Boxlight Corporation

Thank you and welcome to the BoxLight first quarter 2022 earnings conference call. 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 result to differ materially from the forward-looking statements. The 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 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 investor.boxlight.com. And with that, I'll hand over the call to BoxLight's chairman and chief executive officer, Michael Pope.

Hello, everyone, and thank you for joining the call today. We will be publishing a press release with our Q1 results shortly, which will be available in the next few minutes. We made substantial progress during the first quarter across several key company initiatives and delivered another strong financial performance with $64 million in customer orders, $51 million in revenue, and $1.2 million in adjusted EBITDA. We are experiencing growing demand for our solutions globally as evidenced by our organic growth of 23% in customer orders and 34% in revenue over the first quarter last year. We also concluded Q1 with $43 million in back orders, a 66% organic increase over Q1 last year, and a healthy balance sheet with $11 million in cash, $49 million in inventory, $50 million in working capital, and $47 million in net assets. Despite continued supply chain, logistics, and other challenges, we are operating at a very high level, and for the second quarter, we expect to deliver $54 million in revenue, and greater than $2 million in adjusted EBITDA. There are a substantial number of orders which would have shipped in Q2 that will now ship in early Q3 as a result of product delays. However, we still expect to achieve our four-year guidance of $250 million in revenue and $26 million in adjusted EBITDA. We began 2022 with multiple tech and learning awards in the primary and for our Mimeo Connect blended learning platform, ProColor interactive displays, My STEM Kids curriculum, and professional development services. Additionally, just this week, we received several awards from Innovate Magazine, including Education Technology Innovation of the Year for our CleverTouch Impact Plus touchscreen, and Overall Business Growth for our CleverTouch brand. During Q1, we launched our Mimeo STEM Mobile Mission to Mars experience. a mobile van that is traversing across the country, led by Brayden Moreno, Director of STEM. Mimeo STEM mobile van is completely equipped with our award-winning STEM solutions and a pro-color interactive display, and it's designed to showcase our solutions to district and school leadership through hands-on activities based on Mars exploration. You can track Brayden and receive Mimeo STEM mobile updates on our social media pages. We are pleased with our continued progress of integrating our hardware and software solutions. Over the next several weeks, we will be releasing significant enhancements between our front row conductor campus communication platform and our Mimeo message and CleverTouch Live embedded messaging signage solutions. We plan to release and demonstrate the significant combined platform during the ISTE Education Conference in New Orleans in June. Just a few weeks ago marked the six-year anniversary of our acquisition of Mimeo in April of 2016. Later that year, we also acquired the BoxSight Group, positioning us as a formidable education technology provider. From 2016 to date, we have acquired a total of 11 companies, including Sahara in 2020 and Front Row in 2021, and we have grown from $0 in revenue to an expected $250 million in revenue this year. I'm proud of the company we're building, complete with extremely talented employees, industry-best solutions, and a vision to be a leading provider of interactive technologies for both education and enterprise environments. Last month, we announced that Patrick Foley will be stepping down as Chief Financial Officer. Pat has been an integral part of our executive team and has provided exceptional leadership through a critical time, including our merger with Sahara, the acquisitions of Interactive Concepts and Front Row, a debt refinancing with White Hawk Capital Partners, the adoption of various improved processes and procedures, among other achievements. We are evaluating candidates now to step into the CFO role, and Pat has agreed to ensure a smooth transition. I consider Pat a good friend, and we wish him the absolute best in the future. With that, I will now turn the time over to Mark Starkey to provide additional insights.

