Boxlight Corporation

Thank you and welcome to the Box Light Third Quarter 2021 Earnings Conference Call. By now, everyone should have access to the press release issued this afternoon. This 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 10-K, Form 10-Q, 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 reconciliation 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.boxflight.com. And with that, I'll hand the call over to BoxFlight's chairman and chief executive officer, Michael Pope.

Hi, everyone, and thank you for joining. The third quarter was yet another tremendous result. We again exceeded our guidance and delivered our strongest quarter to date with $61 million in revenue, $7 million in adjusted EBITDA, and for the first time as a company, positive net income and positive earnings per share. For five consecutive quarters, we have now reported both above-market revenue growth and positive adjusted EBITDA. For the trailing 12 months into Q3, we reported $214 million in orders, $173 million in revenue, and $15 million in adjusted EBITDA. We concluded the third quarter with an improved balance sheet, including $32 million in working capital and $55 million in net assets. We continue to see double digit growth globally and expect to deliver $40 million in revenue for the fourth quarter, representing 26% growth over the same quarter last year. For the full year 2022, we are forecasting $230 million in revenue representing approximately 27% growth over our 2021 guidance and greater than 10% adjusted EBITDA. but will be effective as of October 31st. Headquartered in Petaluma, California, Front Row provides solutions for classroom audio, campus communication, emergency communication, and audio-visual control. The company's product suite includes the Juno all-in-one line array tower with teacher and student microphones, installed distributed audio solutions, and IT-based campus communication including bells, paging, and intercom. The company was founded in 1963 and has sold solutions into over 25 countries, including 9,600 school districts in the United States. Jens Holstebro, CEO at Front Row, will accept the position of Senior Vice President of Audio Solutions at BoxLight and manage BoxLight's audio strategy going forward. Today, the company has 44 employees, of which 17 are sales representatives located in the US, Canada, the UK, and Australia. On an unaudited basis, for the traveling 12 months ended October 31st, Front Row generated approximately $25 million in sales, greater than 50% gross profit, and $6 million in EBITDA. We identified classroom and campus audio as our top growth opportunity outside of displays late last year, and we actively pursued Front Row with its standout solutions. We look forward to fully integrating the Front Row products into our BoxLight ecosystem. We also expect to substantially increase demand for the front row solutions as we leverage our global sales team and reseller channel. During the third quarter, we published another nine case studies, bringing the total to 39 customer success stories since the beginning of the year. You can read the case studies by visiting goldboxlight.com and clevertouch.com or by following BoxLight, CleverTouch, and Mimeo on the various social media platforms. The case studies cover implementation of our broad solutions, including interactive displays, digital signage solutions, STEM education, and professional development services. The examples also cover both the education and enterprise markets and are evidence of our commitment to be a trusted partner to our customers, providing and supporting our solutions in varying environments. In July, we released our updated STEM guide, reflecting our robust portfolio of STEM solutions, including standards-aligned lessons and activities, 3D printers, robotics and coding, and sensor technologies. Our STEM offering provides turnkey solutions with teacher training by our STEM subject matter experts. In August, US Education, our professional development division, earned recognition as a Google for Education service partner with the Google Cloud Partner Advantage program. This allows us to offer educators customized professional development and support specific to Google Workspace for Education and Google Cloud Functions. By earning this upgrade, we are recognized as a Google Cloud Partner with an Education Partner Enterprise designation, further broadening our service market to provide professional development and training to organizations outside the US. We continue to receive industry recognition for our innovation and cutting edge solutions. In August, we were winners of Tech and Learning's 2021 Best Tools for Back to School, for both primary and secondary levels for four of our solutions. Our MinioConnect Blended Learning Platform, ProColor Interactive Displays, Robo3D Printer and MySTEMKits Platform Bundle, and Professional Development by EOS Education. Earlier this month, we were recognized for two Tech and Learning Awards at this year's InfoComm, the largest ProAV event in North America. Our CleverTouch Impact Plus interactive touchscreen and CleverTouch Live content management platform were both recognized as Best in Show winners. We also recently expanded our partnership with Samsung to offer our Samsung BoxLite Chromebook Class Collection, a state-of-the-art one-to-one technology solution. The collection combines the best-in-class technology Samsung Chromebook with our Mimeo View document camera, Mimeo Connect blended learning platform, and BoxLight professional development content. Lastly, I'd like to take a moment to recognize our amazing leadership team and talented and diligent employees. Our success as a company is a direct result of our ability to hire and retain tremendous talent. As a growing company, we are conscientious about nurturing a positive, collaborative, and supportive culture where every member of our team is enabled and motivated to contribute to our collective mission. Our recent company-wide survey confirmed that 96% of our employees enjoy working with each other and feel that they receive the support they need from their managers. We will continue to foster a positive and winning culture, which will propel us to our goal to leave industry. With that, I will now turn the call over to our president, Mark Starkey, to provide additional insights.

