Boxlight Corporation (BOXL) Q2 2019 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Boxlight Corporation Second Quarter 2019 Earnings Results Call. All lines have been placed in a listen-only mode. And the floor will be open for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Stephen Hart with Hayden IR. Sir, the floor is yours.

Thank you, and welcome to the Boxlight's second quarter 2019 Earnings Conference Call. By now, everyone should have access to the earnings press release, which was issued earlier today after the market close approximately 4:00 pm Eastern. This call is being webcast and is available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws including forward-looking statements about future results of operations, business strategies and plans, our relationships with the customers, market and potential growth opportunity. 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 our most recent Form 10-Q, Form 10-K and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, we will refer to non-GAAP measures that when used in combination with GAAP results provide us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our press release, which will be posted on the Investor Relations section at our website at investors.boxlight.com. And with that, I'll now hand the call over to Boxlight's CEO, Mark Elliott. Mark?

Thanks, Stephen, and good afternoon everyone. We're excited to speak with you all again. We closed the record second quarter with customer orders of $15 million, revenue of $11.1 million, $5 million in backorders, gross profit of 29.4% and the successful launch of several new solutions. Our revenue growth, improved margins and introduction of new products and services have positioned us for a solid 2019 and beyond, as K-12 classroom continues to evolve with interactive learning technologies and our products and services are at the forefront of this technology transition. We continue to rollout previously awarded projects and see an abundance of new RFPs and opportunities. Additionally, we had an outstanding ISTE 2019, the largest education conference in North America with nearly 20,000 attendants, where we will recognized by technology and learning magazine with best of ISTE 2019 award for our MyBot STEM solution and also for MimioClarity, our audio suite of products, both of which we feel will be significant contributors to our bottom line and growth in the future. At ISTE, we unveiled our next generation of cloud-based solutions for both Boxlight and Qwizdom with outstanding reviews from our customers and channel partners. We are quite proud to have Clayton County schools continue our approach of letting our customers tell our Boxlight's total solution story as they presented, while they selected Boxlight in their rigorous RFP selection process and their outstanding success and satisfactions to date in their 3,200 classrooms implementation. Nothing sell like success and our customers continue to be our best resource, which is incredibly important in a very risk-averse market that cannot afford failure. The health of our business should be measured over the entire year and we expect to report strong third and fourth quarters. Over the past three years, we've grown our annual revenues from $20 million to $26 million to $38 million and we believe we are better positioned for growth today than at any time in our history. Our reseller partner network is as strong and loyal as ever and coupled with our seasoned management team, strong sales force and continued product development enables us to deliver our best-in-class and award-winning interactive technology solutions through our education market globally. We added several new reseller partners this past quarter including Virtuocomm in Georgia is a management partner, Sussman Education in New York, Computer Hardware in Nebraska, Ireland, South Dakota and North Dakota and Superior Fiber and Data Services in Texas. We welcome our new partners and thank them for their confidence in our company to best service their respective markets. Additionally, we continue to maintain our strong relationship with several key national resellers including Troxell, Howard Technology Solutions, CDWG, and other strong regional partners as we have competed for and won several of the most significant opportunities across the country. We truly have the strongest network of partners in the industry and we consider them an extension of our Boxlight family. We sell exclusively through channel partners and they are a significant contributor to our continued growth. We're pleased with our international progress to-date and are beginning to see traction particularly in the EMEA and Latin American markets. In EMEA market we received a key order from our partner Konan in Germany for interactive projectors and we're selected by Stonehenge Schools in the United Kingdom as their preferred solution with our flat panels and [indiscernible] studios software suite. In Latin America, we received key orders from our channel partners Akasi and ComputeLand. Our mission to change the classroom change the world extend beyond the United States in developed countries to the entire world. We're one of the few companies to provide solutions to connect classrooms in developing economies with lower cost solutions including our Mimio MicroCloud, MimioTeach, MimioFrame and interactive projector. Each of our lower-cost of plays utilize our core MimioStudio software solution providing the same ease of use and integrated total solution approach. We continue to realize increased gross profit margins as a result of better negotiating cost reduction on key hardware solutions with our primary vendors and improving product mix with growing revenues from high margin hardware software and services. High margin hardware solutions include MimioMyBot, MimioFrame, MimioTeach, and integrated peripherals. High margin software includes Boxlight Unplug'd, Boxlight NDMS, MimioInteract and our Qwizdom Software Solution Suite. Our professional development team continues to expand our offerings including developing a complete MimioStudio certification program in English and Spanish. Additionally, they are developing training courses for Boxlight, NDMS, Boxlight Unplug'd, MimioMyBot, as well as self-paced online certification training for the Qwizdom software solution. Our Qwizdom software team realized the record second quarter, we continues to support and our prestigious customers including key providers to the interactive technology classroom market such as Westell, Plainarm [ph], ViewSonic, Docebo, Italy, ELO, Touch, Exertis, Case and Essay, C-Touch, Como [ph] and Galaxy to name a few. Our whole class learning solutions are in 60 countries supported in 32 languages and installed in nearly 1 million classrooms. Our solutions encompass collaborative learning assessment for learning robotic. We have 500-plus global reseller partners that assist in identifying positioning