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Edited Transcript of BOXL earnings conference call or presentation 13-Aug-19 8:30pm GMT

Q2 2019 Boxlight Corp Earnings Call

LAWRENCEVILLE Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of BOXLIGHT Corp earnings conference call or presentation Tuesday, August 13, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Mark Elliott

Boxlight Corporation - Chairman & CEO

* Michael Ross Pope

Boxlight Corporation - President & Director

* Takesha Brown

Boxlight Corporation - CFO

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Conference Call Participants

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* Allen Robert Klee

Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst

* Brian David Kinstlinger

Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst

* John Nobile

Taglich Brothers, Inc., Research Division - Principal Equity Analyst

* Keith Gil;Carter, Terry & Company

* Stephen Hart

Hayden IR, LLC - Head of Capital Markets Advisory

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Boxlight Corporation's Second Quarter 2019 Earnings Results Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Stephen Hart with Hayden IR. Sir, the floor is yours.

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Stephen Hart, Hayden IR, LLC - Head of Capital Markets Advisory [2]

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Thank you, and welcome to the Boxlight's Second Quarter 2019 Earnings Conference Call. By now, everyone should have access to the earnings press release, which was issued earlier today after the market close at approximately 4:00 pm Eastern. This call is being webcast and is available for replay.

In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements.

A detailed discussion of such risks and uncertainties are contained in our most recent forms 10-Q, Form 10-K and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements.

On this call, we will refer to non-GAAP measures that, when used in combination with GAAP results, provide us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our press release, which will be posted on the Investor Relations section of our website at investors.boxlight.com.

And with that, I'll now hand the call over to Boxlight's CEO, Mark Elliott. Mark?

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [3]

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Thanks, Stephen, and good afternoon, everyone. We're excited to speak with you all again. We closed a record second quarter with customer orders of $15 million, revenue of $11.1 million, $5 million in backorders, gross profit of 29.4%, and the successful launch of several new solutions. Our revenue growth, improved margin and introduction of new products and services have positioned us for a solid 2019 and beyond as the K-12 classroom continues to evolve with interactive learning technologies, and our products and services are at the forefront of this technology transition. We continue to roll out previously awarded projects and see an abundance of new RFPs and opportunities.

Additionally, we had an outstanding ISTE 2019, the largest education conference in North America with nearly 20,000 attendees, where we were recognized by Technology & Learning Magazine with best of ISTE 2019 awards for our MyBot STEM solution and also for MimioClarity, our audio suite of products, both of which we feel will be significant contributors to our bottom line and growth in the future.

At ISTE, we unveiled our next generation of cloud-based solutions for both Boxlight and Qwizdom with outstanding reviews from our customers and channel partners. We were quite proud to have Clayton County schools continue our approach of letting our customers tell our Boxlight total solution story as they presented why they selected Boxlight in their rigorous RFP selection process and their outstanding success and satisfaction to date in their 3,200 classrooms implementation.

Nothing sells like success and our customers continue to be our best resource, which is incredibly important in a very risk-adverse market that cannot afford failure.

The health of our business should be measured over the entire year, and we expect to report strong third and fourth quarters. Over the past 3 years, we've grown our annual revenues from $20 million to $26 million to $38 million, and we believe we are better positioned for growth today than at any time in our history.

Our reseller partner network is as strong and loyal as ever and coupled with our seasoned management team, strong sales force and continued product development, enables us to deliver our best-in-class and award-winning interactive technology solutions to the education market globally.

We added several new reseller partners this past quarter, including Virtuocomm in Georgia as a national partner; Sussman Education in New York; Computer Hardware in Nebraska, Iowa, South Dakota and North Dakota; and Superior Fiber & Data Services in Texas. We welcome our new partners and thank them for their confidence in our company to best service their respective markets.

Additionally, we continue to maintain our strong relationships with several key national resellers, including Troxell, Howard Technology Solutions, CDW-G and other strong regional partners, as we've competed for and won several of the most significant opportunities across the country.

We truly have the strongest network of partners in the industry, and we consider them an extension of our Boxlight family. We sell exclusively through channel partners, and they are a significant contributor to our continued growth.

We're very pleased with our international progress to date and are beginning to see traction, particularly in the EMEA and Latin American markets. In the EMEA market, we received a key order from our partner [Conan] in Germany for interactive projectors, and we're selected by Stonehenge Schools in the United Kingdom as their preferred solution with our flat panels and MimioStudio software suite.

In Latin America, we received key orders from our channel partners ACASI and computer lab. Our mission to change the classroom, change the world, extends beyond the United States and developed countries to the entire world. We're one of the few companies that provide solutions to connect classrooms in developing economies with lower-cost solutions, including our Mimio MicroCloud, MimioTeach, MimioFrame and interactive projectors, each of our lower-cost displays utilize our core MimioStudio software solution, providing the same ease of use and integrated total solution approach.