Thank you, Michael. Q3 was another quarter of rapid growth for BoxLight, and I want to take this opportunity to thank our employees, our customers, and our investors, as this performance would not have been possible without their continued support. As Michael stated earlier, we booked $51 million of orders in Q3. That represents 756% growth in order intake year on year. If we include Sahara in the pro forma numbers for last year, then the organic growth rate in orders for Q3 is impressive at 55%. The growth in order intake reflects the huge market opportunity that we see in both education and corporate sectors. The value of orders booked for the first nine months of this year is $179 million. compared with $20 million booked in the first nine months of the previous year. That represents nearly a ninefold year-on-year increase in orders booked. We are now forecasting order intake of excess of $210 million for this financial year, and we will enter the FY22 with a healthy backlog. Our largest customers in Q3, in terms of order intake, with ASI in Australia with $6.7 million of orders received. Our growth in Australia has been very significant with our partner ASI being recognized as the fastest growing private company and taking us to the number one market share position over the past 18 months. In the US, our partner network continues to grow with over 350 active partners We received $3.1 million of orders from our U.S. distribution partner, D&H, and a further $2.1 million of orders from Trox to highlight some of the U.S. orders that we received during Q3. In Spain, we received $2.9 million of orders from our partner, Charmé International. And in Northern Ireland, we received $1.7 million of orders from our partner, Niobac. In Denmark, we received $1.6 million of orders from UnitDK, And in Finland, we received $1.3 million of orders from EET Europarts. In the UK, where we have over 600 active partners, we received $1.2 million of orders from IDNS and just over $1 million of orders from Roche Audiovisual to highlight a few of our key customers. The US and the UK both accounted for 27% of our orders booked during Q3, with EMEA excluding the UK accounting for 32%, and the rest of the world, 14%. In Q3, 81% of our revenues came from sales of interactive flat panels, both ProColor and Clevertouch. Our overall global market share of IFBDs, excluding China, increased from 6.1% to 7.1%, according to the latest report from FutureSource. We remain in the top two IFPD providers in the UK with 15.2% market share and are confident that we will become the market leader very soon. Our biggest opportunity for significant growth remains in the US, where we are ranked number five with 8.6% market share. It should be noted that our growth in the US has seen our market share nearly double from 4.6% to 8.6% over the past 12 months. In terms of market size, the US market for IFBDs is estimated to be worth $1.8 billion in 2021, growing to $2.2 billion in 2022, according to FutureSource. The market in EMEA is slightly smaller at $1.5 billion, growing to $1.7 billion by 2022. Overall, this gives us an addressable IFBD market of about $3.3 billion in 2021, growing to about $3.9 billion in 2022. Given that our overall market share has grown from about 6% to approximately 7% this year, it gives us plenty of room for substantial organic growth over the next few years. In terms of end users, we had another quarter of great wins across the globe. In Germany, we had a fantastic win in the pension authorities. The win includes a commitment for a minimum of 500 units of UX Pro IPDs over the next four years, a minimum of 100 units of the CM series, and a minimum of 25 of our newly released 98-inch UX Pro solutions. The deal is worth at least $1.4 million and will help propel our growth into corporate solutions with the German public sector. In Holland, we won a contract to supply our UX Pro solution to GDD, a Dutch national health provider, putting our Clevertouch solution into their offices, vaccination centres and COVID test locations. In the UK, we had some fantastic wins with schools such as Camden in London and Berry Grammar School. In both instances, it was our software, including Lynx Whiteboard and Clevertouch Live, that enabled us to differentiate from the competition. In Northern Ireland, our partner, Niavac, won a large deal with Belfast Metropolitan College for nearly 400 screens. In the US, we won a fantastic deal with Everett School District near Seattle for 800 classrooms with our Mimeo Pro colour solution. The school district really liked our unplugged casting solution and this differentiated us from the competition. We also had another great win at Harford County in Murrayland. of 500 classrooms, replacing their old Promethean screens. The teachers evaluated our solution, and again, really liked the ease of use and the unplugged solution. Finally, with our Cal Ripken partnership, we have already installed our STEM 3D printers in over 138 centers around the country, and we are looking to expand the offering to build super STEM centers that are comprised of both STEM products IFBDs, and audio equipment from BoxLight. During Q3, we sold more than 3,300 Mimeo Connect software licenses for Samsung products. These are three-year term-based licenses and will create future repeat software business on an ongoing basis when they're renewed. In total, we had $1.4 million of software revenue in Q3 and have invoiced over $3.4 million of software during the first nine months. We expect software revenues greater than $4.8 million for the full year, and we are continuing to explore the monetization of our software suite. Our expectation is that Mimeo Connect, Lynx Whiteboard, and our app store will be the foundation of our sales-based solutions and create a high-margin annuity stream moving forwards. The addition of Front Row to our BoxLite family means that we extend our reach into the classroom. We now have a comprehensive solution set that includes IFPDs, both Mimeo and Clevertouch, STEM solutions, including Robo3D printers, LabDisc, portable science devices, Mimeo MiBot robotics, and coding solutions, all utilizing mySTEM kits platform. We also have a multitude of software, such as Mimeo Connect, Mimeo Studio, Octopus, and Lynx Whiteboard, and professional development solutions from EOS. The addition of market leading audio solutions from front row means that we are very well positioned to lead the growth in EdTech and become the natural choice for many schools, districts and colleges across the globe. As Michael mentioned earlier, during the quarter we expanded our Samsung partnership to introduce a student Chromebook bundle as part of our classroom solutions, including our Mimeo Connect software and our Mimeo View camera. This deepens our relationship with Samsung and widens our solution sets to include devices in the classroom. In summary, Q3 was an outstanding quarter in terms of order intake with record revenues and profitability. Our solutions are gaining traction in the market and we continue to build out our sales channel. As Michael stated earlier, our current revenue guidance for Q4 is $40 million, giving a full year revenue guidance of at least $181 million. We expect our order intake number to be north of $210 million for the full year, providing a substantial increase to our sales backlog. Our adjusted EBITDA percentage has continued to improve throughout the year, from 4.8% in Q1 to 11.5% in Q2, and then 11.9% in Q3, despite strong margin pressures due to increased freight and shipping costs. The improvement in profitability and adjusted EBITDA percentage is due to the ability of the business to leverage higher revenues and gross margins without substantially increasing the cost base. With that, I will now turn the call over to our CFO, Patrick Foley.

