What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 100 added, 45 removed, 143 unchanged (50% of the section changed)

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When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form.

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.

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We currently design, produce and distribute interactive displays, collaboration software, supporting accessories and professional services.

We also distribute science, technology, engineering,

and math (or “STEM”) products, including a robotics and coding system, 3D printing solution and portable science lab.

We also distribute science, technology, engineering, and math (or “STEM”) products, including a robotics and coding system, 3D printing solution and portable science lab.

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

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Our Americas segment consists primarily of Boxlight, Inc.

and its subsidiaries, and the Rest of World segment consists primarily of Boxlight Australia , PTY LTD ("Boxlight Australia”) .

and its subsidiaries, and the Rest of World segment consists primarily of Boxlight Australia , PTY LTD (“Boxlight Australia”) .

Each of our operating segments are primarily engaged in the sale of education technology products and services in the education market but which are also sold into the health, government and corporate sectors and derive a majority of their revenues from the sale of flat-panel displays, audio and other hardware accessory products, software solutions and professional services.

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Acquisition Strategy and Challenges

The Company has completed multiple acquisitions from 2015 through 2021 and may target additional acquisition opportunities in future periods.

The Company has completed multiple acquisitions from 2015 through 2021 and may target additional acquisition opportunities in the future.

The Company’s growth strategy includes acquiring assets and technologies of companies that have products, technologies, industry specializations or geographic coverage that extend or complement our existing business.

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● Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers;

● Improved market reach and industry visibility – increasing out customer base and entry into new markets.

● Improved market reach and industry visibility – increasing our customer base and entry into new markets.

Components of our Results of Operations and Financial Condition

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Operating Results – Boxlight Corporation

For the three-month periods ended March 31, 2023 and 2022

Total revenues for the three months ended March 31, 2023 were $41.2 million as compared to $50.6 million for the three months ended March 31, 2022, resulting in an 18.6% decrease.

The decrease in revenues was primarily due to lower sales volume across all markets and a decrease in foreign exchange rates during the first quarter of 2023 compared to the first quarter of 2022.

For the three-month periods ended June 30, 2023 and 2022

Total revenues for the three months ended June 30, 2023 were $47.1 million as compared to $59.6 million for the three months ended June 30, 2022, resulting in a 21.1% decrease.

The decrease in revenues was primarily due to lower sales volume across all markets.

Cost of Revenues.

Cost of revenues for the three months ended March 31, 2023 were $26.0 million as compared to $38.0 million for the three months ended March 31, 2022, resulting in a 31.4% decrease.

The decrease in cost of revenues was attributable to the decrease in revenues, described above, along with lower manufacturing and shipping costs in the first quarter of 2023 compared to the prior year’s first quarter.

Cost of revenues for the three months ended June 30, 2023 were $29.2 million as compared to $42.8 million for the three months ended June 30, 2022, resulting in a 31.7% decrease.

The decrease in cost of revenues was attributable to the decrease in units sold, along with lower manufacturing and shipping costs in the second quarter of 2023 compared to the prior year’s second quarter.

Gross Profit.

Gross profit for the three months ended March 31, 2023 was $15.1 million as compared to $12.6 million for the three months ended March 31, 2022, an increase of $2.5 million.

The gross profit margin was 36.8% for the three months ended March 31, 2023 and 24.9% for the three months ending March 31, 2022.

Gross profit for the three months ended June 30, 2023 was $17.8 million as compared to $16.8 million for the three months ended June 30, 2022, an increase of 5.9%.

The gross profit margin was 37.9% for the three months ended June 30, 2023 and 28.2% for the three months ending June 30, 2022.

The increase in gross profit is primarily related to the decrease in manufacturing and shipping costs noted above.

General and Administrative Expenses.

General and administrative (“G&A”) expenses for the three months ended March 31, 2023 were $14.7 million and 35.8% of revenue as compared to $15.5 million and 30.5% of revenue for the three months ended March 31, 2022.

General and administrative expenses for the three months ended June 30, 2023 were $15.2 million and 32.4% of revenue as compared to $15.3 million and 25.7% of revenue for the three months ended June 30, 2022.

The decrease can be attributed primarily to a decrease in stock compensation expense.

Research and Development Expenses.

