Boxlight Corporation — Q2 2022 Form 10-Q
Business context and period. Boxlight designs and distributes interactive education and collaboration technology, including displays, software, accessories and services under its Clevertouch and Mimio brands. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the same 2021 periods. The business is seasonal, with shipments typically concentrated before the school year.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $59.6 million, up 27.5% | $110.2 million, up 37.5% |
| Gross profit / margin | $16.8 million / 28.2% | $29.5 million / 26.7%, unchanged year over year |
| Operating income (loss) | $0.9 million, versus $1.6 million income | $(2.6) million, versus $(0.5) million |
| Net income (loss) | $0.03 million, versus $(2.2) million | $(4.8) million, versus $(7.4) million |
| Net loss attributable to common stockholders | $(0.3) million, versus $(2.2) million | $(5.5) million, versus $(7.7) million |
| Operating cash flow | $(6.9) million for the first six months, versus $(4.6) million |
Quarterly revenue growth reflected the December 2021 FrontRow acquisition, which contributed $6.8 million, and increased demand. First-half growth also included Interactive Concepts; management reported 19.5% organic growth for Boxlight in the first half. Hardware generated $103.9 million of first-half revenue, compared with $2.6 million from software and $3.8 million from services.
Quarterly gross margin increased about 80 basis points year over year. Management reported adjusted margins of 30.2% for Q2 2022 and 29.2% for Q2 2021 after purchase-accounting effects. First-half reported margin was flat. General and administrative costs rose to $30.8 million for the half, or 27.9% of revenue, from $20.9 million, or 26.1%; management cited acquired operations, hiring and stock compensation.
Cash and cash equivalents were $11.6 million at June 30, down from $17.9 million at year-end. The company reported working capital of $53.8 million and a current ratio of 1.99. Net debt on the balance sheet was $53.4 million after discount and issuance costs, comprising $9.2 million current and $44.2 million long-term debt; gross debt was $59.9 million. First-half cash interest paid was $3.7 million. Total liabilities were $124.6 million, and mezzanine preferred equity was $28.5 million.
Material changes and unusual items
- Revenue rose substantially, with acquisitions and stronger demand contributing; cost of revenue also increased, including from freight and shipping pressures.
- Interest expense increased to $4.7 million for the first half from $1.8 million, principally reflecting the Whitehawk acquisition financing. Lower debt-settlement losses and a favorable derivative fair-value change partly offset the higher interest burden.
- Q2 2022 GAAP net income was $26,000, but preferred dividends resulted in a $291,000 net loss attributable to common stockholders. For the half, that common-stockholder loss was $5.5 million.
- Foreign currency translation reduced first-half comprehensive income by $6.4 million. The company recorded a $1.7 million gain from the change in derivative fair value for the half; this is a non-cash valuation item.
- The company adopted lease accounting guidance on January 1, 2022 and recognized operating lease assets and liabilities. The filing says adoption did not affect earnings or cash flows.
Outlook, financing, risks and controls
- No specific financial guidance was provided. Management expected elevated freight and shipping costs to continue through 2022 and described supply-chain and economic uncertainty. Its strategy includes integrating acquired businesses, expanding reseller reach and pursuing acquisitions, while seeking profitability and cost savings.
- Whitehawk’s term loan financed the FrontRow acquisition. A June 2022 amendment funded a further $2.5 million delayed draw and changed loan terms, including an applicable margin of 13.25% for LIBOR-rate loans or 12.25% for reference-rate loans. The filing also describes conditional interest-rate relief; investors should confirm the currently applicable terms.
- An April amendment extended repayment of $8.5 million from February 2022 to February 28, 2023 and addressed borrowing-base compliance. A March lender notice had alleged defaults, including repayment and borrowing-base issues; in July, the parties clarified that the notice’s alleged failure to make the $8.5 million payment was inadvertent. The company had also received additional time to meet certain borrowing-base requirements.
- After quarter-end, Boxlight completed a registered offering on July 26, 2022, generating approximately $4.6 million net proceeds and issuing 7 million common shares plus warrants and pre-funded warrants. The offering creates potential dilution.
- Nasdaq notified the company that its share price had been below the $1.00 minimum bid requirement for 30 consecutive business days. The initial compliance deadline was January 2, 2023; the filing cautions that regaining compliance is not assured.
- Management identified disclosure controls and procedures as ineffective at June 30 because of material weaknesses described in the 2021 Form 10-K. It stated that the financial statements fairly present the periods shown. The company engaged outside professionals for income-tax and warrant valuation work.
- Risks include component shortages, shipping delays and costs, potential silicon-chip supply disruption, reliance on major suppliers, limited vendor credit and the need to prepay for most inventory purchases. Open vendor inventory purchase orders were $11.6 million. One customer represented 11.7% of first-half revenue; two vendors represented 39.5% and 17.6% of first-half cost of revenue, respectively.
- The filing reports no legal proceedings. It notes an $82,000 estimated state tax exposure, including penalties and interest, and says tax years remain open to examination in the U.S. and U.K.
Important facts for investors to verify
- Current Whitehawk borrowing-base compliance, applicable interest rate, covenant status, repayment schedule and available delayed-draw capacity.
- Whether cash generation and working-capital management can support seasonal inventory needs, debt service and vendor prepayments.
- Whether reported revenue growth and margin performance persist after separating acquisition contributions, freight costs and purchase-accounting effects.
- Progress in remediating the disclosed control weaknesses and the company’s ability to regain and maintain Nasdaq bid-price compliance.
- Potential dilution from the July offering, outstanding warrants and convertible preferred stock, and the terms and timing of preferred dividends and possible redemption.