Thanks, Mark, and good afternoon, everyone.

To further expand on what you've already heard from both Michael and Mark, I'd like to add a few figures to provide the context of BoxLight's international operations. On a review by country and region, As you've heard, our total revenues in Q3 were $61 million. EMEA was 46% of the total, or $28 million, of which the UK represented 57%. The Americas were 45%, $27.7 million, and the rest of the world, 9%, $5.3 million, which was mainly Australia. In terms of our customers, the top 10 customers represent approximately 54% of total sales in Q3, with the single largest customer at about 15%. And these are based across a number of markets, namely the US, Australia, UK, and Denmark. Two thirds of total sales are covered by the top 20 customers, approximately 66%, which is pretty similar and consistent with our positions of Q1 and Q2. The sales product mix and gross margin. In Q3, hardware remained the largest proportion of total revenues at about 85%. These were largely sales of interactive flat panel displays, IFPDs, and represented 91% of this total, with the related accessories being the balance of 9%. The balance of total revenues coming from our software, services, and STEM solutions. Gross margin for the quarter was 25.9%. The IFPD margin was about 23%, which would have been slightly higher. However, as reported previously, increased global shipping costs, where we are seeing four times normal rates, have reduced margin by up to four percentage points, and we anticipate the higher cost will remain throughout 2021. As noted in previous quarters, we have experienced some supply chain challenges, including interruptions to our inventory production schedules as a result of component shortages, along with continued delays in the shipping and receiving of goods. We've seen manufacturing costs increase due to these issues, which has reduced gross profit margins. These are global challenges and are not unique to us. However, we believe our managing well at the most and extending our production planning and increasing prices to customers. In terms of screen sizes, in Q3, the education sector represented 96.5% of all interactive display sales, with approximately 73% of these were 75-inch and 86-inch panels. We followed our trend and we're seeing the shift of largest green formats. I'll now review the third quarter results. The financial results for the three months ended 30th September 2021. Revenues for the three months ended September 30, 2021 were $61 million, as compared to $9.5 million for the three months ended September 30, 2020, resulting in a 544% increase due primarily to the acquisition of Sahara in September 2020 and increased demand for our solutions. Gross profit for the three months ended September 30, 2021 was $15.8 million as compared to $2 million for the three months ended September 30, 2020. The gross profit margin for the three months ended September 30, 2021 was 25.9%, which is an improvement of 45 basis points compared to the three months ended September 30, 2020. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 27.1% as compared to the 23.4% as adjusted reported for the three months ended September 30, 2020. As reported in previous quarters this year, gross margins have been adversely impacted by approximately four percentage points due to increased freight and customs costs caused by supply chain challenges associated with the effects of the COVID-19 pandemic. And this is anticipated to continue for the remainder of 2021. Additional pressure on margin has been seen on the cost of manufacturing as a result of the component shortages, which have had an adverse impact of approximately 5% in the quarter. To mitigate this, we have increased pricing to customers. Total operating expenses for the three months ended September 30, 2021 were $12.3 million as compared to $3.8 million for the three months ended September 30, 2020. The increase primarily resulted from additional overheads associated with the acquired Sahara operations in September 2020. Other income and expense for the three months ended September 30, 2021 was net expense of $1.4 million as compared to a net expense of $2.5 million for the three months ended September 30, 2020. Other expense decreased primarily due to 1.1 million fewer losses recognized upon the settlement of certain debt obligations in exchange for the issuance of common shares, offset by a $339,000 increase in interest expense associated with increased borrowings. The company reported net income of $729,000 for the three months ended September 30, 2021, as compared to a net loss of $4.2 million for the three months ended September 30, 2020. The net income attributable to common shareholders was $412,000 and $4.2 million loss for the three months ended September 30, 2021 and 2020, respectively. After deducting the fixed dividends to Series B preferred shareholders of $317,000 in 2021, and zero in 2020. Total comprehensive loss was $1.2 million and $3.7 million loss for the three months ended September 30, 2021 and 2020, reflecting the effect of cumulative foreign currency translation adjustments on consolidation, with a net effect in the quarter of $2 million loss and $536,000 for the three months ended September 30, 2021 and 2020 respectively. The EPS for the three months ended September 30, 2021 was a one cent per basic and diluted share compared to a 10 cent loss per basic and diluted share for the three months ended September 30, 2020. EBITDA for the three months ended September 30, 2021 was $4.7 million as compared to a 3.4 million EBITDA loss for the three months ended September 30, 2020. Adjusted EBITDA for the three months ended September 30, 2021 was $7.2 million, as compared to a $0.8 million loss for the three months ended September 30, 2020. Adjustments to EBITDA include stock-based compensation expense, gains losses recognized upon the settlement of certain death instruments, gains losses from the re-measurement of derivative liabilities, and the effects of purchase accounting adjustments in connection with acquisitions. At September 30, 2021, BoxLight had $6.2 million in cash and cash equivalents, $32 million in working capital, $31 million inventory, $173.6 million in total assets, $23.9 million of debt, and 54.9 million in stockholders' equity. 61.1 million common shares issued an outstanding, and 3.1 million preferred shares issued an outstanding. The financial results for the nine months ended September 30, 2021. Revenues for the nine months ended September 30 were $141.2 million, as compared to $23 million for the nine months ended September 30, 2020. resulting in a 513% increase due primarily to the acquisition of Sahara in September 2020 and increased demand for our solutions. Gross profit for the nine months ended September 30, 2021 was $37.2 million as compared to $6.3 million for the nine months ended September 30, 2020. The gross profit margin for the nine months ended September 30, 2021 was 26.3% compared to 27.4% for the nine months ended September 30, 2020. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 28.0% as compared to 28.4% as adjusted and reported for the nine months ended September 30, 2020. And as reported in previous quarters this year, Gross margins have been adversely impacted by approximately four percentage points due to increased freight and causes of supply chain challenges associated with the effects of the COVID-19 pandemic. And this is anticipated to continue for the remainder of 2021. Additional pressures on margin have been seen through the cost of manufacturing as a result of component shortages mentioned above and have an adverse impact of approximately 3.9% in the nine months to September 30, 2020. to mitigate this with increased pricing to customers. Total operating expenses for the nine months ended September 30, 2021 was $34.2 million as compared to $11.5 million for the nine months ended September 30, 2020. The increase primarily resulted from the additional overheads associated with the acquired Sahara operations in September 2020. Other income and expense for the nine months ended September 30, 2021 was net expense of $5.8 million as compared to net expense of $2.4 million for the nine months ended September 30, 2020. The increase in other expense was due to $1 million of increased interest expense associated with increased borrowings, $2.5 million of losses recognized on the settlement of certain debt obligations that were exchanged for common shares. The company reported a net loss of $6.7 million for the nine months ended September 30, 2021, as compared to a net loss of $7.6 million for the nine months ended September 30, 2020. The net loss attributable to the common shareholders was $7.2 million and $7.6 million loss for the nine months ended September 30, 2021 and 2020 respectively. After deducting the fixed dividends, to Series B preferred shareholders of 952,000 in 2021, and the fair value revaluation deemed contribution of $367,000 for the redemption amendment with the Series B shareholders signed on June 14, 2021. Total comprehensive loss was $8.4 million and $7.2 million for the nine months ended September 30, 2021 and 2020. Reflecting the effect of cumulative foreign currency translation adjustments on consolidation with a net effect year-to-date of $1.7 million loss and $0.4 million loss for the nine months ended September 30, 2021 and 2020 respectively. The EPS loss for the nine months ended September 30, 2021 was $0.12 loss per basic and diluted share compared to a 31 cents loss per basic and diluted share for the nine months ended September 30, 2020. EBITDA for the nine months ended September 30, 2021 was $5.2 million as compared to a 5.2 million EBITDA loss for the nine months ended September 30, 2020. Adjusted EBITDA for the nine months ended September 30, 2021 was $14.1 million. as compared to a loss of $1.5 million for the nine months ended September 30, 2020. Adjustments to EBITDA include stock-based compensation expense, gains losses recognized upon the settlement of certain death instruments, gains losses from the re-measurement of derivative liabilities, and the effects of purchase accounting adjustments in connection with acquisitions. And at September 30, 2021, FoxLight had $6.2 million in cash and cash equivalents $32 million in working capital, $31 million inventory, $173.6 million in total assets, $23.9 million debt, $54.9 million in stockholders' equity, 61.1 million common shares issued and outstanding, and 3.1 million preferred shares issued and outstanding. And with that, we'll open up the call for questions.

Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question at this time, you may press star 1 on your telephone keypad to enter the queue to ask the question. We ask if listening on speakerphone to please pick up your handset this afternoon to provide optimal sound quality. Once again, ladies and gentlemen, it will be star 1 on your telephone keypad at this time to enter the queue to ask the question. Please hold a moment while we poll for questions. And the first question is coming from Brian Kinslinger from Alliance Global Partners. Brian, your line is live. Please go ahead.

Hey, guys. Great quarter. Hi, Brian. Apologize one moment. Stand by one moment while we bring Brian back into the queue. Please stand by.

Brian, your line is live. Please go ahead.

Great. Sorry. Great quarter. Wanted to ask if the, an easy one, if the fourth quarter includes the two months that you expect from front row, or does it exclude front row?

Yeah, so the guidance we provided would include the additional two months of front row. Yeah, the way we looked at it. Now, I think, again, that's a baseline where we think we can beat that, but yeah, that would include the front row revenue.

So I'm curious if you could break down the U.S. growth versus the rest of the world in the third quarter. And I guess the way I'm thinking about it right now is there's a slowdown in the fourth quarter. Maybe that is the shortage because if you add front row into it, it suggests that with the total growth. So if we can go through the breakdown of growth and maybe where we're maybe seeing a temporary slowdown based on timing or component shortages.

Oh, so, um, kind of Brian it's path. I can take that one. So in terms of, um, our kind of total revenues on a combined basis, kind of, uh, us and rest of the world for our kind of Sahara and box light solution. So in the U S in the quarter, um, it was $27.7 million in the U S and $33.3 million in the rest of the world. And if you compare that to, uh, kind of last year's, uh, Q3, we had obviously $9.5 million of total revenue, of which $8.7 million was U.S.-based revenues. It gives a kind of a 218% growth in the U.S., as you would see, from a combined basis, obviously.

Sorry, say again, Brian. Sorry, and Sahara, if I looked at the $33 million, what did Sahara do in the quarter?

for Q3 last year. So obviously on a combined basis, I haven't done it on a pro forma basis, obviously it was only consolidated at the end of Q3 last year.

So in the fourth quarter, is there a slowdown?

And if so... No, so I think it's important. No, there's no slowdown. It's actually seasonality actually, Brian. So the key things obviously from the school districts and schools globally actually operates usually On the Q2, Q3 being the busiest period of the year, which if you look at it on a combined basis, that kind of represents probably about 60% of total revenues kind of appear in those quarters. And then Q1, Q4, the balance. So that's, you know, really where that comes from in terms of the totals. So as you can see from our guidance, we're kind of calling 40 because it's not a slowdown. It's just usual seasonality that we would see in all markets for that time of year.

