Boxlight Corporation (BOXL) on Q3 2021 Results - Earnings Call Transcript
Operator: Thank you, and welcome to the Boxlight 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 the 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 that 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 and analytical tools to understand the company's operations. The company has provided reconciliation to the most direct compatible GAAP financial measures in the earnings press release, which will be posted on the Investor Relations section of the company's website at investors.boxlight.com. And with that, I'll hand the call over to Boxlight's Chairman and Chief Executive Officer, Michael Pope.
Michael Pope: Hi everyone, and thank you for joining the third quarter with 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 ended 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. 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 IP 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 FrontRow will accept the position of Senior Vice President of Audio Solutions at Boxlight and manage Box Light'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 trailing 12 months ended October 31, FrontRow 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 here, and we actively pursued FrontRow with its standout solutions. We look forward to fully integrating the FrontRow 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 resell the 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 both box light.com and clever touch.com or by following Boxlight clever touch and on the various social media platforms. The case studies cover implementation of our broad. So including interactive displays, digital signage solutions, stem education, and professional development services. The examples also cover both the education and enterprise markets and our 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 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 learnings 2021 best tools for back to school for both primary and secondary levels for four of our solutions Armenio connect, blend, learning platform, pro color interactive displays, robo 3d printer, and my stem kits platform bundle and professional development by EOS education. Earlier this month, we were recognized for two tech and learning awards at this year's Infocom, the largest Pro A event in north America. Our clever touch impact plus interactive touch stream and clever touch live content management platform were both recognized as best in show winners. We also recently expanded our partnership with Samsung to offer our Samsung box light Chromebook class, collect a state of the art one to one technology solution. The collection combines the best in class technology, Samsung Chromebook with our menu view document camera, menu connect, blended learning platform and box like 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 lead the industry with that. I will now turn the call over to our President Mark Starkey to provide additional insights.
Mark Starkey: Thank you, Michael. Q3 was another quarter of rapid growth for box light, 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 $50 million of orders in Q3 that represents 756% growth in order intake year on year. If we include ARA 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 a 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 nine fold 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 FY '22 with a healthy backlog, our largest customers in Q3 in terms of order intake was 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 con continues to grow with over 350 active partners. We received $3.1 million of orders from our US distribution partner, D and a further two $2.1 million of orders from trucks to highlight some of the US orders that we received during Q3 in Spain, we received $2.9 million of orders from our partner Charma international. And in Northern Ireland, we received $1.7 million of orders from our partner NAIA back in Denmark. We received $1.6 million of orders from unit DK and in Finland, we received $1.3 million of orders from ET Euro parts in the UK, where we have done where we have over 600 active partners. We received $1.2 million of orders from DNS and just over $1 million of orders from Roche audio visual, and to highlight a few of our key customers, the US and the UK, both accounted for 27% of our orders booked during Q3 with Amir, 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 pro and clever touch. Our overall global market share of IPDs excluding China increased from 6.1% to 7.1%. According to the latest report from future source, we remain in the top two, if PD providers in the, with 15.2% market share and are confident that 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 IFDS is estimated to be worth 1.8 billion in 2021, growing to 2.2 billion in 2022, according to future source, the market in AMEA is slightly smaller. At $1.5 billion growing to $1.7 billion by 2022. Overall, this gives us an addressable, if BD 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 energy users, we had another quarter of great wins across the globe in Germany. We have a fantastic win with 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 UX pro solutions. The deal is worth at least $1.4 million and will help power our growth into corporate solutions with a German public sector. In Holland, we want a contract to supply our UX pro solution to GD the Dutch national health provider, putting our clever touch solution in, into their offices, vaccination centers and COVID test locations in the UK. We had some fantastic wins with schools, such as Camden in London and Barry grammar school. In both instances, it was our software, including links, whiteboard, and clever touch live that enabled us to differentiate from the petition in Northern Ireland. Our partner NIAC 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 MI pro tele solution. The school district really liked our unplug casting solution, and this differentiated us from the competition. We also had another great win at Harford County in Maryland the 500 classrooms replacing their old screens. The teachers evaluated our solution, and again, really liked the ease of use and the solution. Finally, with our cow Ripkin 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, IPDs and audio equipment from box light. During Q3, we solve more than 3,300 MI 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 have $1.4 million of software revenue Q3, and I've 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 continuing the monetization of our software suite. Our expectation is that mimeo connect links whiteboard and our app score will be the foundation of our sales based solutions and create a high margin annuity stream moving forwards. The addition front row to our Boxlight family means that we extend our reach into the classroom. We now have a comprehensive solution set that includes IPDs both Mimio and clever touch stem solutions, including 3d printers, lab, disc portable science devices. Mimio my bot robotics and coding solutions or utilizing my stem kits platform. We also have a multitude of software such as MimioConnect Mimio studio octopus and links, 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 to growth in ed tech 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 CLA classroom solutions, including our MI connect software and our MI view camera. This deepens our relationship with Samsung. And why does our solution set 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 ordering intake number to be north of $210 million for the full year, providing a substantial increase to our sales backlog. Now adjusted EBITDA percentage has continued to improve throughout the year from 4.8% Q1 to 11.5, 5% in Q2, and then 11.9% in Q3 despite strong large pressures due to increased rate 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 substantial increase in the cost base. With that. I will now turn the call over to our CFO, Patrick Foley.
