Q1 2024 Boxlight Corp Earnings Call

Participants

Jeff Stanlis; IR; FNK IR LLC

Dale Strang; CEO; Boxlight Corp

Gregory Wiggins; Chief Financial Officer; Boxlight Corp

Brian Kinstlinger; Analyst; Alliance Global Partners

Presentation

Operator

Good afternoon and welcome to the Boxlight Corporation First Quarter Financial Results Call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation, you could submit a question via the web at any time by typing typing them in the ask-a-question field. We will also be having a telephone Q&A for analysts and if you would like to ask a question on that, you may press star one on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to our host, Mr. Jeff Stan, Miss of FNK. IR, you may begin.

Jeff Stanlis

Thank you, operator, and thank you, everyone, for joining us today. Earlier today, Oxycyte issued a press release, providing an operational update and discussing financial results for the first quarter ended March 31, 2024. The release is available on the Investor Relations section of the Company's website at www.boxlight.com.
Hosting the call today are Dale strain, Chief Executive Officer, and Greg Wiggins, the Company's Chief Financial Officer.
Before we begin, I'd like to remind participants that during the call, management will be making forward-looking statements. These statements may contain information about Boxlight view of its future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety of factors, including but not limited to risks and uncertainties associated with its ability to maintain and grow its business, variability of operating results, its development and introduction of new products and services, marketing and other business development initiatives and competition in the industry. Among other things, Boxlight encourages you to review other factors that may affect future results and performance in Boxlight filings with the Securities and Exchange Commission. The Company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law.
And with that, I'd like to turn the call over to Dale Street, CEO, Boxlight feel the call is yours.

Dale Strang

Thank you, Jeff, and thank you to everyone joining us today. This was my first full quarter as Chief Executive at Boxlight, I transitioned from the Board of Directors to this position in early January of this year. I came to the world who believes that Boxlight was an excellent company in an attractive market. And I was also convinced that the Company needed to refocus on reliable efficient execution, especially in the face of changing market conditions. These beliefs have been confirmed. We're hard at work on focus initiatives to make those improvements a reality. We've already made significant progress in those efforts. We've eliminated approximately $5 billion in fixed costs, which is all part of the process of streamlining both our product lines and our work processes, while at the same time simplifying our overall go-to-market strategy.
Our first quarter results reflect the benefit from our renewed operational focus. For example, we delivered positive adjusted EBITDA, exceeding our internal expectations even before all the cost reduction initiatives really took hold. In fact, our first quarter results include our one-time severance costs related to our recent headcount reductions. Those actual savings will be reflected in subsequent months. We'll continue to emphasize streamlining our product offering while building on our position of having the most comprehensive suite of solutions in the market. We'll achieve this by eliminating product overlap and brand duplication. Among other efforts, the market we serve is generally stabilized in some areas is showing signs of positive growth globally. The market for interactive flat-panel displays, which is the majority of our business, remains somewhat soft and we don't expect that to change in the near it's a maturing market, which, of course, those markets offer challenges, but also offer numerous opportunities for growth. We think that's good for us, and we'll explain why what's the only company industry that has product offering that spans across the broadest parts of the market. We have traction solutions at every price and specification tier of the market we offer high-performance audio as well as interactive displays, and we offer the ability to offer deep system integration across those domains. We provide an array of complementary hardware and software and accessories, along with professional development