Boxlight Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Boxlight designs and distributes interactive displays, software, accessories, and services for education, business, and government markets. Results include Sahara, acquired in September 2020, and Interactive Concepts, acquired in March 2021. Unless stated otherwise, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $46.8 million | $7.8 million | $80.2 million | $13.6 million |
| Gross profit | $12.8 million | $2.7 million | $21.4 million | $4.3 million |
| Gross margin | 27% | 34% | 27% | 32% |
| Operating income (loss) | $1.6 million | $(0.8) million | $(0.5) million | $(3.5) million |
| Net loss | $(2.2) million | $(1.4) million | $(7.4) million | $(3.4) million |
| Net loss per common share | $(0.04) | $(0.08) | $(0.13) | $(0.22) |
Q2 revenue increased 500% and first-half revenue increased 490%, primarily reflecting the acquisitions and higher demand. Management reported 40% first-half organic revenue growth. Hardware represented $73.9 million of first-half 2021 revenue. Despite higher sales, gross margin declined amid freight and customs costs, product-cost increases, and acquisition purchase-accounting effects. Management said global freight costs were about four times pre-pandemic levels and expected elevated costs to continue through 2021.
Q2 operating income turned positive, but net loss included $2.5 million of income-tax expense and $1.3 million of other expense. First-half other expense was $4.4 million, including a $2.7 million loss on settling Lind debt with shares. First-half depreciation and amortization was $3.6 million. Non-GAAP adjusted EBITDA was $5.4 million for Q2 and $7.0 million for the first half; these measures exclude specified expenses and should not be treated as GAAP profit.
Cash flow, liquidity, and capital
- Cash was $7.4 million at June 30, 2021, down from $13.5 million at December 31, 2020. Working capital was $26.7 million and the current ratio was 1.52.
- First-half operating cash use was $4.6 million, investing cash use was $0.9 million, and financing cash use was $0.1 million. Operating cash use improved from $6.2 million in first-half 2020.
- Net trade receivables were $36.1 million, up from $20.9 million at year-end. The filing identifies seasonal working-capital needs and says most inventory purchases must be prepaid.
- Debt at June 30 totaled $19.9 million before $1.1 million of debt discount and issuance costs; reported debt net of discount was $18.9 million, including $16.5 million current and $2.4 million long-term.
- During the first half, Boxlight issued about 3.9 million shares to Lind to settle $6.8 million of principal and $0.4 million of interest, recording a $2.7 million loss. Common shares outstanding rose to 59.1 million from 53.3 million at year-end; 59.9 million were outstanding August 10.
- After quarter-end, Sallyport’s receivables facility limit was increased to $15 million. The filing also reports subsequent stock issuances to satisfy $1.0 million of note principal and interest.
Outlook, risks, and unusual items
- The filing provides no specific revenue or earnings guidance. Management described plans to integrate acquisitions, expand sales and reseller networks, and pursue cost savings, while cautioning that forward-looking expectations are uncertain.
- Supply-chain disruptions, component shortages, shipping delays, and higher freight costs could affect product availability, delivery timing, and margins. A global silicon-chip shortage was identified as a potential risk. COVID-related limits on travel and trade-show attendance could also affect selling activity.
- Open inventory purchase commitments were $63.9 million at June 30. Two customers represented 11.1% and 10.1% of first-half revenue; two vendors represented 35.8% and 23.8% of cost of sales, respectively.
- A $2.2 million Q2 tax charge reflected the enacted UK corporation-tax rate increase and its effect on the deferred tax liability related to Sahara-acquired intangibles. Boxlight also recorded a $50,000 estimate for a potential state tax assessment, while appealing related penalties and interest. A decision on forgiveness of $837,000 of the PPP loan remained pending.
- The Series B preferred-stock redemption agreement was amended to extend completion to December 31, 2021. Series B carries an 8% annual dividend; Series B and C shares have potential future redemption and conversion consequences.
- Management concluded disclosure controls were not effective, citing previously reported material weaknesses and an additional weakness involving accounting for the UK tax-rate change. The filing reports no legal proceedings and no defaults upon senior securities.
Important facts for investors to verify
- How much of reported growth is sustainable organic growth versus acquired revenue, and whether margin recovery can offset freight, customs, and product-cost pressure.
- Cash conversion and funding needs as receivables, prepaid vendor costs, and seasonal inventory requirements fluctuate; assess the terms and availability of receivables financing.
- Debt repayment terms, remaining Lind obligations, and the potential dilution from stock-based debt settlements and compensation awards.
- Ability to fund the $63.9 million of open purchase commitments and manage customer and supplier concentration.
- Timing and terms of the preferred-stock redemption, dividends, and possible conversion, alongside the status of the PPP forgiveness request and tax matters.
- Remediation of the disclosed material weaknesses and whether internal controls improve in subsequent filings.