Boxlight Corporation

Thank you and welcome to the BoxLight Third Quarter 2020 Earnings Conference Call. By now, everyone should have access to the Third Quarter 2020 Press Release issued this morning. This call is being webcast and is available for replay. The remarks today will include forward-looking statements that are considered forward-looking within the meaning of securities law, 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 earnings 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 Chairman and Chief Executive Officer, Michael Pope. Sir, the floor is yours.

Good afternoon, everyone, and thank you for joining the call. Our progress during the third quarter was the most significant in our history and included fundraising of over 60 million in debt and equity, the acquisition of Sahara Presentation Systems, a leading interactive solution provider with significant penetration in the EMEA region, the addition of tremendous talent to our sales leadership, our formalized partnership with Samsung, enhancements to our product offering, and a drastically improved balance sheet and financial outlook. Although our revenue of $9.5 million and gross profit of 21% lagged our expectations in Q3 due to several factors, including the effects of COVID-19, we are seeing increased demand in the fourth quarter and we are executing on a strong sales pipeline. With the addition of the Sahara operations and considering our quarter-to-date results and current pipeline, we expect to generate greater than $27 million in revenue and positive adjusted EBITDA for the fourth quarter. During the third quarter, we had several new wins with interactive flat panel displays, including Bennington Public Schools and Ord Public Schools in Nebraska, Granite School District in Utah, and Ohio County School District in West Virginia. We also began deployments of our Mimeo Clarity classroom audio solution in two school districts in Michigan, installing over 300 units. We continue to deliver on key contracts such as San Diego Unified in California, Harford County Public Schools in Maryland, Tangipahoa Parish School System in Louisiana, and Highland Park, Klein, West Orange Cove and Alvin Independent School Districts all in Texas. Outside the US, our Latin America business is growing through key partnerships in Puerto Rico, Peru and Costa Rica. In Europe, we delivered more than 500 interactive displays to the Academies Enterprise Trust in the UK and are seeing significant opportunities in Germany, Belgium, France and the Netherlands. We continue to win business with strong partners such as Trox, CDW, Howard Technology Solutions, Central Technologies, Tierney, Information and Data Network Supplies, Interactive Concepts, Abacus Computers, GV Multimedia, and Digital Age Technologies. During the third quarter, we closed a $34.5 million secondary offering and received a $22 million investment from the LIN partners. Additionally, we'd entered into a $6 million asset-based lending agreement with Sally Port Commercial Finance that provides substantially better terms than our previous factoring and PO finance facilities. On September 24th, using the proceeds from recent financings, we completed the acquisition of Sahara Presentation Systems, our most significant transaction to date with a purchase price of approximately $80 million in cash and preferred stock. Headquartered in the United Kingdom, Sahara is a leader in providing audio-visual solutions for education and corporate environments, including its multi-award-winning touchscreens and digital signage products under the brand CleverTouch. Sahara is an ideal strategic fit with its significant penetration in the EMEA market and tremendous management talent, including Mark Starkey as CEO, Pat Foley as CFO, and Shaun Marklew as COO. In September, we added two seasoned sales leaders to our America sales organization, namely Scott Willett as Vice President of Sales and Dan Deem as Vice President of Sales over Platforms and Services. Both Scott and Dan bring tremendous experience in the industry from companies such as Apple, Promethean, Dell, and Panasonic, and will manage our sales organization in Americas. In August, we formally announced our strategic partnership with Samsung Electronics America to provide their displays bundled with box-like software and Professional Development. We have dedicated substantial resources to the Samsung partnership and we expect to begin delivering sales this quarter with substantial growth in 2021. As a result of our recent fundraising as well as our acquisition of Sahara, we close the third quarter with a healthy balance sheet including cash and cash equivalents of $10 million, inventory of $22 million, working capital of $25 million and stockholders' equity of $44 million. We were recently selected as a finalist in five categories for the 2020 AV Awards, including for our Impact Plus Display as Visual Technology