Thank you Michael and good evening from Barcelona where we are showcasing our solutions to corporate and government customers at the International ISE event. We've had a fantastic three days here in Barcelona where we have won the award for best business growth and a second award for best educational technology. Q1 was another strong quarter for us. As Michael mentioned earlier our Q1 revenues grew by 51% and 34% on an organic basis. In terms of bookings, we received over $64 million of orders, representing 34% growth in Q1. If we exclude front row, then the organic growth in order intake was 23% for the quarter. Some of our key orders in the U.S. included $10.9 million from Bloom, $6 million from our distribution partner, D&H, $2.2 million from Central Technologies, and $1.1 million from Data Procedures. Overseas, we had some excellent orders, including $1.9 million from our partner in Denmark, UnitDK, $1.7 million from Roche Audiovisual in the UK, $1.7 million from Cameramundi in Puerto Rico, and $1.5 million from ASI in Australia, to highlight a few. Approximately 54% of all orders were received from the US, with EMEA counting for about 41%. and the rest of the world accounting for approximately 5%. We are seeing significant opportunities in all regions, but in particular, we see very large-scale opportunities in the US and in some parts of Europe. The largest opportunities are predominantly in the education sector, where we are bidding multiple tenders of 5,000 to 10,000 screens at a time. In the corporate sector, we are starting to see the return of workers to their office environments, and the need to upgrade the collaboration tools in huddle rooms and larger meeting rooms with Teams and Zoom compatible solutions. Our biggest challenge remains the management of the supply chain. We have taken a very proactive stance towards statistics since the start of the pandemic and are ordering at least six to nine months ahead to ensure we have adequate supply to meet demand. Excess logistics and freight costs are still impacting on our gross margins, but we have taken specific measures, particularly in the US, to address the problem, and we anticipate that gross profit percentages will continue to improve throughout Q2 and Q3. In summary, Q1 was a very strong quarter in terms of order intake and revenue, and our solutions are getting a lot of traction in the markets. We continue to develop our key partnerships and alliances across the globe, and I look forward to another record quarter in Q2. 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 Michael and Mark, I would like to add a few figures to provide context to BoxLight's international operations. So revenue by country and region, Total revenue in Q1 was $50.6 million. EMEA, 41%, or $20.6 million, of which the UK was 53%. The Americas, 52%, or $26.5 million. Rest of the world, 7%, $3.5 million, which was mainly Australia. The top 10 customers represent approximately 39% of total sales in Q1. with the single largest customer at approximately 16%. And these are based across a number of markets, namely the US, Australia, the UK, Denmark, and France. The top 20 customers represents approximately 52%. For sales, product mix, and gross margin, in Q1, hardware, including our integrated software solutions, remained the largest proportion of total revenues at about 90%. Of this total, 76% were sales of interactive flat panel displays, and 14% classroom audio solutions, and a balance of 10% being related IFPD accessories. The balance of all other total revenues coming from software, services, and STEM solutions. Gross margin for the quarter was 24.9%. The IFPD margin was approximately 20%, which would have been slightly higher. However, as reported in previous quarters, Increased transportation costs have reduced margin. We anticipate these higher costs will remain throughout 2022. In terms of our screen sizes, in Q1 2022, the education sector represented 92.8% of all interactive flat panel displays, with approximately 75% were 75-inch and 86-inch panels, which follows a consistent trend we've seen over the past 12 months. I will now review the first quarter results. The financial results for the three months ended March 31, 2022. Revenues for the three months ended March 31, 2022 were $50.6 million as compared to $33.4 million for the three months ended March 31, 2021, resulting in a 51.4% increase, primarily due to the inclusion of Front Row and increased demand for our solutions in the US and Europe. Gross profit for the three months ended March 31, 2022 was $12.6 million as compared to $8.6 million for the three months ended March 31, 2021. The gross profit margin for the three months was 24.9%, which is a reduction of seven basis points compared to the comparable three months in 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 27.4% as compared to the 28.0% as adjusted reported for the three months ended March 31st, 2021. As previously reported, gross margins continue to be adversely impacted by supply chain challenges with increased freight costs which are now expected to continue throughout 2022. However, we anticipate gross profit percentage improvements in Q2 and beyond as a result of reduced manufacturing costs. Total operating expenses for the three months ended March 31, 2022 were $16.0 million as compared to $10.6 million for the three months ended March 31, 2021. The increase primarily resulted from additional overhead costs associated with the front row operations included related intangible amortization and growth in headcounts and other related expenses. Other income expense for the three months ended March 31, 2022 was net expense of $1.5 million as compared to net expense of $3.1 million for the three months ended March 31, 2021. The key movements were an increase in interest expense of $1.3 million and a reduction of $1.8 million in previous losses recognized upon the settlement of debt obligations. $0.8 million current gain from the PPP loan forgiveness, and finally $0.3 million reduction in changes in fair value of derivative liabilities. The company reported net loss of $4.9 million for the three months ended March 31, 2022, as compared to a net loss of $5.2 million for the three months ended March 31, 2021. The net loss attributable to common shareholders was $5.2 million and $5.5 million loss for the three months ended March 31, 2022, and 2021, respectively, after deducting the fixed dividends to Series B preferred shareholders of $317,000 in both 2022 and 2021. Total comprehensive loss was $6.6 million and $5.4 million loss for the three months ended March 31, 2022 and 2021, reflecting the effect of foreign currency translation adjustments on consolidation, with the net effect in the quarter of $1.8 million loss and $0.3 million loss for the three months ended March 31, 2022 and 2021, respectively. The earning per share for the three months ended March 31, 2022, was a 7 cents loss compared to a 9 cents loss for the three months ended March 31, 2021. EBITDA for the three months ended March 31, 2022 was $0.3 million loss as compared to a $2.4 million EBITDA loss for the three months ended March 31, 2021. Adjusted EBITDA for the three months ended March 31, 2022 was $1.2 million as compared to $1.6 million for the three months ended March 31, 2021. Adjustments to EBITDA include stock-based compensation expense, gains losses recognized upon the settlement of certain debt instruments, gains losses from the remeasurement of derivative liabilities, and the effects of purchase accounting adjustments in connection with acquisitions. At March 31, 2022, BoxLights had $11.3 million in cash and cash equivalents $49.6 million in working capital, $49.1 million inventory, $193.1 million in total assets, and $51.0 million in debt, $47.5 million in stockholders' equity, 65.5 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 have any questions or comments, please press star one on your phone at this time. We ask that while pausing your question, you pick up your handset, if listening on speakerphone, to provide optimum sound quality. Please hold while we pause for questions. Your first question is coming from Brian Kinsliner of Alliance Global Partners. Sir, please proceed with your question.