We continue to realize increased gross profit margins as a result of better-negotiated cost reductions on key hardware solution with our primary vendors and an improving product mix with growing revenues from high-margin hardware, software and services.

High-margin hardware solutions include MimioMyBot, MimioFrame, MimioTeach and integrated peripherals. High-margin software includes Boxlight Unplug'd, Boxlight NDMS, MimioInteract and our Qwizdom software solution suite. Our professional development team continues to expand their course offering, including developing a complete MimioStudio certification program in English and Spanish. Additionally, they are developing training courses for Boxlight NDMS, Boxlight Unplug'd, MimioMyBot as well as self-paced online certification training for the Qwizdom software solution.

Our Qwizdom software team realized a record second quarter. We continue to support and add prestigious customers including key providers to the interactive technology classroom market, such as Bastille, Planar, Viewsonic, Docebo Italy, Elo Touch, Exertis, Hazen, SA, CTOUCH, Qomo and Galaxy to name a few.

Our whole class learning solutions are in 60 countries supported in 33 languages and installed in nearly 1 million classrooms. Our solutions encompass collaborative learning, assessment for learning, STEM and robotic. We have 500-plus global reseller partners that assist in identifying, positioning and winning contracts. Our complete solution approach is a key differentiator for Boxlight, allowing our channel sales partners to be consultative and provide the right solution and value to meet their customers' unique needs and requirements.

We were awarded multiple new contracts in the second quarter, including Guilford County school district in North Carolina, Chesapeake School District in Virginia, Provo schools in Utah, West Orange Cove Independent School District in Texas, Anacortes Schools in Washington State and Aurora School District in Colorado. We were also chosen as preferred solution by Stonehenge Schools in the United Kingdom, Owasso schools in Michigan, as well Montgomery County School District in Maryland, the 14th largest school district in the United States, with over 163,000 students and approximately 12,000-plus classrooms.

Additionally, Boxlight was selected in San Diego Unified School District, the 17th largest school district in the United States, with over 130,000 students. The Board approved Boxlight on May 28th when our partner, Troxell, for a 6,000 classroom purchase over a 5-year, that began in the second quarter and will result in approximately 1,300 Boxlight 75-inch interactive flat panels installed by the end of August in 1,200 classrooms per year for the following 4 years.

We are proud of these new customers, all of whom were typified with extremely rigorous selection processes and criteria, which is where Boxlight excels. We welcome stringent requirements that focus on existing customers' experiences built on a track record of success with our integrated solutions and our local channel partners' history of being trusted advisers to the school districts they serve.

Our second quarter results were additionally driven by continued rollout implementation with Aldrin, ISTE and Texas, Atlanta Public Schools in Georgia; Clayton County schools in Georgia; Higher County school district in Florida; Hendry County school district in Georgia; Highland Park schools in Texas; and Tangipahoa Parish School districts in Louisiana.

Our business continues to evolve as we introduce additional integrated solutions and complete successful implementations with our customers, resulted in an increased recurring nature for our business model. This provides additional predictability and visibility of revenue and gross profit. School districts and counties throughout the United States are typically on 5- to 7-year technology replacement cycles. The majority of significant awarded contracts call for multiyear rollouts. Once in with a school district, the company is likely to attain additional business with new products and services and replacement and is in an ideal position for the next upgrade cycle.

Our relationship with Clayton County public schools is a great example of this recurring nature. Previously in June, 2018, Boxlight was awarded an $11 million contract to install our innovative Mimio classroom solution suite in approximately 3,200 classrooms, comprised of 32 elementary, 14 middle and 11 high schools. The installation included interactive flat panels with MimioStudio, MimioNetwork and MimioMobile, and Mimio peripherals included MimioVote, MimioView and MimioPad and was completed in Q1 of 2019.

Subsequently, during the second quarter, we were awarded an additional services contract to provide a comprehensive program of training, professional development and ongoing support for 3,200 Clayton County school district educators to facilitate their effective implementation of Boxlight classroom solutions. These 3 programs are integrated to provide teachers with necessary skills, knowledge and best practices regarding usage of available technology in their classroom. We expect total revenues from this additional contract to exceed $1 million.

As part of the program, educators are participating in an online Mimio certifications program, which imparts knowledge on how to use Boxlight tools in the most convenient way, whenever and wherever they want. This customized, instructor-led course will be delivered via Google Classroom and an EOS course moderator to provide feedback to participants as well as facilitate their asking questions and collaborating with colleagues.

Additionally, our digital learning specialist will provide on-site training and support for all teachers through face-to-face, group training and classroom sessions. Teachers will also have access to webinars and virtual on-demand support as well as materials and resources, which will be shared through Google Classrooms and Google Sites.