and winning contracts. Our complete solution approach is a key differentiator for Boxlight allowing our channels sales partners to be consultative and provide the right solution and value to meet their customers' unique recent requirements. We were rewarded multiple new contracts in the second quarter including Beaufort County School District in North Carolina, Chesapeake School District in Virginia, Provo Schools in Utah, West Orange Cove Independent School District in Texas, Anacortes Schools in Washington State and school district in Colorado. We were also chosen as preferred solutions by Stonehenge Schools in the United Kingdom, Owosso Schools in Michigan, as well as Montgomery County School District in Maryland. The 14 largest school district in the United States with over 163,000 students and approximately 12,000-plus classrooms. Additionally, Boxlight was selected in San Diego Unified School District the 17 largest school district in the United States with over 130,000 students. The Board approved Boxlight on May 28th when our partner Troxell for 6,000 classroom purchase over a five-year that began in the second quarter and will result in approximately 1,300 Boxlight 75-inch interactive flat panels installed by the end of August in 1,200 classrooms per year for the following four years. We are proud of these new customers all of whom were typified with extremely rigorous selection process as a criteria which is where Boxlight's itself. We welcome stringent requirements that focus on existing customers' experiences built on a track record of success with our integrated solutions and our local channel partner’s history of being trusted advisors to the school districts they serve. Our second quarter results were additionally driven by continued roll-out implementation with Alvin ISD in Texas, Atlanta Public Schools in Georgia, Clayton County Schools in Georgia, Collier County School District in Florida, Henry County School District in Georgia, Highland Park Schools in Texas and Tangipahoa Parish School District in Louisiana. Our business continues to evolve as we introduce additional integrated solutions and complete success by implementations with our customers resulted in an increased recurring nature for our business model. This provides additional predictability and visibility of revenue and gross profit. School districts in counties throughout the United States are typically on five-year to seven-year technology replacement cycles. Majority of significant awarding contracts call for multi-year rollouts. Once in with a school district, the company is likely to obtain additional business with new products and services and replacement and is in an ideal position for the next upgrade cycle. Our relationship with Clayton County Public Schools is a great example of this recurring nature. Previously in June 2018, Boxlight was awarded $11 million contract to install our innovative Mimio classroom solution suite in approximately 3,200 classrooms comprised of 32 elementary, 14 middle and high 11 schools. The installation included interactive flat panels with MimioStudio, Mimio Network and MimioMobile and Mimio Peripherals included MimioBoard, MimioView and MimioPath. This was completed in Q1 of 2019. Subsequently during the second quarter, we were awarded an additional services contract to provide a comprehensive program of training, professional development and ongoing support for 3,200 Clayton County School District educators to facilitate their effective implementation of Boxlight classroom solutions. These three programs are integrated to provide teachers with necessary skills, knowledge and best practices regarding usage of available technology in their classroom. We expect total revenues from this additional contract to exceed $1 million. As part of the program, educators are participating in online Mimio Certifications program, which imparts knowledge on how to use Boxlight tools in the most convenient way, whenever and wherever they want. This customized instructor-led course will be delivered via Google Classroom, and an EOS course moderator to provide feedback to participants as well as facilitate their asking questions and collaborating with colleagues. Additionally, our digital learning specialists will provide onsite training and support for all teachers through face-to-face group training and classroom sessions. Teachers will also have access to webinars and virtual on-demand support as well as materials and resources, which will be shared through Google Classrooms and Google Sites. For the third part of the program, EOS will prepare training materials and provide support for over 60 full-time teachers who will be serving as technology liaisons. The company will also provide training at the liaisons campuses via G Suite. This program gives Clayton County teachers the opportunity to take their use of Mimio tools far beyond the basics. Interactive technology tools can empower teachers to enhance instructional time, provide immediate feedback to students and engage them in purposeful activities that support learning goals, but it takes skillful implementation. With EOS’ in-depth experience and extensive support, Clayton County's vision for their tools will be realized. We expect this incredible commitment that Clayton County is taken toward professional development training for their teachers and with Boxlight and our EOS services team to be replicated throughout our customer base in 2019 and beyond and yet another example of our total solutions approach and focus on our customer’s success in using technology in the classrooms. We are proud to provide the best solutions set available for the classroom with passive proven products and services to deliver results with customers that back up our claims and statements. We have a dramatically growing market with real needs that we address better than anyone anywhere. We're winning in the public arena on competitive bids are with extensive pilots. Our incredible and loyal channel partnered family network, who have a choice of providers continue to choose Boxlight because we provide a proven complete total solution. As one of our experience channel partner Account Executives presented in a recent meeting, it's my experiences school district may try new vendors, but they will ultimately go with Boxlight when they're ready to make a commitment to having a successful and proven solution partner in their district. This is obviously music to our ears. It's an exciting time at Boxlight with our mission to improve learning and engagement in classroom, and to help educators enhance student outcomes. I want to thank our dedicated employees, our trusted customers, and our supportive partners. There's much more to do in delivering our best-in-class and award-winning interactive technology solutions for the global education market in continuing to build shareholder value. With that, I'll turn it over to our President, Michael Pope.

