Boxlight Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 7, 2024

Key Takeaways

  • In Q2 2024, revenue fell 18.1% year-over-year to $38.5 million, resulting in a net loss of $1.5 million and adjusted EBITDA of $3.7 million, down from $5.4 million in the prior year.
  • Operating expenses declined 15.8% to $13.3 million—the lowest since Q3 2021—driven by $5 million in fixed-cost cuts and ongoing headcount and process streamlining to target a $12–13 million quarterly run rate.
  • Boxlight rolled out new solutions—including the Unity safety and communication hub, TimeSign customizable digital clocks, and the Robo E4 3D printer—each winning Best of Show awards and aimed at growing safety and STEM revenue.
  • Management noted demand remains soft—especially in the U.S. interactive display market—with Q3 expected to mirror H1 weakness as recovery timing varies across geographies.
  • To bolster liquidity and capital structure, Boxlight secured a $2 million bridge loan (with up to $3 million available) and is working with lenders on a longer-term credit facility solution.
AI Generated. May Contain Errors.
Earnings Conference Call
Boxlight Q2 2024
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to the Boxlight Corporation Second Quarter Financial Results Call. At this time, all participants are in a listen only mode. And a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr.

Operator

Jeff Stanlis of FNK IR. Sir, you may begin.

Speaker 1

Thank you, operator, and thank you, everybody, for joining. Earlier today, Boxlight issued a press release providing an operational update and discussing financial results for the Q2 ended June 30, 2024. This release is available on the Investor Relations section of the company's website atboxlight.com. Hosting the call today are Dale Strang, Chief Executive Officer and Greg Wiggins, the company's Chief Financial Officer. Before we begin, I would like to remind participants that during the call, management will be making forward looking statements.

Speaker 1

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 many other things. Boxlight encourages you to review other factors that may affect its 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.

Speaker 1

Dale, the call is yours.

Speaker 2

Thank you, Jeff, and thank you to everyone who's joining us today. When I took over as CEO in January, we indicated that we expected it would take several quarters for the demand cycle in our markets to turn positive again. We therefore made it our priority to focus on adjusting our organization, specifically our cost structure in order to align with the current market reality and to set us up for ongoing consistent profitability. That initial assessment has largely held true. Demand remains rather soft versus prior periods, particularly in some of our largest markets.

Speaker 2

Thankfully, we've made substantial progress in our business streamlining as evidenced by us meeting our profitability targets despite persistent revenue headwinds. The current market conditions are certainly challenging and are expected to stay that way until the market returns to a broad growth cycle. Obviously, we're not immune to the effect of the market, but believe we're navigating these conditions better than most. And we're well poised to gain significant market share as we progress through that cycle. Here's why.

Speaker 2

First, we're responding to the market reality with assertive action. Our immediate focus discipline has enabled us to streamline our organization's team, product and go to market processes and we're committed to ongoing application of this profitability. 2nd, we're both anticipating and responding to our customers' needs with updated products and services. These new offerings are driving demand and they're aligned with industry catalysts. The industry is increasingly focused on things like emergency preparedness and school safety, immediate communication that goes campus wide and accelerating curriculum focused on fast growing markets like STEM.

Speaker 2

We're well positioned to meet these challenges and have meticulously developed solutions to solve for these evolving needs. We also maintain a broader range of both price and performance in IFPDs and a wide range of both hardware and software in our STEM offerings. In recent weeks, we introduced several of these solutions, each integrating multiple capabilities and aligning with these demand catalysts. In the safety and security portion of our business, we developed and launched Unity. Unity is a small profile all in one hardware device used in classrooms and campus wide to unite and to manage audio communication safety ecosystems providing audio, bells, paging and alerts integration, whether used by a teacher in the classroom for audio while giving full control over all devices via mic controller.

Speaker 2

On campus, Unity enables swift campus wide communications, emergency notifications and alert, providing two way communication and is customizable to work within the district's emergency operations plan. Unity's full connections and is almost infinitely flexible. It's a small profile device that can be mounted or placed virtually anywhere for flexible installations and retrofits. Getting started has never been easier as this device is one device with a plethora of uses.