For the third part of the program, EOS, we'll prepare training materials and provide support for over 60 full-time teachers, who will be serving as technology liaisons. The company will also provide training at the liaisons' campuses via G Suite. This program gives Clayton County teachers the opportunity to take their use of Mimio tools far beyond the basics. Interactive technology tools can empower teachers to enhance instructional time, provide immediate feedback to students and engage them in purposeful activities that support learning goals. But it takes skillful implementation.

With EOS' in-depth experience and extensive support, Clayton County's vision for their schools will be realized. We expect this incredible commitment that Clayton County has taken toward professional development training for their teachers and with Boxlight and our EOS services team to be replicated throughout our customer base in 2019 and beyond, and is yet another example of our total solution approach and focus on our customer success in using technology in the classroom.

We're proud to provide the best solution set available for the classroom with tested, proven products and services that deliver results, with customers to back up our claims and statements. We have a dramatically growing market with real needs that we address better than anyone anywhere. We are winning in the public arena on competitive bids or with extensive pilots.

Our incredible and loyal channel partner family network, who have a choice of providers, continue to choose Boxlight because we provide a proven, complete total solution. As one of our experienced channel partner account executives presented in a recent meeting, it's my experience that school districts may try new vendors, but they will ultimately go with Boxlight when they're ready to make a commitment to having a successful and proven solution partner in their district. This is obviously music to our ears.

It's an exciting time at Boxlight with our mission to improve learning and engagement in classroom and to help educators enhance student outcomes. I want to thank our dedicated employees, our trusted customers and our supportive partners. There's much more to do in delivering our best-in-class and award-winning interactive technology solutions for the global education market and continuing to build shareholder value.

With that, I'll turn it over to our President, Michael Pope.

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Michael Ross Pope, Boxlight Corporation - President & Director [4]

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Thanks, Mark. My comments today will focus on Boxlight's technology innovation, expansion of our total solution suite and our continued M&A strategy. As Mark stated, our complete solution with integrated hardware and software is the backbone of our product offering and key to our differentiation. Our ability to innovate is a critical element of our future strategy to emerge as a global leader and provider of interactive technologies for education.

In June, we introduced and launched several new innovative products at one of our industry's largest and most significant trade shows, ISTE 2019 at Philadelphia. As Mark mentioned, we are proud to announce that we were recognized for MimioClarity classroom audio solution and our MyBot robotics and programming solution, with both receiving ISTE Best of Show Awards from Tech & Learning Magazine.

A panel of professional judges and editors selected the products that have the most impact in the classroom and showed the greatest promise in edtech industry. We developed the MimioClarity audio distribution system with teachers and students in mind. Many teachers struggle to be heard in large noisy classrooms, leading to voice strain or fatigue and disengagement for students. With MimioClarity, the teacher's voice is captured by a light-weight wireless microphone worn on a lanyard.

Students have a pass-around hand-held microphone. Both microphones come with a long 10-hour battery life. The multichannel 60-watt amplifier is the microphone's receiver and could connect up to 4 microphones simultaneously. Additional inputs allow for multiple multimedia integrations and networks connectivity that can utilize the school's existing network audio resources. Specific to MimioClarity, Boxlight's connected classroom technology allows each microphone the ability to work only within the same room as an amplifier.

Our MimioMyBot education robotic system is available in packs of 10 or 20 MyBot robotic kits and the Mimio MicroCloud server. The system bundle establishes a local wireless classroom community that facilitates the development of core skills and programming, engineering and robotics.

Bundling the MimioMyBots with the Mimio MicroCloud allows teachers and students to create a flexible and expandable wireless and robotics community. This provide students immediate on-device access to the curriculum, reference guides, videos, tutorials, lessons and other educational material we have developed for them. This extensive set of building components can be used to create mobile and stationary mechanical systems that explore engineering principles from simple machines to advanced mechanisms. Educators can also expand the kit's capacities for advanced students and create more sophisticated robotic structures by adding and building components, sensors, servers, joysticks and cameras.

The MyBot removes common obstacles to STEM education, such as the requirement for network infrastructure changes or expensive workstations. There is no software to install and no cable connections to the robot. All of the software, programming languages and documentation are built into the fusion controller, so all students need is a browser in order to start learning. An intuitive and easy-to-use interface allows students to start in a simple, drag-and-drop environment and grow into a powerful coding environment as their skills develop.

We recently entered into an exciting partnership with the Buzz Aldrin Family Foundation and ShareSpace Education to provide K-12 schools with innovative new educational tools for STEAM learning. Together, we will offer ShareSpace's Giant Moon and Giant Mars Map programs with our MimioMyBot educational robot system. Working together, we expect to extend the Buzz Aldrin Family Foundation mission to reach 3 million to 5 million students over the next 5 years and ignite students' passion for STEAM with a focus on math and science. This partnership is a tremendous endorsement of our MyBot robotics and programming solution.

