Q4 2023 Boxlight Corp Earnings Call

Participants

Jeff Stanlis; IR; FNK IR

Dale Strang; CEO; Boxlight Corporation

Greg Wiggins; CFO; Boxlight Corporation

Brian Kinstlinger; Analyst; Alliance Global Partners

Jack Vander; Analyst; Maxim Group LLC

Presentation

Operator

Good afternoon and welcome to the Boxlight Corporation Fourth Quarter Financial Results Call. At this time, all participants are in a listen-only mode and a question and answer session will follow the formal presentation. You can submit a question via the web at any time by typing them in the ask-a-question field and pressing submit. If you have dialed in today, please press star one on your phone at any time to enter the Q&A queue. Please note that this conference is being recorded. I will now turn the conference over to our host, Jeff Stanlis of FNK IR. You may begin.

Jeff Stanlis

Thank you, Paul, and thank you, everybody, for joining earlier today Boxlight issued a press release providing an operational update and discussing financial results for the fourth quarter and full year ended December 31, 2023. The release is available on the Investor Relations section of the Company's website at www.boxlight.com.
Hosting the call today are Dale strang, Chief Executive Officer, and Greg Wiggins, the company's Chief Financial Officer.
Before we begin, we'd like to remind participants that during the call, management will be making forward looking statements These statements may contain information about Boxlight view of its future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results and those indicated by the forward-looking statements as a result of a variety of factors, including but not limited to, risks and uncertainties. It risks, events and uncertainties associated with its ability to maintain and grow its business, variability of operating results, its development or introduction of new products and services, marketing and other business development initiatives and the competition in the industry. Among other things, oxalate encourages you to review other factors that may affect our future results and performance and Boxlight filings with the Securities and Exchange Commission. The Company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law.
And with that, I'd like to now turn the call over to Dale Strang, CEO, Boxlight. Dale, thecall is yours.