Operator

We also launched TimeSign.

Speaker 2

TimeSign is an affordable 22 inches customizable digital clock display, which can be used for various aspects of campus communication, signage and messaging. Displayed content is completely customizable through the included clever live software, which makes this solution easy and affordable. In the stem space, we recently launched an update of our esteemed Robo 3 d printer. Our new version is one of the quickest, most accurate, yet most affordable 3 d printers on the market and it's backed with hundreds of lessons and curriculum and aligned to national K-twelve standards. The Robo E4 is the most compelling 3 d printer on the market for K-twelve STEM education.

Speaker 2

And as a reminder, STEM is a fast growing segment we participate in with a projected CAGR of almost 15% through the 2,030. Both Unity and the Robo 3 d printer won Best of Show Awards at ISTE in June 2024, which confirms our commitment to ongoing innovation. Our diligence in developing a best in class ecosystem of EdTech Solutions puts us in a unique position to capture multiple levels of technology investment. No other vendor offers a set of solutions as comprehensive, integrated and complementary as the Boxlight suite. And this continued innovation is critical to our long term success and explains why we're so confident in our current competitive position.

Speaker 2

We're leaning into our advantages to best position our company for that next phase of sector growth. And the breadth and quality of our suite today helps us create incremental demand and win business from new and existing customers. Just two recent examples from the Midwest. First, one of our partners in Michigan recognized the value of adding a Boxlight front row audio solution to an existing deployment of flat panel displays in school district with 100 of classrooms. This audio add on enabled a state of the art campus safety and communications capability while leveraging our attention software that ties all these the hardware together and align simultaneous audio, video for notifications and alerts campus wide.

Speaker 2

Similar exercises playing out in the school district in Iowa, where we have a fairly large deployment of Mimeo interactive panels installed in the middle and high schools that's being augmented with upgrades for existing interactive displays in the neighboring elementary schools. They'll soon be adding Front Row Conductor, which enables IP based campus controlled and communication. It's a total solution that's only available from Boxlight. Our targeted investments in new and upgraded products in conjunction with our ongoing focus on operational discipline are both key to us making improvements to our capital structure. We're working collaboratively with our banking partners and our lender to identify and secure the best long term alternative to our current credit facility.

Speaker 2

I continue to be very confident that Boxlight is on the right path. We're bullish on the long term outlook for our market and our products and team are outstanding. Still, our progress will likely not be linear. Market conditions remain challenging and this exacerbates quarter to quarter volatility. Our mission is to position Boxlight to successfully navigate these current challenges and simultaneously position Boxlight to thrive as these conditions improve.

Speaker 2

We're on the right path with much work still to do, but the pieces are in place. With that, I'll now turn the call over to Greg to discuss our Q2 results.

Speaker 3

Thanks, Dale, and good afternoon, everyone. Before we review the financial results for Q2, I want to provide an update regarding some of our recent initiatives with respect to bolstering our balance sheet and reducing our operating costs. In mid April, our current lender provided an additional $2,000,000 bridge loan to help meet the company's short term seasonal working capital needs with the flexibility to borrow an additional $3,000,000 in June. As stated on previous earnings calls, our operations are seasonal with Q2 and Q3 being our busiest periods and the additional liquidity ensured that we will have the necessary inventory on hand to meet our customers' demand. Recent improvements in cash flow attributable in part to recent operating expense reductions resulted in us only borrowing 2,000,000 dollars of the additional $3,000,000 in July.

Speaker 3

We expect to pay these amounts by the end of November. Aligning operating expenses with operational performance continues to be a priority. As we shared with you on our Q1 earnings call, the company eliminated approximately $5,000,000 in fixed cost in the Q1, mostly through headcount reductions that did not impact our sales teams or other revenue generating departments within the organization. Other initiatives to reduce operating expenses such as eliminating duplicative processes and related costs are also in place and are expected to contribute to continued savings in the coming quarters. As a result of this cost reduction strategy, operating expenses decreased 15.8 percent quarter over quarter to 13,300,000 dollars This marks our lowest quarterly operating expense total since Q3 2021 prior to our acquisition of FrontRow.