Brian, by comparison, if you look at Q4 of last year, we did $32 million. So that's your comparative quarter. And that $32 million had a full quarter of both the Sahara Group plus BoxLight in that quarter. So that's a true comparable. So we're expecting to go from a $32 million for fourth quarter last year to a minimum of $40 million in the fourth quarter of this year.

I assume that's $25 million from the acquisitions.

Well, so the acquisition, you have seasonality in the acquisition as well, right? So if you look at kind of similar seasonality because it's selling at the same market, you know, there will be some, you know, there's going to be definitely revenue that comes in from the acquisition, but you can't take a straight line percentage. Okay.

And then just quickly on the guidance one more time, the margin, the 4Q margin is also EBITDA margin doesn't look like the second quarter when revenues are somewhat similar, maybe a little bit lower, right? So maybe talk, are we seeing additional pressures in the fourth quarter on top of what we're seeing in the third quarter to the margin?

We've seen some pricing increases in Q3, which obviously will carry on in terms of inventory and manufacturing costs, which will carry through in terms of Q4, obviously, because we have stock ordered manufactured for our sales in Q4. So there will be additional pressures on that in Q4. Our mix against that is actually increasing prices where possible and pass that on through to customers to actually alleviate some of the pressure on that margin. Okay.

Lastly, the recent press release on Trox becoming an exclusive reseller of Clevertouch. Talk about what that means. I think New Line is their leading product up until this point. Have they made commitments to your product being the leader or what they'll lead with? And then who was selling Clevertouch before in the U.S., and what kind of revenue did they generate before? that you have to replace, I guess.

Yeah, do you want me to say this one, Michael?

Yeah, go ahead, please.

Yeah, so great question, Brian. So previously, you know, we had an exclusive arrangement for all states bar Texas with Tierney. And one of the key reasons that Trox acquired Tierney was actually because of the exclusive contract that Tierney had with Clevertouch. So that was a key reason why they want you to buy them. Now, as you state, Trox does have a big relationship with New Line. However, they are very, very interested in the exclusive arrangement that we've got with CleverTouch. It took us a long time to renegotiate that contract with Trox. And it doesn't change overnight, but we're working very, very closely with Trox. And we expect significant growth in that contract over the next 12 months.

So you don't lose anything because Tierney continues to sell under the, because they're part of trucks, but from the truck standpoint, you'll get incremental because to the degree they sell your product instead of new line, that's incremental revenue.

Yeah. Well, I mean, put it in perspective, Tierney had about, I don't know, 20, 25 sales guys and trucks have got 180 sales guys. So, so, you know, we were doing those numbers with the Tierney sales team. And now we've got the combined trucks and T&E sales team. So it's a much larger sales team. We've got much better coverage with our partnership with them across the U.S. So, you know, there's a very significant opportunity for us. Great. Thanks for your time.

Your next question is coming from Jack Vandervaar from Maxim Group. Jack, your line is live. Please go ahead.

Okay, great. Hi, guys. Congrats on the solid results in the GAAP profits. Pretty good to see that. It's the first time I think I have seen that from you guys. So congrats on that and in the supply chain environment we're in. A couple questions. I'll start with a question on the federal funding programs that are in effect, at least in the U.S., and how, I guess, a general progress update there from your guys' perspective on how you're working with districts to, uh, help them get those funds allocated to them and sort of what that represents for a, uh, what what's left untapped for remaining opportunity to, uh, help, help grow sales in the U S. Yeah.

So Jack, appreciate the question. Uh, there's a tremendous amount of opportunity for, uh, federal funding, both in the U S and internationally, but, but the funding in the U S of course is substantially larger than what we're seeing in other countries. In the U.S., you'll remember that the federal government made available just shy of $200 billion for education, and they've termed those as ESSER funds, right? ESSER standing for Elementary and Secondary School Emergency Relief Fund. And there's three tranches, and some of this may be redundant from previous calls, but there's three tranches of those ESSER funds. The first tranche was the smallest tranche, and then the second and third got progressively bigger. Of those first couple tranches, those are being spent now You remember the first tranche was the CARES Act money, and a lot of that's been spent. The second tranche is being spent, and the third tranche, which is by far the largest, a lot of that hasn't been spent. It's being accessed and applied for now, but a lot of that's still available. In short, of all of that money, and keep in mind the third tranche was about $130 billion of the roughly $200 billion. you know, the largest amount is available. And we're still trying to work with school districts and administrators to help them access and identify how to spend those funds. And as part of that process, we've done a lot of marketing around it. We've created guides and white papers on how to access the funds. We have a dedicated person, Dr. Gremenhart, who's our director of strategic grants, and he helps work with schools to access the funds. And so that's something we're definitely actively pursuing. And of that nearly $200 billion, most of our solutions will qualify in one way or another for those funds. And so that is a major strategy of ours.

Okay, great. That's helpful. If I just follow up then from your comments around, you know, obviously every company in any industry virtually is being impacted by the global supply chain issues. You did mention that to combat this, you have been raising prices. Can you talk a little bit more detail there of when you began raising prices, on what products, in what markets, and what the general response has been from your end customers?

