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spk01: Thank you, and welcome to the BoxLight Third 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 expectation 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 earning press release, which will be posted on the investor relations section of the company's website at boxlight.com. And with that, I'll hand the call over to BoxLights Chairman and Chief Executive Officer, Michael Pope.
spk05: Hello, everyone, and thank you for joining. Also on the call are Mark Starkey, our President, and Greg Wiggins, our Chief Financial Officer. Mark is joining us from London, and Greg and I are joining from our corporate office here in Atlanta. The third quarter was our strongest to date with $69 million in revenue and $10 million in adjusted EBITDA. Revenue grew by 13%. and adjusted EBITDA by 38% over the same quarter last year. We have delivered double-digit or greater revenue growth for eight consecutive quarters and continue to gain meaningful market share globally. Recent movements in foreign exchange rates have impacted our financial results, specifically the weakening of the pound and the euro against the US dollar. If foreign exchange rates had held constant during the quarter, we would have reported greater than our guidance of $70 million in revenue and $10 million in adjusted EBITDA. Our gross profit margin for the third quarter improved to a record 31%, a dramatic increase over our Q1 gross margin of 25% and Q2 gross margin of 28%. The improvement was largely a result of additional decreases in supply chain and logistics costs. We expect gross profit margin greater than 30% for the fourth quarter. For both the three and nine months ended September 30th, for the first time as a company, we generated positive cash flows from operations. We also ended the quarter with an improved balance sheet, including $22 million in cash, $49 million in inventory, and $62 million in working capital. Our debt balance as of September 30th was $59.2 million. However, subsequent to quarter end, we made a principal payment of $4.25 million, reducing our current debt balance to $55 million. We're expecting only modest growth in the fourth quarter and have revised our guidance to $48 million in revenue and $2 million in adjusted EBITDA, resulting in our full-year guidance of $227 million in revenue and $18 million in adjusted EBITDA. Our full-year guidance represents revenue growth of 23% and adjusted EBITDA growth of 49%, over the full year 2021. Although we have experienced slowing demand in recent months, we still expect to deliver double-digit revenue growth in 2023 and significant improvement to our gross profit and adjusted EBITDA margins. We are a global company with offices across the United States, Western Europe, Canada and Australia. Today, we have nearly 300 employees and full-time contractors, including over 100 individuals in our sales organization that manage hundreds of channel partners with thousands of sales representatives across the globe. We also have over 100 employees and full-time contractors in our R&D, professional development, and customer service teams that develop, deliver, and support our complete lineup of hardware, software, and service solutions. Earlier this year, we introduced our new generation interactive Slack panels and sizes ranging from 55 inches to 98 inches under our brands Clever Touch and Mimeo. Our current touch screens have been our most successful solutions to date with upgraded hardware and software, including Android 11, upgraded speakers, USB-C inputs with hardware optimization, multi-user profiles and launch screens, our Clever software portfolio, and compatibility with Google Classroom and cloud accounts. During the third quarter, we launched our all-in-one LED video walls with sizes ranging from 120 inches to 220 inches. We also introduced our Clever Hub wireless presentation system with built-in digital signage capability and touchscreen functionality designed for video conferences, meeting rooms, classrooms, and training rooms. Our interactive and non-interactive displays, video walls, and media players all come enabled with our Clever software assets CleverStore, CleverShare, and CleverLive. CleverStore is our cloud-based app store with hundreds of vetted applications. CleverShare is our collaboration tool providing enhanced screen sharing and screencasting functionality. And CleverLive is our digital signage software platform enabling the creation, deployment, and management of content across multiple displays in any location. and the ability to send out alerts and messages integrated with our front row audio solution for campus communication. During the quarter, we also pushed significant updates to our education platforms, Lynx Whiteboard and Mimeo Connect. Lynx Whiteboard is a cloud-based software tool that provides for whiteboarding, lesson plan creation and delivery, and student collaboration across multiple platforms and devices. It is available free of cost for download on every major app store. Today, we have nearly 200,000 registered users and 25,000 monthly active users on Lynx Whiteboard that are engaging with over 100,000 monthly sessions. Our Mimeo Connect blended learning platform is the most feature-rich solution on the market for virtual and hybrid learning. During the quarter, we added several additional features, including the ability for students to add and save their own annotations and notes to instructor lessons, teacher functionality to view student work live as well as share students' work, screens, or notes to the front of the class display, student polling via text messages, and enhanced STEM lessons with set math and science