Boxlight Corporation

Thank you and welcome to the BoxLight Second Quarter 2022 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 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 boxlight.com. And with that, I will hand the call over to BoxLight's chairman and chief executive officer, Michael Pope.

Hello, everyone, and thank you for joining today. I'm happy to report our Q2 financial performance of $81 million in customer orders, $60 million in revenue, and $5.2 million in adjusted EBITDA, exceeding our guidance for the quarter. We also ended Q2 with $56 million in back orders, the strongest order pipeline in our history, and a healthy balance sheet, including $12 million in cash, $45 million in inventory, $54 million in working capital, and $44 million in net assets. We further supplemented our working capital position subsequent to quarter end through a $5 million equity offering, as was required by our senior lender. On a go-forward basis, we expect to generate positive cash flows from operations and currently have no plans for additional fundraising. We are experiencing strong demand for our solutions globally, particularly in the United States, Puerto Rico, Western Europe, and Australia, and we expect to continue to deliver double digit revenue growth over the next several quarters. Internationally, we recently opened two new sales offices in Ontario, Canada and Queensland, Australia, and welcomed a significant new partner, Avion Interactive in Finland. The most significant improvement during the second quarter was our increase in gross profit margin from 25% in Q1 to 28% in Q2. This improvement was in part due to an easing of supply chain and logistics challenges. For the second half of 2022, we expect further gross profit margin improvement to approximately 30%. Key orders for the second quarter in the U.S. included $14.1 million from Bloom, $7.4 million from D&H Distributing, $6.1 million from ELB, $3.1 million from Visual Techniques, $2.7 million from Data Projections, $2.3 million from central technologies, $2.1 million from advanced classroom technologies, and $1.4 million from digital age technologies. Internationally, we received significant order intake of $7.1 million from Camera Mundi in Puerto Rico and $1.3 million from Roche Audiovisual in the UK. The third quarter is seasonally our strongest, and we expect to deliver greater than $70 million in revenue and $10 million in adjusted EBITDA. For the full year 2022, we reiterate our guidance of $250 million in revenue and $26 million in adjusted EBITDA. We have been awarded several of the largest K-12 education projects in the US and are delivering our solutions to Dallas ISD, Houston ISD, Montgomery County Public Schools, Cleveland Metropolitan, and San Diego Unified to name a few. Overseas, we have recently won significant opportunities in both Denmark and Switzerland. We're also experiencing notable growth in our enterprise vertical and have delivered solutions to the United States Air Force, Bloomberg, DHL, and various higher education customers such as Brigham Young University, Riverside College, and Northwestern State University. During the second quarter, we launched our next generation Mimeo Pro 4 and our CleverTouch Impact Max interactive panels with upgraded hardware and software offerings. We also introduced Clever Store 3, our browser-based app store with hundreds of education applications, and Clever Share 5, our collaboration tool providing enhanced screen sharing and screencasting functionality. Also during the quarter, we announced a partnership with Logitech to offer to offer collaborative meeting room solutions with our CleverTouch ecosystem for the enterprise market. Specifically, the Microsoft Teams Room solutions from Logitech integrate seamlessly with both interactive and commercial displays powered by CleverLive. Companies can now easily deploy a Microsoft Teams Room environment at scale with the CleverTouch enterprise ecosystem of hardware, value-added services, and the Clever Live Management System and the Logitech Rally Bar, an all-in-one audio and video conferencing solution. In response to the increased need to communicate messages to all school and district personnel and students quickly, our brand front row released Attention, an integrated AV campus communication system. Attention enables announcements, bells, and alerts to be delivered as both audio and video simultaneously to every speaker and display in a school. This new integration makes communicating across school campuses significantly easier and natively integrates via the Clever Live application. Our best-in-class solutions continue to make waves in the industry, and during the second quarter, we received industry awards from Tech and Learning, EdTech, Innovation Awards, and AV News for our interactive displays, software solutions, STEM tools, and professional development services. Additionally, BoxLight was named the overall EdTech Company of the Year at the 2022 EdTech Breakthrough Awards. Lastly, I'd like to introduce Greg Wiggins, who accepted the role of Chief Financial Officer at BoxLight in June of this year. Greg is a certified public accountant with more than 15 years of experience providing corporate finance leadership to high-growth companies. With that, I will now turn the time over to Greg to provide additional financial insights. Thanks, Michael, and good afternoon, everyone.