training. The breadth and depth of our product line enables us to meet the needs of more customers in the market than any of our competitors, thereby creating sustainable partnerships with our partners in those customers. So we have the right portfolio to separate ourselves from competitors and the capture long-term market share position was recently recognized by Time Magazine included Boxlight among its list of the world's top 250 ad tech companies. None of our direct competitors included on this list of all the US ad tech companies only Boxlight. And despite the top 10, this is the latest powerful endorsement of Boxlight and our product suite and strategy. Our refocused customer-centric sales approach has validated validating this belief many of our customers are transitioning from initial purchase of their IFPD.s and audio systems into upgrades, refreshes and enhanced the implementation of those technologies. We're well equipped. We are well equipped to address those. We also have customers that are looking to push their solutions to very low cost entry points with others, pushing the envelope to the best of the best the industry has to offer. It will fit, and we are well positioned in both of those cases. In many ways. This is the result of our successful and thoughtful acquisitions the Company has made over the last few years that expanded broadened and deepened our product offering. So with the right focus, the right branding, the right go-to-market approach in conjunction with a lean and agile cost structure. We believe we can win any market battle that comes our way. We're positioned to outperform the industry over time, and we're busy establishing infrastructure that can be profitable and successful in any macro market. My personal approach to manage based on the best available factual information, data-driven, accurate forecasting is absolutely vital for our capital allocation and our ability to plan and execute accurate forecasting also suggest we don't over-promise. You may recall that our stated outlook for Q1 was for revenue of approximately $34 million, and we ended up delivering revenue of $37 million. We also stated expectations of negative $3 million in adjusted EBITDA and because we were able to post positive adjusted EBITDA of about $200,000. This is great. This is just one quarter. Investors should not view Q1 as a sort of new baseline necessarily, but I'm encouraged that we exceeded our promises and I'm also cautiously optimistic. We'll see additional progress in Q2. Any progress this progress won't be linear. We still have challenges to overcome. And while the market's stabilized buying decisions can take time to take shape. We have much more work to do, but we're convinced we're on the right path. We also continue to work on resolving and improving our capital structure we're encouraged with our progress here and particularly with a collaborative approach taken by our stakeholders, our primary lender has extended additional credit to facilitate our second and third quarter of your cash needs, which tend to be the seasonally busiest time of the year. At the same time, they continue to work collaboratively with us in our initiative to identify and secure long-term resolution to their facility, which was always intended to be short-term in nature. We've also established a positive ongoing working relationship with our preferred shareholders. We've named them as advisors to our board their inputs valuable. We communicate frequently and collaborate deeply. We appreciate the confidence they've expressed in Boxlight submitted strategy. It's been a period of significant change for Boxlight, but we're convinced that we're on the right direction. We have new senior leadership. We've restructured our operational leadership. We've made adjustments adjustments to our go-to-market approach, and we're undergoing aggressive cost reductions and all this is going on simultaneously. I'm incredibly impressed with the positive reaction from our employees who have embraced the challenge of the new Boxlight and have responded creativity, renewed dedication. Certainly, our customers have been very positive, seeing the changes underway as beneficial to their needs. And as I mentioned, our lenders have been highly cooperative as well. We're happy with our direction. We think we're on the right path. We have much more work to do still, but we think we have the right pieces in place.
And with that, I'll turn the call over to Greg to discuss our first quarter results.