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 for, to provide the context to box flight international operations on a revenue 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 a single largest customer at about 15%. And these are based across a number 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 IPDs and represented 91% of this total with related accessories being the balance of 9%, the balance of total revenues coming from our software services and stem solutions, whereas margin for the quarter was 25.9%. The FPD margin was about 23%, which would've 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 costs will remain throughout 2021, as noted. In previous quarters, we have experienced some supply chain challenges, including internet options 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, our managing well and the most and extending our production planning and increasing prices to customers in terms of screen sizes in Q3, the education sector represented 96 and a half percent of all interactive display sales with approximately 73% of these were 75 inch and six inch panels and follow our trend formats. I'll now review the third quarter results. The financial results for the three month 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 month ended September 30, 2020 resulting a 544% 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 '22, 30.4% 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 inversed 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 30th, 2020. The increase primarily resulted from additional overheads associated the acquired Sahara operations in September, 2020. Other from an 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, 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 30th, 2021 as compared to a net's loss. A 4.2 million for the three months ended September 30th, 2020. The next income attributable to common shareholders was $412,000 and 4.2 million loss for the three months ended September 30th, 2021 and 2020 respectively after deducting the six 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 this the effect of cumulative foreign currency translation adjustments on consolidation with the 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 30th, 2021 was a 1 cent per basic and diluted share compared to a 10 cents loss per basic and diluted share for the three months ended September 30th, 2020 EBITDA for the three months ended September 30th, 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 with $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 of liabilities and the effects of purchase accounting adjustments in connection with acquisitions at September 30, 2021 box light had 6.2 million in cash and cash equivalence 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 in outstanding and $3.1 million preferred shares issued and outstanding. The financial results for the nine months ended September 30, 2021 revenues for the nine months ended September 30 will $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, an increased demand for our solution 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 30th, 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 to 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 rates and caused causes a 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 for customers, total operating expenses for the nine months end of September 30, 2021 was $34.2 million as compared to $11.5 million for the nine months end of September 30, 2020. The increase primarily resulted from the additional overheads associated, 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 in September 30, 2020. The increase in other expense was due to 1 million of increased interest expense associated with increased borrows, $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 for series Brie preferred shareholders of 952,000 in 2021. And the fair value reevaluation 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 of fact year to date of 1.7 million loss and $0.4 million loss for the nine month ended September 30, 2021 and 2020 respectively. The EPS loss for the nine months ended September 30, 2021 was $0.12 cents loss per basic, and diluted share compared to a $0.31 loss per basic and diluted share for the nine months ended September 30, 2020 EBITDA for 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 30th, 2020 adjusted EBITDA. 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 li derivative liabilities and the effects of purchase accounting adjustments in connection with acquisitions and at September 30, 2021 box light 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 an outstanding and $3.1 million preferred shares issued an outstanding. And with that, we'll open up the call for questions,
Operator: And the first question is coming from Brian Kinstlinger from Alliance Global Partners. Brian, your line is live. Please go ahead.
Brian Kinstlinger: 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?
Michael Pope: Yeah, so the guidance we provided would include the additional two months of front row. Yeah. The way we look 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.
