Q3 2021 Boxlight Corp Earnings Call
Good afternoon, ladies and gentlemen, and thank you for your patience. During this conference call will begin shortly please remain connected at this time.
Buddy who intends to ask a question today May press star one on your telephone keypad to enter the queue and your question will be taken during the Q&A session. Once again, you May press star one at any point from this point forward to enter the acute indicate you would like to ask the question. After the remarks today. Thank you again for your patience today's call will begin.
Shortly.
[music].
Thank you and welcome to the box light 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 planned 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 web site at Investor Dot box slate Dot com.
And with that I'll hand, the call over to box late Chairman and Chief Executive Officer, Michael Pope.
Hi, everyone and thank you for joining the third quarter was yet another tremendous results, we again exceeded our guidance and delivered our strongest quarter to date with $61 million in revenue $7 million and adjusted EBITDA and for the first time as a company positive net income and positive earnings per share.
For five 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 of $173 million in revenue and $15 million and adjusted EBITDA.
We concluded the third quarter with an improved balance sheet, including $32 million in working capital and $55 million and net assets. We continued 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 <unk>.
All year 2022, we are forecasting $230 million in revenue, representing approximately 27% growth over 2021 guidance and greater than 10% adjusted EBITDA.
But we'll be effective as of October 31.
Headquartered in Petaluma, California front, we'll provide solutions for classroom audio campus communication emergency communication and audio visual control. The Companys product suite includes the Juno all in one line of re tower with teacher and student microphones installed distributed <unk> solutions and <unk>.
Campus communication, including Dells, paging and intercom. The company was founded in 1963 and has sold solutions into over 25 countries, including 9600 school districts in the United States <unk> Holster Borough CEO of front row will accept the position of senior Vice President of audio solutions.
Slide and managed box like audio strategy going forward.
Today. The company has 44 employees of which 17, our sales representatives located in the U S, Canada, the UK and Australia.
On an unaudited basis for the trailing 12 months ended October 31st front row generated approximately $25 million in sales greater than 50% gross profit and $6 million in EBITDA.
We identified classroom and campus audio at her top growth opportunity outside of displays late last year, and we actively pursued front row with its standout solutions, we look forward to fully integrating the front row products into our bauxite ecosystem. We also expect to substantially increased demand for the front row solutions as well.
We leverage our global sales team and reseller channel.
During the third quarter, we published another nine case studies, bringing the total to 39 customer success stories since the beginning of the year you can read the case studies by visiting goals Boxlike Dot com and clever test dot com or by following park's light clever touch mineo onto 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 and varying environments.
In July we released our updated stem guide, reflecting our robust portfolio of stem solutions, including standards aligned lessons and activities three D printers, robotics and coding and sensor technologies, our stem offering provides turnkey solutions with teacher training by our stem subject matter experts.
In August U S 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 song.
Trends by earning its 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 <unk> learning 2021 best tools for back to school for both primary and secondary levels for four of our solutions Arminio connect blended learning platform pro color interactive displays rogue.
<unk> trainer and my stem kits platform bundle and professional development by iOS education.
Earlier. This month, we were recognized for two taken learning award at this year's info Com the largest <unk> event in North America are clever touch impact plus interactive touch screen and clever touch live content management platform were both recognized as best in show winners.
We also recently expanded our partnership with Samsung to offer our Samsung box like Chromebook class collection as state of the art Wonder one technology solution. The collection combines the best in class technology, Samsung Chromebook with our menu of your document camera Nino connect blended learning platform and box like professional development content.
Lastly, I'd like to take a moment to recognize our amazingly are amazing leadership team and talented and diligent employees. Our success as a company as 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 has enabled and motivated to contribute to our collective mission.
Our recent companywide survey confirm at 96% of our employees enjoy working with each other and feel that they received 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 bulk slide and I want to take this opportunity to thank our employees our customers and our investors as this performance with not being possible without that continued support.
As Mike stated earlier, we booked $51 billion 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.