Thanks Mark. My comments today will focus on Boxlight's technology innovation, expansion of our total solution suite, and our continued M&A strategy. As Mark stated, our complete solution with integrated hardware and software is the backbone of our product offering and key to our differentiation. Our ability to innovate is a critical element of our future strategy to emerge as a global leader and provider of interactive technologies for education. In June, we introduced and launched several new innovative products at one of our industries largest and most significant trade shows ISTE 2019 in Philadelphia. As Mark mentioned, we're proud to announce that we were recognized for MimioClarity classroom audio solution and our MyBot robotics and programming solution with both receiving ISTE Best of Show awards from Tech & Learning magazine. A panel of professional judges and editors selected the products that have the most impact in the classroom and show the greatest promise in the EdTech industry. We develop the MimioClarity audio distribution system with teachers and students in mind. Many teaches struggle to be heard in large, noisy classrooms, leading to voice strain or fatigue, and disengagement for students. With MimioClarity, the teacher’s voice is captured by a light-weight wireless microphone worn on a lanyard. Students have a pass-around handheld microphone both microphones come with a long, 10-hour battery life. The multichannel 60-watt amplifier is the microphones’ receiver and can connect up to four microphones simultaneously. Additional inputs allow for multiple, multi-media integrations, and networked connectivity that can utilizes school’s existing networked audio resources. Specific to MimioClarity Boxlight's connected classroom technology allows each microphones ability to work only within the same room as an amplifier. Our Mimio MyBot education robotic is available in packs of 10 or 20 MyBot robotic kits and the Mimio MicroCloud server, the system bundle establishes a local wireless classroom community that facilitates the development of core skills in programming, engineering and robotics. Bundling the Mimio MyBots with the Mimio MicroCloud allows teachers and students to create a flexible and expandable wireless STEM robotics community. This provides students immediate, on-device access to the curriculum, reference guides, videos, tutorials, lessons and other educational material we have developed for them. This extensive set of building components can be used to create mobile and stationary mechanical systems that explore engineering principles from simple machines to advanced mechanisms. Educators can also expand the kits’ capacities for advanced students and create more sophisticated robotic structures by adding and building components, sensors, servos, joysticks and cameras. The MyBot removes common obstacles to STEM education such as the requirement for network infrastructure, changes, or expensive workstations. There is no software to install and no cable connections to the robot. All the software, programming languages and documentation are built into the Fusion controller, so all students need is a browser in order to start learning. An intuitive and easy-to-use interface allows students to start in a simple drag-and-drop environment and grow into a powerful coding environment as their skills develop. We recently entered into an exciting partnership with the Buzz Aldrin Family Foundation and ShareSpace Education to provide K-12 schools with innovative new educational tools for STEAM learning. Together we will offer ShareSpace’s Giant Moon and Giant Mars Map programs with our Mimio MyBot robot educational system. Working together we expect to extend the Buzz Aldrin Family Foundation mission to reach three million to five million students over the next five years and ignite students passing for STEAM with a focus on math and science. This partnership is a tremendous endorsement of our MyBot robotics and programming solution. We continue to target strategic and accretive acquisition opportunities that accelerate our revenue growth and increase our gross profit margins. Specifically, we are targeting opportunities that either one, expand our worldwide distribution or two, add new technology solutions that complement our existing integrated solution suite. Our successful with STEM solutions improved software strategy, growing international revenues and increased service offerings are concrete examples that our acquisition strategy is providing our desired results and we expect the second half of 2019 to bring additional acquisition opportunities. With that I will now turn the call over to our CFO, Takesha Brown.