Yeah, I can say a couple things, and then Mark, feel free to jump in. So we've had several price increases, both internationally, throughout Europe, as well as in the U.S., You know, we've had, you know, three or four price increases, you know, in Europe, I believe, Mark, if I'm wrong, and then we've had two to three price increases or so in the U.S. You know, we look at each of our solutions, solution by solution. Of course, the largest price increases have been on our interactive flat panels, and that's because those are quite expensive to ship. And so there's been, you know, they've been hit really hard on shipping costs. And also there's a lot of components that go into those displays, and a lot of the cost increases happen there. Also, our margins are slimmer on the interactive flat panels and not as much on some of our other solutions. But we have increased prices across the board with higher increases on the panels. And we've done pretty well of offsetting the increase in the cost of the goods. We've done pretty well there to offset most of that. Shipping is another story. And you've heard Pat talk about in his talk track that we've given up about four points of gross profit margin just on on shipping, and so as that starts to normalize, you're safe to add another four points or so to our gross profit margin in the future.

I mean, what I would add on top of that, Michael, is, you know, customers generally understand, right? So we've had little pushback. The other thing is, where we do have, you know, fixed-term contracts, there's been some customers where we've had to hold the price as we agreed per the contract. So it's a mixed bag. But I think generally, you know, most of our customers have worked with us, and those price increases have been passed on.

Okay. Appreciate that. And then maybe just somewhat tied to maybe gross margin upside in the future would be, you know, I can imagine an increasing mix of software sales. So you did mention, you know, interactive panel displays continue and will continue to be, you know, core in the bulk of your revenues. Um, but right now I think, you know, software, I think you said you're on track for about four and a half million, nearly 5 million of software revenue this year in 2021, just longer-term looking at 2022. And then, you know, beyond 2022, can you just share your view and. On how software is tied into your long-term revenue model and how that's kind of higher strategically, uh, going about that. And is it all Samsung driven in the future where the other drivers qualitatively?

That's a good question. Thanks. A couple of thoughts. First off, software is a major part of our strategy, both to differentiate our total solution and then also as a profit center. So first off on differentiation, most of our sales, 80% of our sales are coming from the sale of interactive flat panels today. But to be successful in selling flat panels, you have to have the software because no school district or corporate customer is going to purchase you know, panel without having, you know, the software experience. And so it definitely helps us on selling our hardware, but we are moving towards a focus on monetizing software in the future that hasn't been part of our strategy historically. This is something we started talking about a couple of years ago, and we've made a lot of headway the last, you know, last several quarters. but we're focusing on SaaS strategies. That's true of our new Mimeo Connect software platform. That's true of our Lynx Whiteboard software platform. That's true of even our app stores that we're making available, that there's ways to monetize those. As far as guidance, we haven't given specific guidance about what software should look like, but I will say the growth in software sales should be dramatically higher than our total sales. That's for certain. And then I would say, you know, longer term, because we're selling this broader solution, we're expecting software It could be as much as 10% of our total sales, something like that. And we'd be very happy with that. Now, keep in mind, in education, we're focusing on the classroom. And if you look at the amount of dollars spent in the classroom, there's a lot more dollars that are going to be spent on hardware when you think of handheld devices for the students, an interactive flat panel, and cameras, and other devices in the classroom. A lot more dollars go to hardware than to software. but we want to participate both in the hardware software. And so I think a good long-term approach would be something around 10% of our total sales.

Okay, great. And then maybe just one more from me. In terms of the 2022 guidance, 230 million revenue, as well as the 10% adjusted EBITDA, or above the 10% adjusted EBITDA margins, just given all of this uncertainty in the world with the supply chain environment, and then also, you know, pandemic kind of related disruptions are always on the back of people's minds. Just how much, what level is your confidence to lay out that guidance in terms of like, that's a big uptick in revenue, which, you know, you have to sell a lot more products and you have to have a lot more components and inventory for that. So given the current state of the world, what level of confidence do you have that those targets are achievable given how everything's playing out right now?

Yeah, I'd say very confident. You know, the demand is there. There's no question about that. We're seeing higher demand now than we've ever seen. And that's a testament to the solutions we're providing. But those numbers take into account the potential struggles around sourcing. That's baked into those numbers. And we feel very good about achieving those numbers. Keep in mind, we have five quarters in a row where we beat the guidance we provided. We have a pretty good track record at this point. And we're going to beat those numbers as well.

Great, good to hear. Well, I appreciate the time, guys. I'll hop back in the queue. Thanks.

Thanks, Jack. Our next question is coming from Scott Buck from HC Wainwright. Scott, your line is live. Please go ahead.

Scott Buck, your line is now live. Please ask your question. Please stand by.

We'll come back to Scott. Your next question is coming from Martin Roth from Ferret Capital Management. Martin, your line is live. Please go ahead.

Thank you. Good day, gentlemen. This is my first exposure to management. We purchased stock a few months ago and were gratified by the continuing trend. And I don't know why. Maybe you have an idea. The stock sold off. immediately following the earnings release. And the last time I looked, it was down about 9% on the day. Do you have any thought as to anyone who was disappointed by the performance?

Well, first off, I want to say we appreciate you as an investor. So we're glad that you took a position and it's definitely good to meet you. I mean, as far as insight into moving the stock, the only thing that we could point to is Um, analysts had us at four cents per share and we came in on one cent per share. And I think that's the only thing that we potentially could point to. Now that was not our guidance, right? Our guidance was that we will be net income positive and, uh, and we would be positive EPS, which we hit both those numbers. We also gave guidance on revenue. We guided the 60 million. We beat that number. We got it to 7 million in EBITDA. We beat that number. Now for us as a company, we focus a lot less on net income and earnings per share. because there's a lot that flows through the P&L that's non-cash and we think not applicable to our business. And so we focus on that adjusted EBITDA number, which we think is the best number when you're evaluating the business. And like I said, very happy with our performance. We beat all the guidance we provided, but I think there was just a little bit of a disconnect on the couple analysts that cover us on EPS versus where we ended up.

