Boxlight Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited consolidated results; comparisons are with Q1 2022. Boxlight designs and sells interactive education technology, including displays, software, accessories and services. Effective January 1, 2023, it began reporting three geographic segments; prior-period segment data was restated.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $41.2 million | $50.6 million |
| Gross profit / margin | $15.1 million / 36.8% | $12.6 million / 24.9% |
| Operating loss | $0.2 million | $3.5 million |
| Net loss | $2.9 million | $4.9 million |
| Net loss attributable to common stockholders | $3.2 million | $5.2 million |
| Loss per common share, basic and diluted | $0.04 | $0.07 |
| Operating cash flow | $(1.9) million | $(5.4) million |
| Capital expenditures / investing cash flow | $(0.1) million | $(0.5) million |
| Cash at period end | $11.3 million | $11.3 million |
- Revenue declined 18.6%, which management attributed primarily to lower sales volume across markets and unfavorable foreign-exchange rates. Hardware revenue was $38.2 million versus $47.3 million; software revenue was $0.5 million versus $1.5 million.
- Gross margin improved substantially as manufacturing and shipping costs fell. General and administrative expense declined to $14.7 million from $15.5 million, primarily due to lower stock compensation; research and development expense was approximately $0.6 million in both periods.
- Other expense increased to $2.7 million from $1.5 million, reflecting the absence of a prior-year $0.9 million gain on debt settlement, a $0.2 million derivative-liability fair-value loss, and higher interest expense. Interest expense was $2.4 million; cash interest paid was $2.0 million.
- Management reported EBITDA of $1.8 million and Adjusted EBITDA of $3.3 million for Q1 2023, compared with $(0.3) million and $1.2 million, respectively, in Q1 2022. These are non-GAAP measures.
Balance sheet, debt and liquidity
- At March 31, 2023, cash was $11.3 million, current assets $96.9 million, and current liabilities $35.3 million. Working capital was $61.6 million and the current ratio was 2.75, as reported by management.
- Debt was $49.4 million before unamortized discount and issuance costs and $44.4 million net of those costs. This included $43.6 million of long-term debt and $0.8 million of short-term debt. The Whitehawk term loan bears a high interest rate and is scheduled to mature in December 2025; the company reported compliance with its financial covenants at quarter-end.
- Cash decreased $3.3 million during the quarter. Operating cash use improved year over year, with inventory reduction providing a significant cash-flow benefit, partly offset by lower accounts payable and accrued expenses.
- On April 24, 2023, after quarter-end, Boxlight borrowed an additional $3.0 million under its Whitehawk facility for working capital. The draw is due by September 29, 2023, has no prepayment penalty, and exhausted the facility’s remaining delayed-draw availability.
- Series B preferred shares have $15.9 million stated value and pay an 8% annual dividend; holders may begin requiring cash redemption on January 1, 2024, plus accrued dividends. Series B and C preferred stock are reported as $28.5 million of mezzanine equity.
Changes, outlook and notable items
- Revenue by segment was $21.1 million in the Americas, $24.0 million in EMEA and $1.3 million in Rest of World, before $5.2 million of eliminations and adjustments. EMEA revenue declined from $30.7 million; Americas revenue rose from $20.1 million. The segment structure changed in 2023, so comparisons should be interpreted with that reporting change in mind.
- Management gave no specific revenue or earnings guidance. It said cash, together with anticipated operating cash flows, is expected to support working-capital needs and debt service, while noting that vendor prepayments, seasonality, market uncertainty and restricted access to capital could constrain liquidity.
- The company said its education business is seasonal: shipments and sales are typically concentrated in the second and third quarters, with inventory generally building in Q2 ahead of the school year.
- Remaining performance obligations were $24.1 million at March 31; management expects 34% to be recognized over the next 12 months. The company had also recognized $2.0 million of bill-and-hold revenue for goods expected to be delivered in Q2.
- Open inventory purchase orders totaled $22.1 million. One customer accounted for 14.1% of Q1 2023 revenue. No vendor accounted for more than 10% of Q1 purchases.
- The board authorized up to $15 million of share repurchases in February 2023, but the program does not require purchases. The company reported no repurchases in the supplied filing text.
- Disclosure controls and procedures were deemed ineffective at quarter-end because of material weaknesses identified in the 2022 Form 10-K; the company said the financial statements fairly present its results. It reported no material change in internal control over financial reporting during the quarter.
- The company adopted the CECL credit-loss standard on January 1, 2023, recording a $76,000 reduction to retained earnings; the quarter’s allowance impact was not significant. Management reported no legal matters expected to have a material adverse effect, while noting ordinary-course claims and litigation may arise.
Most important facts for investors to verify
- Whether operating cash flow and seasonal working-capital needs can be managed while servicing high-cost Whitehawk debt, including repayment of the April 2023 $3.0 million draw by September 29, 2023.
- The company’s ability to meet or refinance potential Series B cash redemptions beginning in January 2024, and the related dividend obligations.
- Whether gross-margin improvement is sustainable despite the reported decline in revenue, including volume, product mix, shipping costs and currency effects.
- Progress in remediating the material weaknesses in disclosure controls and procedures.
- Potential dilution and authorization implications from outstanding warrants, preferred shares and equity awards; the filing says shares issued under the 2021 equity plan exceeded its authorized share count and that an increase was intended in May 2023.
- Execution and collection of the bill-and-hold order, and realization of the remaining performance obligations and customer concentration exposure.