Boxlight Corporation — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; this is an annual filing, not a standalone fourth-quarter report. Financial comparisons below are with FY 2019. The financial statements received an unqualified audit opinion.
Business context
Boxlight develops and sells interactive education technology, including displays, projectors, software, STEM products, and related services. The September 2020 acquisition of UK-based Sahara expanded its Clevertouch and Sedao brands, EMEA presence, and sales into additional sectors. The company also acquired MyStemKits in April 2020. Approximately 64% of FY 2020 revenue came from outside the U.S.; interactive displays generated approximately 88.1% of revenue.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $54.9 million | $33.0 million |
| Gross profit / margin | $9.9 million / 18% | $8.9 million / 27% |
| Operating loss | $12.7 million | $8.1 million |
| Net loss | $16.2 million | $9.4 million |
| Net loss attributable to common shareholders | $16.5 million | $9.4 million |
| Basic and diluted loss per share | $0.39 | $0.88 |
| Net cash used in operating activities | $4.7 million | $4.3 million |
| Adjusted EBITDA (non-GAAP) | $(1.0) million | $(5.7) million |
Revenue increased 66%, primarily due to Sahara and higher demand in the U.S. and EMEA. Sahara contributed $24.7 million of revenue and $5.3 million of net loss from its acquisition date through year-end. Reported gross margin fell to 18%, largely reflecting $5.1 million of Sahara purchase-accounting effects; management reported a 27% normalized margin. Adjusted EBITDA is a non-GAAP measure and includes significant adjustments.
At year-end, cash was $13.5 million, working capital was $21.0 million, and the current ratio was 1.53, versus a $7.3 million working-capital deficit and $1.2 million cash at the prior year-end. Operating cash use was $4.7 million; investing cash use was $45.3 million, principally reflecting acquisitions; financing provided $65.6 million.
Reported debt before discounts was $26.8 million; the balance sheet showed $16.8 million current debt and $7.8 million long-term debt, net of discounts and issuance costs. The debt repayment schedule lists $18.7 million due in 2021 and $8.0 million in 2022. Total liabilities were $66.6 million. Liquidity was supported by equity offerings, convertible debt, and accounts-receivable financing.
Material changes and unusual items
- Sahara was acquired for stated consideration of approximately $79.8 million, including cash and $28.9 million of Series B and C preferred stock. The acquisition materially increased revenue, intangible assets, and goodwill.
- FY 2020 included $3.1 million of losses on settling Lind debt with shares, higher interest expense, and $5.1 million of purchase-accounting effects on gross profit.
- The company raised $43.5 million gross in two 2020 common-stock offerings and received $20 million under a secured convertible note in exchange for a $22 million note. Common shares outstanding rose to 53.3 million at year-end from 11.7 million.
- At December 31, 2020, customer deferred revenue was $16.2 million, with management expecting to recognize about 43% in 2021 and 45% in 2022–2023.
- Subsequent to year-end, Sahara holders agreed to a proposed Series B redemption for approximately $15.9 million plus accrued dividends and conversion of 96% of Series C into approximately 7.6 million common shares. Completion was subject to a June 30, 2021 deadline or extension. Boxlight also reported a March 2021 acquisition of Interactive Concepts for approximately $3.3 million.
Outlook, risks, and contingencies
Management expected demand for its solutions to increase in 2021, citing education and government stimulus funding and greater need for unified communications. This is not quantified guidance. The filing also describes uncertainty from COVID-19, school budgets and closures, supply-chain disruption, and travel restrictions; management said the company experienced no material shipping delays that materially reduced FY 2020 revenue.
Key risks include continued losses and operating cash outflows; debt service and dependence on financing; seasonal working-capital needs; substantial reliance on display sales, resellers, and a limited number of customers and suppliers; competition and technology shifts; international, currency, and supply-chain exposure; and integration and valuation risks from acquisitions. The company had $13.2 million of open inventory purchase orders at year-end and used recourse accounts-receivable financing.
Management concluded that disclosure controls and internal control over financial reporting were not effective at year-end due to material weaknesses, including limited written close and reporting procedures and a deferred-revenue error that was corrected. Sahara, representing 45% of FY 2020 revenue and 78% of year-end assets, was excluded from the internal-control assessment scope. The auditor did not audit internal control effectiveness. The filing reports no material pending legal proceedings. Management believed available cash, operating cash, receivables financing, and potential market access would cover obligations for at least the next year, while also noting an accumulated deficit of $47.5 million and operating cash use of approximately $4.7 million.
Most important facts for investors to verify
- Whether the proposed Series B cash redemption and Series C conversion were completed, and their resulting effect on cash, debt, and dilution.
- Near-term debt maturities, Lind note repayment terms, borrowing availability under receivables financing, and the company’s ability to fund seasonal inventory and purchase commitments.
- Post-acquisition Sahara revenue, profitability, and normalized gross margin compared with the reported purchase-accounting effects.
- Remediation of the disclosed control weaknesses and the status of Sahara’s financial controls; also verify the filing’s cover-page response indicating the company had not filed all required reports during the preceding 12 months.
- Exposure to significant counterparties: the largest FY 2020 customer represented 13% of revenue, and the largest supplier represented 35% of cost of revenue.