Boxlight Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited. Boxlight designs and sells interactive education technology, including displays, software, accessories and services under its Clevertouch and Mimio brands.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $49.7m | $68.7m | $137.9m | $179.0m |
| Gross profit / margin | $18.0m / 36.3% | $21.0m / 30.6% | $51.0m / 37.0% | $50.5m / 28.2% |
| Operating income (loss) | ($11.6m) | $6.5m | ($9.7m) | $3.9m |
| Net income (loss) | ($17.8m) | $3.1m | ($21.5m) | ($1.7m) |
| Adjusted EBITDA | $4.9m | $9.9m | $13.7m | $16.3m |
| Operating cash flow | Not separately presented by quarter | $8.2m | $0.5m |
Q3 revenue fell 27.7% year over year and nine-month revenue fell 22.9%, primarily due to lower sales volume across markets. Hardware remained the principal revenue source. Gross margin improved as manufacturing and shipping costs declined, but higher general and administrative costs relative to sales weighed on operating results. The company recorded a $13.2m goodwill impairment in Q3; without this charge, the reported operating loss would have been materially lower. Interest expense was $8.2m for the nine months. Income tax expense was $3.4m despite a pretax loss.
For the nine months, operating cash flow benefited from working-capital movements, including a $13.8m inventory reduction; accounts receivable used $10.3m of cash. Investing activities used $0.2m and financing activities used $3.0m. Cash was $18.4m at September 30, 2023, versus $14.6m at December 31, 2022.
Balance sheet and liquidity
At September 30, 2023, working capital was $61.4m and the current ratio was 2.24. Debt was $48.0m before unamortized premium, discount and issuance costs; reported current and long-term debt totaled $44.4m. Total liabilities were $121.2m. Accounts receivable was $40.4m and inventory was $44.1m. The company had $28.4m of open inventory purchase orders.
Material changes and segment performance
- Americas revenue was $25.7m in Q3 versus $31.8m a year earlier; EMEA revenue was $24.3m versus $37.5m. Nine-month revenue declined in both segments: Americas to $76.9m from $79.5m and EMEA to $68.2m from $100.1m.
- The company recognized goodwill impairment of $10.4m in Americas and $2.8m in EMEA after market capitalization declined and forecasts reflected softer demand for interactive flat-panel displays. The prior-year periods had no goodwill impairment.
- Gross profit increased slightly for the nine months despite lower revenue, while operating expenses rose as a share of sales. Adjusted EBITDA declined year over year.
- Boxlight effected a 1-for-8 reverse stock split in June 2023. Segment reporting was reorganized into Americas, EMEA and Rest of World beginning January 1, 2023; comparative segment figures were restated.
Outlook, risks and unusual items
- Going concern: Boxlight disclosed substantial doubt about its ability to continue as a going concern within one year after issuance. It breached its Senior Leverage Ratio covenant at September 30. In November, it paid $4.3m, including $0.3m of penalties and accrued interest, and obtained a lender waiver that treated it as compliant at September 30.
- The company is pursuing refinancing but had no executed refinancing agreement when the 10-Q was issued. Management said forecast covenant thresholds tighten to 2.50 at December 31, 2023, 2.00 at March 31 and June 30, 2024, and 1.75 thereafter; its forecast indicated possible future non-compliance.
- Series B preferred holders may require cash redemption beginning January 1, 2024: stated value is approximately $15.9m, plus accrued unpaid dividends. Series C redemption rights begin in 2026. The company is evaluating refinancing or restructuring these obligations.
- One customer represented 12.8% of nine-month revenue. One vendor represented 45.1% of nine-month cost of revenue, creating customer and supplier concentration exposure.
- Management reported disclosure controls were not effective due to material weaknesses previously identified in the 2022 Form 10-K. No material change to internal control over financial reporting was reported this quarter.
- No specific financial guidance was provided. Management cited seasonality, limited vendor credit, required inventory prepayments and uncertainty in credit markets as liquidity risks. Legal matters were not expected by management to have a material adverse effect; no material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Progress and terms of the proposed refinancing, and compliance with the tightening leverage covenants.
- Cash generation and working-capital trends, particularly receivables, inventory and required vendor prepayments.
- Whether sales stabilize and margins hold as demand for interactive displays softens; monitor Americas and EMEA performance and further impairment risk.
- Plans and available liquidity to address the Series B redemption option in 2024.
- Remediation of the disclosed material weaknesses and the company’s significant customer and supplier concentrations.