Boxlight Corporation (BOXL) Q1 2024 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Boxlight Corporation First Quarter Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to our host, Mr. Jeff Stanlis of FNK IR. You may begin.

Thank you, operator, and thank you, everyone, for joining us today. Earlier today, Boxlight 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 Strang, 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's 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's 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 Strang, CEO of Boxlight. Dale, the call is yours.

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 role with the belief that Boxlight was an excellent company in an attractive market. But 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 focused initiatives to make those improvements a reality. We've already made significant progress in those efforts. We've eliminated approximately $5 million in our 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 other onetime severance costs related to our recent head count 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 has generally stabilized and, in some areas, is showing signs of positive growth. Globally, the market for interactive flat panel displays, which is the majority of our business, it remains somewhat soft, and we don't expect that to change in the near term. It's a maturing market, which, of course, those markets offer challenges, but also offer numerous opportunities for growth. And we think that's good for us, and let me explain why. Boxlight is the only company in the industry that has a product offering that spans across the broadest parts of the market. We have attractive 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 and 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 and those customers. So we have the right portfolio to separate ourselves from the competitors and to capture long-term market share. This position was recently recognized by Time Magazine who included Boxlight among its list of the World's Top 250 EdTech Companies. None of our direct competitors are included on this list. And of all the U.S. ed tech companies, only Boxlight earned a spot in the top 10. This is the latest powerful endorsement of Boxlight and our product suite and strategy. Our refocused customer-centric sales approach is validating this belief. Many of our customers are transitioning from initial purchase of their IFPDs and audio systems into upgrades, refreshes and enhanced implementation of those technologies. We are well equipped to address those needs. 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. 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 an infrastructure that can be profitable and successful in any macro market environment. My personal approach is to try 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 suggests that we don't overpromise. 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 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 any 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 markets stabilize, 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. And we're encouraged with our progress here, and particularly with the collaborative approach taken by our stakeholders. Our primary lender has extended additional credit to facilitate our second and third quarter cash needs, which tend to be the seasonally busiest time of the year. At the same time, they continue to work collaborative with us in our initiative to identify and secure a 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 advisers to our Board. Their input is valuable. We communicate frequently and collaborate deeply. We appreciate the vote of confidence they've expressed in Boxlight's amended strategy. This has 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 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 a new Boxlight and have responded with creativity and renewed dedication. Similarly, 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. With that, I'll turn the call over to Greg to discuss our first quarter results.

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 costs. 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 facility. 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's ability to deliver on these initiatives. From an expense management perspective, we have eliminated approximately $5 million in fixed costs over the last 3 months, mostly through head count 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. EMEA 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 3 months in 2023. The decline in gross profit margin is primarily due to changes in product mix with higher margin FrontRow 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 in severance charges related to our recent head count 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 had $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, remains the primary focus. In Q1, the company eliminated approximately 50 positions, primarily in nonsales 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 is committed to reducing operating expenses to approximately $12.5 million to $13 million per quarter on an annual -- per quarter, and expects 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.

[Operator Instructions] Thank you. Our first question is coming from Brian Kinstlinger with Alliance Global.

Great. Thank you and appreciate all the hard work that you guys are going 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?

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 trend was down about 10%, kind of consistent with our revenue decline. I think we're seeing similar trends in -- so far in Q2. There's only so much 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 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 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.

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?

Yes. A lot of it is the seasonality that we think we're returning to in the industry. I think we, for the last couple of years, especially following the COVID pandemic, with the spike in orders, it kind of went a little outside the norm of the traditional seasonal periods that you see the spikes usually in Q2, Q3. 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 we'll still remain flat year-over-year. Again, 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, we'll really start to be able to assess whether that trend will hold true. But that's our expectation and what gives us confidence that we'll remain flat for the full year.

Great. And then, can you talk about the progress you're making with FrontRow? 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 FrontRow?

That's an area we actually invested a lot of attention in in the last 4 months since I've been here. There's a few things we want to recognize about the FrontRow 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 include 2 things. One is the audio products often are specified earlier in the construction and refurbishment process at school, and that requires a longer lead time on the sale. And we're making sure we're deploying our people and our expertise to take advantage of that. We've also elevated some of our FrontRow management team into positions of leadership. In fact, our U.S. leader, Jens Holstebro, was a longtime President of FrontRow, and he now leads our entire U.S. division. We're trying to find the right balance between making certain that every salesperson is adept at selling 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 making sure that we have a different go-to-market process that reflects that. The demand, the increasing demand and awareness that educators and IT managers have for the value of audio in the U.S. is strengthening, so that we find that as being a very encouraging prospect.

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

I mean there's different ways to skin the cat, as I'm sure you know. We don't -- the options we're most actively engaged with are kind of independent of the stock. Do we have a question from Jack at Maxim?

Can you hear me okay?

We can now, yes. Everything went dark for a minute.

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

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

Yes. And just to follow up on Dale's comment there about the it doesn't take a significant amount, the mix in audio and visual, to change it. I think what we saw in Q1 was really just that. It was kind of a mix change. It's 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're pleased with that just knowing there was a greater concentration on the video side this quarter.

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

So I think we can look at that a couple of different ways. There's the top line guidance we've given and then there's the adjusted EBITDA guidance that we've given. If we 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 provide externally. So 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 just getting out there and having that interaction with our partners, with our customers, 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. As far as our outperformance on an adjusted EBITDA basis, some of that obviously was revenue driven. Certainly, I think we were -- I think, in fairness, probably a little conservative in Q1 as there were some noise as you can expect with a lot of the transition that we wanted to do internally to reduce OpEx. Obviously, a lot of it was on the head count reduction time frame. And some of it was just the timing of when those when those changes were going to be able to be made and the related costs associated with those changes. We were able to execute on those plans probably a little a little quicker 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 got some -- we're on a good track, we've got some momentum in -- as far as continuing to manage our costs going forward in other areas outside of just employee-related expenses.

Yes. And my only addition to that, Jack, would be one way to look at the market is the overly general global forecast. And the global market for IFPDs 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 sort of global outlook, and we're seeing some really encouraging signs, 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, we're growing really substantially. For instance, Spain and Germany are great drivers of growth within the market. 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 a reliable forecast for you. We've had one successful one 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. Do you -- I know you're not providing explicit guidance, and the customer orders sound like they're on track, but we'll kind of see as we go here. But 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?

The market really doesn't give you that kind of signal. We're happy with the level of bids and conversations and 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 be able to focus on is history. And if you look at the seasonal history of our market, our first quarter -- the first quarter generally is somewhere between 15% and 20% of the year, and almost never 15%, not usually 20%. And so if the first quarter is accurate, we're spot-on for our revenue expectation of flat, and Q3 would be part of that. But we'll know more as we get further into Q2. And we're probably 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.

Appreciate it.

Thanks, Jack.

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

Well, if there's no more questions, I want to thank everyone for your support and for joining us today. We've had an encouraging [ start to ] 2024 here 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 for which they're known. And I look forward to speaking with you again when we report on our Q2 '24 results. Thanks again.