Boxlight Corporation Q2 FY2023 earnings call

• Financial performance: Second quarter revenue was $47 million, gross profit $18 million, adjusted EBITDA $5.4 million; revenue declined 21% y-o-y, but gross profit improved 6% and adjusted EBITDA improved 4%. - Balance sheet: As of June 30, working capital was $65 million, including $60 million in cash and $38 million in inventory; debt balance at quarter end was $52 million, and $3 million was paid down post-quarter end. - Guidance revision: Revised 2023 second half revenue guidance to $60 million for Q3 and $110 million for the second half; expects adjusted EBITDA for the second half of 2023 to be in line with 2022. - Innovation and product expansion: Introduced several new solutions, including MyBot Recruit robot, MyFrontRow app, PowerLine power supply, and Google EDLA interactive panels bundled with training and support; EOS Education earned Education Services Partner Specialization in Google Cloud Partner Advantage. - Industry recognition: Received various awards like EdTech Breakthrough Awards and Infocomm 2023 awards. - Market outlook: Seeing growth in sales pipeline, expects industry rebound by end of year and meaningful revenue growth in 2024.

For the second quarter, Boxlight delivered $47 million in revenue, a 21% decline from Q2 2022. Gross profit was $18 million, with a gross margin of 30%, an increase of 970 basis points over Q2 2022. Adjusted EBITDA was $5.4 million. In terms of revenue contribution: EMEA revenues totaled $36.6 million or 41% of total revenues, Americas revenues totaled $48.8 million or 54% of total revenues, and revenues from other markets totaled $2.8 million or 5% of total revenues. Hardware comprised approximately 92% of total revenues, with flat panel displays making up about 69% of hardware revenues, and the balance related to classroom audio solutions, device accessories, software, professional services, and STEM solutions.

• Revised 2023 second half revenue guidance: Expect $60 million in revenue for Q3 and $110 million for the second half of 2023. - Adjusted EBITDA: Expects adjusted EBITDA for the second half of 2023 to be in line with 2022. - Growth expectation: Anticipates order intake to return to growth in Q3, revenue growth in Q4, and meaningful revenue growth in 2024 as industry demand increases.

• Demand uncertainty: Softer demand across the industry affected revenues; potential continued weakness could impact future results. - Pricing pressure: Long-term competitive pricing pressures may erode gross profit margin, especially with larger tenders potentially requiring price concessions. - Government funding uncertainty: Uncertainty regarding the use and timing of government funds allocated to education could affect spending on technology solutions. - Supply chain residual risks: Although supply chains have restored, residual issues from COVID-related supply chain disruptions could still pose potential risks.

Q: After the solid EBITDA results during the first 6 months, what are the puts and takes that resulted in the 6-month timeframe having $3 million more of adjusted EBITDA and about the same cash, and when can we expect greater cash conversions?

A: Greg Wiggins said some is timing related, with typically more cash inflow in the second half of the year; inventory decrease due to maintaining optimal levels and normalizing post-pandemic supply chain issues. Michael Pope added to look at the whole working capital bucket as it's interrelated.

Q: Are there any restrictions from paying down debt, and is debt reduction a high priority?

A: Michael Pope said they paid down $3 million post-quarter end, moving in the right direction; debt-to-EBITDA ratio is improving as debt goes down and profitability increases, and debt reduction is a high priority.

Q: Can you speak to forward-looking on U.S. versus Europe driving order growth over the next six months?

A: Michael Pope said it's hard to say, with good growth in both regions; recently won large deals in both U.S. and EMEA, so it's a good mix.

Q: On the gross margin, near-term expectations and sustainability long-term?

A: Michael Pope said expect a couple of percentage points erosion over the next couple of quarters; longer term, core solutions may erode back to around 30% margin, but high-margin products like software, professional services, and STEM solutions could help improve margin, and enterprise vertical with higher margin is also a factor.

Q: Any more specific factors causing slower top line and pace of new order intake?

A: Michael Pope said it was a hangover from COVID-related supply chain issues, with a more normalized environment now, affecting all markets generally.

Q: Drivers of 2024 growth and role of government funding?

A: Michael Pope said return to normality in buying cycles is a big driver; also, government funds like nearly $200 billion allocated to U.S. education and other countries' digital spending will help drive growth.

Q: Update on share repurchase program?

A: Michael Pope said they plan to utilize the share repurchase program, evaluating it as cash flow allows, with cash from operations starting to be positive and expecting more in the second half of the year to evaluate best use of funds for shareholder value.