Gregory Wiggins

Thanks, Dale, and good afternoon, everyone. Before we review the financial results for Q1, I want to provide an update to our last earnings call regarding some of our recent initiatives with respect to bolstering our balance sheet and reducing our operating cost in mid-April, our current lenders provided an additional $2 million bridge loan to help meet the Company's short term seasonal working capital needs with the flexibility to borrow an additional $3 million in June.
As stated on previous earnings calls, our operations are seasonal with Q2 and Q3 being our busiest periods and the additional liquidity further ensures that we will have the necessary inventory on hand to meet our customers' demand. We continue to maintain positive relationships with our lenders and are appreciative of their support and commitment to our business. We continue to work with our investment bankers to identify and evaluate long-term solutions to replace our debt facilities. This process is expected to take time as we seek and evaluate solutions that will provide Boxlight with more favorable terms than our current facility. The successful execution of our recent operating initiatives are a piece of this equation, and we believe that our first quarter results are a starting point in demonstrating Boxlight ability to deliver on these initiatives from an expense management perspective, we have eliminated approximately $5 million in fixed cost over the last three months, mostly through headcount reductions that do not impact our sales teams or other revenue-generating departments within the organization. These reductions led to approximately $750,000 in cost savings in the first quarter. The full impact of these reductions will take time to appear in our income statement, but investors should continue to see the benefits in the second quarter with additional reductions benefiting the balance of the year. We incurred related severance charges of approximately $940,000, which were recorded during the first quarter.
And now turning to our first quarter results. Revenues for Q1 2024 were $37.1 million as compared to $41.2 million for Q1 2023, resulting in a 9.9% decrease, and these revenues comprised 54% or $20.2 million of our total revenues. Americas revenues totaled 42% or $15.3 million of our total revenues, while revenues from other markets totaled 4% or $1.6 million of our total revenues. Flat panel displays comprised approximately 71% of total revenues. Audio solutions comprised 11% of total revenues, with the balance comprised of device accessories, software, professional services and STEM solutions.
Gross profit for the quarter was $12.8 million as compared to $15.1 million for the prior year period. Gross profit margin for the quarter was 34.5%, which is a decrease of 230 basis points over the comparable three months in 2023 the decline in gross profit margin is primarily due to changes in product mix with higher margin front row products representing a smaller percentage of total revenues in Q1 2024 compared to Q1 2023.
Total operating expenses for Q1 2024 were $16.4 million compared to $15.3 million in Q1 2023. Q1 2024 operating expenses include approximately $940,000 severance charges related to our recent headcount reductions. Again, the full impact of these reductions are expected to be realized beginning in the second quarter. Other expense for Q1 was a net expense of $2.6 million as compared to net expense of $2.7 million for Q1 2023, the majority of other expenses related to interest expense on our current credit facility, the Company reported a net loss of $7.1 million or negative $0.76 per basic and diluted share for the quarter as compared to net loss of $2.9 million or negative $0.35 per basic and diluted share for the prior year quarter. Adjusted EBITDA for Q1 2024 was $0.2 million as compared to adjusted EBITDA of $3.3 million for Q1 2023 Adjustments to EBITDA include stock-based compensation expense, severance charges, gains, losses from the remeasurement of derivative liabilities and the effects of purchase accounting adjustments in connection with recent acquisitions.
Turning to the balance sheet at March 31, 2024 Boxlight at $11.8 million in cash, $46.6 million in working capital, $39.2 million in inventory, $142.4 million in total assets, $38.5 million in debt, net of debt issuance costs of $2.5 million and $9.1 million in stockholders' equity at March 31, 2024, Boxlight had 9.8 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding. As I mentioned, subsequent to quarter end, the company entered into an amendment with its current lender to provide an additional $2 million to meet the company's short term working capital needs. Following the $2 million borrowing, the principal amount of the Company's term loan is $43 million. The Company continues to expect full year revenues to remain flat year over year for Q2 2024 the Company expects revenues of approximately $43 million to $45 million. Managing operating expenses primarily controlling our fixed G&A costs to align with forecasted revenues remain the primary focus. In Q1, the Company eliminated approximately 50 positions primarily in non-sales roles, which we estimate will save the Company $5 million on an annual run rate basis. Other cost-saving measures are in process, including reducing our third party R&D expenditures as we streamline our current and future product portfolio.
As mentioned during our last earnings call, the Company has committed to reducing operating expenses to approximately $12.5 million to $13 million per quarter on an annual per quarter and expect to begin achieving new quarterly run rates by the end of 2024. We are forecasting adjusted EBITDA for Q2 2024 of $2 million to $3 million.
With that, we'll open up the call for questions.

Question and Answer Session

Operator

Good afternoon.
Frankie. At this time, we will be conducting our question and answer session. This is for analysts only. If you'd like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue and you may press star two, if you would like to remove your question from the queue For participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys for a moment, please while we poll for questions, banQi, our first question is coming from Brian Kintslinger with Alliance Global. Your line is live.

Brian Kinstlinger

Great. Thank you and appreciate all the hard work that you guys have managed through. Can you talk about the order trends in the first quarter as well as how those trends have continued or maybe not continued in the second quarter thus far?

Gregory Wiggins

Yes.
So we're seeing order trends consistent, generally, consistent with the revenue.
So for Q1, if you're looking at Q1 over Q1, the order order trend was it was down about 10%, kind of consistent with our revenue decline. I think we're seeing similar similar trends in so far in Q2 of either there's there's only so much for us visibility you have in terms of predicting orders for the rest of the year I think our pipeline remains strong at the moment. We see it a good bit of activity in the next few months. So we have some visibility into the remainder of Q2 the second half of the year is a little more difficult to project out. I think as we progress toward the latter stages of Q2, we'll have a little more visibility on how the second half of the year as the year shapes up, although I think we're cautiously optimistic that we're going to at some point return to order growth as the year progresses.

Brian Kinstlinger

I guess my follow-up to that would be with those order trends in the first and second quarter. What gives you the confidence that you can be flat year over year in terms of revenue?