Great. Thanks so much for taking my questions. So your revenue was about $6 million higher than you had originally guided to, which was fantastic. Why was this not enough to offset any of the $800,000 change that you mentioned you accounted for and how you – the gains – that you mentioned in your press release to hit your $2 million EBITDA guidance. I guess I'm just wondering why didn't the pressure – sorry, let me restate. Did the pressure related to the supply chain get worse? Just trying to understand the outperformance on the top line that didn't help the bottom line. I hope that jumbling made sense.

Yeah, no, Brian, this is Pat. That made sense. So yes, in Q1, we did see margin under pressure, and it improved by the time we reached the end of the quarter. So January and February, we were seeing the net impacts of the inventory that we had at the year end, which was obviously a higher carrying value. So as we go through 2022, we will be sourcing. I mentioned in the earnings call just now that we will be improving our manufacturing costs by reducing the cost of our kind of unit sourcing. So that will help improve margins as we continue forward from Q2 and beyond. So there was kind of pressures on margin in Q1, definitely. We are seeing, and we have seen increased transportation costs. I think people are seeing that globally in most sectors. You know, there has been fuel increases. There's also been kind of continued and further delays, as we've seen with lockdowns in China. And freight and shipping costs have actually increased again. So we are seeing that pressure coming through and through our margin.

But in order to make your appropriate return, Everything's increasing. Are you not able to increase pricing at all? I mean, it seems that for the revenue you're generating, you should generate a little bit more profit.

yes absolutely brian so we are doing that so one of the key things though is we have increased pricing as we move forward but some of the orders that we were delivering were pre-committed on previous pricing so that's why as they were released and sold into the market in through q1 you know they were previously committed to prices on orders so again we will see that improvement through the margin as we progress through 22. okay and then uh in regards to the delays you talk about in the second quarter

You know, I've got a $10 million, my estimate is the one I'm looking at. So where is that coming from? Is it the U.S.? Is it EMEA? Is it just a few customers? Is it many customers? And then what led to these delays?

