dan is an accomplished business leader with global experience in sales and marketing. He previously led BoxLife's Global Services Business Unit, which more than doubled in size in 2019. We also appointed Ryan Ligutti as Senior Vice President of STEM Solutions and Brayden Moreno as Director of STEM Solutions. Ryan and Braden previously led Robo3D and My STEM Kids and now head our global STEM strategy. Although the education industry is experiencing a transition, our company mission and vision have not changed. We are committed to become the leader of innovative and effective educational technology solutions. We aim to improve learning and engagement in classrooms and help educators enhance student outcomes and build essential skills We understand that we must be nimble and flexible and innovative to meet the demands for today's evolving education requirements. Today's educational environment provides additional challenges with the COVID-19 crisis and the complications of distance learning and added safety concerns for students and educators. Throughout the US and many countries globally, schools have shifted to a digital learning environment for the remainder of this current school year. Although some school systems have announced they will not return to the classroom in the fall, We believe most K-12 school systems will return with modified schedules and physical safety measures. Many will also adopt a hybrid model of both in-class and distance learning. The initial data from digital learning has been concerning, reporting widening achievement gaps, especially for underprepared and disadvantaged students. Additionally, many students do not have access to digital devices or reliable internet access. as parents and guardians return to work, distance learning also presents logistical complications with students remaining home. Educators need effective strategies, technology solutions, professional development and training as they navigate this new environment and determine their approach to meet safety and educational needs. Our solution suite includes software tools for both in-class and distance instruction. We also offer significant professional development resources, including customized consulting, educator courses, and certifications to assist education systems in their distance learning or blended learning initiatives. We recently released a collection of multimedia resources to train K-12 teachers on tools to deliver distance learning during closures. We offer a series of live webinars, self-paced online professional development courses, and access to our team of digital learning specialists for personalized support. Since mid-March, we've provided virtual professional development sessions to nearly 9,000 educators, including 1,200 for webinars, 3,800 for labs and playgrounds, nearly 1,400 for one-on-one coaching sessions, and nearly 2,000 for online courses. I accepted the CEO role on March 20th of this year at an unprecedented time. We began working from home as a company, and that same week, due to COVID-19, which was escalating, We had reported historical operating losses and struggled with a limited balance sheet and declining stock price. As an executive team, we agreed that we were at a point where we had to make some immediate, difficult decisions. That first week, we budgeted to reduce our annual operating expenses by $5 million, including a reduction in our annual payroll expense by over $2 million, or a 30% reduction in our staff. Although a difficult decision, we believe it was necessary to put us on a more conservative path to positive cash flow and profitability. The payroll reductions were largely to administrative and supportive roles, and we believe our sales targets are still intact. We also expect to raise additional debt or equity capital this year to reduce our payables, increase our inventory levels, and provide a working capital buffer. The combination of our reduced operating budget, run rate sales forecast, and plans for additional investment will position us for significant financial improvement including plans to operate on a cash flow positive basis and be financially self-sufficient. We continue to commit to a diversified product mix and improving gross profit margins. During 2019, over 50% of our sales were from interactive flat panels. We expect 2020 to show a double digit dollar improvement in sales from other product categories including classroom accessories such as our Mimeo Clarity distributed audio system, software solutions with a focus on recurring subscription revenues, STEM education solutions with training and standards-based content, and professional services. Last month, we closed on the acquisition of Robo3D, a leading brand of 3D printers, and MySTEMKits, the largest online collection of K-12 STEM curriculum for 3D printing. In addition to 3D printing solutions, our STEM education portfolio also includes our MiBot robotics and programming system, the LabDisc portable STEM lab, our MimioView document camera, and STEM-specific curriculum and professional development. We expect our STEM education division will be a tremendous growth and profit center while empowering today's students with hands-on learning to prepare them for beyond the classroom. We're also focused on broadening our geographic footprint with a particular focus on Europe and Latin America. Both markets grew in 2019 and we expect continued growth in our international markets in 2020. With that, I will now turn the call over to our CFO, Takesha Brown.