Thanks, Michael. I will now review our second quarter and first half of 2019 results. Revenue for the three months ended June 30, 2019 was $11.1 million, an increase of $1.4 million or 15% compared to $9.7 million for the three months ended June 30, 2018. The increase is primarily attributable to the increase in sales volumes for existing products, new products and additional services. Of note, our gross profit and gross margin improved significantly. Gross profit for the three months ended June 30, 2019 was $3.3 million an increase of $1.5 million compared to $1.7 million for the three months ended June 30, 2018. The resulting gross margin was 29.4% for the three months ended June 30, 2019 compared to 18% for the three months ended June 30, 2018. Operating loss for the three months ended June 30, 2019 was $1 million a decrease of $1.2 million or 55% compared to a $2.2 million for the three months ended June 30, 2018. Adjusted EBITDA loss for the three months ended June 30, 2019 was $0.6 million, a decrease of $0.6 million or 54% compared to $1.2 million for the three months ended June 30, 2018. Net loss for the three months ended June 30, 2019 was $1.2 million a decrease of $3.3 million or 74% compared to $4.5 million for the three months ended June 30, 2018. The resulting EPS loss for the three months ended June 30, 2019 was $0.11 per diluted share compared to $0.45 per diluted share for the three months ended June 30, 2018. The decrease in the net loss was primarily due to increased revenue, a decrease in operating expenses as a percentage of revenue and change in the fair value of derivative liabilities. Now on to our financial performance for the first half of 2019. Revenue for the six months ended June 30, 2019 was $16.1 million, an increase of $0.4 million or 3% compared to $15.7 million for the six months ended June 30, 2018. Gross profit for the six months ended June 30, 2019 was $4.8 million an increase of $1.6 million compared to $3.2 million for the six months ending June 30, 2018. The resulting gross margin was 30% for the six months ended June 30, 2019 compared to 20% for the six months ended June 30, 2018. Operating loss for the six months ended June 30, 2019 was $3.4 million, a decrease of $0.6 million or 15% compared to $4 million for the six months ended June 30, 2018. Adjusted EBITDA loss for the six months ended June 30, 2019 was $2.4 million remaining relatively flat compared to the six months ended June 30, 2018. Net loss for the six months ended June 30, 2019 was $5.8 million, an increase of $0.5 million or 9% compared to $5.4 million for the six months ended June 30, 2018. The increase in net loss was primarily due to the increased expense related to the change in fair value of derivative liabilities and interest offset by increases sales with higher margins. The resulting EPS loss for the six months ended June 30, 2019 was $0.56 per diluted share compared to $0.55 per diluted share for the six months ended June 30, 2018. In summary, we are pleased with our growth in the second quarter and plan to support our guidance of at least 25% revenue growth and approximately 30% gross profit margin for the second half of 2019. With that, we'll open up the call for questions.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Brian Kinstlinger with the Alliance Global. Please state your question.

Hi, guys. Thanks so much. I'm going to ask a few and then get back in the queue for some more. Great to hear about the record bookings. Can you provide what bookings were in the first quarter of 2019 and then maybe a comparison for the first half of 2018?

Hey, Brian. Historically, we have not tracked or disclosed on our bookings. However, we've decided that we will disclose them on a go forward basis.

So, just to put into perspective, I mean, how does the 2018 compare maybe on percentages or how has the first half tracked? Were you tracking those bookings to give us a sense? I mean, you said there were a record bookings. I'm trying to understand were they fairly consistent, but slightly more? Or were they much higher than years past?

Well, we didn't -- when we performed our analysis for the quarter, that wasn't something that we looked at as far as percentages, but we can go back and take a look at that and be prepared to discuss it on the next call.

Okay. And then, when we look at bookings, how should we think about conversion into revenue, where most of it occurred in the third quarter in the second half? May be a sense for how that can converts would be helpful.

Yes. We would anticipate that the majority of that would be recognized in the third quarter.

Right. Two more and then I'll get back in the queue. During the quarter, were there any standout orders? I mean, in the past you've had some big press releases talking about bookings. I'm curious, if there are one or two that stood out and if so, can you elaborate?

Yes. We did have some outstanding orders. I think, we talked a little bit about it in the discussion we had earlier on. Certainly, San Diego, there's an outstanding order right there. We've installed about 500 of the 1,200 that they've ordered and we'll have the rest of them installed by the end of August and 500 was in the second quarter. We also had Montgomery County that ordered a significant number after an extensive pilot. This is a second round of a purchase that they've done with us. We had Atlanta Public Schools that ordered another 173 units against their solutions there of about 2,000 classrooms they have. So that's a multi-year rollout that we've had. And Henry County in Georgia installed about a nearly 600 of our Interactive Projectors for very nice order in that area. So a lot of them were coming there and from new customers and from existing customers, as far as our rollouts, so we continue.

Right. And then…

Which is then -- go ahead. I'm sorry.

Are then, are you able to qualify or at least anecdotally talk about the pipeline? Are you seeing substantially more RFPs in general? Are there larger deal sizes within that pipeline? Maybe some context on the market conditions would be great.

Yes. There are a lot of RFPs we've seen and we've won and we're very proud of those, because we win their objective RFPs and they come out. The numbers I'd say are relatively flat. We're seeing big ones come out in some major large school districts. But another good thing about our market is, because of the larger implementations that we've done successfully, like Clayton County and Atlanta Public Schools and Beaufort County, South Carolina, a lot of school districts may not take the time to put out an RFP, but they will go and look at others that have done that successfully. And so, that's a big advantage that we have and that's why we do so much work in allowing our customers to tell our story. You'll see podcasts and success stories and things like that. We'll also be hosting customer visits, because that's what these customers or potential customers want to look at. So the demand is there, the RFP is there, the replacement market is happening throughout the United States in the world of the existing interactive whiteboards and I think they were nearly 14 million interactive whiteboards installed around the world globally. So we're optimistic this will continue. The replacement is ideal for us, because we have solutions to protect our customer's investment in their existing lesson plans for the teachers that have developed. They come from competitors such as Smart or from Promethean and that's a big competitive advantage we have. So, the pipeline is growing. We have done an excellent job in working with our partners to get information into our system, and it helps us do a better job in predicting our demand and then take placing the orders with our manufacturers.

Thank you so much. Yeah.

I was going to add real quickly. What we're seeing in industry, we're still seeing high-growth numbers. And so what we're seeing internally is consistent with what's happening more globally. That add to expand absolutely is increasing, and everyone seeing record numbers, and we are internally as well.

Great. Thank you.

Thank you, Brian.

Okay. Our next question comes from John Nobile with Taglich Brothers.

Hi. Good afternoon, guys and girl, and thanks for taking my questions. I just wanted to get into robotics market here. I know that that robotics education market. It's a large and growing market. I was hoping, if you could provide any metrics on the progress you have made in this market since your acquisition of Modern Robotics back in March?

Yeah. We've done a great job. The Modern Robotics acquisition or merger is we call it bro Stephen Barker onboard with us and Stevens been a leader in the edge, the robotics world who had a key role as provider for lagos in the past. And we feel we've developed an ideal solution for the Robotics. Robotics is so key, because it allows students and developing economies in countries everywhere to be able to enhance the programming skills of their students. And they're all obviously tied back into the economic growth of the countries that they are involved in. So, Robotics is key. Our solution that we have there, I think the fact the Buzz Aldrin Foundation selected us. And Aldrin foundation has got about 1,000 classrooms right now with their MARS Math or their lunar maps that they have. And with the 50th anniversary that we've this year of the lunar landing, they are continuing to see that expand. So we will be going to market with them with our MyBot and with our solution bundled together with their map and with curriculum and content, questions and other things like that to make. So, if you look at the 1,000 classrooms that they're already involved in, we will be going back into them with at least five to 10 robots for our math. So with there -- and then we're seeing across the board, our pipeline is growing. We had to get the Modern Robotics, MyBot app earlier this year. And so, now the specifications are being built in and we have a lot of RFPs that are -- not RFPs, but specifications in and request building in our pipeline. So we expect to see tremendous growth in this. We think we've got an incredibly competitive product for the market and with the resources behind it and the background to continue to allow us to grow.

In the third quarter, Mike, we see some revenue from this -- from the Aldrin Foundation. I'm not sure exactly when that might be kicking in.

