Boxlight Corporation (BOXL) on Q1 2023 Results - Earnings Call Transcript
Operator: Thank you, and welcome to the Boxlight First Quarter 2023 Earnings Conference Call. By now, everyone should have access to the press release issued this afternoon. This call is being webcast and is available for replay. The remarks today will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about future results of operations, business strategies and plans, customer relationships, market trends and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10-K, Form 10-Q and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, management will refer to non-GAAP measures that when used in combination with GAAP results, provide additional analytical tools to understand the company's operations. The company has provided reconciliations to the most directly comparable GAAP financial measures in the earnings press release, which will be posted on the Investor Relations section of the company's website at boxlight.com. And with that, I'll hand the call over to Boxlight's Chairman and Chief Executive Officer, Michael Pope.
Michael Pope: Hello, everyone, and thank you for joining the call today. After my remarks, you will also hear from Mark Starkey, our President; and Greg Wiggins, our Chief Financial Officer. Mark and I are joining from our London showroom and Greg from our corporate headquarters in Atlanta. I'd like to start by thanking all of our supporters across the globe, including our employees, business partners, customers and shareholders. Our current and future success is entirely dependent on your support. In particular, I'd like to recognize our loyal and dedicated employees. We have the most talented team in the industry, including our Executive Team members, Mark Starkey and Greg Wiggins, who will share with us today as well as Hank Nance, our Chief Operating Officer; and Shaun Marklew, our Chief Technology Officer. Hank and Shaun brings decades of industry-specific experience have been instrumental in developing and maintaining our best-in-class product suite and support organization. Over the last few months, we have attracted several new team members, including Karen Adams, Vice President of Professional Services, joining us after 16 years at Promethean; Clint Knudsen, Vice President of Sales covering the Western U.S., an industry veteran of 15 years, including 11 years at our largest channel partner, Bluum; Julia Moore, Sales Director covering Germany and Austria also previously at Promethean; and Mark Tildesley, Enterprise Sales Director for the EMEA region, bringing over 20 years' experience, including 14 years at Maverick Tech Data. Our employee retention has consistently exceeded 90%, well above the industry average, and we are attracting industry talent often from our largest competitors. A key reason for our success in hiring and retaining top talent is our strong company culture built on core values of trust, leadership, teamwork and purpose. For the first quarter, I'm pleased to report we delivered $41.2 million in revenue and $3.3 million in adjusted EBITDA, exceeding our guidance. Due to softer demand across the industry and changes in foreign exchange rates, our revenues declined by 19% over Q1 2022. However, our gross profit improved by 20% and adjusted EBITDA by 171%. Driving our improved profitability was our strong gross profit margin of 37%, an increase of 1,190 basis points over Q1 2022 and our best result to date. For the trailing 12 months, we have delivered $212 million in revenue, 32% gross profit margin and $22 million in adjusted EBITDA. In addition to our company-wide focus on improving margins, we have also taken a conscious approach to reduce operating expenses where appropriate. For Q1 2023, we reported $15.3 million in operating expenses, a reduction of $700,000 compared to Q1 2022. We will continue to consider ways to optimize our organization for both continued growth and maximum profitability. As of March 31, we maintained a strong balance sheet, including $11 million in cash, $45 million in inventory and $62 million in working capital. Our debt balance was $49 million, a reduction of $9 million from March 31, 2022. We continue to expect modest single-digit revenue growth for the full-year 2023, with the bulk of that growth coming during the second half of the year. For Q2 2023, we are guiding to $50 million in revenue and $4 million in adjusted EBITDA. Our confidence in delivering full-year revenue growth is based on our global sales pipeline and an increase in significant tenders in key global markets. Additionally, there are still substantial government funds allocated for the purchase of Education Technology Solutions, particularly in the U.S. and certain European markets. In the United States, billions of dollars of ESSER funding are still set to expire if not obligated by September 2023 and 2024. Over the next few quarters, school districts will be making significant purchasing decisions to utilize the allocated funds. We recently filed our annual proxy statement and provided notice of our Annual Meeting on Tuesday, May 23 at 11:00 a.m. Eastern. We invite all shareholders to cast their proxy votes prior to the meeting. We have requested your support for several proposals, including the reelection of our seven board members, the ratification of our audit firm, approval on an advisory basis of our executive compensation, an amendment to our equity incentive plan, increasing the number of shares available for issuance and authorization for our Board of Directors to effect a reverse stock split if deemed in the best interest of our shareholders at any time prior to July 2, 2023. Market valuations have been challenging over the last year, particularly for microcap technology stocks driven by broader economic concerns. As a result, despite our positive financial performance, our stock prices declined to under the minimum $1 stock price requirement by NASDAQ. And the vendor stock price does not organically increase to the required level, we will need to consider a reverse stock split to maintain our NASDAQ listing. In future quarters, we plan to utilize the $15 million share repurchase program we