Thanks, Michael. I will now review our fourth quarter 2019 results. Revenue for the three months ended December 31st, 2019 was $5.3 million. a decrease of $6.7 million, or 56%, compared to $12 million for the three months ended December 31, 2018. The decrease is primarily attributable to fourth quarter of 2018 revenue, including $4.6 million of previously deferred revenue related to a large Clayton County contract. In addition, the company adopted the new revenue recognition guidance, ASD Topic 606, which resulted in a year to date adjustment of 0.6 million that was recorded in the fourth quarter of 2019. Gross profit for the three months ended December 31st, 2019 was 0.7 million, a decrease of 2.3 million compared to 3 million for the three months ended December 31st, 2018. The resulting gross margin was 12.6% for the three months ended December 31st, 2019 compared to 25.2 for the three months ended December 31, 2018. The decline in gross profit was primarily related to the year-to-date revenue adjustment of $0.6 million related to ASC Topic 606 adoption and an increase in customs expense of $0.2 million. General and administrative expenses for the three months ended December 31, 2019 was $3.9 million relatively flat compared to 3.8 for the three months ended December 31st, 2018. Research and development expenses for the three months ended December 31st, 2019 was 0.3 million flat compared to the three months ended December 31st, 2018. Operating loss for the three months ended December 31st, 2019 was 3.5 million, an increase of 2.4 million or 224% compared to 1.1 million for the three months ended December 31st, 2018. Net loss for the three months ended December 31st, 2019 was 3.3 million, an increase of 2.7 million or 448% compared to 0.6 million for the three months ended December 31st, 2018. The resulting EPS loss for the three months ended December 31st, 2019 was 29 cents per diluted share compared to 6 cents per diluted share for the three months ended December 31st, 2018. The increase in net loss is primarily due to decreased revenue and an increase in operating expenses as a percentage of revenue. adjusted EBITDA loss for the three months ended December 31st, 2019 was 3.1 million, an increase of 2.7 million or 710% compared to 0.4 million for the three months ended December 31st, 2018. Next, our financial results for the year ended December 31st, 2019 were as follows. Revenue for the year end December 31st, 2019 was 33 million, a decrease of 4.8 million or 13% compared to 37.8 million for the year ended December 31st, 2018. Gross profit for the year ended December 31st, 2019 was 8.9 million, an increase of 0.2 million compared to 8.7 million for the year ended December 31st, 2018. The resulting gross margin was 27.1% for the year ended December 31st, 2019 compared to 22.9% for the year ended December 31st, 2018. General and administrative expenses for the year end December 31st, 2019 was 15.8 million, an increase of 0.8 million or 5% compared to 15 million for the year ended December 31st, 2018. The increase was primarily driven by an increase in payroll costs. Research and development expenses for the year ended December 31, 2019 was $1.2 million, an increase of $0.5 million, or 83%, compared to $0.7 million for the year ended December 31, 2018. The increase in research and development expense was related to contract services for software consultants and salaries. Operating loss for the year ended December 31st, 2019 was 8.1 million, an increase of 1.1 million or 15% compared to 7 million for the year ended December 31st, 2018. Net loss for the year ended December 31st, 2019 was 9.4 million, an increase of 2.2 million or 31% compared to 7.2 million for the year ended December 31st, 2018. The resulting EPS loss for the year-ended December 31, 2019 was $0.88 per diluted share compared to $0.72 per diluted share for the year-ended December 31, 2018. The increase in net loss was primarily due to decreased revenue, increase in operating expense as a percentage of revenue, and increase in interest expense. Adjusted EBITDA loss for the year ended December 31, 2019 was $5.9 million, an increase of $2 million, or 49%, compared to $3.9 million for the year ended December 31, 2018. Our financial results for the three months ended March 31, 2020 were as follows. Revenue for the three-month end at March 31st, 2020 was 5.7 million, an increase of 0.7 million or 15% compared to 5 million for the three-month end at March 31st, 2019. The revenue growth reflects increased volume related to U.S. panel sales. Gross profit for the three-month end at March 31st, 2020 was 1.6 million, a decrease of $0.1 million compared to $1.7 million for the three-month end at March 31, 2019. The resulting gross margin was 27.8% for the three-month end at March 31, 2020 compared to 33.4% for the three-month end at March 31, 2019. The decrease in gross profit was primarily driven by customized pricing on competitive bids for flat panels. General and administrative expenses for the three months end at March 31st, 2020 was 3.9 million, relatively flat compared to 3.8 million for the three months end at March 31st, 2019. Research and development expenses for the three months end at March 31st, 2020 was 0.3 million, an increase of 0.1 million for 34% compared to 0.2 million for the three months end at March 31st, 2019. the increase is related to contract services for software consultants. Operating loss for the three months ended March 31st, 2020 was 2.7 million, an increase of 0.4 million or 14% compared to 2.3 million for the three months ended March 31st, 2019. Net loss for the three months ended March 31st, 2020 was 1.9 million, a decrease of 2.7 million or 58% compared to 4.6 million for the three months ended March 31st, 2019. The resulting EPS loss for the three months ended March 31st, 2020 was 16 cents per diluted share compared to 45 cents per diluted share for the three months ended March 31st, 2019. The decrease in the net loss was primarily due to increased revenue a decrease in operating expense as a percent of revenue, change in fair value of derivative liabilities, and gain on settlement of outstanding debt. Adjusted EBITDA loss for the three months ended March 31, 2020 was $1 million, a decrease of $0.8 million, or 41% compared to $1.8 million for the three months ended March 31, 2019. With that, we'll open up the call for questions.