We continue to target strategic and accretive acquisition opportunities that accelerate our revenue growth and increase our gross profit margins. Specifically, we are targeting opportunities that either, one, expand our worldwide distribution, or two, add new technology solutions that complement our existing integrated solution suite.

Our success with STEM solutions, improved software strategy, growing international revenues and increased service offerings are concrete examples that our acquisition strategy is providing our desired results, and we expect the second half of 2019 to bring additional acquisition opportunities.

With that, I will now turn the call over to our CFO, Takesha Brown.

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Takesha Brown, Boxlight Corporation - CFO [5]

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Thanks, Michael. I will now review our second quarter and first half of 2019 results.

Revenue for the 3 months ended June 30, 2019, was $11.1 million, an increase of $1.4 million or 15% compared to $9.7 million for the 3 months ended June 30, 2018. The increase is primarily attributable to the increase in sales volumes of existing products, new products and additional services.

Of note, our gross profit and gross margin improved significantly. Gross profit for the 3 months ended June 30, 2019, was $3.3 million, an increase of $1.5 million compared to $1.7 million for the 3 months ended June 30, 2018. The resulting gross margin was 29.4% for the 3 months ended June 30, 2019, compared to 18% for the 3 months ended June 30, 2018.

Operating loss for the 3 months ended June 30, 2019, was $1 million, a decrease of $1.2 million or 55% compared to $2.2 million for the 3 months ended June 30, 2018.

Adjusted EBITDA loss for the 3 months ended June 30, 2019, was $0.6 million, a decrease of $0.6 million or 54% compared to $1.2 million for the 3 months ended June 30, 2018. Net loss for the 3 months ended June 30, 2019, was $1.2 million, a decrease of $3.3 million or 74% compared to $4.5 million for the 3 months ended June 30, 2018.

The resulting EPS loss for the 3 months ended June 30, 2019, was $0.11 per diluted share compared to $0.45 per diluted share for the 3 months ending June 30, 2018. The decrease in the net loss was primarily due to increased revenue, a decrease in operating expenses as a percentage of revenue and change in the fair value of derivative liabilities.

Now on to our financial performance for the first half of 2019. Revenue for the 6 months ended June 30, 2019, was $16.1 million, an increase of $0.4 million or 3% compared to $15.7 million for the 6 months ended June 30, 2018.

Gross profit for the 6 months ended June 30, 2019, was $4.8 million, an increase of $1.6 million compared to $3.2 million for the 6 months ended June 30, 2018.

The resulting gross margin was 30% for the 6 months ended June 30, 2019 compared to 20% for the 6 months ended June 30, 2018.

Operating loss for the 6 months ended June 30, 2019, was $3.4 million, a decrease of $0.6 million or 15% compared to $4 million for the 6 months ended June 30, 2018.

Adjusted EBITDA loss for the 6 months ended June 30, 2019, was $2.4 million, remaining relatively flat compared to the 6 months ended June 30, 2018.

Net loss for the 6 months ended June 30, 2019, was $5.8 million, an increase of $0.5 million or 9% compared to $5.4 million for the 6 months ended June 30, 2018. The increase in net loss was primarily due to the increased expense related to the change in fair value of derivative liabilities and interest offset by the increase in sales with higher margins.

The resulting EPS loss for the 6 months ended June 30, 2019, was $0.56 per diluted share compared to $0.55 per diluted share for the 6 months ended June 30, 2018.

In summary, we are pleased with our growth in the second quarter and plan to support our guidance of at least 25% revenue growth and approximately 30% gross profit margin for the second half of 2019.

With that, we'll open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brian Kinstlinger with Alliance Global.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [2]

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Great to hear about the record bookings. Can you provide what bookings were in the first quarter of '19, and then maybe a comparison for the first half of '18?

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Takesha Brown, Boxlight Corporation - CFO [3]

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Brian, historically, we have not tracked or disclosed our bookings. However, we've decided that we will disclose them on a go-forward basis.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [4]

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So just to put it in perspective, I mean how does the '18 compare, maybe, on percentages or how is the first half tracked? Were you tracking those bookings there? Like give us a sense. I mean you said there were record bookings. I'm trying to understand, were they fairly consist but slightly more? Or were they much higher than years passed?

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Takesha Brown, Boxlight Corporation - CFO [5]

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Well, we didn't -- when we performed our analysis for the quarter, that wasn't something as we looked at as far as percentages, but we can go back and take a look at that and we're prepared to discuss it on the next call.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [6]

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Okay. And then when we look at bookings, how should we think about conversion into revenue? Will most of it occur in the third quarter, in the second half? Maybe a sense for how that converts would be helpful.

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Takesha Brown, Boxlight Corporation - CFO [7]

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Yes. We would anticipate that the majority of that would be recognized in the third quarter.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [8]

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Great. Two more, and then I'll get back in the queue. During the quarter, were there any standout orders? I mean in the past, you've had some big press releases talking about bookings. I'm curious if there are 1 or 2 that stood out, and if so can you elaborate?