Yeah, so basically we have, Brian, in the supply chain, you know, our core IFPDs and manufacturers in China. So sourcing... the components and actually getting them shipped with the lockdowns, there has been kind of manufacturing delay. So that's what will actually impact the kind of Q2 is actually the receipt of the goods to be able to fulfill the orders. So it will be one of timing that it will actually kind of slip from Q2 into early Q3 for some of those orders. And it will be kind of generally in many markets because, you know, it's just a delay in production and supply.

Yeah, no, totally makes sense. I guess my question would be, Why are you comfortable still with $250 million? I assume that's going to back things up and you'll get some orders pushed from 2Q to 3Q, some orders pushed from 3Q to 4Q, and then I assume some orders out of 4Q. So I guess I'm just trying to understand. Oh, yeah.

So it should be hopefully a short-term timing thing. You've seen, as we all know, the lockdowns in terms of China currently. So it's obviously impacted factory production, but also shipments. where ports have been closed. So that had the knock-on effect of the products that would land ordinarily in timely basis in Q2 and through Q2. So as they resolve out, we should see that normalized beyond. Last question.

In terms of the revenue guidance, the September quarter is usually seasonally strong, I believe. It's jumped up and down depending on when orders get pushed, but should we assume that's 40% of the revenue guidance this year?

Yeah, so, I mean, look.

Yeah, so, Brian, we haven't guided that quarter specifically, but, yeah, I think if you look, you know, historically, you know, it's definitely north of 30% of total revenue. There is some shifting, as we talked about, from Q2 to Q3, so it very well could be, you know, could be closer to that figure, but, you know. Hard to tell. Yeah, but you can't tell at this point. That's right. Okay. Thanks, guys. Yeah, thanks, Brian. Thank you.

Thank you. Your next question is coming from Jack Van Der Arde at the Maxim Group. Sir, please pose your question.

Okay, great. Thank you. Good afternoon, guys. I appreciate the update. Thanks for taking my question. I just got the press release pulled up in front of me, so I have a few housekeeping things. Just bear with me if I'm quoting things incorrectly. I think I heard that the first quarter gross margin was 24.9%, and then adjusted for acquisition accounting was 27.4%. I guess first, is that correct? And then second, is that gross margin also adjusted for the higher freight and shipping costs, or is that a third layer?

That would be – sorry, hi. It's Jackie. It's Pat. So, yes, you're absolutely right. The –

The margins, as you can see in the press release, 24.9%. And the effect of the purchase accounting is twofold. One, we have obviously the deferred revenue adjustments, which you can see on the adjusted EBITDA calculation, and also the fair market value of the inventory markup from the recent front row acquisition. So as adjusted for those, normalized is 27.4%. And then, yes, further impacted, that would have been higher on both counts, pre-adjusted and post-adjusted, for the increased freight and transportation costs, which we are still incurring and will continue to see that incur. But as I said, the mitigates of that going forward to hold revenue increasing from pricing, and then secondly, efficiency and better sourcing pricing. So we will see our margins increase.

Okay. So, and then just, yeah, just to follow up to that. You mentioned, you know, you expect the gross margin to improve throughout the year and beginning in the second quarter as well. Just for clarity, the front row acquisition, which, you know, which recently closed in that adjustment of the 27.4% margin for acquisition accounting, that is no longer going to be in the mix then, right? Starting in the second quarter, but you'll still have shipping costs.

Yes. It will be, actually. So it will carry on through 2022, and then it will be fully amortized through this year. So that will continue through this year.

Okay, understood. And then I think I heard 64 million of customer orders in the first quarter with the bulk from the U.S. and then EMEA. For the U.S. orders, just curious, back when, you know, before the acquisition of Sahara, The story was always, you know, heavily tied and narrated around classrooms in school districts in the U.S. Just wondering, for those U.S. orders, you know, how much of this is related to, you know, existing school districts and classroom customers and refresh cycles? And then are you getting additional traction by penetrating new school districts in the U.S.?