We absolutely -- we've already seeing Aldrin Foundation initially ordered 100 of our MyBots for their initial orders. They expect another 500 to 600 for the end of this year, and then we are targeting school districts with them. We're having a complete rollout plan with them to take this package solution approach and go into the schools and the stage throughout the United States. And with Buzz Aldrin and Aldrin Foundations backing and supporting the prestige that they have, there we're very confident we're going to see continued exposure, and then we're going to see some orders starting in the half. And I think on some significant scale.

Okay. Well, that's a great start. I just wanted to talk about your gross margins. Obviously impressive and then anticipate that level coming off last year, actually 17.9% -- actually for the whole year 22.9%. But so far, the first two quarters of this year, it looks like it's pretty impressive, hence the guidance. But you mentioned a combination of everything from hardware, which also included services in that. But I'm just curious the gross margin boost not only for the second half of the year, but what you already have for the first half, is this mostly from an increasing your services revenue? Because I would imagine that's probably the higher margin business, but I'm not sure how much your hardware margins might have improved. But if I could just get an idea of what was the principal driver of the guidance? And what you've had already for the first half of the year?

Hi, this is Takesha.

Go ahead, Takesha.

Okay. So there's a couple of things. So, one part of it is product mix of course. But it’s not heavily weighted -- our total revenue is not heavily weighted in the services sector, which is the primary services and software sector, which is the primary driver of the higher margin. However, there are a couple of other things that we take into consideration. In the second quarter of 2018, we had some initial deliveries on our large orders from Clayton and Beaufort. That was lower margins, which drove the margin down for the first half and second quarter of 2018. In addition, we as a company have really taken a look at lot of our contracts that we've entered into, specifically related to freight and we've figured out a way for us to have a lower freight cost by going through one of our providers that is an international provider. So we have a decrease in freight. We don't have a situation that we had in 2Q, 2018 with lower profit margins for the initial delivery of those two big products and we're getting a higher product mix that includes both services and software.

Okay. So -- and obviously services revenue was a higher margin, but the combination of the lower freight cost, which obviously helped your hardware margins, is this level that we're at for the first half, obviously, you guided but going forward we should see it continue at least at around 30% level and may be even increase in 2020. Is that correct? I mean with our services…

Yeah. I think we'll continue to see at this level. That's what we're anticipating for the remainder of this year and next as well. And as we start to see an increase in the percentage of software and robotics and services, we'll see that we will see an uptick in the margins from the 30% as well.

That's great. And I'm trying to get an idea, the amount of growth in your overseas business. What amount of your business, hopefully you have these metrics, what amount of your business is currently from overseas contracts? And where do see that about a year from now?

Right now it is probably -- we’re anticipating it's going to be about 10% of our revenues for 2019. And we expect it to grow as the rest of the world outside of the United States there and we're ideally positioned not only in the developing economies, but also in countries that need lower cost solutions. Our approach like we said change the classroom, change the world means that every student anywhere in the world. And that's why we've focused so hard in having solutions that are lower cost to allow them to get in and gain access to the Internet. Our Mimio MicroCloud which is a great example of that solutions there. So it's going to continue to grow. The rest of the world, they want access to all of the learning and interactive technologies, it's proven to show that it enhances learning and achievement. And so we expect that it's going to probably over time become about 40% of our total revenues.

Okay. I just have one final question and I'll open it up for others. On the last call, you mentioned there was an $860,000 services contract with Clayton County, and that included on-site specialist located at the school district, and obviously last week you were awarded additional programs, which I believe you mentioned on this call, it was a little over $1 million additional. So we're looking at close of $2 million in Clayton County for that program. So assuming that other school districts go the way of Clayton County and contact with Boxlight for professional services including on-site specialists, I'm just curious how scalable, do you believe your services division is in handling the increase personnel required for this type of contracts?

I think it is absolutely scalable. We built an incredible foundation. The EOs team started out basically of specializing in this with an outsource contract with a major district in Pheonix where all of their professional development and training was handed over to them. So, they have been right in the midst of a large district developing all of this and everything they have is something that can be used with other districts everywhere. So, we're going to have an increased focus by our channel partners and our channel managers to include the services, presentations and overviews because in our opinion, it's a travesty to have technology in the schools and not have a complete professional development certification program to teach and how to use them. I think, Clayton County use the analogy in our -- if there is the presentation that they had -- that having the tools that having something right Mimio Studio and the whole of Boxlight suite is like having a supercar. What's that movie that came out where a car turns in to all these fancy things?