Speaker 3

We are not done yet and we expect additional reductions benefiting the balance of the year. Our stated goal at the beginning of the year was to achieve a quarterly OpEx run rate by the end of 2024 of $12,000,000 to $13,000,000 per quarter. However, as Dale mentioned, our ultimate goal is to align operating expenses with revenue generation, and we are committed to making continued changes to reflect operational trends. I will now review our Q2 results. Revenues for Q2 2024 were $38,500,000 as compared to $47,100,000 for Q2 2023, resulting in an 18.1% decrease.

Speaker 3

EMEA revenues comprised approximately 44% or $17,000,000 of our total revenues. Americas revenues totaled approximately 55% or $21,000,000 of our total revenues, while revenues from other markets totaled approximately 1% of our total revenues. Flat panel displays comprised approximately 71% of total revenues, audio solutions comprised 12% of total revenues with the balance of our revenues comprised of device accessories, software, professional services and STEM solutions. Gross profit for the quarter was $14,500,000 as compared to $17,800,000 for the prior year period. Gross profit margin for the quarter was 37.7 percent, which is a decrease of 20 basis points over the comparable 3 months in 2023.

Speaker 3

Total operating expenses for Q2 2024 were $13,300,000 compared to $15,800,000 in Q2 2023. Other expense for Q2 2024 was a net expense of $2,800,000 as compared to net expense of $2,600,000 for Q2 2023. The majority of other expense is related to interest expense on our current credit facility. The company reported a net loss of $1,500,000 or $0.18 per basic and diluted share for the quarter as compared to net loss of approximately $800,000 or $0.12 per basic and diluted share for the prior year quarter. Adjusted EBITDA for Q2 2024 was $3,700,000 as compared to adjusted EBITDA of $5,400,000 for Q2 2023.

Speaker 3

Adjustments to EBITDA include stock based compensation expense, severance charges, gainslosses from the remeasurement of derivative liabilities and the effects of purchase accounting adjustments in connection with recent acquisitions. Turning to the balance sheet. At June 30, 2024, Boxlight had $7,500,000 in cash, dollars 46,700,000 in working capital, dollars 37,800,000 in inventory, dollars 138,800,000 in total assets, dollars 40,300,000 in debt, net of debt issuance cost of 1,900,000 and $7,500,000 in stockholders' equity. At June 30, 2024, Boxlight had 9,800,000 common shares issued and outstanding and 3,100,000 preferred shares issued and outstanding. Following the 2,000,000 borrowings in April July respectively, the principal amount of the company's term loan is $44,300,000 The industry downturn has persisted longer than expected and we do not anticipate an immediate turnaround in Q3.

Speaker 3

We expect Q3 revenues will reflect the broader market dynamic for the first half of twenty twenty four, while we focus on operating expense reductions to generate positive EBITDA for the balance of the year. With that, we'll open up the call for questions.

Operator

Thank you. At this time, we'll be conducting our question and answer session. Our first question is coming from Brian Kinstlinger with Alliance Global Partners. Your line is live.

Speaker 4

Great. Thanks so much for taking my questions. Last quarter, you guys talked about improving market conditions that should drive second half growth. And your last comment there was the 3rd quarter, That wouldn't be the case. And I'm guessing in the Q4, probably not too, given some of the other pieces of the discussion you talked about tough market conditions and less linear in the recovery.

Speaker 4

Can you talk about what's changed in the last 3 months that has changed your view? Has the market gotten weaker? Has it not recovered as you expected? Maybe some more clarity on what's going on in the last 3 months?

Speaker 2

Sure. Thanks, Brian. This is Dale. I think your question kind of hints at the answer. But one thing is, it's not one market, right?