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [9]

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Yes, we did have some outstanding orders. I think we talked a little bit about it in the discussion we had earlier. Certainly, San Diego is an outstanding order right there. We've installed about 500 of the 1,200 that they've ordered, and we'll have the rest of them installed by the end of August. And 500 was in the second quarter.

We also had Montgomery County. They had ordered a significant number after an extensive pilot. This is the second round of purchases they've done with us. We had Atlanta Public Schools. They'd ordered another 173 units against their solutions there of about 2,000 classroom we'll have. And so that's a multiyear rollout that we've had. And Henry County in Georgia installed about nearly 600 of our interactive projectors for a very nice order in that area.

So a lot of them were coming there and from new customers and from existing customers as far as our rollouts we continue, which is great on us and -- go ahead, I'm sorry.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [10]

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Are then are you able to qualify or at least anecdotally talk about the pipeline? Are you seeing substantially more RFPs in general? Are there larger deal sizes within that pipeline? Maybe some context on the market conditions would be great.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [11]

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Yes. There are a lot of RFPs that we're seen and that we've won. And we're very proud of those because we win when they're objective RFPs and they come out. The numbers, I'd say, are relatively flat. We're seeing big ones come out in some major large school districts.

But another good thing about our market is because of the large implementations that we've done successfully, like Clayton County and Atlanta Public Schools and Beaufort County South Carolina, a lot of school districts may not take the time to put out an RFP, but they will go and look at others that have done this successfully.

And so that's a big advantage that we have, and that's why we do so much work in allowing our customers to tell our story. You'll see podcasts and successor stories and things like that. We'll also be hosting customer visits because that's what these customers -- potential customers want to look at.

So the demand is there, the RFP is there. The replacement market is happening throughout the United States and the world of existing interactive whiteboards. And I think there were nearly 14 million interactive whiteboards installed around the world globally. So we're optimistic this will continue.

The replacement is ideal for us because we have solutions to protect our customers' investment in their existing lesson plans that the teachers have developed. They've come from competitors such as SMART or from Promethean, and that's a big competitive advantage that we have.

So the pipeline is growing. We have done an excellent job in working with our partners to get information into our system, and it helps us do a better job in predicting our demand and then placing the orders with our manufacturers.

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Michael Ross Pope, Boxlight Corporation - President & Director [12]

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I was going to add real quick that what we're seeing in industry, we're still seeing high growth numbers. And so what we're seeing internally is consistent with what's happening more globally. And their spend absolutely is increasing, and everyone is seeing record numbers. We are internally as well.

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Operator [13]

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Okay, our next question comes from John Nobile with Taglich Brothers.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [14]

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I just wanted to get into robotics market here. I know that, that robotics education market, it's a large and growing market. I was hoping if you could provide any metrics on the progress you have made in this market since your acquisition of Modern Robotics back in March.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [15]

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Yes. We've done a great job. The Modern Robotics acquisition or merger, as we call it, brought Stephen Barker on board with us. And Stephen's been a leader in the edge, the robotics world, who had a key role as a provider for Lego in the past. And we feel we've developed an ideal solution for the robotics.

Robotics is so key because it allows students and developing economies in countries everywhere to be able to enhance the programming skills of their students. And that all obviously ties back into the economic growth of the countries that they're involved in. So robotics is key.

Our solution that we have there, I think the fact the Buzz Aldrin Foundation selected us. And the Aldrin Foundation has got about 1,000 classrooms right now with their Mars maps or their lunar maps that they have. And with the 50th anniversary that we had this year of the lunar landing, they're continuing to see that expand.

So we will be going to market with them with our MyBot and with our solution bundled together with their map and with curriculum and content, questions and other things like that to make this. So if you look at the 1,000 classrooms that they're already involved in, we will be going back into them with at least 5 to 10 robots for a map. So we're there.

And then we're seeing across the board our pipeline is growing. We had to get the Modern Robotics MyBot app earlier this year. And so now the specifications are being built in, and we have a lot of RFPs that are -- not RFPs, but specifications and requests that are building in our pipeline. So we expect to see tremendous growth in this.

We think we've got an incredibly competitive product for the market and with the resources behind it and the background to continue to allow us to grow.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [16]

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And in the third quarter, Mike, we see some revenue from this, from the Aldrin Foundation. I'm not sure exactly when that might be kicking in.

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Michael Ross Pope, Boxlight Corporation - President & Director [17]

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Absolutely. We've already seen the Aldrin Foundation initially ordered 100 of our MyBots for their initial order. They expect another 500 to 600 for the end of this year, and then we are targeting school districts with them. We're having a complete rollout plan with them to take this packaged solution approach and go into the schools and the states throughout the United States.