simulations. During the quarter, we launched our first pilot of Mimdale Connect with a large school district, and we expect meaningful monetization of the platform with several school districts beginning next year. In December of last year, we announced the acquisition of Front Row, adding robust audio and campus communication tools to our product line. We continue to integrate Front Row solutions into our broader solution suite and have since introduced our integrated AV campus communication system under the brand Attention. Attention enables announcements, bells, and alerts to be delivered as both audio and video simultaneously across the school. This new integration makes communicating in school campuses significantly easier, including emergency communications. We continue to receive recognition for our solutions, and during the third quarter, we earned 11 Best for Back to School 2022 awards from Tech and Learning. The solutions awarded include Mimeo Pro 4, Clever Lives, Mimeo Connect, My STEM Kits, EOS Education, and Attention by Front Row. With that, I will now turn the time over to our president, Mark Starkey.
spk02: Thank you, Michael. Despite strong inflationary headwinds, record drops in the value of the euro and sterling, and recession fears across EMEA, we still managed to achieve a record quarter of both revenue and profit in Q3. For that, I must 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 $44 million of orders in the quarter, which is down 14% on Q3 last year. However, on a year-to-date basis, the value of orders booked for the first nine months of this year is $191 million, compared with $179 million booked in the first nine months of the previous year, representing 7% year-on-year growth. On a local county basis, the growth rate is much higher as the EMEA business has been impacted by the significant devaluation of both Euro and Sterling. We are now forecasting more than $220 million order intake for this financial year. Our largest customer in Q3, in terms of order intake, was Bloom in the US, with $5.9 million of orders received. Our organic growth in the US has been very significant. and we anticipate more than 130% growth in gross profit for the full year in the US. In terms of other key customers in Q3, we received $2.2 million of orders from Cameramundi, our partner in Puerto Rico, $2.1 million from Graphics Distribution, our US distribution partner, $1.6 million from Central Technologies in Tennessee, and $1.4 million from D&H Distributing. Bischoff AG in Switzerland was our largest customer in EMEA, placing $1.5 million of orders in the quarter. We received $1.4 million of orders from UnicDK in Denmark and $1.1 million from IDNS in the UK, to name a few. Overall, the US accounted for 44% of our orders booked during Q3, with the UK accounting for 26%, Europe excluding the UK accounting for 24%, and the rest of the world, 6%. In Q3, 67% of our revenues came from sales of interactive flat panels, both Mimeo and Clevertouch, with our front row audio solution accounting for 8% of revenues and 14% of gross profits. Our market share of IFPDs in the US increased from 5.3% in Q1 to 8.4% in Q3, according to the latest report from FutureSource. Our market share in Europe was similar and increased from 5.6% in Q1 to 6.6% in Q3. We remain in the top two IFPD providers in the UK with 14.4% market share. We continue to be the top two brands for market share in Ireland, Australia, Austria, Sweden, Finland, Denmark, Belgium, Switzerland, and South Africa. Our biggest opportunity for significant growth remains in the US, where we are ranked number five with an average market share of 6.6%, and Germany, where we are ranked number seven with 4% market share. In terms of market size, the US market for IFBDs is estimated to be worth $2.2 billion in 2022, according to FutureSource. The market in EMEA is slightly smaller and estimated to be worth $2 billion. Overall, this gives us an addressable IFPD opportunity in our two key markets of about $4.2 billion. Given that we have single-digit market share, we believe we have 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 Puerto Rico, we received orders for more than 2,000 Mimeo Pro4 screens. to be supplied to schools right across the territory. And we expect to win another 3,000 screens in the imminent future for both interactive and non-interactive solutions. We also won a tender to provide more than 500 Mimeo Pro 4 screens in Port Arthur, Texas. The solution included a rollout of professional development to help the school district implement the technology. In Germany, we had a fantastic tender win in Düsseldorf with a minimum requirement of 668 86-inch Impact Max screens, but with potential for over 1,000 screens to be supplied over the next two years. In Switzerland, we won a project to supply 650 86-inch Clevertouch screens to the canton of Ticino. They selected our Clevertouch solution against the competition based on the best product features. These are just a handful of the many projects that we won in Q3. We continue to grow our corporate teams in both EMEA and the US and develop solutions to the problems that many enterprises are having as they adapt to the new hybrid world working both remotely and in offices. In summary, Q3 was an outstanding quarter with record revenues and profitability. We believe we are well positioned to weather any potential downturn in market conditions due to our strong mix of K-12 business mixed with corporate and higher education solutions. Our focus remains on growing our business in a profitable and sustainable way by increasing our market share in the key territories that we operate. With that, I will now turn the call over to our CFO, Greg Wiggins.
