What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-11 · 56 added, 57 removed, 164 unchanged (41% of the section changed)

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The actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors.

Historical results may not indicate future performance.

Historical results may not be indicative of future performance.

The Company’s forward-looking statements reflect its current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.

We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof

that may bear upon forward-looking statements.

Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

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The Company’s products are integrated into its software suite that provides tools for presentation creation and delivery, assessment, and collaboration.

To date, we have generated substantially all of the Company revenue from the sale of hardware (primarily consisting of interactive displays) and software to the educational market in the United States and Europe.

To date, we have generated substantially all of the Company’s revenue from the sale of hardware (primarily consisting of interactive displays) and software to the educational market in the United States and Europe.

We have also implemented a comprehensive plan to reach and maintain profitability both from our core business operations and as a result of making strategic business acquisitions.

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Operating Results – Boxlight Corporation

For the three-month periods ended June 30, 2022 and 2021

Total revenues for the three months ended June 30, 2022 were $59.6 million as compared to $46.8 million for the three months ended June 30, 2021, resulting in a 27.5% increase in revenue.

For the three-month periods ended September 30, 2022 and 2021

Total revenues for the three months ended September 30, 2022 were $68.7 million as compared to $61.0 million for the three months ended September 30, 2021, resulting in a 12.7% increase in revenue.

Revenues primarily consist of hardware revenue, software revenue, and professional development.

The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for the Company’s solutions in the U.S.

FrontRow revenue for the three months ended June 30, 2022 was $6.8 million.

FrontRow revenue for the three months ended September 30, 2022 was $5.6 million.

Cost of Revenues.

Cost of revenues for the three months ended June 30, 2022 was $42.8 million compared to $33.9 million for the three months ended June, 30, 2021, resulting in a 26.2% increase.

Cost of revenues for the three months ended September 30, 2022 was $47.7 million compared to $45.2 million for the three months ended September, 30, 2021, resulting in a 5.5% increase.

Cost of revenues consists primarily of product cost, freight expenses, customs expense, and inventory adjustments.

The increase in cost of revenues was associated with the acquisitions and growth of the business and was also due to additional increases in global freight/shipping which the company has experienced as a result of supply chain issues arising as a result of the COVID-19 pandemic.

During 2021, the cost increase was approximately four times normal costs as compared to pre-pandemic levels.

We expect such cost increases to continue throughout 2022.

The increase in cost of revenues was associated with increased sales and the FrontRow acquisition.

Gross Profit.

Gross profit for the three months ended June 30, 2022, was $16.8 million, as compared to $12.8 million for the three months ended June 30, 2021.

The gross profit margin for the three months was 28.2% which is an increase of approximately 80 basis points compared to the comparable three months in 2021.

Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $1.2 million and $805 thousand, was 30.2% as compared to the 29.2%, as adjusted, reported for the three months ended June 30, 2022 and June 30, 2021, respectively.

As previously reported gross

margins continue to be adversely impacted by supply chain challenges with increased freight costs which are now expected to continue throughout 2022.

Gross profit for the three months ended September 30, 2022, was $21.0 million, as compared to $15.8 million for the three months ended September 30, 2021.

The gross profit margin for the three months ended September 30, 2022 was 30.6% which is an increase of 470 basis points compared to the comparable three months in 2021.

Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $698 thousand and $730 thousand, was 31.6% as compared to the 27.1%, as adjusted, reported for the three months ended September 30, 2022 and September 30, 2021, respectively.

General and Administrative Expenses.

General and administrative expenses for the three months ended June 30, 2022 were $15.3 million and 25.7% of revenues, as compared to $10.8 million and 23.1% of revenues for the three months ended June 30, 2021.

The increase was mainly a result of new hires for planned growth and stock compensation issuances.

General and administrative expenses for the three months ended September 30, 2022 were $14.0 million and 20.4% of revenues, as compared to $11.9 million and 19.6% of revenues for the three months ended September 30, 2021.

The increase was primarily a result of new hires for planned growth and equity-based compensation issuances.

Research and Development Expenses.

Research and development expenses were $649 thousand and 1.1% of revenues for the three months ended June 30, 2022, as compared to $481 thousand and 1.0% of revenues for the three months ended June 30, 2021.

Research and development expenses were $604 thousand and 0.9% of revenues for the three months ended September 2022, as compared to $355 thousand and 0.6% of revenues for the three months ended September 30, 2021.

Other Income (Expense).

Other expense (net) for the three months ended June 30, 2022 was $814 thousand, as compared to $1.3 million for the three months ended June 30, 2021.

Other expense decreased primarily due to $1.6 million decrease in the fair value of derivative liabilities, and $536 thousand less in losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021, partially offset by a $1.7 million increase in interest expense associated with increased borrowings due to the new credit facility.