I will now review our second quarter results. Revenues for the three months ended June 30, 2022, were $59.6 million as compared to $46.8 million for the three months ended June 30, 2021, resulting in a 27.5% increase, primarily due to the inclusion of front row and increased demand for our solutions across all markets. Front row revenues for the three months ended June 30, 2022 totaled $6.8 million or approximately 11% of our total revenues. Taking a closer look at Q2 2022 revenues, EMEA revenues totaled $20 million or 34% of our total revenues. America's revenues totaled $37.3 million or 62% of our total revenues. while revenues from all other markets total $2.3 million, or 4% of our total revenues. Our top 10 customers represented approximately 54% of total sales in Q2, with the single largest customer at approximately 16%, and are based across a number of markets, namely the US, Puerto Rico, Australia, and the UK. Approximately 68% of total sales are covered by the top 20 customers, which is comparable to Q1 2022. In Q2 2022, hardware comprised the largest proportion of total revenues at approximately 93%, of which approximately 79% related to our flat panel displays with the balance related to classroom audio solutions and interactive flat panel device accessories. The balance of our total revenues are comprised of software, services, and STEM solutions. Gross profit for the three months ended June 30, 2022 was $16.8 million as compared to $12.8 million for the three months ended June 30, 2021. Gross profit margin for the three months ended June 30, 2022 was 28.2%, which is an increase of 80 basis points over the comparable three months in 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 30.2% as compared to 29.2% as adjusted for the three months ended June 30, 2021. The improvement in gross profit margin in Q2 2022 compared to Q2 2021 is primarily due to higher margins associated with front row products and reduced manufacturing costs previously discussed during our Q1 2022 earnings call. While reductions in certain freight costs have been experienced during Q2 2022, gross margins continue to be adversely impacted by increased freight costs from pre-pandemic levels. Total operating expenses for the three months into June 30, 2022 were $16.0 million as compared to $11.3 million for the three months into June 30, 2021. The increase primarily resulted from additional overhead costs associated with the acquired front row operations, including related intangibles amortization and employee related expenses to support the growth of our U.S. and EMEA operations. Other expense for the three months ended June 30, 2022 was a net expense of $0.8 million as compared to net expense of $1.3 million for the three months ended June 30, 2021. The key movements were a $1.6 million decrease in the fair value of derivative liabilities and a reduction of $0.5 million in losses recognized upon the settlement of debt obligations in the prior year quarter, partially offset by an increase in interest expense of $1.7 million associated with increased borrowings related to our new credit facility. The company reported net income of $26,000 for the three months ended June 30, 2022, as compared to a net loss of $2.2 million for the three months ended June 30, 2021. Net loss attributable to common shareholders was $0.3 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively. after deducting the fixed dividends to Series B preferred shareholders of $317,000 in both 2022 and 2021 and the fair value revaluation deemed contribution of $367,000 following the redemption amendment with the Series B shareholders in the second quarter of 2021. Total comprehensive loss was $4.6 million and $1.7 million for the three months ended June 30, 2022 and 2021, respectively, reflecting the effect of foreign currency translation adjustments on consolidation, with the net effect in the quarter of $4.6 million loss and $0.5 million gain for the three months ended June 30, 2022 and 2021, respectively. Earnings per share for the three months ended June 30, 2022 was zero cents compared to a $0.04 loss for the three months ended June 30, 2021. EBITDA for the three months ended June 30, 2022 was $4.8 million as compared to $2.9 million EBITDA for the three months ended June 30, 2021. Adjusted EBITDA for the three months ended June 30, 2022 was $5.2 million as compared to $5.4 million for the three months ended June 30, 2021. Adjustments to EBITDA include stock-based compensation expense, gains losses from the re-measurement of derivative liabilities, gains losses recognized upon the settlement of certain debt instruments, and the effects of purchase accounting adjustments in connection with recent acquisitions. Now turning to our results for the year-to-date period. Revenues for the six months ended June 30, 2022 were $110.2 million as compared to $80.2 million for the six months ended June 30, 2021, resulting in a 37.5% increase due primarily to the acquisition of Front Row in December 2021 and increased demand for our solutions across all markets. Gross profit for the six months ended June 30, 2022 was $29.4 million as compared to $21.4 million for the six months ended June 30, 2021. The gross profit margin was 26.7% for both the six months ended June 30, 2022 and the six months ended June 30, 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 28.9% for the six months ended June 30, 2022 as compared to 28.7% as adjusted for the six months ended June 30, 2021. Total operating expenses for the six months ended June 30, 2022 were $32.0 million as compared to $21.9 million for the six months ended June 30, 2021. The increase primarily resulted from additional overhead costs associated with the acquired front row operations in December 2021, including related intangibles amortization and employee-related expenses to support the growth of our U.S. and EMEA operations. Other expense for the six months ended June 30, 2022 decreased $2.1 million to net expense of $2.3 million as compared to net expense of $4.4 million for the six months ended June 30, 2021. The decrease was primarily due to a $2.7 million loss recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021, and a $1.9 million decrease in the fair value of derivative liabilities in Q2 2022, partially offset by an increase in interest expense of $3.0 million associated with increased borrowings under the new debt facility. The company reported a net loss of $4.8 million for the six months into June 30, 2022, as compared to a net loss of $7.4 million for the six months ended June 30, 2021. The net loss attributable to common shareholders was $5.5 million and $7.7 million for the six months ended June 30, 2022 and 2021 respectively. After deducting fixed dividends to Series D preferred shareholders of 635,000 in each period, and the fair value revaluation deemed contribution of $367,000 following the redemption amendment with the Series B shareholders during the six months into June 30, 2021. Total comprehensive loss was $11.2 million and $7.1 million for the six months ended June 30, 2022 and 2021 respectively, reflecting the effect of cumulative foreign currency translation adjustments on consolidation with the net effect year to date of $6.4 million loss and $0.3 million gain for the six months into June 30, 2022 and 2021 respectively. Earnings per share loss for the six months into June 30, 2022 was negative 8 cents per basic and diluted share compared to negative 13 cents per basic and diluted share for the six months into June 30, 2021. EBITDA for the six months ended June 30, 2022 was $4.4 million as compared to $0.5 million of EBITDA for the six months ended June 30, 2021. Adjusted EBITDA for the six months ended June 30, 2022 was $6.4 million as compared to $7.0 million for the six months ended June 30, 2021. Turning to the balance sheet, at June 30, 2022, BoxLight had $11.6 million in cash and cash equivalents, $53.8 million in working capital, $45.3 million in inventory, $196.7 million in total assets, $53.4 million in debt, and $43.5 million in stockholders' equity. At June 30, 2022, BoxLight had 66.2 million common shares issued in outstanding, and 3.1 million preferred shares issued in outstanding. 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 do ask while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Jack Vanderaard. Please announce your affiliation, then pose your question.