announced earlier this year repurchasing our stock during times, we have excess cash flows from operations and are trading below our intrinsic value. We maintain a long-term focus and are confident that as we demonstrate continued improvement in our financial fundamentals in time, the market will reward us with an appropriate enterprise value. We have a significant competitive advantage as a U.S. company that is committed to data privacy and security. Our software solutions that store sensitive student and user data are developed and hosted in the U.S., U.K., and Western Europe and that user data is not accessible by unauthorized parties, including foreign corporations or governments. We are unique in that statement as our key competitors are foreign owned and controlled. We continue to offer the most comprehensive integrated solution suite in the industry and are consistently enhancing our existing solutions and introducing new products to market. Last quarter, we launched a number of new products, including our LED video walls, non-interactive screens for the U.S. market and CleverHub meeting room collaboration solution. We have started to gain traction with our new products and have begun shipping to customers. This quarter, we are launching our new generation interactive displays for Mimio and Clevertouch and will be the first in the industry to include a full Google Enterprise Devices Licensing Agreement certification or EDLA certification. This is a significant advancement in the interactive touch for an industry, and we look forward to developing our solutions further with Google. Our EOS Education and Professional Development team is also certified with Google having an education services partner specialization and Google Cloud Partner Advantage. With the partner specialization, our EOS Education team has the capability and capacity and building customer solutions in the education services field using Google Cloud technology. Our dedicated training specialists provide customized professional development, supporting educators using Google platforms in classrooms and schools efficiently and with confidence. In January, we received 10 awards from tech and learning for several of our hardware, software and service offerings, including Attention!, MimioPro 4, CleverLife, Robo 3D printers and EOS Education, professional development services. Our front row attention solution also won the EdTech Cool Tool Award and our Clevertouch brand won three best-in-show awards at ISC for IMPACT Max, UX Pro 2 and LYNX Whiteboard. We are demonstrating thought leadership, significant product innovation and meaningful financial growth. By staying the course to realize our mission to be the industry leader, we will in turn deliver durable long-term value to our shareholders. With that, I will now turn the time over to our President, Mark Starkey.
Mark Starkey: Thank you, Michael, and good evening from London, where we are holding our EMEA partner event this week. Apologies. We've had a fantastic day here showcasing our latest products and solutions that we will be launching this summer, including our latest Google accredited solutions for the classroom. As the world returns to some form of normality post pandemic, we are seeing a return to the more usual ed tech buying patterns in both the U.S. and EMEA with Q2 and Q3 being the busiest buying seasons and with Q4 and Q1 being much quieter. As a result, we are seeing slower order intake and revenues in Q1, albeit with stronger profitability. Order intake in Q1 was $41.5 million, down 35% year-on-year and with 50% being derived from the U.S., 47% from EMEA, and 3% from Asia-Pac. Interestingly, despite order intake being down, we continue to grow our market share with our U.S. market share increasing from 5.3% to 7% year-on-year during Q1 and our EMEA market share increasing from 5.6% to 6.2% year-on-year according to future source. Some of our key orders in the U.S. included $4.4 million from GDI, our U.S. distribution partner, $2.2 million from Bluum, $1.6 million from data projections in Texas and $1.3 million for advanced classroom technologies. Overseas, we had some excellent orders, including $1.4 million from Bischoff AG, our partner in Switzerland, $1 million from IDNS in the U.K. and some significant orders from NIAVAC based in Northern Ireland to name a few. In Germany, we have invested in our sales team, and we now have eight Sales Heads, a Marketing Head and a Country Manager. There is a lot of focus in Germany to gain traction in the corporate market, where the margins are much higher. As a result, I am pleased to report our Q1 margin increased by 26% year-on-year in Germany. We recently also invested in our first showroom in Germany based in Dusseldorf, with an expectation to open in the next few months. We also won some significant tenders in Germany during Q1, including a 900 screen order from Hammam District for 86-inch IMPACT plus screens and an 800 screen order for 86-inch IMPACT Max screens in Dusseldorf. We have 15 other tenders currently in the bidding process, and we hope to report next quarter on the continued success and expansion in Germany. Finally, I want to mention a few words about our development in Africa. Africa may not be our biggest market, but we are passionate about building the best education solutions possible and supporting emerging markets. We have a fantastic dedicated partner in Africa, IAVS who share our passion for innovation and solutions and have grown our business to be the number one interactive screen for education in Africa. During Q1, they won two large projects in the education sector, and also opened a second experience center in South Africa. They are expanding rapidly across territories in Africa and recently trained over 200 educators in Namibia and hosted their first partner event in Botswana. In summary, Q1 order intake and revenues were down, but our profitability continues to improve. Our expectation is that we will return to revenue growth in the second half of the year as there remains significant funds available for education establishments to invest in technology. With that, I will now turn the call over to our CFO, Greg Wiggins.