Gregory Wiggins

Yes, a lot of the seasonality that we think we're returning to in the industry.
I think we did with it for the last couple of years, especially following the COVID, the COVID pandemic with the spike in orders that kind of went a little little outside the norm of the traditional seasonal periods that you see the spikes usually in Q2, Q3 three, we think we're going to return to more of that seasonality in 2024 and in the future. And so that's what gives us confidence that the that will still remain flat year over year. Again, you know, it will be as we get a little further into Q2, especially in the latter half of the quarter where schools are starting to get out will really start to be able to assess whether that trend will hold true, but that's our expectation. And what gives us confidence that that will remain flat for the full year.

Brian Kinstlinger

Great.
And then can you talk about the progress you're making with front row? Last quarter? You talked about the challenges regarding the lack of education with your partners, they were tasked with selling the product, given they were selling your screens. What progress are you making on the sales front with our growth?

Dale Strang

That's an area we actually invested a lot of attention in the last four months since I've been here, there's a few things we want to recognize about about the front row product category, which is it has pockets of demand that lie outside of what our typical interactive flat panel customer represents those pockets of demand, really two things. One is of the 10 best audio products often are specified earlier in a construction and refurbishment process at a school, and that requires a longer lead time on the sale. And we're making sure that we're deploying our people. Our expertise to take advantage of that.
We've also elevated some of our front-line management team into positions of leadership picked our US. We are again, TULSA-PRO was the for what was the longtime President of front row. He now leads our entire U.S. division, the we're trying to find the right balance between and making certain that every salesperson is adept at selling every piece of every piece of the portfolio. But we're balancing that with having deep audio expertise available for each person in the sales field to make sure that the message gets across to our resellers and customers properly. So the short answer I think is we're recognizing that it's a different sale, and we're we're making sure that we have a different go-to-market process at rep that reflects that. And although won't see the demand, the the increasing demand and awareness that educators and IT managers have for the for the value of audio in the US is strengthening so that we find that as being very encouraging the prospect.

Brian Kinstlinger

Great.
Lastly, any thoughts on when you expect to make progress on refinancing or addressing the debt that can appreciate you getting the bridge loan. Does it depend on the recovery in the stock or is that not relevant?

Dale Strang

I mean, there's different there's different ways to skin the cat. So pure, you know, we don't have the option to we're most actively engaged with are kind of independent of the stock.

Brian Kinstlinger

Great.
Thank you.

Dale Strang

Thank you.

Jeff Stanlis

(technical difficulty) Do we have a question from Jack at Maxim.

Can you hear me okay.

Dale Strang

(multiple speakers) Now I can tell you everything went dark for a minute.

Yes.
Okay, sounds good. So on so I'll just throw the question, I guess following up on the outlook for 2024 and encourage Yes, encouraging to hear you remain on track with your cost reduction plan. Sounds like revenue still on track to be at least flat year over year.
On the gross margin, though, I think last quarter you were expecting maybe like a 100 to 200 basis point contraction of the year, but what do you given the strong gross margin this quarter? What are your thoughts on gross margin?

Dale Strang

Yes, I think we want to stick with our with our prediction there in that we think that there's several factors obviously can affect gross margin and up enough of them or are pointing the direction that we think we want to be conservative on that. The main the main factors are on the panel. This is just price compression or in some cases a a buying mix that's going towards the lower priced end of the market. Some of that's going to be mitigated by the entry, very new high performance bounced the top end of the market, but it's still unclear what that customer mix is going to be chosen. And the other piece of the mix that matters, of course for us is on the percentage of audio versus versus video. It doesn't take a big percentage of our sales to move towards audio for the margin and really shift drastically in that regard. So we don't see it a big move downward, but we do think being somewhat conservative on some mild depression remains. It remains a good outlook.

Gregory Wiggins

Yes.
Just just to follow up on Dale's commentary about the doesn't take a significant amount. The mix in audiovisual to change. And I think what we saw in Q1 was really just that it was kind of a mixed mix change is not necessarily a long-term mix change. It was more of just a quarter over quarter change that was enough to drive it down. But I think even with that mix change at 34.5% margin, I think we were pleased with that just done knowing there was a greater concentration on the on the video side this quarter.

Okay, great.
That's helpful. And then maybe just to follow up on on in terms of the guidance and the recent outperformance with in terms of the guidance, you said it's good to see you guys set expectations on that, that you believe or you can be in clearly you're doing that now what you're looking at the second quarter now with your guide on, is there anything that factors into that guide that maybe played out in the first quarter that kind of cause that same upside. How confident are you in this in this guidance level? And how conservative is it relative to maybe what could happen.
Thanks.