spk03: Thanks, Mark, and good afternoon, everyone. I will now review our third quarter results. Revenues for the three months ended September 30, 2022 were $68.7 million as compared to $61 million for the three months ended September 30, 2021, resulting in a 12.7% increase primarily due to the inclusion of front row and increased demand for our solutions in the U.S. Front row revenues for the three months ended September 30, 2022, totaled $5.6 million or approximately 8% of our total revenues. As previously mentioned, FX headwinds significantly impacted operating revenues for Q3 2022. On a constant currency basis, operating revenues increased 22% for the three months ended September 30, 2022. Taking a closer look at Q3 2022 revenues, EMEA revenues totaled 25.1 million, or 36% of our total revenues. America's revenues totaled 43.1 million, or 63% of our total revenues while revenues from other markets totaled 0.6 million or 1% of our total revenues. Our top 10 customers represented approximately 34% of total sales in Q3 with the single largest customer at approximately 17% and are based across a number of markets, namely the US, UK, Puerto Rico, and other European countries. Approximately 42% of total sales are covered by the top 20 customers. In Q3 2022, hardware comprised the largest proportion of total revenues at approximately 96%, of which approximately 69% related to our flat panel displays, with the balance related to classroom audio solutions and device accessories. The balance of our total revenues are comprised of software, professional services, and STEM solutions. Gross profit for the three months ended September 30, 2022 was 21 million as compared to 15.8 million for the three months ended September 30, 2021. Gross profit margin for the three months ended September 30, 2022 was 30.6%, which is an increase of 470 basis points over the comparable three months in 2021. Gross profit margin adjusted for the net effect of acquisition related purchase accounting was 31.6% as compared to 27.1% as adjusted for the three months ended September 30, 2021. The improvement in gross profit margin in Q3 2022 compared to Q3 2021 is primarily due to higher margins associated with front row products, lower manufacturing costs, and continued reductions in certain freight costs. Total operating expenses for the three months ended September 30, 2022 were $14.6 million, as compared to $12.3 million for the three months ended September 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. Excluding front row, operating expenses decreased by $0.5 million to $11.8 million. Other expense for the three months ended September 30, 2022 was a net expense of 2.8 million as compared to net expense of 1.4 million for the three months ended September 30, 2021. The increase was primarily due to an increase in interest expense of 1.7 million associated with increased borrowings related to our credit facility, changes in derivative liabilities of 113,000, and increases in other expenses of 128,000. partially offset by a decrease in gain on settlement of debt of 600,000 from the prior year period. The company reported net income of 3.1 million for the three months ended September 30, 2022, as compared to net income of 729,000 for the three months ended September 30, 2021. Net loss attributable to common shareholders was 2.8 million and $412,000 for the three months ended September 30, 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 $1.9 million and $1.3 million for the three months ended September 30, 2022 and 2021, respectively, reflecting the effect of foreign currency translation adjustments on consolidation with the net effect in the quarter of $5 million loss and $2 million loss for the three months ended September 30, 2022 and 2021 respectively. Earnings per share per basic and diluted share for the three months ended September 30, 2022 was 4 cents and 3 cents respectively compared to EPS per basic and diluted share of 1 cent for the three months ended September 30, 2021. EBITDA for the three months ended September 30, 2022 was $8.5 million as compared to $4.7 million EBITDA for the three months ended September 30, 2021. Adjusted EBITDA for the three months ended September 30, 2022 was $9.9 million as compared to $7.2 million for the three months ended September 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 nine months ended September 30, 2022 were $179 million as compared to $141.2 million for the nine