Research and development expenses for the three months ended March 31, 2023 were $0.6 million which was comparable to the three months ended March 31, 2022 and represented 1.4% and 1.2% of revenue for the three months ended March 31, 2023 and 2022, respectively.

Research and development expenses were $525 thousand and $649 thousand for the three months ended June 30, 2023 and 2022, respectively, and represented 1.1% of revenue for each period.

Other Income (Expense).

Other expense, net for the three months ended March 31, 2023 was $2.7 million as compared to other expense, net, of $1.5 million for the three months ended March 31, 2022, representing an increase of $1.2 million.

The increase was primarily due to a gain in the prior year of $0.9 million recognized upon the settlement of certain debt obligations, a $0.2 million change in the fair value of derivative liabilities, and a $0.1 million increase in interest expense.

Other expense, net for the three months ended June 30, 2023 was $2.6 million as compared to $814 thousand for the three months ended June 30, 2022, representing an increase of $1.8 million.

The increase was primarily due to a $1.5 million change in the fair value of derivative liabilities and a $0.3 million increase in interest expense.

Income Tax (Expense) Benefit.

Income tax expense for the three months ended March 31, 2023 was $51 thousand, as compared to $86 thousand in income tax benefit for the three months ended March 31, 2022.

The increase in tax expense year-over-year is largely due to foreign pretax book income for the three months ended March 31, 2023 as compared to foreign pretax loss for the three months ended March 31, 2022.

Net loss was $2.9 million and $4.9 million for the three months ended March 31, 2023 and 2022 respectively and was a result of the changes noted above.

Income tax expense for the three months ended June 30, 2023 was $255 thousand, as compared to $41 thousand for the three months ended June 30, 2022.

The increase in tax expense year-over-year is largely due to foreign pretax book income for the three months ended June 30, 2023 as compared to foreign pretax loss for the three months ended June 30, 2022.

Net loss was $811 thousand for the three months ended June 30, 2023.

Net income was $26 thousand for the three months ended June 30, 2022 and was a result of the changes noted above.

For the six-month periods ended June 30, 2023 and 2022

Total revenues for the six months ended June 30, 2023 were $88.2 million as compared to $110.2 million for the six months ended June 30, 2022, resulting in a 19.9% decrease.

The decrease in revenues was primarily due to lower sales volume across all markets and a decrease in foreign exchange rates during the first half of 2023 compared to the first half of 2022.

Cost of Revenues.

Cost of revenues for the six months ended June 30, 2023 were $55.3 million as compared to $80.8 million for the six months ended June 30, 2022, resulting in a 31.6% decrease.

The decrease in cost of revenues was attributable to the decrease in units sold, along with lower manufacturing and shipping costs in the first half of 2023 compared to the first half of the prior year.

Gross Profit.

Gross profit for the six months ended June 30, 2023 was $33.0 million as compared to $29.5 million for the six months ended June 30, 2022, an increase of 12.0%.

The gross profit margin was 37.4% for the six months ended June 30, 2023 and 26.7% for the six months ended June 30, 2022.

The increase in gross profit is primarily related to the decrease in manufacturing and shipping costs noted above.

General and Administrative Expenses.

General and administrative expenses for the six months ended June 30, 2023 were $30.0 million, representing 33.9% of revenue as compared to $30.8 million representing 27.9% of revenue for the six months ended June 30, 2022.

The decrease in general and administrative expenses for the period ended June 30, 2023 can be attributed primarily to a decrease in stock compensation expense.

Research and Development Expenses.

Research and development expenses for the six months ended June 30, 2023 were $1.1 million and $1.3 million and represented 1.3% and 1.1% of revenue for the six months ended June 30, 2023 and 2022, respectively.

Other Income (Expense).

Other expense, net for the six months ended June 30, 2023 was $5.3 million as compared to $2.3 million for the six months ended June 30, 2022, representing an increase of $3.0 million.

The increase was primarily due to a $1.7 million change in the fair value of derivative liabilities, $0.9 million recognized upon the settlement of certain debt obligations during the six months ended June 30, 2022, and a $0.5 million increase in interest expense.

Income Tax (Expense) Benefit.

Income tax expense for the six months ended June 30, 2023 was $306 thousand, as compared to $45 thousand in income tax benefit for the six months ended June 30, 2022.

The increase in tax expense year-over-year is largely due to foreign pretax book income for the six months ended June 30, 2023 as compared to foreign pretax loss for the six months ended June 30, 2022.

