Boxlight Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Boxlight designs and distributes interactive education and collaboration technology under its Clevertouch and Mimio brands. The quarter includes FrontRow, acquired on December 31, 2021.
Financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $50.6 million | $33.4 million |
| Gross profit | $12.6 million | $8.6 million |
| Gross margin | 24.9% | 25.6% |
| Operating loss | $3.5 million | $2.0 million |
| Net loss | $4.9 million | $5.2 million |
| Net loss attributable to common stockholders | $5.2 million | $5.5 million |
| Basic and diluted loss per share | $0.07 | $0.09 |
| Operating cash flow | $(5.4) million | $(1.6) million |
- Revenue grew 51.5%, mainly from increased demand in the U.S. and Europe and the FrontRow acquisition; FrontRow contributed $6.5 million of Q1 revenue.
- Hardware revenue was $47.3 million, software $1.5 million, professional services $0.4 million, and maintenance and subscription services $1.4 million.
- Cost of revenue rose 52.6% to $38.0 million. Management attributed pressure to growth and acquisition effects, supply-chain disruption, and higher freight costs. Adjusted for purchase-accounting effects, gross margin was 27.4%, compared with 28.0% in Q1 2021.
- General and administrative expense increased to $15.5 million from $10.1 million, primarily due to hiring and stock compensation. Net interest expense increased to $2.3 million from $1.0 million.
- Management-reported non-GAAP Adjusted EBITDA was $1.2 million, versus $1.6 million in Q1 2021; EBITDA was a loss of $0.3 million versus a loss of $2.4 million. These measures are not substitutes for GAAP results.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $11.3 million, working capital was $49.6 million, and the current ratio was 2.02. Cash declined $6.7 million from year-end 2021.
- Net cash used in operating activities was $5.4 million, including a $6.9 million outflow from accounts payable and accrued expenses. Investing activities used $0.5 million and financing activities used $0.9 million.
- Debt was $58.0 million before unamortized discount and issuance costs, and $51.0 million net of those costs. This comprised the Whitehawk term loan and a remaining $0.2 million PPP balance. Cash interest paid was $1.7 million.
- Current assets were $98.3 million and current liabilities $48.7 million. Inventory was $49.1 million. Total liabilities were $117.1 million.
- The company reported $55.5 million of open inventory purchase orders. Management said it must prepay for most inventory purchases and has limited credit available from major vendors.
Changes, outlook and risks
- On March 29, Whitehawk’s collateral agent issued a notice alleging defaults, including failure to repay $8.5 million when due, borrowing-base noncompliance and late reporting. An April 4 amendment extended repayment of the $8.5 million to February 28, 2023, waived prior defaults and allowed forbearance on $3.5 million of overadvances through May 16, 2022 while Boxlight worked to meet borrowing-base requirements. The loan carries a high interest rate and specified prepayment premiums.
- Management said higher freight costs were expected to continue through 2022, but anticipated gross-margin improvement from Q2 onward with reduced manufacturing costs. The filing gives no specific revenue or earnings guidance.
- Management identified supply-chain delays, component shortages, elevated shipping costs and potential silicon-chip disruptions as risks; it also cited uncertainty related to COVID-19 and the Russia-Ukraine conflict. One customer represented 10.3% of Q1 revenue, and one supplier represented 29% of cost of revenue.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses described in the 2021 Form 10-K. Management nevertheless stated that the interim financial statements fairly present the company’s financial condition and results in all material respects.
- The CFO gave notice of resignation effective October 4, 2022; no interim or permanent replacement had been identified as of the filing. The quarter also included a $0.8 million gain from PPP loan forgiveness and $1.1 million of stock compensation expense.
Important facts for investors to verify
- Whether Boxlight cured the borrowing-base overadvance by the May 16, 2022 deadline and complied with the amended Whitehawk loan terms.
- Whether cash generation, working-capital needs and vendor prepayments can be managed while servicing high-cost debt and meeting purchase commitments.
- The extent to which freight, component availability and purchase-accounting effects continue to weigh on gross margins, and whether the anticipated improvement materializes.
- The filing’s MD&A states that gross margin declined 7 basis points year over year, but the reported revenue and gross-profit figures imply a decline of about 66 basis points. Investors should verify this apparent inconsistency.
- Progress in remediating the material weaknesses in disclosure controls and appointing a CFO successor.