of the Year, our UX Pro as Collaboration Technology of the Year, and CleverTouch as Manufacturer of the Year. We were also nominated under the AV in Action category for our COVID-19 Reaction Strategy. We're committed to providing best-of-class interactive technology solutions that improve engagement and communication in diverse business and education environments. And we are proud of our progress during the third quarter to enhance our solution suite. We recently launched both our CleverTouch Technologies non-interactive CM series with embedded digital signage and our CleverTouch Technologies Pico 5, which is our compact yet fully featured digital signage player. On October 1st, we introduced our Lynx Swipeboard software, which was completely redesigned for touchscreens with drag and drop, pinch to zoom, and easy swipe menus. Lynx Swipeboard runs across multiple platforms on an array of devices, and it's available for download in all major app stores. We are seeing positive interest in our subscription-based Mimeo Connect software platform designed for blended learning, which we announced in June of this year, and we are demonstrating and testing the platform in several districts. We added various enhancements during the quarter, including monitoring of student engagement with teacher visibility and one-on-one text coaching. We are also completing development to provide compatibility with Samsung's Tizen operating system. Our Mimeo Clarity audio solution is being piloted in several districts in Michigan in hybrid learning environments. Mimeo Clarity allows teachers to amplify their voices while wearing masks to both students in the classroom and those learning virtually. Mimeo Clarity is also available with the CareHawk system providing functionality for bells, public announcements, emergency notices, classroom-to-classroom communications, as well as classroom-to-administrative communications. We have also enhanced the BoxLight Unplugged screen mirroring software to allow for nine simultaneous student shared devices and have developed a teacher control center which allows the teacher to highlight student screens control all shared screens through teacher feedback and control student collaboration functions. As you can see, we're fully committed to providing industry solutions that create engaging and collaborative experiences in diverse environments. Specifically, our feature-rich solution bundles provide integrated hardware and software partnered with professional development and training resources to drive adoption. With our tremendous foundation of talented management and outstanding solutions, we are fully committed to delivering strong financial performance in the fourth quarter and showing continued improvement in future quarters with a specific focus on revenue growth, increased gross profit margins, and positive earnings. With that, I will now turn the call over to our CFO, Takesha Brown.

Thanks, Michael. As Michael noted, the company acquired 100% of the outstanding shares of Sahara on September 24th, 2020. Included in the three-month and nine-month periods of 2020, as will be discussed, are Sahara's operating results for the period from September 25th through September 30th. Sahara contributed approximately $1.1 million in revenue and approximately $0.1 million in gross profit. Sahara's total operating expenses were $0.3 million and they incurred a net loss of approximately 0.3 million. Sahar's gross profit and net loss was negatively impacted by the purchase accounting impact of 0.2 million as a result of marking the inventory up to fair value at acquisition dates. I will now review our third quarter 2020 consolidated results. Revenue for the three months ended September 30th, 2020 was 9.5 million a decrease of $1.8 million, or 16%, compared to $11.3 million for the three months ended September 30, 2019. The decrease in revenues in 2020 is related to the reduction in sales of panels, software, and STEM, primarily attributable to the school closures as a result of the ongoing COVID-19 pandemic. gross profit for the three months ended September 30th, 2020 was 2 million, a decrease of 1.2 million compared to 3.2 million for the three months ended September 30th, 2019. The resulting gross margin was 21.4% for the three months ended September 30th, 2020 compared to 28.6% for the three months ended September 30th, 2019. The decrease in gross margin from 29% to 21% was related to changes in the company's product mix with a reduction in higher margin products such as software and STEM, a 33% increase in distributor sales compared to 2019, and a $0.2 million purchase accounting impact of Mark and the Sahara inventory up to fair value at acquisition dates. General and administrative expenses for the three months ended September 30th, 2020 was 3.3 million compared to 4.2 million for the three months ended September 30th, 2019. The decrease primarily driven