Greg Wiggins: Thanks Mark, and good afternoon, everyone. I will now review our first quarter results. Revenues for the three months ended March 31, 2023, were $41.2 million as compared to $50.6 million for the three months ended March 31, 2022, resulting in an 18.6% decrease. FX headwinds continue to impact operating revenues in Q1 2023 compared to the prior year quarter. On a constant currency basis, operating revenues decreased approximately 14% for the three months ended March 31, 2023. Taking a closer look at Q1 2023 revenues, EMEA revenues totaled $18.3 million or 45% of our total revenues. Americas revenues totaled $21.3 million or 51% of our total revenues, while revenues from other markets totaled $1.5 million or 4% of our total revenues. Our top 10 customers represented approximately 40% of total sales in Q1 with the single largest customer at approximately 11% and are based across a number of markets, namely the U.S., U.K., and other European countries, approximately 63% of total sales are covered by the top 20 customers. In Q1 2023, hardware comprised the largest proportion of total revenues at approximately 90%, 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 March 31, 2023, was $15.1 million as compared to $12.6 million for the three months ended March 31, 2022. Gross profit margin for Q1 2023 was 36.8%, which is an increase of 1,190 basis points over the comparable 2022 quarter. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 38.3% as compared to 27.4% as adjusted for the three months ended March 31, 2022. The improvement in gross profit margin in Q1 2023 compared to Q1 2022 is primarily due to lower manufacturing costs and continued reductions in freight costs over the prior year period. Total operating expenses for Q1 2023 was $15.3 million compared to $16.1 million in Q1 2022. Other expense for the three months ended March 31, 2023, was a net expense of $2.7 million as compared to net expense of $1.5 million for the three months ended March 31, 2022. The decrease was primarily due to losses recognized from the change in fair value of derivative liabilities of $224,000 in Q1 2023, coupled with a gain on settlement of debt of $854,000 in the prior year period. The company reported a net loss of $2.9 million for the three months ended March 31, 2023, as compared to net loss of $4.9 million for the three months ended March 31, 2022. Net loss attributable to common shareholders was approximately $3.2 million and $5.2 million for Q1 2023 and 2022, respectively. After deducting the fixed dividends to Series B preferred shareholders of $317,000 in both 2023 and 2022. Total comprehensive loss for the three months ended March 31, 2023 was $2.4 million compared to total comprehensive loss of $6.6 million for the three months ended March 31, 2022 reflecting the effect of foreign currency translation adjustments on consolidation with the net effect in the quarter of approximately $600,000 gain and $1.8 million loss for the three months ended March 31, 2023 and 2022, respectively. EPS loss per basic and diluted share was $0.04 for Q1 2023 and $0.07 for Q1 2022. EBITDA for the quarter ended March 31, 2023, was $1.8 million as compared to negative $300,000 EBITDA for the quarter ended March 31, 2022. Adjusted EBITDA for Q1 2023 was $3.3 million as compared to $1.2 million for Q1 2022. Adjustments to EBITDA include stock-based compensation expense, gains losses from the remeasurement of derivative liabilities, gains losses recognized upon the settlement of certain debt instruments and the effects of purchase accounting adjustments in connection with the recent acquisitions. Turning to the balance sheet. At March 31, 2023, Boxlight had $11.3 million in cash, $61.6 million in working capital, $44.7 million in inventory, $179.6 million in total assets, $44.4 million in debt, net of debt issuance cost of $5 million, and $49.8 million in stockholders' equity. At March 31, 2023 Boxlight had 75.1 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding. With that, we'll open up the call for questions.
Operator: Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions]. And the first question today is coming from Brian Kinstlinger calling from Alliance Global Partners. Brian your line is live.
Operator: Apologies, Brian, it looks like Michael's line has disconnected, Greg, you -- and the speaker line is reconnected. Brian, if you wish to repeat your question?
Operator:
Operator: Thank you. [Operator Instructions]. The next question is coming from Daniel [indiscernible]. Daniel, your line is live.
Operator: Thank you. And the next question, we have a follow-up from Brian Kinstlinger from Alliance Global Partners. Brian, your line is live.
Operator: Thank you. And there were no other questions in queue. I would now like to hand the call back to Michael Pope for closing remarks.
Michael Pope: Great. Thank you, everyone, for your support and for joining us today on our first quarter 2023 conference call. We look forward to speaking to you again in August when we report Q2 2023. Thank you.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.