Transformers.

The Transformers, so the transformer right there. But if you don't them how to use it and all the things then you basically just got a normal car. So, you teach and train them and all of a sudden they know, hey we got this feature and this thing and that's sort of thing. So we're still proud to be tied in the Clayton County because they are proving not just having technology, it's having the training and certification to make it work. And they're going to be an absolute standard I think across the country for how to make systems working. So, it is scalable in every district and you'll be seeing this and hearing more about this that they recognize this technology, but using the technology is what's key. And that's why we have invested so much and why we will continue to grow in the area of professional development and services to have them really effectively using the tools and getting all the benefits that you can not just a percentage of it.

Hey James, one more comment, here is Michael. We gave guidance in the past that we expect professional services to be about 10% of our revenue by next year. I think that holds true stills, we still look at that internally. And I think, long term, it should even be higher than that. And a good model for that is a Clayton County, right? Our total revenues from Clayton County, we're going to be well above 10% of our total sales for that school district. And so, as you think about and model into the future, I think you got to use that 10% number as a good model by next year.

I just wanted to make sure, you had the manpower, the personal required because obviously each school district you're going to need the manpower there for the training. So that's not an issue basically right now even into 2020 with growth of this segment it's not an issue. That's what I was trying to get to.

It's not a lot. A lot of teachers out there that are retiring, they would love to be tied in to doing professional development and training and taking advantage of their experience but having a more flexible work schedule. So the supply is not an issue. As far as the growth side of Qwizdom which is software that other manufacturers of interactive solutions utilize, we've also made a commitment to develop certification training for those products out of the occupancy and Qwizdom side. So, again it's our hardware, somebody else's they're using our solutions, we want to make sure that they are using it effectively. So we've started developing in a position of soon I think in the next month we'll be rolling out the certification for the Qwizdom octopus suite. So, the supply of people that are available to do this is I think something that we won't any problem scaling with.

Okay. That’s great. That’s all I have. Thank you for taking my question.

Thank you, John. Great questions.

Okay. Our next question comes from Allen Klee with Maxim Group. Please state your questions.

Yes. Hi. I just wanted a clarification on the sentence you wrote related to 2019 outlook. When you say you support your guidance of at least 25% revenue growth, are you saying 25% revenue growth for the whole year or just for the second half?

Yes. Good question, Allen. So we initially, of course, had the guidance for 25% for the whole year. The first two quarters or the first quarter is a little bit slower, as you're aware, coming into the year. And so, we have revised that to say, we should see hit at least 25% for the second half of the year. So as you're modeling, you should look at that, the second half of the year, that 25% growth and then, of course, we'll use actual for Q1, Q2. But I will add as well, that you'll notice that we upped the gross profit guidance. Previously that guidance was 25% to 30%, but we're saying you can expect for the second of the year approximately 30% gross profit.

Okay. Thank you for that. And then, could you give us a sense based on what you're saying about growth rates and margins? Could you guesstimate when you think you might turn adjusted EBITDA positive?

Yes. If you look at our current numbers at $11.1 million of revenue, you'll see that were about adjusted EBITDA loss of about $600,000. So, if you add about another $1 million in that $12 million mark roughly, right? We're looking at about positive EBITDA -- adjusted EBITDA of roughly at that $12 million revenue number. Cash flow positive is going to be a little higher than that, because of the interest expense, right? Then you're closer to, call it, $12.5 million or just north of that, may be slightly $1 million for positive cash flow.

Okay. So do you add $12 million in revenue around, you think you could be adjusted EBITDA positive?

Approximately, yes. That's accurate.

What you're pretty close to right now. Okay.

That's right. Yes. And if you look at the guidance we provided plus Q3 last year, you'll say, we should hit that right for next quarter.

Okay, great. And then, you've spoken about how sometimes a customer will buy like the flat panels to begin with and then a few -- some customers. And then, you can get add on purchases of other things in the future. Are you -- have you seen that yet in San Diego or for anywhere else where you think that that might be happening?

