Boxlight Corporation (Nasdaq: BOXL) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The unaudited consolidated statements include Sahara only from its September 24, 2020 acquisition date; interim results are not necessarily indicative of full-year results.
Business context and major developments
Boxlight provides interactive technology solutions, including displays, software, accessories and services, primarily for education. It acquired MyStemKits in April 2020 and Sahara, a UK-based audiovisual and touchscreen business, in September. Sahara was acquired for approximately $80.2 million of recognized consideration: cash and preferred shares. The filing’s MD&A separately describes total stated consideration of approximately $94.9 million; acquisition consideration and purchase-accounting amounts merit reconciliation. Sahara contributed approximately $1.1 million in revenue and a $0.3 million net loss during its brief post-acquisition period.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $9.48 million | $11.30 million | $23.03 million | $27.10 million |
| Gross profit / margin | $2.02 million / 21% | $3.23 million / 29% | $6.31 million / 27% | $7.90 million / 29% |
| Operating loss | $1.75 million | $1.35 million | $5.21 million | $4.91 million |
| Net loss | $4.21 million | $0.47 million | $7.59 million | $6.50 million |
| Adjusted EBITDA, non-GAAP | $(0.86) million | $(0.52) million | $(1.53) million | $(3.07) million |
- Management attributed lower revenue to COVID-19-related school closures and reduced sales of panels, software and STEM products. Lower sales of higher-margin software and STEM products, and a higher distributor-sales mix, pressured margins.
- Q3 other expense included a $1.7 million loss on liability settlements and a $0.2 million derivative fair-value loss. For the nine months, other expense was $2.38 million, including higher interest expense and settlement losses, partly offset by a $1.7 million gain from converting related-party payables into shares.
- Cash at September 30 was $9.61 million; working capital was positive by $25.06 million. Current assets were $56.33 million and current liabilities $31.27 million. Net cash used in operations was $7.02 million for the nine months.
- Investing activities used $45.05 million, principally for acquisitions; financing activities provided $60.73 million, including $42.72 million net common-stock proceeds and $20.75 million convertible-note proceeds. Cash increased by $8.44 million from year-end 2019.
- Debt carrying value was $22.32 million after discounts and issuance costs, including $11.37 million current and $10.95 million long-term third-party debt. Gross third-party debt before discounts was $25.31 million. The September Lind note has $1 million monthly installments beginning November 2020; the Company may pay in cash or shares.
- Common shares outstanding rose from 11.7 million at year-end 2019 to 50.9 million at September 30, reflecting public offerings, debt and payable conversions, and other issuances. Series B and C redeemable preferred stock totaled $28.87 million in mezzanine equity.
Changes, outlook, risks and unusual items
- Year-to-date revenue declined 15% year over year; gross margin fell from 29% to 27%. Q3 revenue also declined 15%, while gross margin fell to 21% from 29%. The nine-month net loss widened by approximately $1.09 million.
- G&A expense decreased year over year, while R&D expense increased. Management cited cost reductions in travel, compensation, tradeshows and contract services, alongside increased software-consultant costs.
- No formal numeric earnings or revenue guidance is provided. Management describes plans to integrate acquired products, cross-train sales teams, hire experienced sales representatives and develop new products. Remaining performance obligations were approximately $11.6 million, with about 20% expected to be recognized in 2020 and 55% in 2021–2022.
- Management stated that continued operation as a going concern depends on achieving profitable operations. COVID-19 could continue to affect demand, estimates and customer purchasing; the company also cited risks to borrowing availability and its ability to raise additional capital. Inventory prepayments and limited vendor credit constrain liquidity.
- The company failed to make the July 2020 $87,500 installment on the MyStemKits acquisition note and was negotiating an adjustment with the noteholder. The note bears 7% interest; the filing does not report a waiver or resolution.
- Sahara purchase accounting remains provisional, including certain acquired assets, liabilities and preferred-share valuations; final adjustments to goodwill could be significant. Pro forma acquisition information was not yet available in this filing.
- Disclosure controls were deemed ineffective due to a material weakness involving insufficient written procedures for accounting transactions, capital transactions and period-end reporting. Management nevertheless stated the financial statements fairly present the company’s condition and results in all material respects.
- Customer and supplier concentration, foreign currency and product-cost exposure, acquisition integration, dilution, debt repayment obligations and COVID-related changes in classroom learning are material risks.
Important facts for investors to verify
- Reconcile Sahara’s stated purchase consideration with the preliminary acquisition-accounting consideration and clarify the amount of cash paid and assumed obligations.
- Review the Lind note repayment schedule, stock-settlement provisions, security priority and near-term cash requirements, alongside the company’s operating cash burn.
- Confirm the status of the missed MyStemKits note payment and any agreed adjustment or default-related consequences.
- Track Sahara valuation finalization, integration results, purchase-accounting effects and the eventual pro forma financial disclosures.
- Assess whether revenue, gross margins and cash generation recover, and whether management remediates the disclosed material weakness in financial reporting controls.
- Evaluate dilution and potential preferred-stock dividends, conversion and cash redemption obligations, as well as customer and supplier concentration.