Yeah. I would say – sorry, it's Mark here. I would say the majority – these new classrooms. We obviously do get repeat business, but the majority of it is, you know, attacking and getting new customers. But it's predominantly, you know, it's the large districts where we can win some significant orders that really bump out, and that's why you're seeing such growth in those order numbers. And that's why we're still confident we're hitting the $250 million for the year.

Yeah, and on the new districts we're bringing on, the vast majority are refreshes of old technology. So it's not, you know, they're not going from zero. They're typically refreshing often interactive whiteboards or other old technology. And we're convincing those schools to utilize our interactive flat panel displays and other solutions as part of that replacement.

Got it. Okay. And Michael, just to that point, so it's like it's somewhat of a it's a nice cadence of this refresh cycle that's opening up the opportunity for you to kind of take out, you know, have it take out wins here and get involved. Is that a refresh cycle? I think in the past it used to be kind of, I'm sure it varies, but like a five to seven year refresh cycle. Is that still kind of the cadence in the U.S. for classroom refreshes? And does that mean you're existing, if most of the new orders are from new customers, are we, are you expecting a big demand surge from, you know, cost for years that are approaching that refresh upgrade?

Yes. So the answer is yes. That five to seven year timeframe is still a good estimate of when those refreshes would happen. Keep in mind that the majority of the panels that we're installing have a five year warranty, but in some cases we've gone as long as seven years on the warranty. And then your follow-up question there on refreshes, yeah, we're going to start to see more and more of that. Keep in mind the majority of our sales, because of our dramatic growth we've had the last couple of years, we have very few customers that we span back five-plus years. But we are expecting to start seeing some of that. And we have had a couple of districts where we did about five years ago install, and we are seeing some repeat business on refreshes. We're starting to see some of that now, but I think you're going to see that in a much more dramatic way over the next couple years, you know, because of our growth cycle.

Okay, great. That's helpful. And then maybe just one more follow-up from me on kind of OpEx run rate, just given front row. I'm sure there's a lot of things involved here that are kind of more, you know, non-recurring or one-time in need here. So if I look at the OpEx, total OpEx, you know, GNA is the biggest line item here. Is this – I don't know if you have a sense of seasonality and what a normalized kind of OpEx level is now that the business acquisition settled in. What are we thinking like on a go forward quarterly basis now for OpEx? Is this above what you think or I don't know, any help there would be appreciated.

Yeah, that's going to be pretty normal because that's including obviously the amortization of the intangibles related also to the acquisitions continuing. So yeah, that's pretty normal.

Okay, so this is a good steady kind of base to work with going forward.

Correct. Good indicator for your basis, yep.

Okay, cool. And then just maybe one more. I'm not sure if I heard it mentioned. The Samsung bundled collaboration effort, is this, you know, are we moving the chains on this? Is this still a growth driver? Is there any staff you can provide on, you know, number of licenses sold, or is this Is this not the focus? Just an update there would be helpful.

Yeah, so our main focus with our Samsung partnership is on providing our software licenses, them purchasing our Mimeo Connect licenses, which they are then partnering with their interactive flat panel displays. And we are getting traction there. They committed, you'll remember last year we announced they committed a million dollars of licenses they had purchased. and we expect them to purchase more licenses this year. We focus less on the distribution side of the business. We can distribute Samsung displays, but we're primarily focusing on our in-house displays, and so we're seeing less traction there. And although we still are offering a bundle of Samsung Chromebooks with our software and training, that's gained a little bit less traction in recent months, and I think that's a function of there's a large amount of competition with that. And so we focus a little less on that as well. So as far as the Samsung partnership, what you got to see as far as traction over the next few months is going to be us providing our software licenses of Mimeo Connect that are bundled with the Samsung displays.

Okay, great. That's it for me. I appreciate the color, guys. I'll hop back in the queue.

Thanks, Jack. Thank you.

Thank you. If there will be any final questions or comments, please press star 1 on your phone now. Sirs, there are no questions in the queue, so I will hand it back to management for final comments.

Thank you, everyone, for your support and for joining us today on the first quarter 2022 conference call. We look forward to speaking to you again in August when we report our Q2 2022 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.