For, San Diego, we're in the -- we installed about 100 of them in the first quarter of 2019 and then they had the board approval for the next 6,000 of which 1200 will be this year. So we'll be rolling that out, but they are absolutely talking with us now and our training session that we're doing about are software, our network device management systems, they're going to be looking at our robotic solution. It just makes sense for them, because it's so integrated together and it makes it easier to use. So we will see that. Now, they did select some audio and, I guess, it was the Mimio devices there and the document camera. But San Diego has that in place already, but other district absolutely. We're in discussions with every single one of them. And that's one of the things that our channel partners like about us, is that we're not just a point solution or a one-trick pony. Our channel partners can go in with us with all of these different entry levels and it doesn't have to be flat panels or projectors. We've won districts where we've gone in just with document cameras or voting devices and then they've grown off of that and into other areas right there. So channel partners that have build relationships over the years based on their consulted approach, they love working with us, because they go in with a solution and then they can continue to grow and build out from that. So it's happening across the board and every district that we're involved with.

Yeah. I think the biggest example of that Allen is we talked about Clayton County, right? Where we won the contract and they came back with over $1 million in professional services that wasn't part of initial contract. So that's probably the biggest example to-date. But keep in mind that a lot of these solutions – solution in robotics we just launched this, our Clarity MimioClarity solution we just launched it, right? So a lot of these, I think you're going to see a lot more of that starting next quarter in fourth quarter of this year.

And we will see in lab disk and others as you know where we've gone in like in Broward County in other places where we have had additional solutions brought in. So it's a part of our overall messaging by our channel partners and our sales team. And it's a big advantage that our customers look at when they selected us, because they don't want to have to get involved with the finger-pointing and trying to integrate all these different solutions that have different interfaces and different systems and approaches and training.

Okay. Thank you. My last question is just based on what you know now for your backlog and potential installations and everything. Is there a way that you could help us with the seasonality of how you think revenues will be relatively in 3Q versus 4Q?

Yes. So, Q3 typically is going to be 30% or just north of that our total year that's typically what we see. But it's really hard it's hard to say it's kind of this point in the lifecycle of our company Allen to kind of see it. I mean, you saw last year, there was quite a bit it was pushed into fourth quarter. So the fourth quarter actually was larger than our third quarter last year. So it's a tough for us to put out numbers quarter-by-quarter. But typically, Q3 is going to our largest quarter, 2Q is going trail that a little bit, Q4 is a little bit lighter and then Q1 is going to be something like 10% to 15% of total revenue, right? That's going to be our slowest quarter. So, we're trying to put our general guidance. We gave them in the past, but we're a little hesitant to just because there is some shifting that happens, and we've see it already the last few quarters where orders or contracts were shifted into different quarters than we originally expected.

Okay. Thank you very much.

Okay. Our next question comes from Keith Gil with Carter, Terry & Company. Please state your question.

Yeah. Congratulations on a strong quarter. Can you describe and expand on the recurring aspects of your business model in the market? And how that leads your visibility over the year?

With recurring assets, we obviously are looking at all that we can to continue to grow the software, which has an element of annual renewal licenses and things like that. But the fact that, we're winning multiyear contracts is an example at Atlanta Public School that we started rolling out in 2015 to where they deploy, based on their budgets that they get and they work with us there that gives us a lot of predictability from the multiyear contract. The time that it becomes a little confusing is like, with Clayton, County the way we thought initially there were going to be 3,200 classrooms over two years, but after they saw the success that they were having in and the excitement within the districts by the teachers and the students and the board members that they decided to collapse that timeframe into six months. So, you can see when you have that kind of variability right there. But in general the fact that we're into a school district, there's multiyear rollouts and then we can also talk with them about adding our peripheral solutions in there as we go along. So that gives us a lot more predictability, and as we're growing our customer base that's something that our channel partners and our sales people are in a much better position to forecast with us.

That's good Mark. And I add as well, not only is there an opportunity to up-sell along the way during that contract for other solutions or services, but also this is technology. So it has a refresh life cycle. That refreshes as Mark mentioned in the bringing part of the call, typically five to seven years. So if we go into a large school district, we do an implementation is successful when it's time to refresh reflect that technology in five or seven years they are going to pick us again, because they're not going to standardize on a new solution and have that learning curve from software to hardware to services all of that. And so we're going to start to see more and more of that. We're a young company now, but we're going to start to see a lot more in future years of us winning contracts that we won previously again.

Thank you.

Thank you, Keith.

Okay. Our next question comes from Brian Kinstlinger with Alliance Global. Please state your question.

Actually I try to hit star two. Both of my questions were just asked. So, I appreciate it and we’ll talk again later.

All right.

Thanks, Brian.

And you had great questions and we will be glad to answer them again for you.

And there are no further questions in the queue.

Okay. Well, with that thanks everyone for your support and for joining us today on our second quarter conference call, and we look forward to speaking with you on next quarter. Thanks a lot. Bye-bye.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.