months ended September 30, 2021, resulting in a 26.8% increase due primarily to the acquisition of Front Row in December 2021 and increased demand for our solutions across all markets. On a constant currency basis, operating revenues increased 34% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Gross profit for the nine months ended September 30, 2022 was 50.5 million as compared to 37.2 million for the nine months ended September 30, 2021. The gross profit margin was 28.2% for the nine months ended September 30, 2022 compared to 26.3% for the nine months ended September 30, 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 30% for the nine months ended September 30, 2022 as compared to 28% as adjusted for the nine months ended September 30, 2021. Total operating expenses for the nine months ended September 30, 2022, or 46.6 million as compared to 34.2 million for the nine months ended September 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 nine months ended September 30, 2022 decreased approximately $0.6 million to net expense of $5.1 million as compared to net expense of $5.8 million for the nine months ended September 30, 2021. The decrease was primarily due to a gain of $0.9 million recognized upon the settlement of certain debt obligations in 2022 compared to a loss of $3 million recognized upon the settlement of certain debt obligations in 2021 and a 1.7 million decrease in the fair value of derivative liabilities, partially offset by an increase in interest expense of 4.7 million associated with increased borrowings under our credit facility. The company reported a net loss of 2.7 million for the nine months ended September 30, 2022, as compared to a net loss of 7.2 million for the nine months ended September 30, 2021. The net loss attributable to common shareholders was 2.7 million and $7.2 million for the nine months ended September 30, 2022 and 2021, respectively, after deducting fixed dividends to Series B preferred shareholders of $952,000 in each period and the fair value revaluation deemed contribution of $367,000 following the redemption amendment with the Series B shareholders during the nine months ended September 30, 2021. Total comprehensive loss was $13.2 million and $8.4 million for the nine months ended September 30, 2022 and 2021 respectively, reflecting the effect of cumulative foreign currency translation adjustments on consolidation with the net effect year to date of 11.4 million loss and 1.7 million loss for the nine months ended September 30, 2022 and 2021 respectively. The earnings per share loss per basic and diluted share for the nine months ended September 30, 2022 was 4 cents. compared to a loss of 12 cents per basic and diluted share for the nine months ended September 30, 2021. EBITDA for the nine months ended September 30, 2022 was 12.9 million as compared to 5.2 million of EBITDA for the nine months ended September 30, 2021. Adjusted EBITDA for the nine months ended September 30, 2022 was 16.3 million as compared to 14.1 million for the nine months ended September 30, 2021. Now turning to the balance sheet, at September 30, 2022, BoxLight had $22 million in cash, $62.3 million in working capital, $49.4 million in inventory, $214.5 million in total assets, $59.2 million in debt, and $46.8 million in stockholders' equity. At September 30, 2022, BoxLight had 74.1 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.
spk01: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on a speakerphone, to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Brian Klinslinger at Alliance Global Partners. Please pose your question. Your line is live.
spk06: Hey, great. Thanks, guys. Nice third quarter. I wanted to start by understanding the factors that was driving the reduction in the revenue in EBITDA guidance. How much was change in demand versus change in FX? And then on the demand side, was it all Europe or was it also the U.S.? And if you could maybe delineate.
spk02: Mike, would you want to start with that one?
spk05: Yeah, I can start with that. Yeah, so, yeah, so, you know, Q3 came in about, you know, just barely short of where we expected. That can be explained by, you know, FX. You know, if foreign exchange rates had held constant, we would have came in north of where we expected for Q3. But for Q4, you're right, we did reduce our guidance for Q4, and of that reduction, And we came up with, Greg, about half of that or so that can be explained by FX.
