Boxlight Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Boxlight designs and distributes interactive classroom technology and education software, with most revenue historically generated from the U.S. K-12 market. Results are unaudited.
Financial performance and liquidity
| Metric | Q2 2020 | Six months 2020 | Comparable 2019 |
|---|---|---|---|
| Revenue | $7.83 million | $13.55 million | Q2: $10.80 million; six months: $15.79 million |
| Gross profit / margin | $2.69 million / 34% | $4.28 million / 32% | Q2: $2.99 million / 28%; six months: $4.66 million / 30% |
| Operating loss | $0.79 million | $3.46 million | Q2: $1.23 million; six months: $3.56 million |
| Net loss | $1.43 million | $3.38 million | Q2: $1.42 million; six months: $6.03 million |
| Adjusted EBITDA (non-GAAP) | Loss of $0.25 million | Loss of $1.28 million | Q2: loss of $0.82 million; six months: loss of $2.58 million |
- Q2 revenue fell 28% year over year and first-half revenue fell 14%; management attributed the declines primarily to COVID-19-related school closures. Gross margin improved, which management attributed to product mix.
- First-half operating cash outflow was $6.21 million, versus $4.00 million in 2019. Financing provided $11.38 million, principally reflecting the June equity offering and borrowing activity. Cash at June 30 was $6.13 million.
- At June 30, current assets were $17.53 million and current liabilities $13.72 million, producing a $3.81 million working-capital surplus. Total liabilities were $17.36 million. Reported total debt was approximately $7.05 million, including third-party and related-party debt.
- June public offering generated $10.59 million net proceeds. After quarter-end, a July public offering generated a further $32.03 million net proceeds. The July financing is a subsequent event, not included in June 30 balances.
Material changes and notable items
- Q2 revenue decreased by about $2.97 million year over year; first-half revenue decreased by about $2.24 million. First-half net loss narrowed by about $2.65 million, helped by lower operating expenses and more favorable other income/expense.
- First-half other income included a $1.14 million gain from settlements of liabilities, including a $1.73 million gain recorded when $3.0 million of related-party accounts payable was exchanged for shares. Results also included derivative fair-value changes and higher interest expense.
- Class A shares outstanding increased from 11.70 million at December 31, 2019 to 31.86 million at June 30, 2020, reflecting the equity offering and shares issued for debt and payable conversions, among other items. The filing reports 50.12 million shares outstanding on August 11.
- Boxlight acquired MyStemKits in April for $450,000, comprising $100,000 cash and a $350,000 note; purchase-price installments could be adjusted if revenue materially underperformed budget.
Outlook, risks and controls
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management described a strategy of integrating acquired products, expanding sales capacity, and pursuing acquisitions and cost savings.
- Management said capital raised in June and July meant the company was not dependent on near-term external financing. However, the filing states that continued operation as a going concern depends on attaining profitable operations; first-half operating cash use was $6.21 million.
- COVID-19 and school closures may reduce demand, including if distance or digital learning replaces traditional classrooms. Management also cited uncertainty affecting estimates and risks to customer demand, operations, and financing access.
- Other risks include customer concentration (two customers represented 17% and 12% of first-half revenue), supplier concentration, prepayment requirements for much inventory, recourse-based receivables financing, seasonality, and foreign-currency and product-cost pressures.
- Disclosure controls and procedures were reported ineffective due to material weaknesses, including insufficient written policies and procedures for accounting transaction processing, capital transactions, and period-end financial disclosure. No legal proceedings were reported.
Key facts for investors to verify
- Whether school closures and changes in classroom learning continue to affect sales, margins, and collections.
- Operating cash needs, debt maturities and repayment obligations, and the terms and availability of receivables financing.
- Use and sufficiency of the June and July equity proceeds, and the dilutive effect of equity issuance and debt conversions.
- Progress toward profitability and remediation of the disclosed material weaknesses in financial reporting controls.
- MyStemKits performance, remaining purchase-note installments, and the realization of the reported $3.9 million in remaining performance obligations.