And with Buzz Aldrin and Aldrin Foundation's backing and support and the prestige that they have there, we're very confident we're going to see a continued exposure, and then we're going to see some orders starting to happen. And I think on some significant scale.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [18]

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Okay. Well good, that's a great start. I just wanted to talk about your gross margins. Obviously impressive. I didn't anticipate that level. Coming off of last year was actually 17.9%. Actually, for the whole year, 22.9%. But so far the first 2 quarters of this year, it looks like it's pretty impressive, hence, the guidance.

But you mentioned a combination of everything from hardware, which also included services in that. But I'm just curious, the gross margin boost, not only for the second half of the year, but what you already have for the first half, is this mostly from an increase in your services revenue? Because I would imagine that's probably the higher-margin business, but I'm not sure how much your hardware margins might have improved. But if I could just kind of get an idea of what was the principal driver of the guidance and what you've had already in the first half of the year.

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Takesha Brown, Boxlight Corporation - CFO [19]

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This is Takesha. Okay. So there's a couple of things. So one part of it is product mix, of course. But it is not heavily weighted. Our total revenue's not heavily weighted in the services sector, which is the primary -- services and software sector, which is the primary driver of the higher margin.

However, there are a couple of other things that we take into consideration. In the second quarter of 2018, we had some initial deliveries on our large orders from Clayton and Beaufort that were lower margin, which kind of drove the margin down for the first half and the second quarter of 2018.

In addition, we, as a company, have really taken a look at a lot of our contracts that we've entered into, specifically related to freight. And we've figured out a way for us to have lower freight costs by going through one of our providers that is an international provider. So we have a decrease in freight. We don't have the situation that we had in 2Q '18 with the lower profit margins for the initial delivery of those 2 big products, and we're getting a higher product mix that includes both services and software.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [20]

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Okay. So -- and obviously, services revenue was a higher margin, but the combination of the lower freight cost, which obviously helped your hardware margins, this level that we're at for the first half obviously you guided, but going forward, we should see it continue at least at around a 30% level and maybe even increase in 2020. Is that correct? I mean with the hub services?

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Takesha Brown, Boxlight Corporation - CFO [21]

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Yes. I think we'll continue to see it at this level. That's what we're anticipating for the remainder of this year and next as well. And as we start to see an increase in the percentage of software and robotics and services, we'll see that we will see an uptick in the margin from the 30% as well.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [22]

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That's great. And I'm trying to get an idea of the amount of growth in your overseas business. What amount of your business -- hopefully, you have these metrics. What amount of your business is currently from overseas contracts? And where do see that about a year from now?

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [23]

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Right now, it's probably -- we're anticipating it's going to be about 10% of our revenues for 2019. And we expect it to grow as the rest of the world outside of the United States there, and we're ideally positioned, not only in the developing economies but also in countries that need lower-cost solutions. Our approach, like we said, "Change the classroom, change the world," means that every student anywhere in the world. And that's why we've focused so hard in having solutions that are lower cost to allow them to get in and gain access to the Internet. Our Mimio MicroCloud is a great example of that solution there.

So it's going to continue to grow. The rest of the world, they want access to all of the learning and interactive technologies. It's proven to show that it enhances learning and achievement. And so we expect that it's going to probably over time become about 40% of our total revenues.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [24]

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Okay. I just have one final question, and I'll open it up for others. On the last call, you mentioned there was an $860,000 services contract with Clayton County, and that included on-site specialists located at that school district. And obviously, last week, you were awarded additional programs, which I believe you mentioned on this call. It was a little over $1 million additional. So we're looking at close to $2 million in Clayton County for that program.

So assuming that other school districts go the way of Clayton County and contract with Boxlight for professional services, including on-site specialist, I'm just curious how scalable do you believe your services division is in handling the increased personnel required for these type of contracts.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [25]

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I think it is absolutely scalable. We built an incredible foundation. The EOS team started out basically specializing in this with an outsource contract with a major district in Phoenix to where all of their professional development and training was handed over to them. So they have been right in the midst of a large district developing all of this, and everything they have is something that can be used with other districts everywhere.

So we're going to have an increased focus by our channel partners and our channel managers to include the services, presentations and overviews because, in our opinion, it's a travesty to have technology in the schools and not having a complete professional development certification program to teach them how to use it.

I think Clayton County used the analogy in our -- their ISTE presentation that they have, that having the tools that we have -- having something like MimioStudio and the whole of Boxlight suite is like having a supercar. What's that movie that came out? The -- where the car turns into all these fancy things?

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Michael Ross Pope, Boxlight Corporation - President & Director [26]

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Transformers.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [27]

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The Transformers. So the Transformer right there. But if you don't them how to use it and all the things, then you've basically just got a normal car. And so you teach them to train and then all of a sudden, they know, "Hey, we got this feature and this thing and that sort of thing."