Great. Thanks, guys. Can you hear me okay?

Yeah, we can hear you great, Jack.

Okay. Great. Jack Vanderaard here, analyst at Maxim Group. Congrats on the solid results, guys, and welcome aboard to Greg Wiggins as CFO. Congrats on that. Thank you. A couple questions for me. Couple questions. I'll start with a question on guidance. So third quarter guidance, greater than $70 million of revenue, and you maintain the 22 revenue guide, which is strong growth. This seems to imply a stronger than typical seasonality in the fourth quarter. Perhaps this is due to front row or maybe something else. Can you just speak to how much variability maybe or upside is in that $70 million plus revenue target for the third quarter? And then also, if there's any shifting seasonality dynamic in the fourth quarter.

Yeah, so thanks, Jack. Pleasure to make the introduction as well. So you're right. It does, from our forecast, project a strong Q4 with a little bit of stronger Q4 than probably in the past. However, as we guide forecasts for Q3, as we're guiding north of $70 million and you know, $10 million in adjusted EBITDA. You know, note that, you know, the strength of Q3 will somewhat depend on, you know, the level we need in Q4 as well. I think where we kind of look at this is, you know, the pipeline is very strong. We've got a strong amount of back orders currently in place. And so there, you know, while there could be, you know, potential, you know, timing between Q3 and Q4, You know, I think, you know, we could potentially see a little bit stronger Q3, which may impact what, you know, we ultimately need to do in Q4. But I think for the second half of the year, we're certainly seeing strong pipeline such that, you know, we would meet our full-year guidance at 250.