Dale Strang

Thank you, Jeff, and thank you to everyone joining us today. I transitioned from our Board of Directors to the position of Chief Executive Officer just over two months ago. And I can share with you that my first few weeks in the role of reinforced the prior perception I had about Boxlight. We indeed have excellent products, loyal customers and devoted creative employees who work exceptionally hard. So the bonds here at bauxite are strong. Over the past few years, we've made a number of acquisitions to broaden our product portfolio and to increase our geographic reach these acquisitions. As a result of that, we resulted in expanding our addressable market following those the completion of those acquisitions during 2022 and 2023, we're able to pay down a meaningful portion of the long-term debt we took on to make those acquisitions, and we're convinced that was the right value decision where we're after surging pandemic related spending, the market demand moderated and we didn't visit organization react daily quickly enough to reduce our forecasts, adjust our operating plan and align our expense structure to match the current market. Not surprisingly, the combination of these missteps impacted our operations and put a spotlight on certain inefficiencies in our organization. We're now in the process of changing or corporate mindset. Our approaches to manage my approach to manage based on what's the best available factual information and accurate forecasting is paramount for sound capital allocation and to efficiently manage our operations. We recognize that our investors have been frustrated and rightfully so by Boxlight over-promising and under-delivering. We view our share price as a report card on our performance, and we're making adjustments to our operational activities to position us to achieve better grades this year. To be clear, our challenges will take time and energy to address. There's no single solution and improvement will not happen overnight. There are several challenges to address and many of the challenges we face are self-inflicted. One challenge is our capital structure. We need to streamline our debt facilities while solidifying our relationship with other stakeholders like our preferred shareholders.
Another is operational integration. The multiple acquisitions we've made over the past several years enabled us to grow and expand our private product portfolio and enhanced our team. But we've not done enough yet to integrate those acquisitions, which has resulted in duplicative costs, repetitive processes and a fragmented go-to-market strategy. Simply put, we've just not done enough to integrate those valuable assets acquired over the last several years. And as a result, our cost structure is still to be too high and we're not capitalizing on the synergies we have in front of us that can drive efficiencies. These challenges have been heightened by the marketplace dynamics in the education market which benefited greatly from accelerated government investment during the pandemic and then corrected once that got that accelerated and government investment started to soften much like my May, like many companies, scale their infrastructure during the pandemic, and we wish to respond to increased demand. But we were a little too slow to respond when the demand moderated.
I've been here about 10 weeks since I assume this disposition and we've made significant process in addressing the issues outlined First, we are aligning our leadership team focused on creating a more customer-centric organization that's designed to better understand the evolving needs of our customers, and we're actively engaged, making sure we develop these tailored solutions that help meet those needs. We're making really good progress, great progress in streamlining our product catalog through eliminating redundant products, parts and other items that consume time and resources without adding commensurate value. And we are taking aggressive steps to adjust our operating cost base with a focus on aligning those costs exactly to what the current revenue opportunities likely to be kicked up multiple efficiency-driven workstreams that will result in us taking millions of dollars out of our annualized OpEx and that drive for OpEx efficiency won't be momentary to be thorough and ongoing.
Another item we're streamlining, as we have mentioned, is our capital structure. Our debt facility or senior debt. So why Act was intended to be a short term solution to fuel our growth initiatives and prior management expected to refinance that term debt by the end of 2023. And while it hasn't yet happened, we had productive engagement with those lenders and we're working towards resolution. We've engaged an investment banker to provide us with options and the initiative is moving forward. In the interim, our existing lenders have been very supportive and cooperative with us as we evaluate an appropriate long-term solution and work towards that resolution. This has been a period of significant change at Boxlight. New senior leadership, restructuring, operational leadership, adjustments to our go-to-market approach and aggressive cost reductions are all going on simultaneously. I'm incredibly impressed with the positive reaction from our employees who embrace the challenge of the new Boxlight responded with creativity, renewed dedication, and certainly our customers have been very positive, seen the changes underway is beneficial to their needs. And as I mentioned, our letter lenders have been highly cooperative as well.
We're convinced we're on the right path with much work still to do, but we have key pieces in place.
Let me speak to the near-term achievements we anticipate delivering to help drive those sustainable improvements in our operations, particularly first investors should expect to see a meaningful reduction in operating expenses, positioning us for sustainable profitability. As indicated, we have already eliminated approximately $3 million in annualized fixed costs and there are more to come not just in the elimination of fixed costs, but in operational efficiencies overall, to be clear, we do see significant opportunities for future growth, and we're committed to investing in the areas that are going to drive those growth opportunities and those results, we're not going to cut cost recklessly. We also not will not spend a nickel more than we need to second we expect to advance initiatives to replace existing debt with a more permanent facility, either a new debt arrangement or another option to enable us to fund our growth. We also expect to finalize that agreement with our preferred shareholders directly aligning us with these important stakeholders as they as we work together to execute this turnaround.
Third, investors can expect better sales efficiency as we break down some of the silos that remained from our multiple acquisitions and establish a single market presence that resonates even more clearly with our customers.
Finally, we're in the process of introducing several new products across our clever touch Mimio front program lineup.
These include industry leading highly capable Google certified EDLAYTLA. active interactive panels that feature enhanced audio video.
Also, we have new devices coming online that make that our legacy panels or ETLA compatible, which is very important to our installed base customers. We've made numerous enhancements to our suite of campus and classroom communication software. These products maintain our technical lead in the marketplace, and they're unique in their integrated solutions that we're the only company that provides the kind of integrated solutions that we're describing. Most importantly, they're in line with what our customers are acting asking for. We're confident these solutions will contribute substantially to our improved results in 2024 and beyond.
With that, I'll now turn the call over to Greg to discuss the fourth quarter and full year results.