Gregory Wiggins

So I think we can look at that a couple of different ways.
There's with the top line guidance we've given. And then there's the adjusted EBITDA guidance that we've given if we take the take the top line, I think there were some internal processes that we needed to refine internally. Some of them were the changes we made to the management structure of the organization in terms of the reporting chain and just how we went about our process for delivering on the forecast that we provided externally. So there were there were some changes on that front. Some accountability changes that we had to go through internally that I think is really helping us. I think also it's just getting out there and having that interaction with our partners with the with our customers, whether with other key players in the industry as far as what they were seeing and really being able to refine how we call the top line. You know, as far as our outperformance, you know, on an adjusted EBITDA basis, some of that obviously was revenue driven, as you know, certainly I think we were I think in fairness, probably a little conservative in Q1 as there was some noise, as you can expect, you know, with a lot of the transition that we wanted to do internally to reduce OpEx. Obviously, a lot of it was on a headcount reduction and timeframe, and some of it was just the timing of when those when those changes we're going to be able to be made and the related costs associated with those changes, we were able to execute on those plans probably little flow quicker than than we anticipated. But I think it's also just better discipline in the organization as far as just controlling other costs as well, which gives us some optimism as we proceed throughout the year.
That we've got some we're on a good track of getting momentum and as far as continuing, again, continuing to manage our costs going forward in other areas outside of just employee related expenses?

Dale Strang

Yes. My only addition to that, Jeff, would be one way to look at the market is the overly general global forecast and the global market for IFPD. It has been declining now for several quarters, and those year-on-year declines are starting to get smaller, which is what we predicted and what we're planning on and hoping continues to happen. And so that's one reason both for caution and our job is to calibrate what we're hearing from our customers against that, that sort of global outlook. And we're seeing some really encouraging signs. We particularly at various markets in Europe. We've got you can look at the European market and say, I think in Q1 it was roughly flat to last year. In terms of panel shipments into the market, but we actually picked up a pretty substantial amount of order shipment volume relative to last year's Q1 and in some markets were growing really substantially. For instance, Spain and Germany are great growth, good growth within markets. So our job is to one of the areas we're focused on is to get the right signals from each of our markets and regions and translate that into reliable forecast to you. We've we've had one successful handover for the first quarter and we're going to continue to be as optimistic as caution allows us to be going forward. So that's the best I could do.
As far as Q2, it's just we haven't refined it yet, but we're in the process of doing it.

Okay, great.
And then maybe just one more. Typically, the third quarter is sort of the seasonal peak for you guys in terms of your revenue. Just I know you're not providing explicit guidance and in the customer orders sound like they're on track, but we'll kind of see as we go here. But how do you how do you feel about that third quarter? Is it set up for a to be the strongest quarter again this year? Or are we still kind of testing the waters?

Dale Strang

The market really doesn't give you that kind of signal. We're happy with our with the level of bids and conversations and other other the order intake we're happy with. But we it never gives you that the only kind of reliable signal that we seem to appeal to to focus on his history. And if you look at the seasonal history of our market, our first quarter and then first quarter generally generally somewhere between 15% and 20% of the year and almost never 15% and not usually 20%. And so we have to first quarter exactly where we were spot on for the our revenue expectation of flat in Q3 would be part of that. But we'll know more as we get further into Q2 and we're probably and some weeks away from really having any reliable signal about Q3.

Okay, great. Well, congrats on the recent progress and look forward to tracking the story.
Thanks.

Dale Strang

Appreciate it.

Gregory Wiggins

Thanks, Jack.

Jeff Stanlis

Looks like we have no more questions left in the live queue.

Dale Strang

Well, if there's no more questions, I want to thank everyone for your support and for joining us today. We've got the Courage for the 24 years at the company. I'm increasingly confident we're on a sustainable path for success. We have an understanding of our challenges. We have a plan in place to drive those improvements and to measure them as we go. I'm incredibly proud of our team for responding to those challenges and operating with the professionalism and energy and creativity hurts the note and look forward to speaking with you again when we report on our Q2 24 results.

Gregory Wiggins

Thanks again.