Brian Kinstlinger: So I'm curious if you could break down the US growth versus the rest of the world and the third quarter. And I guess the way I'm, I'm thinking about it right now is there's a slowdown in the full fourth quarter. Maybe that is the shortage. Because if you add front row into it, it just, it suggests that with the total growth. So if we can go through the breakdown of growth and maybe where we're maybe seeing temporary slowdown based on timing or component shortages.
Michael Pope: Sure. So kind of Brian it's pass. I can take that one. So in terms of our kind of total revenues on a combined basis, kind of us and rest of the world for our kind of Sahara and boxlike solutions. So in the US, in the quarter it was $27.7 million in the US and $33.3 million in the rest of the world. And if you compare that to kind of last year's Q3 we had obviously 9.5 million of total revenue of which $8.7 million was us based revenues. It gives a kind of a 218% growth in the us as you would see from a combined basis, obviously sorry, say again, Brian and Sahara, Sorry, and Sahara. But if I looked at the $33 million, what, what did Sahara do in the quarter for Q3 last year? So obviously you're on a combined basis. I haven't done it on a PROFOR basis. Obviously it was only right only consolidated at the end of Q4 last year QR.
Brian Kinstlinger: So in the fourth quarter, is there a slowdown? And if so, no.
Michael Pope: 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 busy period of the year which if you look at 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, really where that comes from in terms of the totals. So as you can see from our guidance, we are kind of calling 40 because it's not a slowdown 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. Yes. And that $32 million had had a full quarter of both the Sahara group plus box slide in that quarter. So that's a true comparable. So we're, we're expecting to go from a 32 million for fourth quarter last year to minimum of 40 million in in, in the fourth quarter of this year. I assume that this is again $0.25 grade million. Yeah from the acquisition.
Brian Kinstlinger: Well, so the acquisition, you have seasonality and acquisition as well. Right? So, if you look at kind of similar seasonality, cause it selling at the same market, you know, there will be, there will be some, there's gonna be definitely revenue that comes in from acquisition but, you can't take a straight line percentage.
Patrick Foley: Okay. And then just put 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. 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, cause we have stock ordered manufactured for our sales in Q4. So there will be additional pressures on that in Q4 our mitigate that is actually increasing prices where possible and pass that on through to customers to alleviate some of the pressure on that module.
Brian Kinstlinger: Okay. And lastly the recent press release on trucks becoming an exclusive reseller of clever touch. 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, or, or what they'll lead with and then who was selling clever touch before in The US and what kind of revenue did they generate like you have to replace, I guess
Michael Pope: Yeah. So, great question, Brian. So previously you know, we had an exclusive arrangement for Allstate bar, Texas with TE and one of the key reasons that TRX acquired T E was actually because of the exclusive contracts that, that T and he had with clever touch. So that was a key reason why they want you to buy them. Now, as you states, trucks does have a big relationship with new line. However, they are very, very interested in the exclusive arrangement that we've got with clever touch. It took us a long time to renegotiate that contract with and it doesn't change overnight, but we are working very, very closely with trucks. And we expect, significant growth in that contract over the next 12 months. So you don't lose anything because tyranny continues to sell under the cuz they're part of tracks, but from the track standpoint, you'll get incremental because to the degree they sell your product instead of new line that's incremental revenue. Yeah. Well, to put it in perspective, tyranny had about, I don't know, 2025 sales guys and trucks have got 180 sales guys. So, so, you know, we were doing those numbers with the TNI sales team and now we've got the combined, you know, trucks and TNI sales team. So it's a much larger sales team. We've got much better coverage with our partnership with them across the US. So, you know, there's a very significant opportunity to you for us.
Operator: Your next question is coming from Jack Aarde from Maxim Group. Jack, your line is live. Please. Go ahead.
Jack Aarde: Okay, great. Hi guys grab some installed results in the gap profits pretty, pretty good to see that it's first time. I, I think I have seen that from you guys. Some congrats on that and in the supply chain environment, we're in couple questions. I'll start with the question on the federal funding programs that are in effect, at least in the US. And how, I guess a general progress update there from the, your guys' perspective on how you're working with districts to help them get those funds allocated to them and sort of what that represents for a what what's left untaxed for remaining opportunity to help grow sales in the us.