spk03: That's right.
spk05: And about half of that, I would say, is a slowing of demand that we're seeing right now, which we think may be temporary, but we're seeing a little bit of a slowing of demand that's coming in via customer orders.
spk06: And is that the U.S.? Is that Europe?
spk05: Where are you seeing?
spk06: Yeah. Across the board.
spk05: Well, it's a little bit across the board. I mean, FX. clearly is in Europe. Yeah, go ahead, Mark, if you want to jump in.
spk02: Yeah, I was going to say, I think that the actual number, I mean, from Q3 and Q4, from where we, when we were guiding 250, it was 10 million on FX, and then the balance of the DELS was 13 million, which was both across EMEA and the U.S., probably more in EMEA than the U.S., and it's probably, you know, we know there's still a lot better funds in the U.S., which is kind of why we're still you know, more confident that it could be a temporary slowdown because we know there's a lot of funds still to be spent in the US.
spk06: Yeah, yeah. And then as we look to next year, I think that the future source is now revised estimates. And so maybe the market will be down given the surge in spending. You've been really successful in gaining shares since the two companies and two brands have merged. How do you think about next year, your ability to grow if the market does, in fact, decline? And what gives you confidence that you can continue to grow in that market, if that is the case?
spk05: So, a couple of thoughts, and then Mark, feel free to jump in. So, first off, as Mark mentioned, we're still a small percentage of the total market. So, sure, you know, FutureShorts is showing that growth in interactive flat screens is slowing, you know, and actually declining a little bit, perhaps, in certain markets. but because we're still a small piece of the total market, we're confident we can continue to take market share, which is most of our revenues today are from us taking market share from some of our key competitors as these technologies refresh. So when we're looking at the next year, we're still very confident in double-digit revenue growth next year, perhaps not quite as confident as we had been before, you know, a bit of a slowdown, but still, you know, we're confident we'll really take market share. Now, I would add on top of taking market share with some of our historical technologies and solutions we've been selling. Also, we've launched several new solutions, and we believe that those can contribute in a meaningful way starting next year to our revenue that will also make up some of the difference if there continues to be a little bit of slowing of demand.
spk06: Great. Two more questions. The first one is, sorry, yes, please.
spk02: Yeah, I was going to just add to it very, very quickly. You know, I think we've got great products, and I think if we go head-to-head with our competitors, on a shootout, very often we'll win. So we know we've got great products. And our sales team, we've got a great sales team, and that is growing, right? It's been focused on building that sales team, you know, both in the U.S. and EMEA. So, you know, it's now about taking market share. So if we can take market share, we know we're going to grow.
spk06: Okay. Like I said, two more questions. The first one is maybe talk about, I think you mentioned this in one of your answers to my questions, what's left? In terms of stimulus spend for education, I guess I'm a little surprised us is down if there's still. Lots more funds, but maybe we've eaten through a lot of that. Maybe maybe take us through where we are with that.
spk05: Yeah, so so there were stimulus packages that were passed across the globe. We've talked about in the past and of course, the largest was in the US. In the US there, there were really 3 stimulus packages that were that were passed, starting with the cares act. And that was in March of 2020. And then, of course, the largest happened in 2021 with the Biden Act that he passed. But in total, those were $191 billion in the U.S. that were applied to education. Of that $191 billion, the last stimulus package was $123 billion, or we talked about ESSER III, right? So ESSER funds one, two, and three. ESSER III was $123 billion. The vast majority has not been spent. In fact, I just got a report just earlier this week of a group that tracks. They survey school districts across the country, hundreds of them, and they came back with very low double-digit, like in the teens, percentage of what has been spent of that $123 billion. So I am a bit surprised actually by the future source results that show a slowing in 2023 and 2024 because there still is a lot of money to be spent. I'm not surprised we're seeing a little bit of a low now because school districts hurried up and bought a bunch of solutions as, you know, as they got back to, to, to, to in-person learning and they had this additional money, they went out and they bought devices and they bought interactive screens and other technologies. And I think part of the low now is just a result of when you buy a whole bunch, you know, having a little bit of a breather, but, um, but I will say, you know, whether future source is accurate or not, there absolutely is tremendous amounts of money still available to be spent in the U S in particular in this federal stimulus money. And we are actively going after school districts to be part of that solution. In fact, we talked about in the past, in addition to us marketing to them to sell our solutions, which qualify for that, that federal money. Uh, we also have an in house grant writer, and we have consultants in house that help school districts to apply for that money and help plan to spend that money in responsible ways.
