Boxlight Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Boxlight designs and distributes interactive education and collaboration technology, software, accessories, and services under the Clevertouch and Mimio brands. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $33.424 million | $5.723 million |
| Gross profit / margin | $8.552 million / 25.6% | $1.591 million / 27.8% |
| Operating expenses | $10.586 million | $4.255 million |
| Operating loss | $(2.034) million | $(2.664) million |
| Net loss | $(5.169) million | $(1.950) million |
| Net loss attributable to common stockholders | $(5.486) million | $(1.950) million |
| Basic and diluted loss per share | $(0.09) | $(0.16) |
| Operating cash flow | $(1.557) million | $(0.890) million |
| Cash at period end | $10.002 million | $0.613 million |
- Revenue rose 484%, largely reflecting the September 2020 Sahara acquisition and increased demand in the U.S. and Europe, Middle East, and Africa. Sahara contributed $22.8 million of Q1 2021 revenue and $2.0 million of net income.
- Gross margin declined from 27.8% to 25.6%. Management cited higher freight and customs costs and purchase-accounting effects from Sahara. G&A was $10.112 million, up from $3.938 million, but fell as a share of revenue to about 30% from 69%; R&D was $0.474 million versus $0.317 million.
- Other expense was $3.114 million, compared with other income of $0.714 million a year earlier. It included $1.018 million of net interest expense and a $1.846 million net loss on liability settlements; the filing also identifies a $2.203 million Lind debt-settlement loss in its adjusted EBITDA reconciliation.
- Adjusted EBITDA, a non-GAAP measure, was $1.593 million versus a loss of $0.677 million. The company reported EBITDA of $(2.374) million versus $(1.272) million. These measures exclude specified items and are not substitutes for GAAP results.
- At March 31, cash was $10.002 million and working capital was $21.8 million. Current assets were $60.877 million and current liabilities $39.101 million. Total debt was $22.139 million: $15.668 million current and $4.932 million long-term, net of applicable discount and issuance costs as presented on the balance sheet.
- Cash declined $3.458 million during the quarter. Investing activities used $0.194 million and financing activities used $0.747 million. Receivables were $22.924 million and inventory $22.561 million at quarter end.
Material changes and transactions
- The Sahara acquisition substantially changed the scale and composition of results; reported year-over-year revenue growth is not a like-for-like comparison. For Q1 2020, pro forma revenue assuming Sahara had been acquired at the start of that quarter was $23.738 million, with a pro forma common-stockholder loss of $3.895 million.
- On March 23, 2021, Boxlight acquired Belgian distributor Interactive Concepts BV for approximately $3.3 million in cash, shares, and deferred consideration. Purchase-price allocations were provisional.
- During Q1, Boxlight issued 2.25 million shares to Lind in connection with repayment of $3.63 million of principal and $0.204 million of interest. It also issued about 793,000 shares to settle approximately $1.98 million of affiliate accounts payable.
- Class A shares outstanding increased to 56,786,557 at March 31 from 53,343,518 at December 31, 2020. Subsequent to quarter end, the company issued shares for acquisition consideration and note payments.
Outlook, risks, and unusual items
- The filing provides no quantified revenue or earnings guidance. Management described plans to integrate acquired products, cross-train sales teams, add experienced sales representatives, expand reseller relationships, and pursue acquisition-related cost savings.
- Management noted COVID-19-related limits on customer meetings and trade-show attendance, and uncertainty about peak-season sales. It cautioned that education customers may prioritize continuity-of-learning initiatives over broader hardware, software, and training solutions.
- Supply-chain constraints, component shortages, shipping delays, higher freight costs, and a global silicon-chip shortage could delay product availability or deliveries and pressure margins. The company said it had not yet experienced disruption from the chip shortage.
- Boxlight had $49.5 million of open inventory purchase commitments and said it must prepay for most inventory purchases, constraining liquidity. Two vendors represented 40% and 31% of Q1 purchases, respectively. Management said alternatives may be available, but supplier concentration remains a risk.
- A March 24 agreement with holders of about 96% of Sahara’s Series B and C preferred stock provided for redemption of Series B for approximately £11.5 million (about $15.9 million), plus accrued dividends, and conversion of the holders’ Series C shares into approximately 7.63 million Class A shares at $1.66 per share. Completion was targeted by June 30, 2021; if not completed and not extended, the agreement would terminate without liability. The redemption would be a significant cash requirement relative to quarter-end cash.
- The company reported that disclosure controls and procedures were not effective at quarter end due to material weaknesses previously described in its 2020 Form 10-K. Management nevertheless stated that the financial statements fairly present the company’s position and results in all material respects.
- The filing’s narrative MD&A gives cost of revenue of approximately $25.2 million and gross profit of approximately $8.2 million, while the statements report $24.872 million and $8.552 million, respectively. The MD&A also presents slightly different net-loss figures in its non-GAAP reconciliation. These differences are not reconciled in the supplied filing text.
Important facts for investors to verify
- Whether the Series B redemption and Series C conversion were completed by the stated deadline, and the resulting cash use, dividends, and share dilution.
- Cash generation, borrowing availability, debt repayment terms, and the ability to fund inventory prepayments and the $49.5 million of purchase commitments.
- Whether freight, customs, component availability, and vendor concentration continue to affect margins and product deliveries.
- Integration and performance of Sahara and Interactive Concepts, including whether expected cost savings materialize and whether acquisition accounting changes are finalized.
- Remediation of the disclosed material weaknesses in disclosure controls and the source of the MD&A-versus-financial-statement metric differences.