Michael Pope: Yes. So Jack, I appreciate the question. There, there's a tremendous amount of opportunity for federal funding, both in the US and internationally, but the funding in the US of course, is substantially larger than what we're seeing in other countries. And the us you'll remember that the federal government made available just shy, have $200 billion for education and they they've termed those as the ESER funds, right? ESER scanning for elementary and secondary school emergency relief, and there's three tranches. And, and some of this may be may, may be, be redundant from previous calls, but there's three tranches of those ESER 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 know, you remember the first tranche was the Cares Act money. And a lot of that's been spent the se second tranch is being spent in the third, which is by far the largest. That is a lot of that hasn't been spent is being accessed and applied for now, but a lot of that's still available. And so in short, you know, of all of that money and, and keep in mind the third, the third tranche was about $130 billion of the, roughly $200 billion. So, the largest from that it 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 in white papers on, on how to access the funds. We have a dedicated person Dr. Reinhart, who's our director of strategic grant and, and he helps work with schools to access to 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.
Jack Aarde: Okay, great. That's helpful. If I just follow up then from your comments around, obviously every company in any industry virtually is being impacted by the global supply chain issues just you, you did mention that you to combat this, you have been raising prices. Can you just talk a little bit more detail there of like when you began raising prices on what products in what markets in, you know, what the general response has been from, from your end customers?
Michael Pope: Yeah. I can say a couple things and, and then, and then mark, feel free to jump in. So, we've had several price increases both internationally throughout Europe, as well as in the US, we've had you know, three or four price increases in Europe, I believe mark, if I'm wrong and then we've had two to three price increases or so in the US, 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 they've been hit really hard on shipping costs and also there's a lot of components that go into those displays and, and, 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, with, higher increases on the panels and we've done pretty well of offsetting increase in the cost of the goods. We've done pretty well there to, to us at most of that. Shipping's another story. And you've heard pat talk about, and his talk track that we've given up about are points of gross profit margin just on, on shipping. And so as that starts to normalize your safe data, another four points or so to our gross profit margin in the future.
Mark Starkey: What I would add on top of that, Michael, is 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 sun customers where we've had to hold the price a as we're agreed per the contract. So it is, it's a mixed bag. But I think generally you know, most of our customers have worked with us and, and those prices, those price increases have been passed on.
Jack Aarde: Okay. appreciate that. And then maybe just somewhat tied to maybe gross margin upside in the future would, would be, you know, I can imagine an increasing mix of software sales. So you, you did mention, you know, interactive panel displays continue and will continue to be a core in the bulk of your revenues. But right now I think, software, I think it's that you're on track for about $4.5 million, nearly $5 million of software revenue this year in 2021, just longer term looking at 2022. And then, 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 how strategically going about that, and is it all Samsung driven in the future? What are the other drivers qualitatively?
Michael Pope: Yeah, that's a good question. Thanks. couple 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 our, up on differentiation, you know, most of our sales, 80% of our sales are coming from the interact with flat panels today. But to be successful in selling flat panels, you have to have the software, because no school district or corporate customers going to purchase, panel without having, 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 years ago, and we've made a lot of headway the last, last several quarters. But we're focusing on SA strategies. That's true of our new MI connect software platform. That's true of our links 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 and 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, you know, 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 gonna be spent on hardware. When you think of handheld devices for the students and interactive flat panel and cameras and, and you know, other devices in the classroom, a lot more dollar go to hardware than to software, but we want to participate both in the hardware software. And so I think a good long term else would be something around, around 10% of our total sales.
Jack Aarde: 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 under certainty in the world with the, the supply chain environment, and then also, 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 that's a big uptick in revenue which, you know, you have to sell a lot more products. You have to have a lot more components and inventory for the, so given the current state of the world what level of competence do you have that those, those targets are achievable given how everything's playing out right now?
Patrick Foley: I'd say very confident, we the demand is there. There's no question about that. We're seeing higher demand now we've ever seen. And that's a testament to the salute we're providing but those numbers take into account the potential struggles around sourcing that that's baked into those numbers, and we feel very good about achieving those numbers. Keep in mind, we have five, five quarters in a row where we've beat the guidance we've provided. We have a pretty good track record at this point, and we're gonna beat those numbers as well.