Speaker 2

We are in every market in Europe and of course, they're well established here in the U. S. And Canada. And some of those markets are growing. Some of them are recovering after a period of softness.

Speaker 2

And some of them are it's clear that they're on the mend and others their outlook remains really murky. I would say that the overall the U. S. Market in our core market, which is interactive flat panel displays, has remained soft for a longer period than we anticipated. And that trend is slowly improving, but not as quickly as maybe we'd hoped.

Speaker 2

And in other markets, we're seeing really pretty solid improvement. So I think the quick answer to your question is we know that the markets are these markets are somewhat cyclical and they change each time, but they'll be developing and going into a growth cycle in each of the geographies we serve. The timing will differ and in some cases, in some of our largest markets, it's been slower than we thought. One example would be the UK. That's been a really powerful market for us in the past.

Speaker 2

And there's been a great deal of uncertainty around that market until I guess fairly recently, where the speculation seems to be that the recent political situation being clarified with the new election will lead to some kicking out some stops for some growth there. That's an example of where maybe we thought it would recover more quicker than it has, but now it's the outlook is looking relatively positive there. But it's going to be uncertain for quite a while. Great.

Speaker 4

That was helpful. Thank you. And then the gross margin was quite strong in the quarter, one of the best from the company. Was this about the mix or pricing? I guess I'm just trying to understand the performance.

Speaker 4

And then as we look forward, it's been long communicated by you guys as well as the management before you that long term sustainable gross margin somewhere in 30% to 33%. What will drive that pressure and when will that happen over the long term?

Speaker 5

Yes. So to kind

Speaker 3

of address where we were for Q2 is really a couple of factors that are offsetting each other to some extent. So we've already started to see a little bit of margin pressure just from the competition within our various market. What has helped in Q2 for us to maintain such a strong margin has been the result of positive mix shift with increasing audio sales, which carry a higher margin as a percent of our total sales, probably helping us by 100 basis points or so in margin uplift. We are starting to see the competitive pricing in the markets and that was expected. I think they've actually held up better than we anticipated.

Speaker 3

I think coming into 2024, on a consolidated basis, we viewed a gross margin of 34% as a possibility. Our margins have held up above that throughout the year. And I think while we still expect to see some pressure throughout the remainder of the year, I think we still expect our margins to come in better than what we anticipated in the year. And I think part of that's just attributable to some of the various market demand considerations where we're starting to see a little bit of competitive pricing. But certainly mix is helping and one of the reasons why we're very encouraged by the audio business complementing our panel business.

Speaker 1

Yes. The only thing that I

Speaker 2

would add Brian.

Speaker 1

I was just going

Speaker 4

to say to be clear, if you're saying it's 100 bps because audio sales are up, that still gets you to a relatively high margin gross margin for Boxlight historically. That 30% to 33%, is that low end much, much further away and what we're looking at is more like 34% to 35% in the near term when if the mix changes. Is that how to think about it?

Speaker 5

That's how I think

Speaker 2

Go ahead. I'm sorry, I keep stepping on you.

Speaker 3

No worries. So yes, to answer your question, Brian, I think that's how we view it in the short term as far as I don't think the decline is quite as drastic or as steep as we were originally anticipating, which has been good. I think we've been able to be very competitive with our products and the quality of the products that we're selling. So definitely, we think there will be longer term continued pressures, which will drive it down. But I think our original estimates that we've been making in the past maybe pushed out a little further than we originally anticipated.

Speaker 2

The only thing I would add is that mix is a little bit more multi there's a few elements to mix. Certainly, the higher percentage of audio we sell is going to move several basis points on our gross margin. Other factors include the mix within the product lineup. For instance, in the panel market, there's a sort of mainstream midpoint of price and performance that we're really well known for and we perform really well with. But we've also introduced some really high performing, really top end panels that have lots of features, lots of technology that tend to be both higher priced and higher margin, those figure into it as well because those have been well received.

