What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 88 added, 66 removed, 177 unchanged (47% of the section changed)

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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.

professional services.

Generally, our displays produce higher net operating revenues but lower gross profit margins than our accessory solutions and professional services.

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Research and development expense consists primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.

Other income (expense), net

Other income (expense), net primarily consists of interest expense associated with our debt financing arrangements, gains (losses) on the settlements of debt, and the effects of changes in the fair value of derivative liabilities.

Income tax (expense) benefit

Other (expense) income, net

Other (expense) income, net primarily consists of interest expense associated with our debt financing arrangements, gains (losses) on the settlements of debt, and the effects of changes in the fair value of derivative liabilities.

Income tax expense

We are subject to income taxes in the jurisdictions in which we do business, including the United States, United Kingdom, Mexico, Sweden, Finland, Holland and Germany.

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Operating Results – Boxlight Corporation

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.

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

Total revenues for the three months ended September 30, 2023 were $49.7 million as compared to $68.7 million for the three months ended September 30, 2022, resulting in a 27.7% 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 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.

Cost of revenues for the three months ended September 30, 2023 were $31.7 million as compared to $47.7 million for the three months ended September 30, 2022, resulting in a 33.7% decrease.

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

Gross Profit.

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.

Gross profit for the three months ended September 30, 2023 was $18.0 million as compared to $21.0 million for the three months ended September 30, 2022, a decrease of 14.3%.

The gross profit margin was 36.3% for the three months September 30, 2023 and 30.6% for the three months ending September 30, 2022.

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

General and Administrative Expenses.

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.

General and administrative expenses for the three months ended September 30, 2023 were $15.4 million, representing 31.0% of revenue as compared to $14.0 million or 20.3% of revenue for the three months ended September 30, 2022.

The increase can be attributed primarily to an increase in payroll related expenses to support the growth of the business in certain markets.

Research and Development Expenses.

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 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 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.

Research and development expenses were $979 thousand and $604 thousand for the three months ended September 30, 2023 and 2022 , respectively, and representing 2.0% of revenue for the three months ended September 30, 2023, and 0.9% of revenue for the three months ended September 30, 2022.

Impairment of Goodwill.

The Company recorded goodwill impairment charges of $13.2 million for the three months ended September 30, 2023.

There were no goodwill impairment charges recorded in 2022.

Other Expense.

Other expense, net for the three months ended September 30, 2023 was $3.1 million as compared to $2.8 million for the three months ended September 30, 2022 , representing an increase of $0.2 million .

The increase in other expenses was primarily due to a $0.4 million increase in interest expense, partially offset by a $0.2 million change in the fair value of derivative liabilities.

Income Tax Expense.

Income tax expense for the three months ended September 30, 2023 was $3.1 million , as compared to $520 thousand for the three months ended September 30, 2022.

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

Net (Loss) Income.

Net loss was $17.8 million for the three months ended September 30, 2023.

Net income was $3.1 million for the three months ended September 30, 2022 and was a result of the changes noted above.

For the nine-month periods ended September 30, 2023 and 2022

Total revenues for the nine months ended September 30, 2023 were $137.9 million as compared to $179.0 million for the nine months ended September 30, 2022, resulting in a 22.9% decrease.

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

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.

Cost of revenues for the nine months ended September 30, 2023 were $86.9 million as compared to $128.5 million for the nine months ended September 30, 2022, resulting in a 32% 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 three quarters of 2023 compared to the first three quarters 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.

Gross profit for the nine months ended September 30, 2023 was $51.0 million as compared to $50.5 million for the nine months ended September 30, 2022, an increase of 1.0%.

Gross profit margin was 37.0% for

the nine months ended September 30, 2023 and 28.2% for the nine months ended September 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.

General and administrative expenses for the nine months ended September 30, 2023 were $45.4 million, representing 32.9% of revenue as compared to $44.7 million representing 25.0% of revenue for the nine months ended September 30, 2022.

The increase in general and administrative expenses for the period ended September 30, 2023 can be attributed primarily to an increase in payroll related expenses to support the growth of the business in certain markets.

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.

Research and development expenses for the nine months ended September 30, 2023 and 2022 were $2.1 million and $1.9 million and represented 1.5% and 1.0% of revenue, respectively.

Impairment of Goodwill.

The Company recorded goodwill impairment charges of $13.2 million for the nine months ended September 30, 2023.

There were no goodwill impairment charges recorded in 2022.

Other Expense.

Other expense, net for the nine months ended September 30, 2023 was $8.4 million as compared to $5.1 million for the nine months ended September 30, 2022 , representing an increase of $3.3 million .

The increase was due to a $1.5 million decrease in the fair value of derivative liabilities, a $0.9 million increase in interest expense, and $0.9 million recognized upon the settlement of certain debt obligations during the nine months ended September 30, 2022.

Income Tax Expense.

Income tax expense for the nine months ended September 30, 2023 was $3.4 million, as compared to a $475 thousand in income tax expense for the nine months ended September 30, 2022 .

The increase in tax expense year-over-year is largely due to the increase in the estimated annual effective tax rate of the US legacy Boxlight entities.