The organic growth rate in orders in Q3 is impressive 55%.
The growth in order intake reflects the huge market opportunity that we see in both education and corporate sectors.
The value of orders booked for the first nine months of this year is $179 million.
Compared with $20 million booked in the first nine months of the previous year.
That represents nearly a nine fold 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 the FY 'twenty two with a healthy backlog.
Our largest customers in Q3 in terms of order intake with 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 companies and taking us to the number one market share position over the past 18 months.
In the U S. Our partner network.
Change to grow with over 350 active partners.
We received $3 $1 million of orders from our U S distribution partner DLH.
The $2 $1 million of orders from trucks 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 <unk> in special.
Northern Island, we received $1 $7 million of orders from our partner <unk>.
In Denmark, we received $1 $6 million of orders from here at Dk and in Finland, We received $1 $3 million of orders from Asia to Europe ops.
In the U K, where we have done what we have over 600 active partners.
Received $1 $2 million of orders from Idms, and just over $1 billion of orders from Roche audio visual to highlight a few of our key customers.
The U S and UK, both accounted for 27% of our orders booked during Q3 with EMEA, excluding U K accounting for 32% of the rest of the world 14%.
In Q3, 81% of our revenues came from sales of interactive flat panels, both propeller and clever touch.
Overall global market share of Ipd's, excluding China increased from six 1% to seven 1%. According to the latest report from future source.
We remain the top two <unk> 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 number five with eight 6% market share.
It should be noted the outgrowth in the U S has seen market share nearly doubled from four 6% to eight 6% over the past 12 months.
In terms of market size. The U S market <unk> is estimated to be worth $1 8 billion in.
In 2021 growing to $2 billion in 2022, according to future source.
The market in EMEA is slightly smaller at one $5 billion going to $1 $7 billion by 2022.
Overall this gives us an addressable <unk> 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.
German.
With the pension authorities.
Win includes a commitment for a minimum of 500 units of UX Pro <unk> over the next four years.
A minimum of 100 units of the <unk> series and the <unk>.
25 of our newly released 98 inch you X price 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 <unk> pro solution to GDP, the Dutch national health provider, putting a clever touch 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 Barry graduate schools in.
In both instances it was our software, including Lynx whiteboard and clever touch life that enabled us to differentiate from the competition.
In Northern Ireland, our partner <unk> won a large deal with Belfast Metropolitan College, but nearly 400 screens.
In the U S. We want a fantastic deal with ever at School District near Seattle.
Classrooms, with our memory probe Palo solution.
The school district, really liked our unplug costing solution and differentiate us from the competition.
We also had another great win at Crawford County in Maryland.
<unk> hundred classrooms, replacing their old promethean screens.
The teachers evaluates desk solution and again really liked the ease of use and the unplug solution.
Finally, with our Cal Ripken partnership we have already installed the Sten three D printers can over 138 centers around the country and we're looking to expand the offering to build super stem centers that are comprised of both stem products <unk> and audio equipment from bulk slide.
During Q3, we sold more than 3300, <unk> connect software license fees for Samsung products.
These are three year term based licenses and will create future repeat software business on an ongoing basis when they 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 nine months.
We expect software revenues greater than $4 $8 million for the full year and will continue.
<unk> to explore the monetization of our software suite.
Our expectation is that Mimea connect Lynx whiteboard.
Paul will be the foundation of our SaaS based solutions and create high margin annuity stream moving forwards.
The additional bump road to a box family means that we extend our reach into the classroom.
We now have a comprehensive solution set that includes <unk>, both maybe a clever touch stem solutions, including grow by <unk> princes lap desk portable signs devices mimeo buy bulk robotics and coding solutions, all utilizing <unk> platform.
We also have a multitude of software such as many of connect Maniac studio Octopus, and Lynx Whiteboard and professional development solutions from Eos.
The addition of market, leading audio solutions from front row means that we are very well positioned to lead the growth in Ed Tech and become the natural choice for many schools districts oncologists across the globe.
As Michael mentioned earlier during the quarter, we expanded our Samsung partnership to introduce a student chromebook bundle, that's potluck classroom solutions, including our <unk> software, maybe I view camera.
This deepens our relationship with Samsung widens our solution set to include tablet devices in the classroom.
In summary, Q3 wasn't outstanding quarter in terms of order intake with record revenues and profitability.
Our solutions are gaining traction in the market, we continue to build out our sales channel.
As Mike stated earlier, our current revenue guidance for Q4 is $40 million, giving a full year revenue guidance of at least $181 million we.
We expect our order intake in 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.
8% in Q1 to 11, 5% in Q2, and then 11, 9% in Q3.
<unk> 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 substantially increasing the cost base.
With that I will now turn the call over to our CFO Patrick <unk>.
Thanks, Mark and good afternoon, everyone.
To further expand on what you've already heard from both Michael and Mark I would like to put a few figures to provide the context to book flights International operations.
While our revenue by country and region as you've heard all total revenues in Q3 was $61 million.
EMEA was 46% of the total of $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 represented approximately 54% of total sales in Q3.
The single largest customer about 15% and these are based across a number of markets, namely the U S, Australia U K and Denmark.
Two thirds of total sales all covered by the top 20 customers of approximately 66%, which is pretty similar and consistent with our positions of Q1 and Q2.
The sales product mix and gross margin in.
In Q3 hardware remained the largest proportion of total revenues was about 85%.
We'll launch the sales of interactive flat panel displays ipd's 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 IPD margin was about 23%, which would've been slightly higher however, as reported previously increased global shipping costs. When we're saying four times normal rates have reduced margin by up to four 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 internet options, while inventory production schedules as a result of component shortages, along with continued delays in the shipping and receiving of goods.
We've seen manufacturing costs increased due to these issues, which has reduced gross profit margins.
These all global challenges and I'll not unique to US. However, we believe our managing well and the most and extending our production planning and increasing prices for customers.
In terms of screen sizes in Q3, the education sector represented 96, and a half defense of all interactive display sales with approximately 73% of these was 75 inch and 86 inch panels.
With a larger screen format.
I will then review the third quarter results.
The financial results for the three months ended 30 September 2021.
Revenues for the three months ended September 32021, $61 million as compared to $9 $5 million for the three months ended September 32020.
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 three months ended September 32021 was $15 8 million as compared to $2 million for the three months ended September 32020.
The gross profit margin for the three months ended September 32021 was 25, 9%, which is an improvement of 45 basis points compared to the three months ended September 32020.
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 three months ended September 32020.
As reported in previous quarters. This year gross margins have been adversely impacted by approximately four 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 inverse impact of approximately 5% in the quarter.
To mitigate this we have increased pricing to customers.
Total operating expenses for the three months ended September 32021, with $12 3 million as compared to $3 8 million for the three months ended September 32020.
The increase primarily resulted from additional overhead associated with the acquired Sahara operations in September 2020.
Other income and expense for the three months ended September 32021 was net expense of $1 $4 million as compared to a net expense of $2 5 million for the three months ended September 32020.
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 $339000 increase in interest expense associated with increased borrowings.
The.
Reported net income of $729000 for the three months ended September 32021, as compared to a net loss of $4 2 million for the three months ended September 32020.
The net income attributable to common shareholders was $412000 and $4 $2 million loss for the three months ended September 32021, and 2020, respectively.
After deducting the fixed dividends to theory be preferred shareholders of $317000 in 2021 and zero in 2020.
Total comprehensive loss was $1 $2 million and $3 $7 million loss for the three months ended September 32021 and 2020.
Reflecting this effect of cumulative foreign currency translation adjustments on consolidation with.
With a net effect in the quarter $2 million loss and $536000 for the three months ended September 32021, and 'twenty 'twenty, respectively.
The EPS for the three months ended September 32021 was the <unk> per basic and diluted share compared with 10 cents loss per basic and diluted share for the three months ended September 32020.
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 nine months ended September 32021 was $37 2 million as compared to $6 3 million for the nine months ended September 32020.
Gross profit margin for the nine months ended September 32021 was 26, 3% compared to 27, 4% for the nine months ended September 32020.
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 nine months ended September 32020.
And as reported in previous quarters. This year gross margins have been adversely impacted by approximately four 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 I mean things through the cost of manufacturing as a results component shortages as mentioned above and have an adverse impact of approximately three 9% in the nine months to September 32020.
To mitigate this with increased pricing to customers.
Total operating expenses for the nine months ended September 32021 was $34 2 million as compared to $11 $5 million for the nine months ended September 32020.
The increase primarily resulted from the additional overhead associated with the acquired Sahara operations in September 2020.
Other income and expense for the nine months ended September 32021 was net expense of $5 $8 million as compared to net expense of $2 4 million for the nine months ended September 32020.
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 nine months ended September 32021, as compared to a net loss of $7 6 million for the nine months ended September 32020.
The net loss attributable to the common shareholders was $7 2 million and $7 $6 million loss for the nine months ended September 32021, and 2020, respectively.
After deducting the fixed dividend the series B preferred shareholders of 952000 2021.
And the fair value revaluation beams contribution of $367000 for the redemption of amendment with our series B shareholders find on June 14 2021.
Total comprehensive loss was $8 4 million and $7 2 million for the nine months ended September 32021 and 2020.
Reflecting this sorry, excuse me, reflecting the effects of cumulative foreign currency translation adjustments on consolidation with the net effect of year to date of $1 $7 million loss and zero point $4 million loss for the nine months ended September 32021, and 2020, respectively.
The EPS loss for the nine months ended September 32021 was <unk> 12 cents loss per basic and diluted share compared to a 31 cents loss per basic and diluted share for the nine months ended September 32020.
EBITDA for the nine months ended September 32021 was $5 2 million as compared with $5 2 million EBITDA loss for the nine months ended September 32020.
Adjusted EBITDA for the nine months ended September 32021 was $14 $1 million as.
<unk> to a loss of $1 5 million for the nine months ended September 32020.
Adjustments to EBITDA include stock based compensation expense gains and losses recognized upon the settlement of certain debt instruments.
Losses from the re measurement of derivative derivative liabilities and the effects of purchase accounting adjustments in connection with acquisitions.
And at September 32021 box light at $6 $2 million in cash and cash equivalents $32 million in working capital.
$1 million of inventory.
$73 $6 million in total assets $23 $9 million debt.
$54 9 million in stockholders' equity $61 1 million common shares issued and outstanding and $3 1 million preferred shares issued in outstanding.
And with that we'll open up the call for questions.
Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. At this time you May press star one on your telephone keypad to enter the queue to ask a question.
As if listening on speakerphone. Please pick up your handset. This afternoon to provide optimal sound quality once again, ladies and gentlemen, it'll be star one on your telephone keypad at this time to enter the queue to ask the question.
Please hold the moment, while we poll for questions.
And the first question is coming from Brian <unk> from Alliance Global Partners. Brian. Your line is live. Please go ahead.
Hey, guys great quarter.
Hi, Brian apologize one moment standby one moment, while we bring Bryan back into the queue. Please standby.
Yeah.
Brian Your line is live please go ahead.
Great sorry.
Great quarter I wanted to ask.
It's an easy one in the fourth quarter and includes the two months that you expect from current ROE or does it exclude front row.
Okay.
Yeah.
Yes.
The guidance. We provided would include the additional two months of front row, Yeah. The way we look at it now I think again, that's a baseline where we think we can beat that but but yeah that would include the software revenue.
So I'm curious if you could break down the U S growth versus the rest of the world in the third quarter.
I guess the way I'm thinking about it right now is there is a slowdown in the fourth quarter, maybe that is the shortage and because if you add <unk> to just it suggests that with a 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 <unk>.
Owning shortages.
Sure.
Brian its path I can take that one so in terms of all.
All kind of total revenues on a combined basis kind of U S and rest of the world for all kinds of Sahara bauxite solutions. So in the U S in the quarter.
It was $27 $7 million in the U S and $33 $3 million and 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 U S. Based revenues it gives us kind of a 218% growth.
In the U S.
As you would see from a combined basis obviously.
Yeah, I'm, sorry, Brian Thanks, Tahira, sorry, and Sahara.
I looked at the 33 million what did Sahara due in the quarter.
For Q3 last year. So we will see you on a combined basis I haven't done it on a pro forma basis, obviously very.
Consolidated at the end of Q4 last year 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 in essentially seasonality, yes. He Brian So the key thing you'll see from our school districts and schools globally actually operates usually on the Q2 Q3 being the busiest periods of the year.
Which if you look at on a combined basis that kind of represents probably about 60% of total revenues kind of appear in those quarters and then Q on Q4 the balance.
So that's really where that comes from in terms of the total so as you can.
Can see from our guidance, we kind of calling 40, because it's not a slowdown is just usual seasonality that we would see in all markets for that time of year.
Brian by comparison, if you look at Q4 of last year, we did 32 million. So that's your comparative quarter and at $32 million had had a full quarter of both the Sahara group plus box right 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 minimum of $40 million.
In the fourth quarter of this year.
I assume that is again 25 1 million.
Yeah from the acquisition.
Well, so the acquisition has seasonality and acquisition as well right. So if you look at kind of similar seasonality as it sounds it's a market there.
There will be there will be some there's going to be definitely revenue that comes in from the acquisition.
But but you can't take a straight line percentage.
Okay, and then just quickly on the guidance on the margin.
<unk> margin is also EBITDA margin it doesn't look like the second quarter. When revenues are somewhat similar maybe a little bit lower so maybe talk to how are we seeing additional pressures in the fourth quarter on top of what we're seeing in the third quarter.
On 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, six we have stock ordered manufactured for the normal sales in Q4, so there will be additional pressures.
On that in Q4, <unk> flash is actually increasing prices, where possible and Paul Farrell for its customers to alleviate some of the pressure on that margin.
Okay Lastly, the recent press release on Fox.
Lending a exclusive reseller of clever touch.
Talk about what that means I think new line.
Is there leading product.
Up until this point are they made commitments to your product being the leader.
Or what the lead way and then who is selling clever talked before in the U S and what kind of revenue did they generate like are you have to replace I guess.
Yeah, Joe Joint studies about Michael.
Yeah go ahead please.
Yeah. So great question, Brian So previously.
We had an exclusive arrangement for all states South Texas with TNT.
One of the key reasons that trucks are quiet C&D was actually because of the exclusive contracts that <unk> had with clever touch.
So that was a key reason why they want to buy them now as you as you states trucks.
A big relationship with new line.
However, they are.
I'm very very interested and in the exclusive arrangement, we've got with cloud Chachi took us a long time to renegotiate that contract with trucks.
And it doesn't change overnight, but we're working very very closely with trucks and.
And we expect.
Growth in that contracts over the next 12 months.
So you don't lose anything criteria continues to sell under that because they are part of trucks back from the truck DRAM between yogurt incremental because to the degree they sell your product instead of new line that's incremental revenue.
Yeah, well I mean to put it in perspective <unk> had about a 20 to 25 sales guys.
Trucks I've got hundred late T cells guys. So so you know we were doing those numbers with the Sydney sales team now we've got a combined.
Rocks MTN in south team.
It's a much larger sales team, we've got much better coverage with our partnership with them across the U S. A.
So you know, there's a very significant opportunity for us.
Great. Thanks for your time.
Your next question is coming from Jack <unk> from Maxim Group.
Your line is live please go ahead.
Okay, Great Hi, guys.
Congrats on solid results.
And the GAAP profits.
Pretty pretty good to see that first one I think I have seen that from you guys.
Congrats on that and in the supply chain environment. We're in.