Speaker 2

Other factors include the advantageous way in which we're able to buy our components. There's timing around that and we work very closely with our sourcing partners to ensure that we're super competitive all the time. And the last thing is, not every country is the same. There are countries where that are known for being price driven first and only and there's others that really want to find the right mix between performance and support and feature set and those are reflected in the margins as well.

Speaker 4

Great. My last question, Dale, when you joined, you talked about approving the balance sheet, you talked about it here. I know it's a focus of yours. Are we any closer, do you think, to making some changes on the balance sheet? Or is still a bit away?

Speaker 2

It's not pending, but I think we're closer. Yes. As Greg and I both mentioned, we're tight with the folks on our balance sheet. And we talk all the time about what the right approach is and when and how we do it. So I don't really know how to answer it other than that.

Speaker 2

It certainly is a priority, But there's nothing that we're going to do that's in any way rash or we don't need to rush. We just need to do it right. We're working closely with everyone involved to make sure we do that.

Speaker 4

Okay. Thanks so much.

Operator

Thank you. Our next question is coming from Jack Van Der Ader with Maxim Group. Your line is live.

Speaker 5

Okay, great. Hey Dale, Greg. Despite the top line softness, is it good to see the strong margin, strong EBITDA, positive adjusted EBITDA. I guess I just want to circle back, I guess, on the OpEx. So you previously talked about moving toward a normalized quarterly OpEx level that was much lower than it was historically.

Speaker 5

You've done a great job of that. You're in that range actually close to it this quarter. Greg, you did mention, I believe, aligning OpEx based on revenue and business conditions. So just to understand that, does that sort of imply you've kind of done a good job of getting to that normalized OpEx range that you guys stated you're moving towards. However, there's still an opportunity maybe for further cost reductions pending the demand environment, I suppose.

Speaker 5

But I wouldn't expect further increases to OpEx is what I'm thinking. Yes. So the way we've kind

Speaker 3

of looked at it, so going into the year based on our initial thoughts early in the year in Q1, Q2, we wanted to target 12.5 $1,500,000 per quarter OpEx range. And we've made a large number of changes to execute on that. And as you noted, a lot of that's already starting to bear itself out in our financial results for Q2. And as we progress through Q3, Q4, we think we're well on our way toward arriving at that number. I think just stepping back at a high level, we don't have necessarily all the answers at this point as far as exactly when and to what extent the market will completely turn.

Speaker 3

I think in the past, admittedly, I think we would say the company hasn't always been as proactive about managing the OpEx spend in relation to where the market's been as far as customer demand and revenue generation. And I think from our point of view now, it's we are much more aligned with looking at the current market trends and adapting accordingly to our OpEx structure. Now certainly there are fixed costs within our OpEx within our OpEx structure. But I think we do have some ability to control some variable expenses as we move forward, but also just to really make the necessary changes proactively based on how the market is trending on the top line.

Speaker 5

Okay, got it. That's really helpful. And maybe a question for Dale. Maybe qualitatively, can you provide some color maybe on just like the tone of some of the discussions you're having with your customers, potential customers across all your markets and verticals, whatever just stands out at the top of your head. Wondering just kind of what are you hearing from your customers?

Speaker 5

Is there a pause? Is there optimism at all? How has that changed? I know there's a lot of moving parts here, but that'd be

Speaker 2

helpful. Jack, I think that's a great question. And it's an interesting one because as you know, I spend as much time as I can talking to those customers and it's tough to generalize. But one way to look at it is our channel partners, you might even put them in a couple of different buckets, right? One bucket being the people who really consultatively work with their end user customers to provide a solution that is exactly meeting their needs and really is built for the future.

Speaker 2

And then there's others that maybe fall in the other parties that maybe fall in the category of sort of volume producers or catalog providers or what some people would call box movers. And we see I see a real disparity between the tenor of the conversations based on how I might characterize those people. By the way, all partners claim that there's a big value add solution provider and nobody wants to accept the box over. So I'm being disparaging without meaning to. But my point is the people who are based on volume moving without really enhanced value being part of the conversation, those people are the ones that have the most dismay about the overall market turn.