So we're so proud to be tied into Clayton County because they are proving that it's not just having technology, it's having the training and certification to make it work. And they're going to be an absolute standard, I think, across the country for how to make systems work. And so it is scalable in every district, and you'll be seeing this and hearing more about this that they recognize there's technology, but using the technology is what's key.

And that's why we've invested so much and why we will continue to grow in the area of professional development and services to have them really effectively using the tools and getting all the benefits that you can, not just a percentage of it.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [28]

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And do you have the manpower? Oh, I'm sorry.

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Michael Ross Pope, Boxlight Corporation - President & Director [29]

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John, one more comment. This is Michael. We gave guidance in the past that we expect professional services to be about 10% of our revenue by next year. I think that holds true still. We still look at that internally. And I think long term, it should even be higher than that.

And a good model for that is Clayton County, right? Our total revenues from Clayton County, we're going to be well above 10% of our total sales for that school district. And so as you think about and model into the future, I think you ought to use that 10% number as a good model by next year.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [30]

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I just wanted to make sure you had the manpower, the personnel required because obviously, each school district, you're going to need the manpower there for the training. So that's not an issue basically. Right now, even into 2020, with growth of this segment, it's not an issue. That's what I was trying to get to.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [31]

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It's not at all. There are a lot of teachers out there that are retiring. They would love to be tied in to doing professional development and training and taking advantage of their experience but have a more flexible work schedule. So the supply is not an issue.

As far as the growth side of Qwizdom, which is software that other manufacturers of interactive solutions utilize, we've also made a commitment to develop certification training for those products out of the OKTOPUS and the Qwizdom side. So that again, whether it's our hardware, somebody else's, or they're using our solution, we want to make sure that they're using it effectively. So we've started develop and are in a position of very soon, I think in the next month, we'll be rolling out the certification for the Qwizdom OKTOPUS suite. So the supply of people that are available to do this is, I think, something that we won't any problem scaling with.

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Operator [32]

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Okay, our next question comes from Allen Klee with Maxim Group.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [33]

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I just wanted a clarification on the sentence you wrote related to 2019 outlook. When you say "supports our guidance of at least 25% revenue growth," are you saying 25% revenue growth for the whole year? Or just for the second half?

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Michael Ross Pope, Boxlight Corporation - President & Director [34]

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Yes, good question, Allen. Yes. So we initially, of course, had the guidance of 25% for the whole year. The first 2 quarters -- or the first quarter's a little bit slower, as you're aware coming into the year. And so we have revised that to say we should see hit at least 25% for the second half of the year. So as you're modeling, you should look at that, the second half of the year, that 25% growth. And then of course, we'll use actual for Q1, Q2.

But I will add as well that you'll notice that we upped the gross profit guidance. Previously, that guidance was 25% to 30%, but we're saying you ought to expect for the second half of the year approximately 30% gross profit.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [35]

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Okay. And then could you give us a sense based on what you're saying about growth rates and margins? Could you guesstimate when you think you might turn adjusted EBITDA positive?

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Michael Ross Pope, Boxlight Corporation - President & Director [36]

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Yes. So if you look at our current numbers at $11.1 million of revenue, you'll see that we were about an adjusted EBITDA loss of about $600,000. So if you add about another $1 million to that $12 million mark roughly, right, we're looking at about positive EBITDA -- adjusted EBITDA, roughly at that $12 million revenue number.

Cash flow positive is going to be a little bit higher than that because of the interest expense, right? So then you're closer to, call it, $12.5 million or just north of that, maybe slightly $1 million for positive cash flow.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [37]

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Okay. So add $12 million in revenue around, you think you could be adjusted EBITDA positive?

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Michael Ross Pope, Boxlight Corporation - President & Director [38]

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Approximately, yes. That's accurate.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [39]

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What you're pretty close to right now, okay.

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Michael Ross Pope, Boxlight Corporation - President & Director [40]

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That's right. Yes. And if you look at the guidance we provided plus Q3 last year, you'll see that we should hit that, right, for next quarter.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [41]

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Okay. Great. And then you've spoken about how sometimes a customer will buy like the flat panels to begin with and then -- some customers, and then you can get add-on purchases of other things in the future. Are you -- have you seen that yet in San Diego or anywhere else, where you think that, that might be happening?

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [42]

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For San Diego, we're in the -- we installed about 100 of them in the first quarter of 2019, and then they had the Board approval for the next 6,000, of which 1,200 will be this year. So we'll be rolling that out. But they are absolutely talking with us now in our training sessions that we're doing about our software, our network device management systems. They're going to be looking at our robotic solution. It just make sense for them because it's so integrated together and it makes it easier to use. So we will see that. They did select some audio and I guess it was the mounting devices there and the document camera. But San Diego has that with -- in place already.