spk06: Great. That is super helpful. The last question I am going to sneak it in and it's all I've got is. If you can touch on the pricing environment, are your competitors getting more aggressive given you're gaining share and or a potential weaker market? And then help us on the gross margin, the puts and the takes with what we're hearing from some other companies I cover that are talking about shipping container rates back to pre-COVID levels. So those are the puts and takes. Maybe talk about both of them and how you think about gross margin going forward.
spk05: Yeah. So, so a couple of things, you know, one, you've seen our gross profit improvement in Q3, we came in at 31%. You'll remember Q1, we were 25%, Q2 28%. And then also we guided to Q4, we expect to be north of 30%. And I would say going into next year, we think we can hold that north of 30% gross profit margin for some time. We are benefiting right now of higher margins on interactive displays, which we know we won't hold onto forever. There definitely is going to be more competition on pricing. But right now, we've held our pricing high. We've had minimal discounting. That's true across the globe. Yet we've benefited from lower costing both on buying our solutions, but then also, as you mentioned, freight. You talked specifically or made a comment on container costs, and you probably heard from other companies. Those were back down to single digit, and we've seen those even as low as $5,000 to $6,000 coming to the West Coast. And that is a dramatic reduction from the height of well over $20,000 a container when we were shipping from China. So we definitely have seen transportation costs come down. Again, the cost of buying our solutions has come down, but we've held those prices high. And I think, again, we'll benefit from these higher gross profit margins, even on panels, we think, through 2023. But we'll start to see some pressure at some time in the near future with our competitors dropping prices. And our strategy is to be able to sell our other solutions around the panel, not just to be panel-dependent, We expect to sell our software solutions, our STEM solutions, our accessories, including audio, among others. And that is what's going to help us to maintain high gross profit margins when you're looking out in one, three, five years into the future. Great. Thank you so much. Thanks, Brian.
spk01: Your next question is coming from Jack VanderAard with Maxim Group. Please pose your question. Your line is live.
spk04: Okay, great. I appreciate the update, guys. Thanks for taking my questions. Michael, you know, great to see the record gross margin and the positive gap EPS result despite the FX impact. I noticed that G&A OPEX kicked down quite a bit this quarter. Is this also FX related or did you guys make some structural cost cuts or reductions?
spk05: Yes, it was not, it was not specifically ethics related. It was a combination of a handful of things, but we have had some reductions in our costs in certain areas. And some of those are synergies of bringing some of the acquired companies that we brought in in recent years, including Front Row, you know, December 31 of last year. We have had some reductions in costs as part of gaining efficiencies across the organization. Some of those cost reductions were offset by increasing our sales team, which we've added some strategic hires. We added several additional sales reps in Germany, for example. We bolstered our enterprise team here in the U.S., among other areas. But I would say, yes, across the board, we have had some cost reductions. And the OPEX that you see for Q3, that should be indicative of what you should expect going into Q4 and at least beginning of next year. Okay, great.
spk04: That's a really helpful color. And then also, it sounds like, you know, gross margins you expected remain strong next year as well, so that's good. Maybe just a quick housekeeping question that you normally provide ending back orders. I didn't catch that in the press release. Do you have that number on hand?
spk03: Yeah, so back orders are currently around $20 million at the end of Q3.
spk05: Okay, gotcha. Yeah, Jack, we didn't add it to the end. I think we were still trying to reconcile a couple numbers when we went, you know, so, you know, through that reconciliation, we didn't. We likely will add that back next quarter and put that in the press release and in our talk track.