I would say, by the way, that if anyone sold on this news, they are not long-term players anymore. and chances are they were cleaning out a losing position. I have some questions on the gross margins in general, and I'd like to throw this analogy. You're familiar with CDW?

Yeah, absolutely.

Okay, well, my thought is that, in a way, you're in a different specialty, but you're similar to CDW in that I see you as a wholesaler distributor of largely other people's products, and that what you do is you integrate and provide as much of a coordinated system as possible, and therefore, with the exception of selling more software, you're not going to be a business that can easily go into the high 20s or even 30 in the next few years. Do you disagree with that?

Martin, just to clarify, CDW is one of our largest reseller partners, so they sell our solutions. We're quite different than CDW or Atrox we talked about earlier or Howard. These are some of the larger resellers in the U.S. We're different because we are the manufacturer. So we manufacture solutions under our CleverTouch brand as well as our Mimeo brand, and we sell those through reseller partners or the channel globally in the U.S. as well as internationally. And so we should be valued very differently because we own IP, we own the technology, and we're going to be able to prove much higher margins over time than these various reseller partners. So definitely should be evaluated differently than, say, What percentage of your sales come from self-manufactured products? Yeah, 90% plus of our sales come from our own branded solutions.

So the question is, how high can you go on your proprietary products as far as an achievable gross margin, let's say, in the next five years?

Yeah, so right now our gross profit is being hampered a little bit, as we talked about, by some of the challenges in the supply chain and shipping. If we took some of those challenges out, we would be at a 30% or 30% plus gross profit margin company, and that's largely selling interactive flat panels. We've talked a lot about in the past that we expect to improve our product mix over time where interactive flat panels are less of our total solution because we're selling a lot of other high-margin solutions like software, which is 90-plus percent margin, and various accessories, which a lot of those are 50-plus percent gross profit margin, and our STEM solutions were typically 50-plus percent, and our services division, that's 40-plus percent. So in the foreseeable years to come, we should trend up from a 30-point adjusted gross profit margin to something closer to 40 or even something higher than 40. So, you know, we're not guiding to time periods on that, but because, again, we believe our product mix will improve over time with higher gross profit margin solutions, you're going to start to see that. And I think you'll start to see it as soon as next year. You'll see movement in the right direction.

Okay, thank you.

I think also just in addition to Michael, just to add on that in terms of other things that can obviously improve margins just on our interactive flat panel displays is obviously I always kind of pick up the shift to the larger screen formats, which come with a greater margin. But also importantly is it's not just in the educational sector that we now we also sell into the corporate sector. And that's going to be a key growing part of the business going forward, which come with much higher margins ordinarily just on our interactive flat panels. So that also adds to the product mix as well and the margin mix.

I'm reading in between the lines of what was said. We're talking about mitigating against the price increases that you had to absorb. I get the impression that with the price increases or cost increases that you've seen, you still are going to be behind where you'd like your gross margins to be because of this situation, that your price increases have not carried enough with them to offset, am I correct?

For the current year, yeah. So we do expect the kind of, you know, as with all businesses globally, global freighting to actually normalize at a point. So at the moment, obviously, everyone is seeing significant increased costs, ourselves included, in terms of products shipping and freighting in globally. And as I kind of mentioned, that has had an impact of about 4% incremental kind of cost. And that's straight kind of margin. So that should begin to normalize when we get through the back end of the effects of this pandemic. So 2022, within 2022, we should start seeing that also naturally

So the gap will remain that you had in the third quarter, assuming we see more increases, that the fourth quarter won't show an improvement in gross margins? Is that fair to say?

I think it would be pretty static, and I think an earlier question that came was asking a question in comparison of Q2 versus Q4, which would have similar, you know, kind of revenue, kind of slightly, our guidance is slightly under the Q2 revenues. But, yeah, that would be one of the reasons because there are these increased costs that we are currently bearing.

Let me ask a question on another subject, which is I believe it was said that between the United States and overseas, you have 17 sales rep. Considering how much product you've added in the past year or so, are 17 sales people enough to cover the world?

No, I think, no, the 17 related to the acquired business that we're acquiring 17 for the, uh, so front row has 44 employees of which 17 are their current sales staff, which includes some people located internationally know that we have a significant Salesforce, um, across the Sahara operations and the operations.

Yeah, we have looked at, we have over 25 already in the U S and probably over 60 across the mirror. So we've got a significant sales force. Obviously, the extra 17 coming in from Front Row is fantastic. But, you know, don't get confused with us only having 17 salespeople.

Okay, I got that. Thank you. One other question regarding the integration of your acquisitions of the past year and the ones that are pending. Is there still benefits to get from integration and the elimination of duplication?

Yeah, so we, so as far as savings, there will be maybe some small amount of savings, but I think that the major focus of us is revenue capture and future profitability from growing our overall business. So I think, again, you know, minimum cost savings and more focus on combined growth of our business, which will drive more to the bottom line. Okay, thank you very much.

Thank you.

Thank you, Martin. Your next question is coming from Ryan Mao from 1032 Private Exchange Group. Ryan, your line is live. You may go ahead.

Hi. I know you guys don't like giving earnings projections, but over the next 2022, if your gross margins are improving, I see there's some charges related to currency legal settlement charges or something. Can you give me some idea of where the earnings might be? And also on the recent purchase of this company, there's no terms disclosed, but I noticed your cash position is just $6 million. What do you perceive as your cash burn going forward?

