Boxlight Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statement amounts are in millions of dollars unless otherwise noted. Results are unaudited.
Business context and reporting period
Boxlight designs and distributes interactive education and collaboration technology, including displays, software, accessories and services, principally under the Clevertouch and Mimio brands. The 2021 results include Sahara, acquired in September 2020, and Interactive Concepts, acquired in March 2021; therefore, reported growth versus 2020 reflects acquisitions as well as higher demand. Management reported nine-month organic revenue growth of 125%.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $61.0 | $9.5 | $141.2 | $23.0 |
| Gross profit | $15.8 | $2.0 | $37.2 | $6.3 |
| Gross margin | 25.9% | 21.4% | 26.3% | 27.4% |
| Operating income (loss) | $3.5 | $(1.8) | $3.0 | $(5.2) |
| Net income (loss) | $0.7 | $(4.2) | $(6.7) | $(7.6) |
| Net income (loss) attributable to common stockholders | $0.4 | $(4.2) | $(7.2) | $(7.6) |
- Q3 revenue rose 544%; nine-month revenue rose 514%. Growth primarily reflected the acquired businesses and increased demand in the U.S. and Europe, with Australia also cited for the nine-month period.
- Q3 gross margin improved year over year, while the nine-month margin declined from 27% to 26%. Management cited freight and customs costs and purchase-accounting effects; higher selling prices partly offset product-cost increases.
- Operating cash flow was $(13.1) million for the first nine months, versus $(7.0) million a year earlier. Investing cash outflow was $0.9 million versus $45.1 million, while financing provided $7.2 million versus $60.7 million.
- Cash fell to $6.2 million from $13.5 million at December 31, 2020. Current assets were $99.4 million and current liabilities $67.4 million; management reported working capital of $32.0 million and a 1.48 current ratio.
- Net debt carrying value was $23.9 million at September 30, 2021, all classified as current, versus $24.6 million at year-end 2020. Gross debt before discount and issuance costs was $24.7 million. Short-term debt on the balance sheet was $23.9 million.
- Adjusted EBITDA, a non-GAAP measure, was $7.2 million in Q3 and $14.1 million for the nine months, compared with losses of $0.9 million and $1.5 million, respectively. The filing’s reconciliation adds back items including stock compensation, acquisition-related purchase-accounting effects and noncash debt-settlement losses.
Material changes versus the prior comparable period
- Revenue and operating results expanded substantially, but year-over-year comparisons are materially affected by Sahara and Interactive Concepts acquisitions.
- Q3 general and administrative expense increased to $11.9 million from $3.3 million, principally due to acquired operations, hiring and stock compensation. Nine-month G&A rose to $32.8 million from $10.4 million.
- Nine-month interest expense increased to $2.7 million from $1.6 million. Losses on liability settlements were $3.0 million for the period, including losses from settling debt with common shares.
- Common shares outstanding increased to 61.3 million at quarter-end from 53.3 million at December 31, 2020. Boxlight issued 5.7 million shares to settle Lind debt principal and interest with shares valued at $13.8 million, recording a $3.4 million loss.
- Accounts receivable rose to $47.9 million from $20.9 million at year-end, and inventory rose to $30.9 million from $20.9 million. These balances contributed to operating cash use.
Outlook, risks, contingencies and unusual items
- No formal revenue or earnings guidance is provided. Management expected elevated global freight and shipping costs to continue through 2021; it described some freight costs earlier in the year as about four times pre-pandemic levels.
- Management cited component shortages, production schedule changes, shipping delays and higher freight costs. It also warned that the global silicon-chip shortage could disrupt supply, though it had not yet affected the business as of the filing.
- Seasonality is significant: shipments to education customers generally peak before the school year, and receivables are typically highest in Q3. COVID-related travel restrictions reduced in-person customer meetings and trade-show attendance; management said funding priority for continuity of learning could reduce emphasis on broader total-learning-solution sales.
- The company relies on receivables financing with recourse and raised the Sallyport facility limit to $15 million in 2021. Management said limited vendor credit and required prepayments for most inventory constrain liquidity. It also cited the risk of dilution if additional equity capital is needed.
- Two customers generated 12.8% and 10.1% of nine-month revenue. Two vendors accounted for 47.0% and 18.4% of cost of sales, respectively.
- Open inventory purchase orders totaled $51.5 million at September 30. A state tax exposure was recorded at $82,000, including estimated penalties and interest; the company was appealing the associated interest and penalty assessment.
- Income-tax expense was $3.9 million for the nine months despite a pretax loss. It included a $2.2 million discrete charge related to the UK tax-rate change and deferred tax liability on acquired intangible assets. The filing reports no tax benefit for legacy entities because of valuation allowances.
- Series B and C preferred shares are classified as mezzanine equity and carry redemption provisions beginning in 2024 and 2026, respectively. An amended redemption agreement extended completion to December 31, 2021 and established quarterly payments; the filing does not state the final outcome after that date.
- After quarter-end, Boxlight signed an agreement to acquire FrontRow Calypso LLC, with the acquisition expected to close in Q4 2021. Consideration and financial impact are not provided in this filing.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses previously described in the 2020 Form 10-K. Management nevertheless stated that these interim financial statements fairly present the company’s results in all material respects. No material changes in internal control were reported during the period.
Most important facts for investors to verify
- Whether revenue growth and margins persist after separating acquisition effects from organic performance, and whether freight, component and customs costs ease or worsen.
- Whether the company can convert higher receivables and inventory into cash, maintain adequate liquidity and comply with borrowing-facility terms.
- The status and terms of preferred-share redemption payments, and the potential dilution from common-share issuance, conversions and equity awards.
- The operational and financial effects of the FrontRow Calypso acquisition, including its closing, funding and integration costs.
- Progress in remediating the disclosed material weaknesses in disclosure controls and procedures.