Okay, understood. And then, you know, maybe a follow-up.

Really nice to see the gross margin rebound and recover. Fast trend I was expecting. I think I heard your target for the back half of the year is 30% or so. Just wondering how much of that is due to supply chain costs and destructions kind of improving versus expected, maybe versus an expected change or shift in revenue mix of higher margin revenue streams. You know, we have front row added to the mix here as well. I think that's higher margin. But maybe just talk about maybe the revenue mix shift going forward between the interactive displays and then some of your higher margin. services and software and how that's contributing to the growth margin upside?

Yeah, so I think we've seen a lot of the recent growth in the gross profit margin really due to the effect of some of the lower manufacturing costs starting to take hold as well as some of our improved pricing measures that we've started to implement in the first half of the year. Certainly, we do want to continue to grow You know, some of our non-panel display products as well that are higher margin as well. We kind of see that more as, you know, future growth in the profit margin, whereas some of the short-term increases that we're seeing are really more tied to the improved pricing and the lower manufacturing costs that we're starting to take hold in Q2 and that we foresee continuing on through the second half of the year.

Great. And then maybe one more follow-up question for Michael. Sounds like you guys are having some great new, I guess, attraction with K-12 classrooms in school districts. Can you just give us an update kind of on the refresh cycle opportunity again of the customer demand from the school districts? Are you seeing increased traction or increased demand from new districts, or is it expansion and take-out opportunities of prior districts? Just any comments there would be helpful.

Yeah, no, thanks, Jack. So most of the opportunities we're seeing are refresh opportunities. So these are school districts that are replacing old technology. Often it's old interactive whiteboards that they're replacing. And in some cases, interactive flat panels, you know, first-gen interactive flat panels. So largely refresh. Now when they're refreshing, you know, they're taking out competitors' products and then generally the contracts we're winning they're putting in our solutions uh replacing a competitor um but uh it's an interesting time for the industry largely because there's a lot of money in in the industry and that's really driven by um the fact that school districts already had relatively robust budgets but but those budgets were augmented with federal funds and as we've talked about in the past you know we have these extra funds about 191 billion dollars that was allocated to education uh most of that 191 million dollars hasn't been spent so that's being spent now um the bulk of that expires in 2024 if it's not expended or if it's not expended and so you know we're seeing these school districts looking of ways to to utilize that money and we're benefiting as well as all industry is benefiting from this additional money that's in the system and so as we're looking out we're expecting more and more of these large refreshes and i would as well that we're seeing some really big districts right now where there's opportunities for us to compete. There's various RFPs out there with some of the largest school districts in the country, and we're hoping we win some of those, which will further expand our opportunities going forward.

That's great to hear. And actually, I'll sneak one more question in there. Just given the strong customer orders, it looks like over 81 million received in the quarter. And inventory is nice to me. It looks like it's building. It's over 45 million. Can you just talk about maybe your inventory levels on hand and how you expect that to build or, you know, to shift going forward? Just giving you such strong customer orders and it seems like you have a pretty loaded back half of this year. How are you planning the inventory?

Yeah, so I would say first off, from an inventory standpoint, we're in a better position now than we've been in the last couple years in that we have inventory in-house or we have it on the way. or being manufactured now to hit our targets for Q3, and we're already scheduling after Q4. And that was not the case. Even a quarter ago, you know, we were having more struggles of getting deposits down and getting inventory planning in place. So we're in a really good place. As far as dollars, we're going to see that inventory balance start to decline a little bit through the slower part of the year, and then it ramps up again in Q1, preparing for the strong season Q2, Q3. So you'll see that kind of, you know, come down a little bit and then ramp back up. Of course, based on our projected growth, you know, those inventory levels should be a lot higher come this time next year. But we're really kind of out of the, you know, we're out of the crunch that we run into seasonally to where there's higher demands on having inventory production in place.

Great.

Really helpful color, guys. I'll have that in the queue. Congrats. Thank you, Jack. Appreciate it.

Once again, if there are any questions or comments, please press star 1 on your phone at this time.

There appear to be no further questions in queue. I would like to turn the floor back over to Michael for any closing comments.

Great. Well, thank you, everyone, for your support and joining us today on our second quarter 2022 conference call. And we look forward to speaking with you again in November when we report our Q3 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.