spk04: Okay. Yep. No worries. Obviously, you know, it is a tough economic environment. We're seeing it from everywhere. I see that, you know, the customer orders, decreased for the first time in quite some time. But just given your positive outlook expectations for, I think you said, double-digit revenue growth in 2023, and you expect improved margins, do you say expect improved profitability as well? Or, I don't know, any indication on the profitability and cash flow line for 2023?
spk05: Yeah, so we haven't provided specific guidance to that, but I think you could arrive at, you know, an estimation, and you could do that by, you know, I think You know, double-digit revenue growth next year is our expectation. Now, that's going to be on the lower side, you know, considering the current environment. But you can tack on double-digit revenue growth. And then also, gross profit margins, because they've improved, you know, we're expecting that to continue into next year. And so, if you tack on 30% or greater gross profit margin in next year, and then, you know, as we mentioned, operating expenses, it should be relatively flat. Yeah, you're going to see substantially improved profitability. And that ought to be absolutely north of 10% adjusted EBITDA, or 10% adjusted EBITDA margin, but we haven't got it to a specific number.
spk04: Okay, great. And then maybe just one more question for me. Since we're coming up on the anniversary of the front row acquisition, I see you did $5.6 million of revenue this quarter. Just how is the business, how does Front Row perform relative to your expectations kind of at the time of the acquisition? And then has Front Row recently also experienced a similar decline in customer order demand? And how do you expect that business to look next year?
spk05: Yeah, so the demand for Front Row solutions has actually declined by more than the rest of our business. And I think that was a result of You know, post-COVID, a lot of school districts went out and they bought audio solutions. And I think there's a bit of a lull now because a lot of the audio demand was gobbled up pretty quickly. And we're kind of in this lull period. But that being said, our outlook is very positive when you're looking out the next several years. And there's a couple reasons for that. Now, one, we're still working with our broader partner network. to sell audio and a lot of those partners had not sold audio in the past. There's a lot of opportunity there and that's across the US and Europe and globally. I think also most of the sales from Front Row, the vast majority, well over 90% have been in the US and we see an opportunity to sell Front Row more globally and we'll start to see that happen. But then also, you know, we talked about more recently that we've added more and more integrations of the Front Row audio solutions, the campus communication solutions into our broader solution suite. specifically our interactive flat panels and displays as well as our new media hub among others. And those integrations we believe are going to result in us being able to broaden the market demand for that combined solution or that integrated solution. And so that story is resonating quite well out in the channel and we expect it to see growth. And also if you look at our largest competitor in the audio space, they're well over double our size, and they're an audio-only company. And so we're quite confident that we can start to take market share from that competitor, among others. And so, again, if you're looking into next year, we're definitely going to see growth as well as into future years.
spk04: Great. That's helpful, Culler. And I actually have one more question, just back to your comments, Michael, in the prepared remarks. You mentioned something about, I think, a debt repayment subsequent to quarter end. Can you just review that again with me?
spk05: Yep, happy to. Yeah, so we, per our loan agreement with Whitehawk, we had an $8.5 million figure that was to be paid by February of next year, end of February. So we early paid half of that $8 million, or $8.5 million. So we paid $4.25 million. We made that payment last week. And we made it early because we had excess cash on the balance sheet and we figured we'd save some interest. And so the additional four and a quarter million payment. We'll make honored before February, but likely by the end of this year, we'll make that additional payment again in an effort to save some. You know, and note that, you know, as I mentioned in our earlier messages, and you can see our financial statements, and we generate a positive castle from operations, both for the 3rd quarter and for the, for the 9 months ended September 30. And so we are generating positive cash flow. We expect that to happen going into the future, and we're going to be in a position to be able to continue to pay down debt, you know, if needed, or have cash for other initiatives.
spk04: Okay, excellent. I appreciate the color there. That's good news to hear. I'll hop back into the queue. Thanks. Thanks, Jack.
spk01: There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Michael Pope for any closing remarks.
spk05: Great. Well, thank you, everyone, for your support and for joining us today on our third quarter 2022 conference call. We look forward to speaking to you again in March when we report our 2022 full year results.
spk01: 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.
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