Speaker 2

Those are the ones that are wondering what's going to happen. They view it as more of a commodity and they see the commodity as not being in as much demand maybe as it was 2 years ago. The solution providers, the people that we work best with, and that's true in every market, the ones who really are more curated in their approach, some of them are having record years. And they tend to be they I'm over generalizing, but many of them feel like the corner is about to turn or has been turned to turn to overall demand. And we find that super encouraging because that fits our competitive position really well.

Speaker 5

Very interesting. No, that's really helpful color. I appreciate that. And then maybe just some of the metrics you guys have provided in the past, and I don't I kind of get the idea here in the near term. There's still sort of this unclear visibility, I guess, on the demand front, but mixed conversation, some are warming up, it sounds like.

Speaker 5

You have these new products you've launched that are actually pretty innovative, from what I could tell, especially with the Unity product offering. Can you just talk about are these actively being ordered by customers? What's sort of just like the general idea of what these contribute to your run rate or just incremental sales in the back half of the year? Thanks.

Speaker 2

They are just really they literally just announced a couple of weeks ago for the most part these and we have more coming, more that will come in the 3rd Q4. And so we're just now accepting orders on some of these products. So it's too soon to really build it into the forecast, but we do believe it's going to they're all going to contribute positively to our U. S. Result this year.

Speaker 2

Most of the products that we described are U. S. Focused as opposed to Europe. Although we think long term, they'll do really well there as well. It's just the market for classroom audio, for instance, hasn't developed in most of European markets the way it has here.

Speaker 5

Got you. No, that I was definitely getting ahead of my sneeze there, but that's good to hear. And I look forward to tracking that as well, see how those products are received and how that contributes to demand in orders. Maybe just one more last one, just because I know you guys didn't provide guidance, but it is the Q3, which historically can be a stronger quarter.

Speaker 2

Would you

Speaker 5

maybe year over year declines are still likely, but would you expect a sequential uptick from the second quarter in the Q3 as typical? Or is that just something where you're unclear on and don't want to comment on at this time?

Speaker 2

I have my point of view on this. And but so far this year and really much of last year history has not been the reliable guide we hoped it would be. We were I got here in January, our team put together a really detailed plan for what we thought the first half of the year would look like. And we were spot on right up until the middle of June. And so I would say that in the U.

Speaker 2

S, the outlook remains quite murky. We have a lot going on, but it still remains quite murky. I think the I think we have a little more visibility or a little more certainty coming from several other markets. But I'm not even prepared to guarantee that just yet.

Speaker 5

Got it. That's fair enough. I appreciate it.

Speaker 2

It is really volatile. The market is really volatile right now. And there's a lot of reasons for that at the top end of the funnel, meaning funding sources, the certainty with which the funding is being delivered and so on. And at the final decision making, all the things through there, it's volatile. So we'll know more soon, but I hesitate to close my eyes and stick a finger on a number given the conflicting signals we're getting.

Speaker 5

Yes. No, that's totally reasonable and I appreciate you providing some extra color there. Well, I look forward to tracking the story, gentlemen. Thank you.

Speaker 2

Thanks, Jack. Thank you, Jack.

Operator

Thank you. Okay. As we have no further questions at this time, I will hand it back over to Mr. String for any closing comments.

Speaker 2

Thank you everyone for your support and for joining us today. As I indicated, Boxlight's competitive position continues to improve. We're making progress to align our costs with our current revenue levels and despite less than desired visibility, we're working to position Blacklight to thrive when market conditions improve. With the broadest and deepest offering in industry leading solutions in several key categories, we're capturing market share today and bolstering our position for the future. I'm increasingly confident we're on a sustainable path for success.

Speaker 2

I'm incredibly proud of the bauxite team for responding to the challenges we've talked about and operating with both professionalism as well as energy and creativity. We look forward to speaking to you again when we report our Q3 2024 results.

Operator

Thank you. This concludes today's call and you may disconnect your lines at this time. And we thank you for your participation.

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