Greg Wiggins

Thanks, Dale, and good afternoon, everyone. As Dale mentioned, Boxlight management team is focused on bolstering our balance sheet and reducing our fixed costs before discussing the historic results, let me speak to these two important initiatives. Boxlight continues to work closely with our lenders with the goal of maintaining our liquidity while seeking a longer term solution. To date, our lenders have been very collaborative and they have expressed appreciation for the recent changes to solidify our foundation. We very much appreciate their ongoing support. Simultaneously. We are working with our investment bankers to identify and evaluate options to replace our debt facility. We are communicating regularly with our lenders to keep them apprised of the progress in forging a new facility. We are also actively communicating with our preferred shareholders and they have indicated a willingness to maintain the status quo in relation to the preferred stock, giving us the runway to execute our turnaround. We appreciate their ongoing support and commitment to helping our company succeed, given their industry expertise and company insights. As the former owners of our Sahara business, we have included them as informal advisers to our Board of Directors we are confident their guidance will be an asset for us moving forward.
From an expense management perspective, we have eliminated approximately $3 million in fixed costs over the last two months, mostly through headcount reductions that do not impact our sales teams or other revenue-generating departments within the organization. These reductions will take time to appear on our income statement, but investors should see the initial benefits in the second quarter with additional reductions benefiting the balance of the year.
I'll now review our fourth quarter results. Revenues for Q4 2023 were $38.8 million as compared to $42.8 million for Q4 2022, resulting in a 9.3% decrease in the revenues comprised 52% or $20.2 million of our total revenues, while Americas revenues totaled 46% or $17.8 million of our total revenues and revenues from other markets totaling 2% or $0.8 million of our total revenues. Flat-panel displays comprised approximately 71% of total revenues. Audio solutions comprised 13% of total revenues with the balance comprised of device accessories, software, professional services and STEM solutions.
Gross profit for the quarter was $12.3 million as compared to $14.4 million for the prior year period. Gross profit margin for the quarter was 31.7%, which is a decrease of 190 basis points over the comparable three months in 2022. The decline in gross profit margin in Q4 is primarily due to nonrecurring adjustments to cost of goods sold, partially offset by higher margins associated with front row products.
Our current product margins have remained consistent with prior quarters in 2023, and we expect to return to higher gross margins in Q1 2024. Total operating expenses for Q4 2023 were $28.9 million, inclusive of $12 million of non-cash impairment charges. In addition, the Company recognized incremental non-cash stock compensation expense of approximately $600,000 for the cancellation of certain previously issued equity awards. Excluding the noncash impairment charges and incremental stock compensation expense, total operating expenses were approximately $16.3 million compared to $15.2 million in Q4 2022.
The increase was due primarily to increased employee related expenses to support the Company's growth in certain markets. Other expense for Q4 2023 was a net expense of $2.6 million as compared to net expense of $1.6 million for Q4 2022. The increase in other expense was primarily due to fluctuations in the gain or loss recognized from the change in fair value of derivative liabilities. The Company reported a net loss of $16.6 million or $1.76 per basic and diluted share for the quarter as compared to net loss of $2 million or $0.25 per basic and diluted share for the prior year quarter. Adjusted EBITDA loss for Q4 2023 was $1.1 million as compared to adjusted EBITDA income of $2.6 million for Q4 2022. Adjustments to EBITDA include stock-based compensation expense, impairment charges, gains and losses from the remeasurement of derivative liabilities, gains, losses recognized upon the settlement of certain debt instruments and the effects of purchase accounting adjustments in connection with the recent acquisitions.
For full year 2023, adjusted EBITDA was $12.6 million as compared to $18.9 million for the prior year.
Turning to the balance sheet, at December 31, 2023, Boxlight had $17.3 million in cash, $54.1 million in working capital, $44.1 million in inventory, $158.6 million in total assets, $40.2 million in debt, net of debt issuance costs of $3.1 million and $16.8 million in stockholders' equity at December 31, Boxlight had 9.7 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding. Subsequent to year end, the company paid down $1.6 million in principal on its term loan with a principal balance currently at $41.7 million.
Looking ahead to 2024, the Company is expecting full year revenues to remain flat year over year with a continued return to traditional seasonal trends. For Q1 2024, the Company expects revenues of approximately $34 million and to approximate 18% to 20% of total annual revenues while the Company has not observed significant product margin decline in recent periods outside of the nonrecurring charges in Q4 previously discussed, we are forecasting a 100 basis point to 200 basis point decline in gross margin percentage for full year 2024, as the flat panel market continues to mature, managing operating expenses primarily controlling our fixed G&A cost to align with forecasted revenues remains a primary focus for 2024. In January, the Company eliminated approximately 25 positions, primarily in non-sales roles, which we estimate will save the Company approximately $3 million on an annual run rate basis. Other cost saving measures, including further reductions in employee related expenditures are in process, and we look forward to updating you with our progress on future calls, the Company is committed to reducing operating expenses to approximately $12.5 million to $13 million per quarter on an annual basis and expects to begin achieving new quarterly run rates by the end of 2024. We are forecasting adjusted EBITDA for Q1 2024 after giving consideration to severance and other charges associated with our recent headcount reduction of negative $3 million. Managing our debt and equity structure is also a top priority for the company in 2024. We are actively seeking to refinance our debt facility with more favorable terms while maintaining a healthy EBITDA leverage ratio. We continue to monitor our short-term working capital cash requirements to ensure we have appropriate levels of inventory on hand for future periods. While we may look to obtain liquidity to meet these working capital needs, we are focused on achieving solutions that are not dilutive to our shareholders. With that, we'll open up the call for questions.