Other expense (net) for the three months ended September 30, 2022 was $2.8 million, as compared to $1.4 million for the three months ended September 30, 2021.

Other expense increased primarily due to a $1.7 million increase in interest expense associated with increased borrowings due to the new credit facility.

Income Tax Expense.

Income tax expense for the three months ending June 30, 2022 was $41 thousand, as compared to $2.5 million in income tax expense for the three months ended June 30, 2021.

This significant decrease in income tax expense year-over-year is primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was enacted during second quarter 2021.

The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability in the UK to this new rate.

The remaining decrease in income tax expense is due to the lower earnings in 2022 as compared to 2021 in our foreign jurisdictions.

Net Income (Loss).

Net income was $26 thousand in the three months ended June 30, 2022 and a $2.2 million loss for the three months ended June 30, 2021, respectively.

For the six-month periods ended June 30, 2022 and 2021

Total revenues for the six months ended June 30, 2022 were $110.2 million as compared to $80.2 million for the six months ended June 30, 2021, resulting in a 37.5% increase.

The increase in revenues was primarily due to the acquisitions of Interactive Concepts in March 2021 and FrontRow in December 2021, as well as increased demand for our solutions in the U.S., Europe, Middle East, and Africa.

Organic revenue growth for Boxlight for the first half of 2022 was 19.5%.

FrontRow revenue for the first six months of 2022 was $13.3 million and Interactive was $407 thousand.

Income tax expense for the three months ending September 30, 2022 was $520 thousand and was $1.4 million for the nine months ended September 30, 2021

Net income was $3.1 million for the three months ended September 30, 2022 and $729 thousand for the three months ended September 30, 2021.

For the nine-month periods ended September 30, 2022 and 2021

Total revenues for the nine months ended September 30, 2022 were $179.0 million as compared to $141.2 million for the nine months ended September 30, 2021, resulting in a 26.8% increase.

The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for our solutions across all markets.

Organic revenue growth for Boxlight for the nine months ended September 30, 2022 was 13.3%.

FrontRow revenue for the first nine months of 2022 was $19.0 million.

Cost of Revenues.

Cost of revenues for the six months ended June 30, 2022 were $80.8 million as compared to $58.8 million for the six months ended June 30, 2021, resulting in an 37.4% increase.

Cost of revenues for the nine months ended September 30, 2022 were $128.5 million as compared to $104.0 million for the nine months ended Septembers 30, 2021, resulting in an 23.6% increase.

The increase in cost of revenues was associated with the acquisitions and growth of the business as discussed above and was also due to additional increases in global freight/shipping which the Company has experienced following the COVID-19 pandemic.

In 2021 we reported the cost increase to be approximately four times higher compared to pre-pandemic levels, this is expected to continue throughout 2022.

In 2021 we reported the cost increase to be approximately four times higher compared to pre-pandemic levels, this continued through the first half of 2022 but has recently begun to decline.

Gross Profit.

Gross profit for the six months ended June 30, 2022 was $29.5 million as compared to $21.4 million for the six months ended June 30, 2021.

The gross profit margin remained flat at 26.7% for the six months ended June 30, 2021 and for the six months ending June 30, 2022.

Gross profit for the nine months ended September 30, 2022 was $50.5 million as compared to $37.2 million for the nine months ended September 30, 2021, an increase of $13.3 million.

The gross profit margin was 28.2% for the nine months ended September 30, 2022 and $26.3% for the nine months ending September 30, 2021.

The increase in gross profit and an increase in demand for the Company’s services.

margin during the nine months ended September 30, 2022 was a result increased margin associated with FrontRow products

General and Administrative Expenses.

General and administrative (“G&A”) expense for the six months ended June 30, 2022 were $30.8 million and 27.9% of revenue as compared to $20.9 million and 26.1% of revenue for the six months ended June 30, 2021.

General and administrative (“G&A”) expense for the nine months ended September 30, 2022 were $44.7 million and 25% of revenue as compared to $32.8 million and 23.3% of revenue for the nine months ended September 30, 2021.

The increase in G&A expenses resulted from additional personnel costs associated with the acquired FrontRow operations, new hires for planned growth and stock compensation issuances.

Research and Development Expenses.

Research and development expenses were $1.3 million and 1.1% of revenue for the six months ended June 30, 2022 as compared to $955 thousand and 1.2% of revenue for the six months ended June 30, 2021.

Research and development expenses were $1.9 million and 1.0% of revenue for the nine months ended September 30, 2022 as compared to $1.3 million and 0.9% of revenue for the nine months ended September 30, 2021.

The increase in research and development expense was primarily driven by an increase in contract services related to software development.

The acquisition of FrontRow contributed $180 thousand to the increase.

Other Income (Expense).