Jack Aarde: Great to hear. Well, I appreciate at the time guys, I'll hop back in queue. Thanks.
Operator: Your next question is coming from Scott Buck at H.C. Wainwright. Your line live, please go ahead at Scott you're line, ask the question. Thank you to Drew. 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.
Martin Roth: Thank you. Good day, gentlemen. This is my first exposure to management. We purchased stock a few months ago and we're gratified by the continuing friend. 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?
Michael Pope: Well, well, first off, I want to say we appreciate you as, as an investor, so we're, we're glad that you took a position and, and it's definitely good meet you. I mean, as far as insight into movement in the stock the, the only thing that we could point to is analysts had us at 4 cent per share, and we came in on 1 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 would be netting C positive, right? and we would be, you know, positive EPS, which we hit both those numbers. We also gave guidance on revenue. We guided the $60 million, we beat that number. We guided the $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 and 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, 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 of 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 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. Yes.
Martin Roth: Okay. Well, my thought is that in a way you're in a different specialty, but you are 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 except of selling more software, you're not going to be a, a business that can easily go into the high twenties or even 30 in the next few years. Do you disagree with that?
Michael Pope: Okay. So Martin, just to clarify, CDW is one of our largest reseller partners. So they sell our solutions and we're quite different than CW, or, you know, attracts we talked about earlier or how these are some of the larger resellers in the US. We're different because we are the manufacturer. So we manufacture solutions under our clever touch brand, as well as our MI brand. And we sell those through reseller partners or the channel globally in the US as well as internationally. And so we should be valued very differently because we own IP. We own the technology, we're going to be able to prove much higher margins over time than these various reseller partners. So definitely should be evaluated differently.
Martin Roth: What percentage of your sales come from self-manufacture products?
Michael Pope: Yeah, 95% plus or 90% plus of our sales come from our own branded solutions.
Martin Roth: 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.
Michael Pope: Yeah. So right now our growth profit is being hampered a little bit as we talked about by some of the challenges in the supply chain. Yes. In shipping, if we, if we took some of those challenges out, we would be at a 30% or 30% plus gross operating 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 to 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 margin and various accessories, which a lot of the, those are 50% plus gross profit margin and our stem solutions with typically 50% plus and our services division that's 40% plus. 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, we're not guiding to time periods on that, but, but because again our, we believe our product mix will improve over time with higher gross profit margin solutions. You're gonna 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.
Martin Roth: Okay. Thank you. I think also just in addition, Michael, just to add on that in terms of other things that are coming, obviously improve margins just on our inter FLA interactive flat panel displays is obviously I always kind of pick up the shift to the larger screen formats, which come with a, a, 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, a key growing part of the business going forward, which come with much higher margins ordinarily just on our inter interactive slack panels. So that also adds to the kind of the product mix as well. And the margin mix. I'm reading in between the lines of what was said, were 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 a gross margins to be because of this situation that your price increases have not carried enough with them to offset. Am I correct?
Michael Pope: For, the current that for the current year? Yeah. So we do expect the kind of as with all businesses 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, you know, straight kind of margin. So that should begin to normalize when we, you know, when we get through the back end of the effects of this pandemic. So, you know, 20, 22, within 2022, we should start seeing that also naturally kind of improve. So,
Martin Roth: So the gap will remain that you have in the third quarter, assuming we see more increases that the fourth quarter one show an improvement in gross margin. Is that fair to say?
Michael Pope: I think it would be pretty static. And I think an earlier question that came was asking a question, a comparison of Q2 versus Q4, which would have similar you know, kind of revenues kind of slightly are guidance for slightly under the Q2 revenues. But yeah, that would be one of the reasons cause there are these increased costs that we are currently bearing. Some of them are.
Martin Roth: 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 our 17 sales people enough to cover the world.
Michael Pope: No, I think no, the 17 related to the acquired business that we're acquiring 37. So the so front row has 44 employees of which 17 are their current sales staff, which includes some people located internationally. No, that we have a significant sales force across the operations and the operations we have. Yeah, we have, look, we have over 25 already in the US and probably over 60 across EMEA. 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 sales, but
Martin Roth: 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?