But other districts, absolutely. We are in discussions with every single one of them. And that's one of the things that our channel partners like about us is that we're not just a point solution or a one-trick-pony. Our channel partners can go in with us with all of these different entry levels, and it doesn't have to be flat panels or projectors. We've won districts where we've gone in just with document cameras or voting devices and then they've grown off of that and into other areas right there.

So channel partners that have built relationships over the years based on their consultative approach, they love working with us because they go in with a solution and then they can continue to grow and build out from that. So it's happening across the board and every distinct that we're involved with.

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Michael Ross Pope, Boxlight Corporation - President & Director [43]

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Yes. I think the biggest example of that, Allen, is we talked about Clayton County, right, where we won the contract and they came back with over $1 million in professional services that wasn't part of the initial contract. So that's probably the biggest example to date. But keep in mind that a lot of these solutions -- robotics, we just launched this, our Clarity -- MimioClarity solution, we just launched it, right? So a lot of these, I think you're going to see a lot more of that starting next quarter, in fourth quarter this year…

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [44]

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And we've seen it in Labdisc and others, where we've gone in like in Broward County and other places, where we've had additional solutions brought in. So it's part of our overall messaging by our channel partners and our sales team. And it's a big advantage that our customers look at when they select us because they don't want to have to get involved with the finger-pointing and trying to integrate all these different solutions that have different interfaces and different systems and approaches and training.

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Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [45]

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Okay. My last question is just based on what you know now for your backlog and potential installations and everything, is there a way here that you could help us with the seasonality of how you think revenues will be relatively in 3Q versus 4Q?

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Michael Ross Pope, Boxlight Corporation - President & Director [46]

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Yes. So Q3 typically is going to be 30% or just north of that of our total year. That's typically what we see. But it's really hard -- it's hard to say at kind of this point in the life cycle of our company, Allen, to kind of see. I mean you saw least last year, there was quite a bit was pushed in to fourth quarter. So the fourth quarter actually was larger than our third quarter last year. So it's tough for us to put out numbers quarter by quarter. But typically, Q3 is going to be our largest quarter; 2Q is going trail that a little bit; Q4 is a little bit lighter; and then Q1 is going to be something like 10% to 15% of total revenue, right? That's going to be our slowest quarter.

So we've tried to put out general guidance. We did that in the past, but we're a little hesitant to, just because there is some shifting that happens, and we've see that already the last few quarters where orders or contracts were shifted into different quarters than we originally expected.

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Operator [47]

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Okay, our next question comes from Keith Gil with Carter, Terry & Company.

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Keith Gil;Carter, Terry & Company, [48]

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Congratulations on a strong quarter. Can you describe and expand on the recurring aspects of your business model in the market and how that leads to your visibility over the year?

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [49]

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With the recurring assets, we obviously are looking at all that we can to continue to grow the software, which has an element of annual renewal licenses and things like that. But the fact that we're winning multiyear contracts, as an example, Atlanta Public School, that we started rolling out in 2015, to where they deploy based on their budgets that they get and they work with us there, that gives us a lot of predictability from the multiyear contract.

The time that it becomes a little confusing is like with Clayton County, to where we thought initially there were going to be 3,200 classrooms over 2 years, but after they saw the success that they were having and the excitement within the districts by the teachers and the students and the Board members that they decided to collapse that time frame into 6 months. So you can see when you have that kind of variability right there.

But in general, the fact that we're into a school district, there's multiyear rollouts and then we can also talk with them about adding peripheral solutions in there as we go along, so that gives us a lot more predictability. And as we're growing ever customer base, that's something that our channel partners and our salespeople are in a much better position to forecast with us.

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Michael Ross Pope, Boxlight Corporation - President & Director [50]

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That's good, Mark. And I'd add as well, not only is there opportunity to upsell along the way during that contract for other solutions or services, but also this is technology. So it has a refresh, a life cycle. And refreshes, as Mark mentioned at the beginning part of the call, are typically 5 to 7 years. So if we go into a large school district, we do an implementation, it's successful, when it's time to refresh that technology in 5 or 7 years, they're going to pick us again because they're not going to want to standardize on a new solution and have that learning curve from software or hardware to services, all of that.

And so we're going to start to see more and more of that. We're a young company now, but we're going to start to see a lot more of that in future years of us winning contracts that we won previously again.

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Operator [51]

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Okay, our next question comes from Brian Kinstlinger with Alliance Global.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [52]

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Both my questions were just asked, so I appreciate it and we'll talk again later.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [53]

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All right. Thanks, Brian. And he had great questions and we would be glad to answer them again for you.

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Operator [54]

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And there are no further questions in the queue.

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James Mark Elliott, Boxlight Corporation - Chairman & CEO [55]

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Okay. Well, with that, thanks, everyone, for your support and for joining us today on our second quarter conference call, and we look forward to speaking with you next quarter.

Thanks a lot. Bye-bye.

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Operator [56]

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Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.