Other expense, net for the six months ended June 30, 2022 was $2.3 million as compared to other expense, net, of $4.4 million for the six months ended June 30, 2021, a decrease of $2.1 million.

The decrease was primarily due to a $2.4 million loss recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021 coupled with a gain of $0.9 million recognized upon the settlement of certain debt obligations in 2022 and by a $1.9 million change in the fair value of derivative liabilities, offset by a $3.0 million increase in interest expense associated with increased borrowings due to the new credit facility.

Other expense, net for the nine months ended September 30, 2022 was $5.1 million as compared to other expense, net, of $5.8 million for the nine months ended September 30, 2021, representing a decrease of $0.7 million.

The decrease was primarily due to a $1.7 million change in the fair value of derivative liabilities, a $3.8 million reduction in gain recognized upon the settlement of certain debt obligations, offset by a $4.7 million increase in interest expense associated with increased borrowings due to the new credit facility.

Income Tax Expense.

Income tax benefit for the six months ending June 30, 2022 was $45 thousand, as compared to $2.5 million in income tax expense for the six months ended June 30, 2021.

The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability in the UK to this new rate.

Income tax expense for the nine months ending September 30, 2022 was $475 thousand, as compared to $3.9 million in income tax expense for the nine months ending September 30, 2021.

This significant decrease in income tax expense year-over-year was primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was

enacted during second quarter 2021.The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability in the UK to this new rate.

The remaining decrease in income tax expense is due to the lower earnings in 2022 as compared to 2021 in our foreign jurisdictions.

The effective tax rate is 0.93% for the six months ended June 30, 2021.

The primary reason for this low rate is that there is no material income tax expense on the U.S.

operations due to existing net operating loss carryforwards that are offset by a valuation allowance.

Net loss was $4.8 million and $7.4 million for the six months ended June 30, 2022 and 2021 respectively.

The decrease in the net loss was primarily due to a $1.7 change in the fair value of the Whitehawk derivative liability, a decrease in loss on settlement of liabilities, partially offset by an increase in interest expense due to the new credit facility.

The year-to-date effective tax rate is (34.7)% due to there being no material tax expense/benefit for the legacy Boxlight entities, due to their valuation allowance position, while the Sahara entities are fully taxable.

Net loss was $1.7 million and $6.6 million for the nine months ended September 30, 2022 and 2021 respectively.

The decrease in net loss was primarily due to a $1.7 million change in the fair value of the Whitehawk derivative liability, and a $3.8 million decrease in loss on settlement of liabilities, partially offset by an increase in interest expense due to the new credit facility.

To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our condensed consolidated financial statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.

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Investors should consider the Company’s non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

The following table contains reconciliations of net losses to EBITDA and adjusted EBITDA for the periods presented.

The following table contains reconciliations of net income and losses to EBITDA and adjusted EBITDA for the periods presented.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Interest expense

Income tax expense (benefit)

Income tax expense

Stock compensation expense

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Purchase accounting impact of fair valuing deferred revenue

Net loss on settlement of debt

Net (gain) loss on settlement of debt

Adjusted EBITDA

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The bulk of our products are shipped to our educational customers prior to the beginning of the school year, usually in July, August, or September.

To prepare for the upcoming school year, we generally build up inventories during the second quarter of the year.

To prepare for the upcoming school year, we generally build up inventories during

the second quarter of the year.

Therefore, inventories tend to be at the highest levels at that point in time.

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Liquidity and Capital Resources

As of June 30, 2022, we had cash and cash equivalents of $11.6 million, a working capital balance of $53.8 million, and a current ratio of 1.99.

This financial position represents a significant improvement from a year ago at June 30, 2021 when we had $7.4 million of cash and cash equivalents, a working capital balance of $26.7 million, and a current ratio of 1.52.

In addition to the cash flows generated by our ongoing operating activities we financed our operations during first six months of 2022 with our new credit facility from Whitehawk.

As of September 30, 2022, we had cash and cash equivalents of $22.0 million, a working capital balance of $62.3 million, and a current ratio of 1.90.

This financial position represents a significant improvement from a year ago on September 30, 2021 when we had $6.2 million of cash and cash equivalents, a working capital balance of $32.0 million, and a current ratio of 1.48.

In addition to the cash flows generated by our ongoing operating activities we financed our operations during first nine months of 2022 with our credit facility from Whitehawk.

Given uncertainty surrounding global supply chains, global markets and general global economic uncertainty as a result of the ongoing conflict between Russia and the Ukraine and the continuing COVID-19 pandemic, the availability of debt and equity capital has been reduced and the cost of capital has increased.

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However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in the notes to the unaudited consolidated condensed financial statements.

Our significant accounting policies are discussed in the notes to the unaudited condensed consolidated financial statements.

We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain :

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis