Boxlight Corp (BOXL) 2021 Q3 法說會逐字稿

Thank you, and welcome to the Boxlight Third Quarter 2021 Earnings Conference Call. By now, everyone should have access to the press release issued this afternoon. This call is being webcast and is available for replay.

The remarks today will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about future results of operations, business strategies and plans, customer relationships, market trends 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 and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10-K, Form 10-Q and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements.

On this call, management will refer to non-GAAP measures that, when used in combination with GAAP results, provide additional analytical tools to understand the company's operations. The company has provided reconciliations to the most directly comparable GAAP financial measures in the earnings press release which will be posted on the Investor Relations section of the company's website at investors.boxlight.com.

And with that, I'll hand the call over to Boxlight's Chairman and Chief Executive Officer, Michael Pope.

Hi, everyone, and thank you for joining. The third quarter was yet another tremendous result. We again exceeded our guidance and delivered our strongest quarter to date with $61 million in revenue, $7 million in adjusted EBITDA and for the first time as a company, positive net income and positive earnings per share. For 5 consecutive quarters, we have now reported both above-market revenue growth and positive adjusted EBITDA. For the trailing 12 months ended Q3, we reported $214 million in orders, $173 million in revenue and $15 million in adjusted EBITDA.

We concluded the third quarter with an improved balance sheet, including $32 million in working capital and $55 million in net assets. We continue to see double-digit growth globally and expect to deliver $40 million in revenue for the fourth quarter, representing 26% growth over the same quarter last year. For the full year 2022, we are forecasting $230 million in revenue, representing approximately 27% growth over our 2021 guidance and greater than 10% adjusted EBITDA.

We expect to augment our growth through strategic acquisitions that are accretive to both our enterprise value and profitability. Just last week, we announced plans to acquire FrontRow, a leader in classroom and campus communication solutions for the education market. The acquisition is expected to close by November 30, but will be effective as of October 31.

Headquartered in Petaluma, California, FrontRow provides solutions for classroom audio, campus communication, emergency communication and audiovisual control. The company's product suite includes the Juno all-in-one line array tower. The company's product suite includes the Juno all-in-one line array tower with teacher and student microphones, installed distributed audio solutions and IT-based campus communication, including bells, paging and intercom. The company was founded in 1963 and has sold solutions into over 25 countries, including 9,600 school districts in the United States. Jens Holstebro, CEO at FrontRow, will accept the position of Senior Vice President of Audio Solutions at Boxlight and manage Boxlight's audio strategy going forward.

Today, the company has 44 employees, of which 17 are sales representatives located in the U.S., Canada, the U.K. and Australia. On an unaudited basis, for the trailing 12 months ended October 31, FrontRow generated approximately $25 million in sales, greater than 50% gross profit and $6 million in EBITDA.

We identified classroom and campus audio as our top growth opportunity outside of displays late last year, and we actively pursued FrontRow with its standout solutions. We look forward to fully integrating the FrontRow products into our Boxlight ecosystem. We also expect to substantially increase demand for the FrontRow solutions as we leverage our global sales team and reseller channel.

During the third quarter, we published another 9 case studies, bringing the total to 39 customer success stories since the beginning of the year. You can read the case studies by visiting both boxlight.com and clevertouch.com or by following Boxlight, Clevertouch and Mimio on the various social media platforms.

The case studies cover implementation of our broad solutions, including interactive displays, digital signage solutions, STEM education and professional development services. The examples also cover both the education and enterprise markets and are evidence of our commitment to be a trusted partner to our customers, providing and supporting our solutions in varying environments.

In July, we released our updated STEM guide, reflecting a robust portfolio of STEM solutions, including standards aligned lessons and activities, 3D printers, robotics and coding and sensor technologies. Our STEM offering provides turnkey solutions with teacher training by our STEM subject matter experts.

In August, EOS Education, our Professional Development division, earned recognition as a Google for Education Service Partner with the Google Cloud Partner Advantage program. This allows us to offer educators customized professional development and support specific to Google Workspace for Education and Google Cloud functions. By earning this upgrade, we are recognized as a Google Cloud Partner with an Education Partner Enterprise Designation, further broadening our service market to provide professional development and training to organizations outside the U.S.

We continue to receive industry recognition for our innovation and cutting-edge solutions. In August, we were winners of Tech & Learning's 2021 Best Tools for Back to School for both primary and secondary levels for 4 of our solutions: Our MimioConnect blended learning platform; ProColor interactive displays; Robo3D printer and MyStemKits platform bundle; and Professional Development by EOS Education.

Earlier this month, we were recognized for 2 tech and learning awards at this year's Infocomm, the largest pro AV event in North America. Our Clevertouch IMPACT Plus interactive touchscreen and ClevertouchLive content management platform were both recognized as Best in Show winners.

We also recently expanded our partnership with Samsung to offer our Samsung Boxlight Chromebook class collection, a state-of-the-art one-to-one technology solution. The collection combines the best-in-class technology, Samsung Chromebook, with our MimioView document camera, MimioConnect blended learning platform and Boxlight Professional Development content.

Lastly, I'd like to take a moment to recognize our amazing leadership team and talented and diligent employees. Our success in the company is a direct result of our ability to hire and retain tremendous talent. As a growing company, we are conscientious about nurturing a positive, collaborative and supportive culture where every member of our team is enabled and motivated to contribute to our collective mission.

Our recent company-wide survey confirmed that 96% of our employees enjoy working with each other and feel that they receive the support they need from their managers. We will continue to foster a positive and winning culture which will propel us to our goal to lead the industry.

With that, I will now turn the call over to our President, Mark Starkey, to provide additional insights.

Thank you, Michael. Q3 was another quarter of rapid growth for Boxlight, and I want to take this opportunity to thank our employees, our customers and our investors as this performance would not have been possible without their continued support.

As Michael stated earlier, we booked $51 million of orders in Q3. That represents 756% growth in order intake year-on-year. If we include Sahara in the pro forma numbers for last year, then the organic growth rate in orders for Q3 is impressive at 55%. The growth in order intake reflects a huge market opportunity that we see in both education and corporate sectors.

The value of orders booked for the first 9 months of this year is $179 million compared with $20 million booked in the first 9 months of the previous year. That represents nearly a ninefold year-on-year increase in orders booked. We are now forecasting order intake of excess of $210 million for this financial year, and we will enter FY '22 with a healthy backlog.

Our largest customers in Q3 in terms of order intake was ASI in Australia, with $6.7 million of orders received. Our growth in Australia has been very significant with our partner, ASI, being recognized as the fastest-growing private company and taking us to the #1 market share position over the past 18 months.

In the U.S., our partner network continues to grow with over 350 active partners. We received $3.1 million of orders from our U.S. distribution partner, D&H, and a further $2.1 million of orders from Trox to highlight some of the U.S. orders that we received during Q3.

In Spain, we received $2.9 million of orders from our partner, Charmex International. And in Northern Ireland, we received $1.7 million of orders from our partner, NIAVAC. In Denmark, we received $1.6 million of orders from Unit DK. And in Finland, we received $1.3 million of orders from EET Europarts. In the U.K., where we have done -- where we have over 600 active partners, we received $1.2 million in orders from IDNS and just over $1 million of orders from Roche Audio Visual to highlight a few of our key customers.

The U.S. and U.K. both accounted for 27% of our orders booked during Q3 with EMEA, excluding U.K., accounting for 32% and the rest of the world, 14%.

In Q3, 81% of our revenues came from sales of interactive flat panels, both ProColor and Clevertouch. Our overall global market share of IFPDs, and excluding China, increased from 6.1% to 7.1% according to the latest report from Futuresource. We remain in the top 2 IFPD providers in the U.K. with 15.2% market share and are confident that we will become the market leader very soon.

Our biggest opportunity for significant growth remains in the U.S., where we are ranked #5 with 8.6% market share. It should be noted that our growth in the U.S. has seen our market share nearly double from 4.6% to 8.6% over the past 12 months. In terms of market size, the U.S. market for IFPDs is estimated to be worth $1.8 billion in 2021, growing to $2.2 billion in 2022 according to Futuresource.

The market in EMEA is slightly smaller at $1.5 billion, growing to $1.7 billion by 2022. Overall, this gives us an addressable IFPD market of about $3.3 billion in 2021, growing to about $3.9 billion in 2022. Given that our overall market share has grown from about 6% to approximately 7% this year, it gives us plenty of room for substantial organic growth over the next few years.

In terms of end users, we had another quarter of great wins across the globe. In Germany, we have a fantastic win in the pension authorities. The win includes a commitment for a minimum of 500 units of UX Pro IFPDs over the next 4 years, a minimum of 100 units of the CM Series and a minimum of 25 of our newly released 98-inch UX Pro solutions. The deal is worth at least $1.4 million and will help propel our growth into corporate solutions with the German public sector.

In Holland, we won a contract to supply our UX Pro solution to [GDD,] a Dutch national health provider, putting our Clevertouch solution into their offices, vaccination centers and COVID test locations. In the U.K., we have some fantastic wins with schools such as Camden in London and Bury Grammar School. In both instances, it was our software, including Lynx Whiteboard and ClevertouchLive that enabled us to differentiate from the competition. In Northern Ireland, our partner, NIAVAC, won a large deal with Belfast Metropolitan College of nearly 400 screens.

In the U.S., we won a fantastic deal with Everett School District near Seattle for 800 classrooms with our Mimio ProColor solution. The school district really liked our unplugged casting solution, and this differentiate us from the competition. We also had another great win at Harford County in Maryland of 500 classrooms, replacing their old Promethean screens. The teachers evaluated our solution and, again, really like the ease of use and the unplugged solution.

Finally, with our Cal Ripken partnership, we have already installed our STEM 3D printers in over 138 centers around the country, and we are looking to expand the offering to build super STEM centers that are comprised of both STEM products, IFPDs and audio equipment from Boxlight.

During Q3, we sold more than 3,300 MimioConnect software licenses for Samsung products. These are 3-year term-based licenses and will create future repeat software business on an ongoing basis when they're renewed. In total, we had $1.4 million of software revenue in Q3 and have invoiced over $3.4 million of software during the first 9 months. We expect software revenues greater than $4.8 million for the full year, and we are continuing to explore the monetization of our software suite. Our expectation is that MimioConnect, Lynx Whiteboard and our App Store will be the foundation of our SaaS-based solutions and create a high-margin annuity stream moving forwards.

The addition of FrontRow to our Boxlight family means that we extend our reach into the classroom. We now have a comprehensive solution set that includes IFPDs, both Mimio, Clevertouch, STEM solutions, including Robo3D printers, Labdisc, portable science devices, Mimio MyBot robotics and coding solutions, all utilizing MyStemKits platform.

We also have a multitude of software such as MimioConnect, MimioStudio, OKTOPUS and the Lynx Whiteboard and Professional Development Solutions from EOS. The addition of market-leading audio solutions from FrontRow means that we are very well positioned to lead the growth in ed tech and become the natural choice for many schools, districts and colleges across the globe.

As Michael mentioned earlier, during the quarter, we expanded our Samsung partnership to introduce a student Chromebook bundle as part of our classroom solutions, including our MimioConnect software and our MimioView camera. This deepens our relationship with Samsung and widens our solution sets to include devices in the classroom.

In summary, Q3 was an outstanding quarter in terms of order intake with record revenues and profitability. Our solutions are gaining traction in the market, and we continue to build out our sales channel. As Michael stated earlier, our current revenue guidance for Q4 is $40 million, giving a full year revenue guidance of at least $181 million. We expect our order intake number to be north of $210 million for the full year, providing a substantial increase to our sales backlog.

Our adjusted EBITDA percentage has continued to improve throughout the year from 4.8% in Q1 to 11.5% in Q2 and down 11.9% in Q3 despite strong margin pressures due to increased freight and shipping costs. The improvement in profitability and adjusted EBITDA percentage is due to the ability of the business to leverage higher revenues and gross margins without substantial increase in the cost base.

With that, I will now turn the call over to our CFO, Patrick Foley.

Thanks, Mark, and good afternoon, everyone. To further expand on what you've already heard from both Michael and Mark, I would like to add a few figures to provide the context of Boxlight's international operations.

On revenue by country and region, as you've heard, our total revenues in Q3 were $61 million. EMEA was 46% of the total or $28 million, of which the U.K. represented 57%. The Americas were 45%, $27.7 million. And the rest of the world, 9%, $5.3 million, which was mainly Australia.

In terms of our customers. The top 10 customers represent approximately 54% of total sales in Q3 with the single largest customer at about 15%. And these are based across a number of markets, namely the U.S., Australia, U.K. and Denmark. 2/3 of total sales are covered by the top 20 customers at approximately 66%, which is pretty similar and consistent with our positions of Q1 and Q2.

The sales product mix and gross margin. In Q3, hardware remained the largest proportion of total revenue at about 85%. These were largely sales of interactive flat panel displays, IFPDs, and represented 91% of this total with related accessories being the balance of 9%. The balance of total revenues coming from our software, services and STEM solutions.

Gross margin for the quarter was 25.9%. The IFPD margin was about 23%, which would have been slightly higher. However, as reported previously, increased global shipping costs where we are seeing 4x normal rates have reduced margin by up to 4 percentage points. And we anticipate the higher cost will remain throughout 2021.

As noted in previous quarters, we have experienced some supply chain challenges, including introductions to our inventory production schedules as a result of component shortages along with continued delays in the shipping and receiving of goods. We're seeing manufacturing costs increase due to these issues, which has reduced gross profit margins. These are global challenges and are not unique to us. However, we believe are managing well and the most -- and extending our production planning and increasing prices to customers.

In terms of screen sizes. In Q3, the education sector represented 96.5% of all interactive display sales, with approximately 73% of these were 75-inch and 86-inch panels. And followed by trends, we're seeing a shift to larger screen formats.

I'll now review the third quarter results, the financial results for the 3 months ended 30th September 2021. Revenues for the 3 months ended September 30, 2021 were $61 million as compared to $9.5 million for the 3 months ended September 30, 2020, resulting in a 544% increase due primarily to the acquisition of Sahara in September 2020 and increased demand for our solutions.

Gross profit for the 3 months ended September 30, 2021, was $15.8 million as compared to $2 million for the 3 months ended September 30, 2020. The gross profit margin for the 3 months ended September 30, 2021 was 25.9%, which is an improvement of 45 basis points compared to the 3 months ended September 30, 2020.

Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 27.1% as compared to the 23.4% as adjusted, reported for the 3 months ended September 30, 2020. As reported in previous quarters this year, gross margins have been adversely impacted by approximately 4 percentage points due to increased freight and customs costs caused by supply chain challenges associated with the effects of the COVID-19 pandemic. And this is anticipated to continue for the remainder of 2021.

Additional pressure on margin has been seen on the cost of manufacturing as a result of the component shortages, which have had an adverse-ed impact of approximately 5% in the quarter. To mitigate this, we have increased pricing to customers.

Total operating expenses for the 3 months ended September 30, 2021 were $12.3 million as compared to $3.8 million for the 3 months ended September 30, 2020. The increase primarily resulted from additional overheads associated with the acquired Sahara operations in September 2020.

Other income and expense for the 3 months ended September 30, 2021 was net expense of $1.4 million as compared to a net expense of $2.5 million for the 3 months ended September 30, 2020. Other expense decreased primarily due to $1.1 million fewer losses recognized upon the settlement of certain debt obligations in exchange for the issuance of common shares offset by a $339,000 increase in interest expense associated with increased borrowings.

The company reported net income of $729,000 for the 3 months ended September 30, 2021 as compared to a net loss of $4.2 million for the 3 months ended September 30, 2020. The net income attributable to common shareholders was $412,000 and $4.2 million loss for the 3 months ended September 30, 2021 and 2020, respectively, after deducting the 6 dividends to Series B preferred shareholders of $317,000 in 2021 and 0 in 2020.

Total comprehensive loss was $1.2 million and $3.7 million loss for the 3 months ended September 30, 2021 and 2020, reflecting the effect of cumulative foreign currency translation adjustments on consolidation, with a net effect in the quarter of $2 million loss and $536,000 for the 3 months ended September 30, 2021 and 2020, respectively.

The EPS for the 3 months ended September 30, 2021 was $0.01 per basic and diluted share compared to a $0.10 loss per basic and diluted share for the 3 months ended September 30, 2020.

EBITDA for the 3 months ended September 30, 2021 was $4.7 million as compared to a $3.4 million EBITDA loss for the 3 months ended September 30, 2020. Adjusted EBITDA for the 3 months ended September 30, 2021 was $7.2 million as compared to a $0.8 million loss for the 3 months ended September 30, 2020. Adjustments to EBITDA include stock-based compensation expense, gains/losses recognized upon the settlement of certain debt instruments, gains/losses from the remeasurement of derivative liabilities and the effects of purchase accounting adjustments in connection with acquisitions.

At September 30, 2021, Boxlight had $6.2 million in cash and cash equivalents, $32 million in working capital, $31 million in inventory, $173.6 million in total assets, $23.9 million of debt and $54.9 million in stockholders' equity, 61.1 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding.

The financial results for the 9 months ended September 30, 2021. Revenues for the 9 months ended September 30 were $141.2 million as compared to $23 million for the 9 months ended September 30, 2020, resulting in a 513% increase due primarily to the acquisition of Sahara in September 2020 and increased demand for our solutions.

Gross profit for the 9 months ended September 30, 2021 was $37.2 million as compared to $6.3 million for the 9 months ended September 30, 2020. Gross profit margin for the 9 months ended September 30, 2021 was 26.3% compared to 27.4% for the 9 months ended September 30, 2020. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 28.0% as compared to 28.4% as adjusted and reported for the 9 months ended September 30, 2020. And as reported in previous quarters this year, gross margins have been adversely impacted by approximately 4 percentage points due to increased freight and caused -- causes of supply chain challenges associated with the effects of the COVID-19 pandemic. And this is anticipated to continue for the remainder of 2021.

Additional pressures on margin have been seen through the cost of manufacturing as a result of component shortages, as mentioned above and have an adverse impact of approximately 3.9% in the 9 months to September 30, 2020. To mitigate this, we've increased pricing to customers.

Total operating expenses for the 9 months ended September 30, 2021 was $34.2 million as compared to $11.5 million for the 9 months ended September 30, 2020. The increase primarily resulted from the additional overheads associated with the acquired Sahara operations in September 2020.

Other income and expense for the 9 months ended September 30, 2021 was net expense of $5.8 million as compared to net expense of $2.4 million for the 9 months ended September 30, 2020. The increase in other expense was due to $1 million of increased interest expense associated with increased borrowings, $2.5 million of losses recognized on the settlement of certain debt obligations that were exchanged for common shares.

The company reported a net loss of $6.7 million for the 9 months ended September 30, 2021 as compared to a net loss of $7.6 million for the 9 months ended September 30, 2020. The net loss attributable to the common shareholders was $7.2 million and $7.6 million loss for the 9 months ended September 30, 2021 and 2020, respectively, after deducting the 6 dividends to Series B preferred shareholders of $952,000 in 2021 and the fair value revaluation deemed contribution of $367,000 for the redemption amendment with the Series B shareholders signed on June 14, 2021.

Total comprehensive loss was $8.4 million and $7.2 million for the 9 months ended September 30, 2021 and 2020, reflecting the effect of cumulative foreign currency translation adjustments on consolidation, with a net effect year-to-date of $1.7 million loss and $0.4 million loss for the 9 months ended September 30, 2021 and 2020, respectively.

The EPS loss for the 9 months ended September 30, 2021 was $0.12 loss per basic and diluted share compared to a $0.31 loss per basic and diluted share for the 9 months ended September 30, 2020.

EBITDA for the 9 months ended September 30, 2021 was $5.2 million as compared to a $5.2 million EBITDA loss for the 9 months ended September 30, 2020. Adjusted EBITDA for the 9 months ended September 30, 2021 was $14.1 million as compared to a loss of $1.5 million for the 9 months ended September 30, 2020. Adjustments to EBITDA include stock-based compensation expense, gains/losses recognized upon the settlement of certain debt instruments, gains/losses from the remeasurement of derivative liabilities and the effects of purchase accounting adjustments in connection with acquisitions. And at September 30, 2021, Boxlight had $6.2 million in cash and cash equivalents, $32 million in working capital, $31 million in inventory, $173.6 million in total assets, $23.9 million of debt, $54.9 million in stockholders' equity, 61.1 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding.

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

(Operator Instructions) And the first question is coming from Brian Kinstlinger from Alliance Global Partners.

Guys, great quarter.

Apologize one moment. Standby one moment while I bring Brian back into the queue. Please standby. Brian, your line is live, please go ahead.

Great. Sorry. Great quarter. I wanted to ask if the -- an easy one. If the fourth quarter includes the 2 months that you expect from FrontRow or does it exclude FrontRow?

Yes. So the guidance we provided would include the additional 2 months of FrontRow. Yes, the way we look at it. Now I think, again, that's a baseline where we think we can beat that. But yes, that would include the FrontRow revenue.

So I'm curious if you could break down the U.S. growth versus the rest of the world in the third quarter. And I guess the way I'm thinking about it right now is there's a slowdown in the fourth quarter. Maybe that is the shortage because if you add FrontRow into it, it just -- it suggests that with the total growth. So if we can go through the breakdown of growth and maybe -- where we're maybe seeing a temporary slowdown based on timing or component shortages?

Sure. So Brian, it's Pat, I can take that one. So in terms of our kind of total revenues on a combined basis kind of U.S. and rest of the world for our kind of Sahara and Boxlight solutions, so in the U.S. in the quarter, it was $27.7 million in the U.S. and $33.3 million in the rest of the world.

And if you compare that to kind of last year's Q3, we had obviously $9.5 million of total revenue, of which $8.7 million was U.S.-based revenues. It gives kind of a 218% growth in the U.S., as you would see, from a combined basis, obviously.

Sorry, you're saying, Brian...

Sorry, and Sahara. If I looked at the $33 million, what did Sahara do in the quarter?

For Q3 last year? So obviously, on a combined basis, I haven't done it on a pro forma basis. Obviously, it was really consolidated at the end of Q4 last -- Q3 last year.

So in the fourth quarter, is there a slowdown? And if so...

No. So I think it's important -- no, there's no slowdown. It's actually seasonality, actually, Brian. So the key things obviously from the school districts and schools globally actually operate usually on the Q2, Q3 being the busiest period of the year, which if you look at it on a combined basis, that kind of represents probably about 60% of total revenues kind of appear in those quarters and then Q1, Q4, the balance.

So that's really where that comes from in terms of the total. So as you can see from our guidance, we're kind of calling [40] because it's not a slowdown, it's just usual seasonality that we would see in all markets for that time of year. Michael...

Brian, by comparison if you look at Q4 of last year, we did $32 million. So that's your comparative quarter. And that $32 million had a full quarter of both the Sahara Group plus Boxlight in that quarter. So that's a true comparable. So we're expecting to go from a $32 million for fourth quarter last year to a minimum of $40 million in the fourth quarter of this year.

I assume...

This is again...

Yes, from the acquisition.

Well, with the acquisition, you have seasonality in acquisition as well, right? So if you look at kind of similar seasonality because you're selling in the same market, there will be some -- there's going to be definitely revenue that comes in from acquisition, but you can't take a straight-line percentage.

Okay. And then just quickly on the guidance one more time, the margin. The 4Q margin is also EBITDA margin. Doesn't look like the second quarter when revenues are somewhat similar, maybe a little bit lower. So maybe talk, are we seeing additional pressure in the fourth quarter on top of what we're seeing in the third quarter, the margin?

We've seen some pricing increases in Q3, which obviously will carry on in terms of inventory and manufacturing costs, which will carry through in terms of Q4, also because we have stock ordered and manufactured for our sales in Q4. So there will be additional pressures on that in Q4. Our mitigant for that is actually increasing prices where possible and pass that on through to customers to actually alleviate some of the pressure on that margin.

Okay. And lastly, the recent press release on Trox becoming an exclusive reseller of Clevertouch. Talk about what that means. I think Newline is their leading product up until this point. Have they made commitments to your product being the leader or what they'll lead with? And then who is selling Clevertouch before in the U.S.? And what kind of revenue did they generate, like that you have to replace, I guess?

Yes, do you want me to take this one, Michael?

Yes, go ahead, please.

Yes. So great question, Brian. So previously, we had an exclusive arrangement for all states bar Texas with Tierney. And one of the key reasons that Trox acquired Tierney was actually because of the exclusive contracts that Tierney had with Clevertouch. So that was a key reason why they wanted to buy them.

Now as you state, Trox does have a big relationship with Newline. However, they are very, very interested in the exclusive arrangement that we've got with Clevertouch. It took us a long time to renegotiate that contract with Trox. And it doesn't change overnight, but we're working very, very closely with Trox and we expect significant growth in that contract over the next 12 months.

So you don't lose anything because Tierney continues to sell under the -- because they're part of Trox. But from the Trox standpoint, you'll get incremental because to the degree they sell your product instead of Newline, that's incremental revenue?

Yes. Well, I mean, to put it in perspective, Tierney had about, I don't know, 20, 25 sales guys and Trox have got 180 sales guys. So we were doing those numbers with the Tierney sales team. And now we've got combined Trox and Tierney sales team. So it's a much larger sales team. We've got much better coverage with our partnership with them across the U.S. So there's a very significant opportunity for us.

Your next question is coming from Jack Vander Aarde from Maxim Group.

Okay. Great. Congrats on solid results in the GAAP profits, pretty good to see that. It's the first time I think I have seen that from you guys, so congrats on that and in the supply chain environment we're in.

A couple of questions. I'll start with the question on the federal funding programs that are in effect, at least in the U.S. And how -- I guess, a general progress update there from your guys' perspective on how you're working with districts to help them get those funds allocated to them and sort of what that represents for -- what's left untapped for a remaining opportunity to help grow sales in the U.S.?

Yes. So Jack, I appreciate the question. There's a tremendous amount of opportunity for federal funding, both in the U.S. and internationally. But the funding in the U.S., of course, is substantially larger than what we're seeing in other countries. In the U.S., you'll remember that the federal government made available just shy of $200 billion for education and they've turned those to ESSER funds, right, ESSER stand for Elementary and Secondary School Emergency Relief Fund. And there's 3 tranches, and some of this maybe be redundant for previous calls, but there's 3 tranches of those ESSER funds.

The first tranche was the smallest tranche and then the second and third got progressively bigger. Of those first couple of tranches, those are being spent now. Remember, the first tranche was the CARES Act [money] and a lot of that has been spent. The second tranche is being spent and the third tranche, which is by far the largest, that is a lot of that hasn't been spent is being accessed and applied for now, but a lot of that is still available. And so in short, of all of that money. And keep in mind, the third tranche was about $130 billion of the roughly $200 billion. So the largest amount is available.

And we're still trying to work with school districts and administrators to help them access and identify how to spend those funds. And as part of that process, we've done a lot of marketing around it. We've created guides and white papers on how to access the funds. We have a dedicated person, Dr. Gemeinhardt, who is our Director of Strategic Grants, and he helps work with schools to access the funds. And so that's something we're definitely actively pursuing. And of that nearly $200 billion, most of our solutions will qualify in one way or another for those funds. And so that is a major strategy of ours.

Okay. Great. That's helpful. If I just follow up then from your comments around, obviously, every company in any industry virtually is being impacted by the global supply chain issues. Just you did mention that you -- to combat this, you have been raising prices. Can you just talk a little bit more detail there, like when you began raising prices, on what products and what markets and what the general response has been from your end customers?

Yes, I can say a couple of things and then Mark, feel free to jump in. So we've had several price increases both internationally throughout Europe as well as in the U.S. We've had 3 or 4 price increases in Europe, I believe, Mark, correct me if I'm wrong. And then we've had 2 to 3 price increases or so in the U.S.

We look at each of our solutions, solution by solution. Of course, the largest price increases have been on our interactive flat panels, and that's because those are quite expensive to ship. And so there's been -- we've been hit really hard on shipping costs and also there's a lot of components that go into those displays and a lot of the cost increases happen there.

Also, our margins are slimmer on interactive flat panels and not as much on some of our other solutions. But we have increased prices across the board with higher increases on the panels. And we've done pretty well of offsetting the increase in the cost of the goods. We've done pretty well there to offset most of that. Shipping is another story, and you've heard Pat talk about in his talk track that we've given up about 4 points of gross profit margin just on shipping. And so as that starts to normalize, you're safe to add another 4 points or so to our gross profit margin in the future.

I mean what I would add on top of that, Michael, is customers generally understand, right? So we've had little pushback. The other thing is where we do have fixed-term contracts there's been some customers where we've had to hold the price as were agreed per the contract. So it's a mixed bag. But I think generally, most of our customers have worked with us and those prices -- those price increases have been passed on.

Okay. I appreciate that. And then maybe just somewhat tied to maybe gross margin upside in the future would be, I can imagine, an increasing mix of software sales. So you did mention interactive panel displays continue and will continue to be a core in the bulk of your revenues.

But right now, I think software, I think you said you're on track for about $4.5 million, nearly $5 million of software revenue this year in 2021. Just longer term, looking at 2022 and then beyond 2022, can you just share your view on how software is tied into your long-term revenue model and how that's kind of -- how you're strategically going about that? And is it all Samsung driven in the future? What are the other drivers qualitatively?

Yes, good question. A couple of thoughts. First off, software is a major part of our strategy, both to differentiate our total solution and then also as a profit center. So first off on differentiation, most of our sales, 80% of our sales are coming from [these sort of] interactive flat panels today. But to be successful in selling flat panels, you have to have the software because no school district or corporate customers are going to purchase a panel without having the software experience. And so it definitely helps us on selling our hardware.

But we are moving towards a focus on monetizing software in the future. That hasn't been part of our strategy historically. This is something we started talking about a couple of years ago, and we've made a lot of headway in the last several quarters, but we're focusing on SaaS strategies. That's true of our new MimioConnect software platform. That's true of our Lynx Whiteboard software platform. That's true of even our app stores that we're making available that there's ways to monetize those.

As far as guidance, we haven't given specific guidance about what software should look like. But I will say the growth in software sales should be dramatically higher than our total sales. That's for certain.

And then I would say, longer term, because we're selling this broader solution, we're expecting software could be as much as 10% of our total sales, something like that. And we'd be very happy with that. Now keep in mind, in education, we're focusing on the classroom. And if you look at the amount of dollars spent in the classroom, there's a lot more dollars that are going to be spent on hardware when you think of handheld devices for the students, interactive flat panel and cameras and other devices in the classroom. A lot more dollars go to hardware than to software, but we want to participate both in the hardware and software. And so I think a good long-term approach would be something around 10% of our total sales.

Okay. Great. And then maybe just one more for me. In terms of the 2022 guidance, $230 million revenue as well as the 10% adjusted EBITDA -- or above 10% adjusted EBITDA margins. Just given all of this uncertainty in the world with the supply chain environment and then also pandemic kind of related disruptions are always on the back of people's minds, just how much -- what level is your confidence to lay out that guidance in terms of like that's a big uptick in revenue which you had to sell a lot more products and you have to have a lot more components in inventory for that. So given the current state of the world, what level of confidence do you have that those targets are achievable given how are things playing out right now?

Yes, I'd say very confident. We -- the demand is there. There's no question about that. We're seeing higher demand now than we've ever seen, and that's a testament to the solutions we're providing. But those numbers take into account the potential struggles around sourcing that's baked into those numbers, and we feel very good about achieving those numbers.

Keep in mind, we have 5 quarters in a row where we beat the guidance we provided. We have a pretty good track record at this point. And we're going to beat those numbers as well.

The next question is coming from Scott Buck from H.C. Wainright.

Your next question is coming from Martin Roth from Ferret Capital Management.

This is my first exposure to management. We purchased stock a few months ago and were gratified by the continuing trend. And I don't know why, maybe you have an idea the stock sold off immediately following the earnings release. And the last time I looked, it was down about 9% on the day. Do you have any thought as to anyone who was disappointed by the performance?

Well, first off, I want to say we appreciate you as an investor. So we're glad that you took a position and it's definitely good to meet you.

I mean as far as insight into moving the stock, the only thing that we could point to is analysts had us at $0.04 per share, and we came in at $0.01 per share. And I think that's the only thing we potentially could point to. Now that was not our guidance, right? Our guidance was that we would be net income positive and we would be positive EPS, which we hit both those numbers. We also gave guidance on revenue, we guided to $60 million. We beat that number. We guided to $7 million in EBITDA, we beat that number.

Now for us, as a company, we focus a lot less on net income and earnings per share because there's a lot that flows through the P&L that's noncash and we think not applicable to our business. And so we focus on that adjusted EBITDA number, which we think is the best number when you're evaluating the business. And like I said, we're very happy with our performance. We beat all the guidance we provided. But I think there was just a little bit of a disconnect on the couple of analysts that cover us on EPS versus where we ended on.

I would say, by the way, that if anyone sold on this news, they are not long-term players and chances are they were cleaning out a losing position. I have some questions on the gross margins in general. And I'd like to throw this analogy. You're familiar with CDW?

Yes, absolutely.

Yes.

Okay. Well, my thought is that, in a way, you're in a different specialty, but you're similar to CDW in that I see you as a wholesaler distributor of largely other people's products. And that what you do is you integrate and provide as much of a coordinated system as possible. And therefore, with the exception of selling more software, you're not going to be a business that can easily go into the high 20s or even 30 in the next few years. Do you disagree with that?

Okay. So Martin, just to clarify, CDW is one of our largest reseller partners. So they sell our solutions. And we're quite different than a CDW or a Trox. We talked about earlier how are -- these are some of the larger resellers in the U.S.

We're different because we are the manufacturer. So we manufacture solutions under our Clevertouch brand as well as our Mimio brand. And we sell those through reseller partners or the channel globally in the U.S. as well as internationally. And so we should be valued very differently because we own the IP, we own the technology, we're going to be able to prove much higher margins over time than these various reseller partners. So definitely should be evaluated differently than...

What percentage of your sales come from self-manufactured products?

Yes. Yes. The...

[All of it].

Yes, 95-plus -- or 90% plus of our sales come from our own branded solutions.

So the question is how high can you go on your proprietary products as far as an achievable gross margin, let's say, in the next 5 years?

Yes. So right now, our gross profit is being hampered a little bit as we talked about by some of the challenges in the supply chain and shipping. If we took some of those challenges out, we would be a [30%] or 30% plus gross profit margin company, and that's largely selling interactive flat panels.

We've talked a lot about in the past that we expect to improve our product mix over time, where interactive flat panels are less of our total solution because we're selling a lot of other high-margin solutions like software, which is 90-plus percent margin and various accessories, which a lot of those are 50-plus percent gross profit margin and our STEM solutions were typically 50-plus percent and our services division, that's 40-plus percent. So in the foreseeable years to come, we should trend up from a 30-point adjusted gross profit margin to something closer to 40 or even something higher than 40.

So no, we're not guiding to time periods on that. But because, again, we believe our product mix will improve over time with higher gross profit margin solutions, you're going to start to see that. And I think you'll start to see it as soon as next year. You'll see movement in the right direction.

I think also just in addition -- Michael, just to add on that. In terms of other things that kind of obviously improve margins just on our interactive flat panel displays, it's obviously -- I always kind of pick up the shift to the larger screen formats, which come with a greater margin. But also importantly, it's not just in the educational sector, that we also sell into the corporate sector and that's going to be a key growing part of the business going forward which come with much higher margins ordinarily just on our interactive flat panels. So that also adds to the kind of the product mix as well and the margin mix.

I'm reading in between the lines of what was said. We're talking about mitigating against the price increases that you had to absorb, I guess the impression that with the price increases or cost increases that you've seen, you still are going to be behind where you'd like your gross margins to be because of this situation that your price increases have not carried enough with them to offset. Am I correct?

For the current year that..

So you are correct...

For the current year, yes. So we do expect to be kind of -- as with all businesses globally, global freighting, to actually normalize at a point. So at the moment, obviously, everyone is seeing significant increased costs, ourselves included, in terms of product shipping and freighting in globally. And as I kind of mentioned, that has had an impact of about 4% incremental kind of cost and that's straight kind of margin. So that should begin to normalize when we get through the back end of the effects of this pandemic. So 2022, within 2022, we should start seeing that also naturally kind of improve.

So the gap will remain that you had in the third quarter, assuming we see more increases that the fourth quarter won't show an improvement in gross margin. Is that fair to say?

I think it'll be pretty static. And I think an earlier question that came was asking a question on the comparison of Q2 versus Q4, which would have similar kind of revenue kind of slightly -- our guidance is slightly under the Q2 revenues. But yes, that would be one of the reasons that there are these increased costs that we are currently growing some of the more...

Let me ask a question on another subject, which is, I believe it was said that between the United States and overseas, you have 17 sales rep. Considering how much product you've added in the past year or so, are 17 sales people enough to cover the world?

No. I think no, the 17 related to the acquired business that we're acquiring, that's 17. So FrontRow has 44 employees, of which 17 are their current sales staff, which includes some people located internationally. Know that we have a significant sales force across the Sahara operations and the Boxlight operations.

Yes, we have -- look, we have over 25 already in the U.S. and probably over 60 across EMEA. So we've got a significant sales force. Obviously, the extra 17 coming in from FrontRow is fantastic, but don't get confused with us only having 17 salespeople.

Okay, I got that. One other question regarding the integration of your acquisitions of the past year and the ones that are pending. Is there still benefits to get from integration and the elimination of duplication?

Yes. So we -- so as far as savings, there will be maybe some small amount of savings. But I think the major focus of us is revenue capture and future profitability from growing our overall business. So I think, again, minimum cost savings and more focus on combined growth of our business, which will drive more to the bottom line.

Your next question is coming from [Ryan Now] from 1032 Private Exchange Group.