Net loss was $21.5 million and $1.7 million for the nine months ended September 30, 2023 and 2022 respectively and was a result of the changes noted above.

Use of Non-GAAP financial measures

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

Adjusted EBITDA represents EBITDA, plus stock compensation expense, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement.

Adjusted EBITDA represents EBITDA, plus stock compensation expense, impairment of goodwill, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement.

Management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of the Company’s business model, and to assess the strength of the underlying operations of our business.

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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

(in thousands)

Net Income (loss)

(in thousands) Three Months Ended

September 30, 2023 Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

Net (Loss) Income $ (17,750) $ 3,105 $ (21,485) $ (1,725)

Depreciation and amortization 2,332 2,231 6,893 6,818

Interest expense 2,987 2,598 8,222 7,330

Income tax expense (benefit)

Income tax expense 3,073 520 3,379 475

EBITDA $ (9,358) $ 8,454 $ (2,991) $ 12,898

Stock compensation expense 671 603 1,823 2,665

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Gain on settlement of debt — — — (856)

Impairment of goodwill 13,226 — 13,226 —

Adjusted EBITDA $ 4,928 $ 9,868 $ 13,652 $ 16,312

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Liquidity and Capital Resources

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.

As of September 30, 2023, we had cash and cash equivalents of $18.4 million, a working capital balance of $61.4 million, and a current ratio of 2.24.

On September 30, 2022, we had $22.0 million of cash and cash equivalents, a working capital balance of $62.3 million, and a current ratio of 1.9.

For the nine months ended September 30, 2023 and 2022, we had net cash provided by operating activities of $8.2 and $0.5 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.

We had net cash used in investing activities of $226 thousand and $1.1 million for the nine months ended September 30, 2023 and 2022, respectively.

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

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 .

For the nine months ended September 30, 2023 and 2022, we had net cash used in financing activities of $3.0 million and net cash provided by investing activities of $4.4 million, respectively.

Cash provided by financing activities is primarily related to principal payments on debt of $5.0 million and $1.0 million in payments of fixed dividends to our Series B preferred shareholders, slightly offset by a $3.0 million draw under the Company’s Credit Facility and stock option exercise proceeds of $13 thousand.

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

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

We have limited credit available from our major vendors and are required to prepay the majority of our inventory purchases, which further constrains our cash liquidity.

In addition, our industry is seasonal with many sales to educational customers occurring during the second and third quarters when schools make budget appropriations and classes are not in session limiting disruptions related to product installation.

We have limited credit available from our major vendors and are required to prepay a percentage of our inventory purchases, which further constrains our cash liquidity.

In addition, our industry is seasonal with many sales to educational customers occurring during the second and third quarters when schools make budget appropriations and classes are not in session

limiting disruptions related to product installation.

This seasonality makes our needs for cash vary significantly from quarter to quarter.

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 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.

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

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

The completion of the additional draw eliminates further delayed draws under the term loan agreement.

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

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

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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.

The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.

The Company was not in compliance with its Senior Leverage Ratio financial covenant under the Credit Agreement at September 30, 2023.

The non-compliance was cured by the Company paying $4.3 million, inclusive of $0.3 million in prepayment penalties and interest in November 2023 in order to bring the Company into compliance with the Senior Leverage Ratio at September 30, 2023.

The Senior Leverage Ratio, as stated in the Third Amendment to the Credit Agreement, decreases to 2.50 at December 31, 2023, 2.00 at March 31, 2024 and June 30, 2024 and 1.75 thereafter.

Because of the significant decreases in the required Senior Leverage Ratio within the next twelve months, the Company’s current forecast projects the Company may not be able to maintain compliance with this ratio.

These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.

In view of this matter, continuation as a going concern is dependent upon the Company’s ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-compliance with the Senior Leverage Ratio, or refinance its Credit Agreement with a different lender on a basis with more favorable terms.

The Company is actively working to refinance its debt with new lenders on terms more favorable to the Company.

While the Company is confident in its ability to refinance its existing debt, it does not have written or executed agreements as of the issuance of this Form 10-Q.

The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control.

The Company has a good working relationship with its current banking partner, and has seen a positive trend in the credit markets as of late.

However, there can be no assurance that the Company will be successful in refinancing its debt, or on terms acceptable to the Company.

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

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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.

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.

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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;

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;

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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.

During the quarter ended September 30, 2023, due to further declines in the Company’s market capitalization and a reduction in cash-flows resulting from continued softening in the industry leading to a reduction in sales from interactive flat-panel displays, the Company determined that a triggering event had occurred.

As of September 30, 2023, the Company performed an interim goodwill impairment test as a result of the triggering event identified.

The Company’s methodology for estimating fair value was consistent with the income and market approaches used as of June 30, 2023.

Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were revised based on current industry and Company trends.

For the three and nine months ended September 30, 2023, the Company recorded goodwill impairment charges of $10.4 million and 2.8 million to the Americas and EMEA reporting units, respectively, which also represents total accumulated goodwill impairment charges for each reporting unit.

Stock-based Compensation Expense

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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