by reductions in compensation and benefits of 0.7 million, travel and entertainment of 0.2 million, and stock compensation of 0.2 million. Research and development expenses for the three months ended September 30, 2020 was $0.5 million compared to $0.4 million for the three months ended September 30, 2019. The change in research and development expense is primarily driven by an increase in contract services related to software consultants. operating loss for the three months ended September 30th, 2020 was 1.8 million, a decrease of 0.4 million or 30% compared to 1.4 million for the three months ended September 30th, 2019. Other expense and income for the three months ended September 30th, 2020 was an expense of 2.5 million, an increase of 3.4 million or 381% compared to income of 0.9 million for the three months ended September 30th, 2019. The increase in other expense was related to a change in fair value of derivatives liabilities of 1.6 million and a loss from settlement of land debt of 1.7 million. Net loss for the three months ended September 30th, 2020 was 4.2 million compared to 0.5 million for the three months ended September 30th, 2019. The increase in the net loss was primarily driven by decrease of gross profit and increase in other expenses offset by decrease in operating expenses. The resulting EPS loss for the three months ended September 30th, 2020 was 10 cents per diluted share compared to 4 cents per diluted share for the three months ended September 30th, 2019. adjusted EBITDA loss for the three months ended September 30th, 2020 was 0.9 million, an increase of 0.4 million or 66% compared to 0.5 million for the three months ended September 30th, 2019. Our financial results for the nine months ended September 30th, 2020 were as follows. Revenue for the nine months ended September 30th, 2020 was 23 million, a decrease of 4.1 million or 15% compared to 27.1 million for the nine months ended September 30th, 2019. The decrease in revenue in 2020 is related to the reduction in sales of panels, projectors, software, and STEM, primarily attributable to school closures as a result of the ongoing COVID-19 pandemic. gross profit for the nine months ended September 30th, 2020 was 6.3 million, a decrease of 1.6 million compared to 7.9 million for the nine months ended September 30th, 2019. The resulting gross margin was 27.4 million, 27.4% for the nine months ended September 30th, 2020 compared to 29.1% for the nine months ended September 30th, 2019. The growth margin decreased from 29% to 27% which related to changes in the company's product mix with a reduction in higher margin products such as software and STEM, a 15% increase in distributor sales compared to 2019, and a 0.2 million purchase accounting impact of Mark and the Sahara Inventory up their value at acquisition date. General and administrative expenses for the nine months ended September 30th, 2020 was 10.4 million, a decrease of 1.5 million or 12% compared to 11.9 million for the nine months ended September 30th, 2019. The decrease was driven primarily by reductions in trade shows of 0.3 million, contract services of 0.6 million, compensation and benefits of 0.4 million, and travel and entertainment of 0.4 million. Research and development expenses for the nine months ended September 30, 2020 was $1.1 million, an increase of 18% compared to $0.9 million for the nine months ended September 30, 2019. The increase in research and development expense was driven primarily by an increase in contract services for software consultants. Operating loss for the nine months ended September 30th, 2020 was 5.2 million compared to 4.9 million for the nine months ended September 30th, 2019. Other expense for the nine months ended September 30th, 2020 was an expense of 2.4 million, an increase of 0.8 million or 49% compared to expense of 1.6 million for the three months ended September 30th, 2019. The increase in other expense was related to a loss on settlement of land debt of 2.3 million, increased interest expense of 0.3 million, offset by a gain on settlement of EDI accounts payable of 1.7 million, and a decrease in change in fair value of derivative liabilities of 0.3 million. Net loss for the nine months ended September 30th, 2020 was 7.6 million, an increase of 1.1 million or 17% compared to 6.5 million for the nine months ended September 30th, 2019. The resulting EPS loss for the nine months ended September 30th, 2020 was 31 cents per diluted share compared to 62 cents per diluted share for the nine months ended September 30th, 2019. The increase in the net loss was primarily driven by a decrease in gross profit and increase in other expense offset by decrease in operating expense. Adjusted EBITDA loss for the nine months ended 2020 was 1.6 million, a decrease of 1.5 million or 50% compared to 3.1 million for the nine months ended September 30th, 2019. With that, we'll open up the call for questions.