Question and Answer Session

Operator

Thank you. At this time we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star two. If you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Herley's. Once again, please press star one if you'd like to ask a question moment, please.
While we poll for our first question today is coming from Brian Kinstlinger from Alliance Global. Brian, your line is live.

Brian Kinstlinger

Great. Thanks for all the comments. In your prepared remarks. It was actually in the press release you mentioned the customers' needs are changing in the markets, evolving your companies making changes to align with that changing market. What are the changes customers are asking for is it new products is going to require new M&A, new personnel? And how much capital will it take to meet to make these adjustments?

Dale Strang

Hey, Brian, this is Dale. And thank you on that. I think there's a lot of pieces to that as to how the customer needs are evolving. A couple of ways we're responding just today that we see as being quite timely is the panels themselves our evolving into a much more highly functional. I'm a little computer devices that have resident on a much more in the way a much more productivity software to educators use every day and it's making it easier for them to interact directly with the panels as opposed to using a Chromebook or another intermediate device. So it's super important to the customers that are sort of leading the way on this that they they understand how to use these devices that they have devices that are certified by Google's ETLA program and that they can receive training to make sure that their their customers get the most out of our new, our new batch of EDLP and EDLC panels have all that. And we're one of the very few people in the market that can offer these as it offers EDLSAT. certified panels, and we have the and we offer a specific training on both the panels overall, the Google stuff in general and in specific applications that that others can't provide. Again, this is what what customers are looking for not only the technology but the the backing and the knowledge and how to use it.
Another aspect that's really we think coming to the fore is that it's not just about front of classroom instruction any longer more and more of our districts are looking at classroom wide or campus-wide communications. And and that's where our Front Row product line comes in by integrating our front line of audio products and services. With with video, we can not only improve instruction and make that much more meaningful and much more impactful but we can also tie into the building wide and campus-wide communications that are increasingly important in the context of safety.
And that's opening up whole new conversations for us.
Again, this is what what more and more people are looking for. And we're lucky that we have that we have an asset base in front row that can that can really respond. But long term, there's there's much So to answer your question about M&A, I think it's we believe it's one of the reasons we want to make sure that our we built the Company through M&A. Our company is where it is today because of that, we think that it's going to be a very opportunity-rich environment for for augmentation. And if you don't have to look that far for the technology drivers that are going to they're going to make that happen. AI. being the current one. And so by having our operation be well integrated and highly efficient, still just position us to take advantage of those opportunities as they emerge.

Brian Kinstlinger

Great. And then can you speak to the order trends thus far in the March quarter, have they picked up from the December quarter? I guess the heart of the question is what gives you confidence given the recent trends that you can generate flat year over year revenues?

Dale Strang

Yes.
A couple of things you have to go and Greg.

Greg Wiggins

yeah, and maybe provide a couple a couple of data points here.
And as soon as we as we talked on our last earnings calls, we were kind of heading in on kind of the latter part of the year. Again, we've gone through multiple quarters, four quarters or so of down year over year sales order results. And in Q three, you might remember we actually saw a slight uptick in sales orders, roughly roughly 10% for the quarter. And that decreased slightly about 3% globally in Q4, with our EMEA business on actually increasing in sales orders, partially offset by or offset by some of our US sales orders of the that the early indications in Q1 have actually pointed to some positive signs that maybe is very, very modest returned to order growth in the U.S. as well. So we're seeing sporadic data points, but certainly a positive change from where we were in the four quarters kind of heading into Q3. So we're starting to see those data points that start to indicate a turnaround in the industry as long as well as in our discussions that we have in the in this industry as well. So I think those data points align as well and they I know you want to add something to that.