Michael Pope: Yeah, so as far as savings, there will be maybe some small amount of savings, but I think that the major focus of us is right revenue capture and future profitability from growing overall business. So I think again, minimum cost savings and more focus on combined growth of our business, which will drive more to the bottom line.
Operator: Your next question is coming from Ryan from 1032 Private Exchange Group . Ryan, your line is live. You may go ahead.
Unidentified Analyst: Hi. I know you guys don't like giving earnings projections, but if the gross over the next 2022, if your gross margins are improving, I see there's some charges and related to currency and some 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 cast position is, is just 6 million, what you perceive as your cat burn going forward.
Michael Pope: So, pat, how about you say the first question? I'll take the second question about the front room.
Patrick Foley: So, sorry. Could you just repeat the first thing because obviously its listening to two parts. So sorry please say again.
Unidentified Analyst: 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 a kind of a guidance as to the earnings forecast
Michael Pope: Earnings per share? Yeah, so yeah, so obviously we, we are forecasting an improved position. So as Michael said are not expecting to do a kind of a cost saving exercise, its pure growth. So with that comes the increased margin covering, you know, the predictable, unknown overhead which then will improve our overall profitability as a group. So without going into kind of giving total kind of forward looking positions, the results as we are calling, you know, this year you've heard our adjusted kind of EBITDA number we calling for this year. So next year that's going to grow significantly. And the difference will be that in 2022 net income positions, 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 gonna be a, you know, a fundamental change you've seen the growth kind of year on year. And what we've been going through on a course quarter basis as well. Yes, the seasonality, which you explained earlier, but that will continue throughout 22, we've got the accretive and incremental a kind of front row business, which is really excellent. It's high margin business, which is really excellent. So that is purely increased for the total results. So we should see good performance improvements throughout '22, would you say five, 5 cent a share is, is the number to that you guys can hit or is that too optimistic?
Unidentified Analyst: I don't want to give too much kind of like information on the call, like, but yeah, I know guidance 10% just EBITDA. Yeah.
Patrick Foley: Yeah. Our guide, our guidance is specific to the just EBIDA figure, which is the figure we think is the most important figure in evaluating the business on, on bottom line. And so, yeah, we've guided to for next year, 230 million in revenue and 10% or 23 million adjusted EBITDA that's we're comfortable with. And we say greater than that number, meaning we think we can beat that number. Yeah. Just, just a couple more comments Ryan on front row because 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 S E filings, we did include the purchase agreement and you can go look at that. And then we provided some more information today. When I, when I was sharing my portion of the, the script that being said just a reiterate, the purchase price, the way you should think of it is if $23 million for the company plus we're paying for, for roughly the total net assets. And we think there's gonna 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 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 a balance sheet. So the way that we're looking to close a transaction is we are looking to raise debt to fund acquisition. That's something we're working on now. We we're doing that intentionally because we don't want to do anything. That's gonna 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 expect and the service of that debt we think will be covered by front row, very comfortably by just the cash for the front row spits off. And so we think financially is gonna put us in a, in a good cash flow position.
Unidentified Analyst: I appreciate that. And with that, I have one last question. I saw a guy, a company structure, a deal where they, 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 months to 18 months, which I thought was pretty good? And I'm wondering, do you have -- 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?
Patrick Foley: Yeah, so we're constant, we're looking at opportunities and we are evaluating opportunities as we speak. We don't have anything that we can share specific at this time, but also as we structure those transactions, oftentimes we'll look at, at earn out approaches. Like you mentioned, we've done that with some of our previous transactions. So that's definitely something that we'll evaluate on case by case.
Operator: And we have it question from Kyle Lan . Kyle, your line is live. Please. Go ahead.
Unidentified Analyst: Hey guys. Awesome quarter real quick question two part box light got accredited with Texas instruments curriculum K through 12. Have we seen any contracts or revenue from the accredited and are we trying to get any accreditations from any other state curriculums right now?
Michael Pope: Yeah, 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, we've successfully been able to tackle with Google and, and another 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, little bit, a little bit more on that, 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. And we understand that there's not gonna 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 training in professional development, and that adoption is going to lead to, of course, the solutions being successful in every various environments, but also that adoption's gonna lead to happy and successful customers, the results in follow on sales in 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, you know, partnership certifications, et cetera.
Operator: 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.
Michael Pope: 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.
Operator: 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.