Net loss was $3.7 million and $4.8 million for the six months ended June 30, 2023 and 2022 respectively and was a result of the changes noted above.

Use of Non-GAAP financial measures

statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.

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.

EBITDA represents net loss before income tax expense, interest income, interest expense, depreciation and amortization.

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Three Months Ended

Six Months Ended

(in thousands)

Net Income (loss)

Depreciation and amortization

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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.

As a result, inventories tend to be at the highest levels at that point in time.

In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter.

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

As a result, inventories tend to be at their highest levels at that point in time.

In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers.

Thereafter, during the first quarter, we do not generally need to restock inventories at the same inventory levels.

Accounts receivable balances tend to be at the highest levels in the third quarter, at which point we record the highest level of sales.

Liquidity and Capital Resources

As of March 31, 2023, we had cash and cash equivalents of $11.3 million, a working capital balance of $61.6 million, and a current ratio of 2.75.

On March 31, 2022 we had $11.3 million of cash and cash equivalents, a working capital balance of $49.6 million, and a current ratio of 2.02.

For the three months ended March 31, 2023 and 2022, we had net cash used in operating activities of $1.9 million and $5.4 million, respectively.

Cash used in operating activities decreased year over year as a result of higher margins on our products leading to increased operating income.

We had net cash used in investing activities of $81 thousand and $526 thousand for the three months ended March 31, 2023 and 2022, respectively.

As of June 30, 2023, we had cash and cash equivalents of $15.6 million, a working capital balance of $64.8 million, and a current ratio of 2.79.

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

For the six months ended June 30, 2023 and 2022, we had net cash provided by and used in operating activities of $10 thousand and $6.9 million, respectively.

Cash provided by operating activities increased year over year as a result of higher margins on our products leading to increased operating income.

We had net cash used in investing activities of $100 thousand and $659 thousand for the six months ended June 30, 2023 and 2022, respectively.

Cash used in investing activities is related to purchases of property and equipment.

In addition, for the three months ended March 31, 2023 and 2022, we had net cash used in financing activities of $987 thousand and $912 thousand,

respectively.

Cash used in financing activities is primarily related to principal payments on our credit facility and payments of fixed dividends to our Series B preferred shareholders.

For the six months ended June 30, 2023 and 2022, we had net cash provided by financing activities of $1.0 million and $621 thousand, respectively.

Cash provided by financing activities is primarily related to a $3.0 million under the Company’s Credit Facility, partially offset by $1.4 million in principal payments on our Credit Facility and $635 thousand in payments of fixed dividends to our Series B preferred shareholders .

Our liquidity needs are funded by operating cash flow and available cash.

Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases.

We lease all our office facilities.

We lease all of our office facilities.

We expect to make future payments on existing leases from cash generated from operations.

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In addition to the cash flows generated by our ongoing operating activities we financed our operations during 2023 and 2022 with our Credit Facility with Whitehawk.

Prior to April 24, 2023 we maintained a delayed draw term loan of which we had $7.5 million available as of March 31, 2023.

Prior to April 24, 2023 we maintained a delayed draw term loan of which we had $7.5 million

available as of June 30, 2023.

On April 24, 2023, we drew $3.0 million on our delayed draw term loan that will be used for working capital purposes.

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The $3.0 million is required to be repaid prior to September 29, 2023.

To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of our Series B preferred stock are redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days prior written notice to the holders, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B preferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares.

The $3.0 million was repaid during the third quarter of 2023.

To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of our Series B preferred stock are redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days’ prior written notice to the Company, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B preferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares.

We may be required to seek alternative financing arrangements or restructure the terms of the agreement with the Series B preferred shareholders on terms that are not favorable to us if cash and cash equivalents are not sufficient to fully redeem the Series B preferred shares.

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

We are currently evaluating alternatives to refinance or restructure the Series B preferred shares including extending the maturity of the Series B preferred shares beyond the current optional conversion date.

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

Furthermore, recent adverse developments affecting the financial services industry including events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions may lead to market-wide liquidity problems.

This in turn, could result our access to funding sources and credit arrangements in amounts adequate to finance our current and future business operations.

This in turn could result in a reduction in our ability to access funding sources and credit arrangements in amounts adequate to finance our current and future business operations.

Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders.

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Cash and cash equivalents, along with anticipated cash flows from operations, are expected to provide sufficient liquidity for working capital needs and debt service requirements.

See Footnote 8 – Debt for a discussion of our existing debt financing arrangements.

See Note 8 – Debt for a discussion of our existing debt financing arrangements.

Off Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures.

Our condensed consolidated financial statements are prepared in accordance with GAAP.

We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in

accordance with GAAP.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

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 condensed consolidated financial statements and in Note 1 in the Company’s 2022 Annual Report on Form 10-K, which was filed with the SEC on March 17, 2023.

Our significant accounting policies are discussed in the notes to the unaudited condensed consolidated financial statements and in Note 1 in the Company’s 2022 Annual Report, which was filed with the SEC on March 17, 2023.

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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Goodwill and Intangible assets

As of June 30, 2023, we determined that a triggering event had occurred as a result of our market capitalization that suggested one or more of the reporting units may have fallen below the carrying amounts.

In addition, changes in our reporting segments resulted

in a change in the composition of our reporting units.

As a result of these changes, we determined the Company had two reporting units for purposes of testing based upon entities that comprise the Americas and EMEA reporting segments.

For purposes of impairment testing, we allocated goodwill to the reporting units based upon a relative fair value allocation approach and assigned approximately $22.5 million and $2.9 million of goodwill to the America and EMEA reporting units, respectively.

As of June 30, 2023, we performed an interim goodwill impairment test as a result of the triggering events identified.

In analyzing goodwill for potential impairment in the quantitative impairment test, we used a combination of the income and market approaches to estimate the fair value.

Under the income approach, we calculated the fair value based on estimated future discounted cash flows.

The assumptions used are based on what we believe a hypothetical marketplace participant would use in estimating fair value and include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values.

Under the market approach, we estimated the fair value based on market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies.

Based on the results of our interim test as of June 30, 2023, we concluded that the estimated fair value of each reporting unit exceeded the respective carrying value and, as such, we concluded that the goodwill assigned to each reporting unit, as of June 30, 2023, was not impaired.

However, we concluded that as of June 30, 2023, our Americas reporting unit was at risk of failing step one of the goodwill impairment test.

As of June 30, 2023, we determined that our Americas reporting unit had an estimated fair value in excess of its respective carrying value of approximately 4%.

The estimated fair value of our reporting units are closely aligned with the ultimate amount of revenue and operating income that it achieves over the projected period.

Our discounted cash flows, for goodwill impairment testing purposes, assumed that, through fiscal year 2028, this reporting unit would achieve a compounded annual revenue growth rate of approximately 5.0% from its forecasted 2023 revenue.

Beyond fiscal 2028, we assumed a long-term revenue growth rate of 3.0% in the terminal year.

As of June 30, 2023, we utilized a WACC of 14.0% for the Americas reporting unit.

Given expected growth projections from industry sources, we believe these modest long-term growth rates and the WACC are appropriate to use for our future cash flow assumptions.

We also believe that it is possible that our actual revenue growth rates could be significantly higher due to a number of factors, including:

(i) the availability of government funding allocated to the education sector as a result of the CARES Act and other recent economic relief stimulus packages;

(ii) the growth of education technology products and services outside of flat-panel sales such as audio, STEM products and professional services;

and (iii) the continued growth in sales to enterprise customers.

Modest changes in other key assumptions used in our June 30, 2023 impairment analysis may result in the requirement to proceed to step two of the goodwill impairment test in future periods.

If this reporting unit fails step one in the future, we would be required to perform step two of the goodwill impairment test.

If we perform step two, up to $22.5 million of goodwill assigned to the Americas reporting unit could be written off in the period that the impairment is triggered.

During the second half of our fiscal 2023, because our goodwill impairment analysis is sensitive to the ultimate spending decisions by our customers, we will continue to monitor key assumptions and other factors utilized in our June 30, 2023 interim goodwill impairment analysis.

It is possible that, during the remainder of fiscal year 2023, business conditions (both in the U.S.

and internationally) could potentially deteriorate and our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services.

Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

Stock-based Compensation Expense

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Recent Accounting Pronouncements

For information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations or cash flows, see Note 1 to our condensed consolidated financial statements.

Quantitative and Qualitative Disclosure About Market Risk

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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