Dale Strang

All right.
I think I just want to emphasize two things. One is the focus we've put on and really grinding out our forecasting accuracy is has been intense and it will continue to be. We recognize it's important to us and to our stakeholders for us, too.
I'll commit to a number and hit that number. That has always been tough to do in this market because it's difficult to forecast market and it tends to be kind of lumpy in terms of you get big orders, Neoral gets pushed, but we're committed nevertheless to make that happen to make sure that we have an accurate number at a global basis. Again, the pandemic spiked what was traditionally a kind of slow and steady growth market into a intense period of growth. And the since the pandemic, there's been a sort of negative hangover there. That's at a downturn. That is a natural in its cyclicality over time. And one of the things we're focusing on really tight is, as I the seasonality represented by each quarter, the early signals from that data and from the anecdotal data from the field indicate that that are right now that are up that our flat revenue outlook for the year is sound, but we'll obviously stay out of it.
I'm not sure if that answers your question.

Brian Kinstlinger

It does. No doubt. Thank you. And the last question I have from hearing, you guys right with the cost cutting and future potential cost?
Turning, Joe, you talked about where you would exit the year at a G&A level. And based on the first quarter adjusted EBITDA loss guidance, we're not seeing much of that is what I said. And with the order trends, I sense the second quarter also will probably be the breakeven to a loss to given the third quarter where most of your revenue is generated. So I'm wondering if there's anything to think about from a covenants that we should be mindful of.

Dale Strang

Yes. So couple of thoughts there that to address again throughout the year. There will be a little lumpiness in our on our OpEx savings. We can we can speak a little more closely to the first quarter and certainly, as you indicated, where we want to be by the end of the year, where we anticipate anticipate being at the end of the year is kind of our future run rate of the $12.5 million, $13 million of OpEx per quarter in the first quarter, you're correct with some of the other restructuring charges that have gone into some of the changes we made. And as you appreciate when a significant number of the changes made were headcount related, there's there are some costs that offset some of the immediate savings that won't be really route realized until we get into Q2, Q3. Also, there are other initiatives as we kind of alluded to in our in our prepared remarks, you know that this is an ongoing process. So there are further changes to be made and the timeframe in which some of those are executed will certainly impact the timing of that of those reductions in Q2, Q3. So we've stopped short of for providing full year guidance at this time, you know on on where we'll land for the year, but obviously, for Q2, Q3, we will be gradually working toward kind of our new run rate by the end of the year from a from a debt compliance standpoint, I would say we are obviously focused on refinancing our current credit facility, but we also continue to work with our existing lenders on with covenant compliance. As far as our existing agreement is on is concerned and we continue to kind of have those discussions with them as we progress through through the year.

Brian Kinstlinger

Okay. Thank you. Good luck.

Operator

Thank you. And once again, it is star one on your phone. If you wish to ask a question, star one, if you wish to enter the Q&A queue.
And the next question is coming from Jack Vander Aarde from Maxim Group. Jack, your line is live.

Jack Vander

Okay, great. Thanks, Dale.
Thanks, Greg.
Just a couple of questions to follow up on your can you talk a little bit more about your 2024 revenue outlook, which is for roughly flattish growth, but in terms of geography on a kind of expecting flattish growth across the board or any any puts and takes there, whether it be the US market, India or some of the other, our growth markets you've been gaining share? And is it kind of a blanket just kind of flattish or any markets expected to outperform and others to be kind of laggards? Thanks.