Pat, how about you take the first question? I'll take the second question about the front row.

So, sorry, could you just repeat the first thing? Because obviously it's split into two parts. So, sorry, please say again.

I'm sorry, I got greedy. Well, one of the questions was based on the margin improvements and the purchase of front row and revenues of $230 million. Do you have kind of a guidance as to the earnings forecast? Earnings per share.

Yeah, so... Yeah, so obviously we are forecasting an improved position. So as Michael said, we're not expecting to do a kind of a cost saving exercise. It's pure growth. So with that comes the increased margin covering the predictable unknown overhead, which then will improve our overall profitability as a group. So without going into kind of giving totals kind of forward-looking positions, the results as we're calling, you know, this year, you've heard kind of our adjusted kind of EBITDA number we're calling for this year. So next year, that's going to grow significantly. And the difference will be that in 2022, net income positions this year, we're still going to show a forecasted net income loss. 2022 would have a net income result for the year and beyond thereafter. So it's going to be a fundamental change. You've seen the growth kind of year on year and what we've been going through on a quarter to quarter basis as well. Yes, the seasonality, which you explained earlier, but that will continue throughout 22. We've got the accretive and incremental kind of front row business, which is really excellent. It's high margin business, which is really excellent. So that is purely incremental to the total results. So we should see good performance improvements throughout 22.

Would you say five cents a share is a number that you guys can hit, or is that too optimistic?

I don't want to give too much kind of like information on the call, but yeah.

I know Michael said it earlier. We did 10% at JustDVDAR, you know.

Yeah, our guidance is specific to the adjusted EBITDA figure, which is the figure we think is the most important figure in evaluating the business on the bottom line. And so, yeah, we've guided to, for next year, $230 million in revenue and 10% or $23 million in adjusted EBITDA. That's what we're comfortable with. And we say greater than that number, meaning we think we can beat that number. Yeah, just a couple more comments, Ryan, on front row. I think it's good that you brought that up. We initially did not provide a lot of details when we announced the transaction. And that was intentional because the seller didn't want us to disclose some of that information. We did, however, if you go look at the SEC filings, we did include the purchase agreement, and you can go look at that. And then we provided some more information today when I was sharing my portion of the script. That being said, just to reiterate, the purchase price, the way you should think of it is $23 million for the company, plus we're paying for roughly the total net assets. And we think there's going to be roughly about $11 million in net assets at closing. And so if you add those two numbers together, it's approximately $34 million. That's the purchase price. Now, of that $34 million, you commented what our balance sheet showed for cash. We don't have $34 million in our balance sheet. So the way that we're looking to close the transaction is we are looking to raise debt to fund the acquisition. That's something we're working on now. We're doing that intentionally because we don't want to do anything that's going to be dilutive to the equity given where the stock price is today. We feel like we're undervalued, and so we're looking to raise money in the form of debt. And the terms of that debt we expect in the – the service of that debt we think will be covered by front row very comfortably, by just the cash flow that front row spits off. And so we think financially it's going to put us in a good cash flow position.

I appreciate that. And with that, I have one last question. I saw a company structure a deal where they bought another company and they had a certain amount of cash up front, but then they also had it based on revenues going forward over the next 18 months or 12 to 18 months. which I thought was pretty good, you know. And I'm wondering, do you have eyes on for other acquisitions? Are there any candidates potentially for that type of M&A growth, or is this pretty much it for the next year or so?

Yeah, so we're constantly looking at opportunities, and we are evaluating opportunities as we speak. We don't have anything that we can share specifically this time, but also as we structure those transactions, oftentimes we'll look at earn-outs approaches like you mentioned. We've done that with some of our previous transactions, so that's definitely something that we'll evaluate case by case.

Thank you.

Thanks, Ryan.

Once again, ladies and gentlemen, the floor remains open for questions. You may press star 1 on your telephone keypad now if you would like to enter the queue to ask a question. Once again, it'll be star 1 on your telephone keypad to enter the queue to ask a question. And we have a question from Kyle LaFleur. Kyle, your line is live. Please go ahead.

Hey, guys. Awesome quarter. Real quick question, two-part. BoxSite got accredited with Texas Instruments Curriculum K-12. Have we seen any contracts or revenue from the accreditation? And are we trying to get any accreditations from any other state curriculums right now?

Okay, so Kyle, that's part of the initiatives that we have within our EOS education professional development team. And they're working on all sorts of opportunities. You know, we talked about some opportunities that we've successfully been able to tackle with Google and other big names. And so I would say, yeah, we're constantly looking for different partnerships and accreditations to be able to grow the opportunities that we can provide within that professional development group. And I would just say maybe a little bit more on that, that When we talk about our product strategy, professional development training is a big part of it. As we sell interactive displays and various accessories and software, we understand that there's not going to be the proper adoption of those solutions if we're not providing the training and the PD that's required, especially in the education environment. And so we look at every opportunity where we sell hardware, software, we want to make sure that we can also sell and provide training and professional development. And that adoption is going to lead to, of course, the solutions being successful in their various environments, but also that adoption is going to lead to happy and successful customers that result in follow-on sales and orders. And so that's a big part of our strategy. But in short, yeah, we're looking at all sorts of opportunities where we can receive various partnerships, certifications, et cetera.

Awesome. Thanks, guys.

Yeah, thank you, Kyle.

Thank you. And there are no further questions in queue at this time. I would like to pass the floor back to Michael Pope for closing remarks.

Thank you everyone for your support and for joining us today on our third quarter 2021 conference call. We look forward to speaking to you again in March when we report our Q4 and full year 2021 results. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.