I know you guys don't like giving earnings projections, but if the growth -- over the next 2022, if your gross margins are improving, I see there are some charges related to currency and some legal settlement charges or something. Can you give me some idea of where the earnings might be? And also on the recent purchase of this company, there's no terms disclosed, but I noticed your cash position is just $6 million. What do you perceive as your cash burn going forward?

Pat, how about you take the first question, I'll take the second question about the FrontRow?

So sorry, could you just repeat the first thing because obviously, it's split into 2 parts. Sorry, please say again.

I'm sorry, I got greedy. Well, one of the questions was based on the margin improvements and the purchase of FrontRow and revenues of $230 million, do you have kind of a guidance as to the earnings forecast, earnings per share?

Yes. So obviously, we are forecasting an improved position. So as Michael said, we're not expecting to do kind of a cost saving exercise, it's pure growth. So with that comes the increased margin covering the predictable unknown overhead which then will improve our overall profitability as a group. So without going into -- kind of giving total kind of forward-looking positions, the results, as we are calling this year, you've heard kind of our adjusted kind of EBITDA number we're calling for this year. For next year, that's going to grow significantly. And the difference will be that in 2022, net income positions -- this year, we're still going to show a forecasted net income loss. 2022 would have a net income result for the year and beyond thereafter.

So it's going to be a fundamental change. You've seen the growth kind of year-on-year and what we've been going through on a quarter-to-quarter basis as well. Yes, there's seasonality, which I explained earlier. But that will continue throughout '22. We've got the accretive and incremental kind of FrontRow business, which is really excellent. It's high-margin business, which is really excellent. So that is purely incremental to the total results. So we should see good performance improvements throughout '22.

Would you say $0.05 a share is a number that you guys can hit? Or is that too optimistic?

I don't want to give too much kind of like information obviously on the call, like -- but yes, it's...

Michael said it earlier, you did guide to 10% adjusted EBITDA.

Yes, Ryan, our guidance --- yes, our guidance is specific to the adjusted EBITDA figure, which is the figure we think is the most important figure in evaluating the business on the bottom line. And so yes, we've guided to, for next year, $230 million in revenue, and 10% or $23 million in adjusted EBITDA. That's what we're comfortable with. And we say greater than that number, meaning we think we can beat that number.

Yes. Just a couple more comments, Ryan, on FrontRow because I think it's good that you brought that up. We initially did not provide a lot of details when we announced the transaction, and that was intentional because the seller didn't want us to disclose some of that information. We did, however -- if you go look at the SEC filings, we did include the purchase agreement, and you can go look at that. And then we provided some more information today when I was sharing my portion of the script.

That being said, just to reiterate, the purchase price, the way you should think of it is $23 million for the company, plus we're paying for roughly the total net assets. And we think there's going to be roughly about $11 million in net assets at closing. And so if you add those 2 numbers together, it's approximately $34 million. That's the purchase price.

Now of that $34 million, you commented what our balance sheet showed for cash. We don't have $34 million in our balance sheet. So the way that we're looking to close the transaction is we are looking to raise debt to fund the acquisition. That's something we're working on now. We're doing that intentionally because we don't want to do anything that's going to be dilutive to the equity, given where the stock price is today. We feel like we're undervalued. And so we're looking to raise money in the form of debt. And the terms of that debt, we expect -- and the service of that debt, we think will be covered by FrontRow very comfortably by just the cash flow, the FrontRow spits off. And so we think, financially, it's going to put us in a good cash flow position.

I appreciate that. And with that, I have one last question. I saw a guy -- a company structured a deal where they bought another company, and they had a certain amount of cash upfront, but then they also had it based on revenues going forward over the next 18 months or 12 to 18 months, which I thought was pretty good.

And I'm wondering, do you have eyes on for other acquisitions? Are there any candidates potentially for that type of M&A growth? Or is this pretty much it for the next year or so?

Yes. So we're constantly looking at opportunities, and we are evaluating opportunities as we speak. We don't have anything that we can share specifically at this time. But also as we structure those transactions, oftentimes, we look at earn-out approaches, like you mentioned. We've done that with some of our previous transactions. So that's definitely something we'll evaluate case by case.

(Operator Instructions) And we have a question from Kyle (inaudible).

Awesome quarter. Real quick question, two-part. Boxlight got accredited with Texas Instruments curriculum K-12. Have we seen any contracts or revenue from the accreditation? And are we trying to get any accreditations from any other state curriculums right now?

Yes. So Kyle, that's part of the initiatives that we have within our EOS Education Professional Development team, and they're working on all sorts of opportunities. We talked about some opportunities that we've successfully been able to tackle with Google and other big names. And so I would say, yes, we're constantly looking for different partnerships and accreditations to be able to grow the opportunities that we can provide within that Professional Development group.

And I would just say maybe a little bit more on that. When we talk about our product strategy, professional development training is a big part of it. As we sell interactive displays and various accessories and software, we understand that there's not going to be the proper adoption of those solutions if we're not providing the training and the PD that's required, especially in the education environment., And so we look at every opportunity where we sell hardware, software, we want to make sure that we can also sell and provide training and professional development.

And that adoption is going to lead to, of course, the solutions being successful in the various environments, but also that adoption is going to lead to happy and successful customers that result in follow-on sales and orders. And so that's a big part of our strategy. But in short, yes, we're looking at all sorts of opportunities where we can receive various partnerships, certifications, et cetera.

And there are no further questions in queue at this time. I would like to pass the floor back to Michael Pope for closing remarks.

Thank you, everyone, for your support and for joining us today on our third quarter 2021 conference call. We look forward to speaking to you again in March when we report our Q4 and full year 2021 results. Thank you.

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