Dale Strang

It's it's tough to say, but thank you, Jack. Yes, it's tough to look at me and say, look at that as a blanket, right. The our two biggest markets are natural in the US and the UK. We're seeing a pretty sharp growth on a maybe smaller base in markets like Germany, which is somebody we invested pretty I pretty aggressively in over the last couple of years, and we're seeing some real results there. And we are also seeing growth not just by geography, but by sector, meaning we think that our Front Row business will grow nicely this year and that it contributes to our US results. I will say this the overall, the blended basis anemia looks like it's got more a more change. It's maybe having a little less of the continued softness overall on a blended basis when you average everything else, whereas the panel market in the US is still looking up flat to down. But if we hit the number that we're talking about hitting, it will be because of all those factors that will be that will take some market share that the market will perform well in certain markets, and we'll have we'll blend in products like our stem product, our training services and our in our audio product to achieve the result. It's also worth noting that the US is not monolithic either, right? We're seeing really strong performance in certain states that are growing quickly as you'd expect, and those states will continue to perform really well get Jack, I'm not sure if that covers it, but all globally, the market is going to remain relatively flat. We think that we're covered pretty well in all the areas where we can where we can get a growth of sub areas that we can get growth this year and we're aggressively working on filling white space. We have to make sure we grab the business where it is.

Jack Vander

Okay, great. No, that's that covers a lot of that thing. I appreciate that. And then maybe maybe a follow-up for Greg and Dale, maybe you can contributors as well. But just on the cost reduction front and kind of the go-forward goal, I believe I heard you're targeting. Maybe I know there's seasonality involved, but when all said and done maybe a $12 million to $13 million kind of normal normalized quarterly OpEx, do you just have a sense of, you know, what kind of a normalized or target adjusted EBITDA margin looks like? It sounds like gross margin might be on stepping down 150 bps maybe or so, but still remains pretty strong relative to historical levels. And so further OpEx cuts. Just wondering like what is kind of a normalized profit or adjusted EBITDA margin in your eyes, if you could speak to any of that mix?

Dale Strang

Yes. So I think on a on a go forward basis on a full run rate after we start to achieve these operating expense reductions that we plan to put in place this year. Our goal is to achieve adjusted EBITDA margin north of north of 10% sustain to sustain a margin north of 10%, which what we think is able to be accomplished. And a lot of the operating expense reductions we want to put in place this year are based, as we've noted on the call at a flat to flat year-over-year revenue. And we we expect this to be an industry that we're at and we'll experience, you know, some modest growth over time. But even on a flat revenue basis, we think that these operating expense reductions, all things being considered, we can we can achieve a double-digit EBITDA margin and sustain that and going forward.

Jack Vander

Okay, great. That's helpful. And then maybe just one more question for me. Just because there's a press release on everything. Dale, can you can you touch on the new corporate headquarters and warehouse, I believe as you have some in the press releases, it's much larger, 35% bigger. Just how does that impact sort of I guess that plays nicely into, does it go into cost cutting initiatives and expect growth to pick up down the road on what was the decision behind that? And is that fair to say it kind of validates or reinforces your confidence in growth to pick up in the back half of the year or just down the road, you can satisfy ensuring the places. Thanks.

Dale Strang

It's -- I was happy not to be there. I think on the second day we were up and it's really a it's a vast improvement over what we had before. And most of that is just on consolidation and efficiency, just if you've ever run a warehouse, which I have not, but I've spoken, we'll be we'll have just the the ease with which repetitive tasks can be can be repeated and can really add up to a lot of a lot of logistical improvements. And this is a state-of-the-art warehouse with plenty of room for ebbs and flows of inventory levels. Infrastructure wise, it's placed ideally at near near the transportation centers there outside of London and on. It's also a more effective workplace for the people compared to our staff members compared to the prior place. So we're excited about it. It's we think it's it benefits, both of efficiency and in terms of the kind of productivity, if you will, but we committed to it based on the expectation of future future growth and and we're set for that.

Jack Vander

Okay, great. That's it for me, guys. Thank you.

Operator

Thank you.
There were no other questions at this time. I would now like to hand the call back to Dale Strang for closing remarks.

Dale Strang

Well, thank you, everyone, for your support and for joining us today on our fourth quarter 2023 conference calls, I mentioned the pieces for meaningful improvement are in place.
We have a clear understanding of the challenges we need to address and a plan in place to drive improvements.
Incredibly proud of the team responded to the challenges of operating with both professionalism as well as energy and creativity, and we look forward to speaking to you again in May when we report our Q1 2024 results.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.