Couple of questions I'll start with a question on the federal the federal funding.
Programs that are in effect at least in the U S.
And how how well I guess the general progress update there from your guys' perspective on how you are working with districts to help them get those funds allocated to them and sort of what that represents for a.
Whats left untapped for remaining opportunity to help help gross sales in the U S.
Yeah.
Yeah, So Jack I appreciate the question.
There's a tremendous amount of opportunity for federal funding both in the U S internationally, but put the funding in the U S of course is substantially larger than what we're seeing in other countries and the U S. You'll remember that the federal government made available just just shy of $200 billion for education.
Their terminals as the escrow funds right as we're standing for elementary and secondary school emergency reliefs on and there is three tranches and some of this may be maybe be redundant from previous calls where there is three tranches of those esser funds. The first tranche was the smallest tranche and then the second and third that progressively bigger.
Of those first couple of tranches those are being spent now you remember the first tranches of the cares Act money and a lot of that has been spent.
Second tranche is being spent in that third tranche, which is by far the largest that is a lot of that hasnt been spend is being accessed and applied for now, but a lot of that still available and.
And so in short of all of that money and keep in mind. The third the third tranche was about 130 billion of the roughly 200 billion. So you know the largest amount. It is available and we're still trying to work with school districts and administrators and 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 created created guys in white papers on how to access the funds we have a dedicated person doctor Grim and Hart, who is our director of strategic grants and he helped work with schools access to 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.
Okay, great that's.
Helpful.
If I just follow up then from.
From your comments around obviously every every every company in any industry virtually is being impacted by the global supply chain issues.
Can you 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 from your end customers.
Yeah.
Yeah, I can say a couple of things and then mark feel free to jump in.
Several price increase at both internationally throughout Europe as well as in the U S.
We've had three or four price increases.
In Europe, I believe Mark correct me, if I'm wrong, and then we've had two to three price increases or so in the U S. We look at each of our solution solution by solution and 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 you know they've been hit really hard on shipping costs and also there's a lot of Campos.
When is that going to 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 with higher increases on the panels and we've done pretty well of offsetting increase in the cost of the goods they've been 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 have.
Given up about four points of gross profit margin just on on shipping and so as that starts to normalize you're safe to add another four points or so to our gross profit margin in the future.
Yeah.
Well I would add on top of that like always is customers generally understand right. So we've had little push back. The other thing is where we do have either fixed on contracts. There's been some customers where we've got to hold the price is were a great part of the contract. So it is it's a mixed bag, but I.
I think generally you know it.
Most of our customers have worked with us and those prices that price increases have been passed on.
Okay I appreciate that and then maybe just somewhat tied to maybe gross margin upside in the future.
What would be I can imagine increasing mix of software sales.
So you did mentioned.
Interactive Housewives continue and will continue to be.
Core in the bulk of your revenues.
But right now I think software I think you said you're on track for about four and a half million dollars nearly $5 million of software revenue. This year and 2021 just longer term looking at 2022, and then beyond 2022 can you just share your view and.
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, it's a good question. Thanks.
Thoughts first off a software as 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 the Shelby interactive flat panels today, but to be successful in settling flat panels, you have to have the software because no school district or corporate customers get a purchase.
Panel that having the schaeffler 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 hasnt 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. The last in the last several quarters, but we're focusing on SaaS strategies.
That's true of our new meal connect software platform that is true of our least whiteboard software platform that is true of even our app stores that we're making available that there's ways to monetize those as far as our 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.
And as for certain and then I would say longer term because we're selling this broader solution. We're expecting software. So it could be as much as 10% of our total sales something like that and we'd be very happy with that and now keep in mind and education were focusing on the classroom and if you look at the amount of dollars spent in the classroom theres a lot more dollars that are going to.
Spent on hardware when you think of.
Handheld devices for the students and interactive flat panel and cameras and other devices in the classroom a lot more dollar of this go to hardware than software, but we want to participate both in the hardware software and so I think a good long term approach would be something around around 10% of our total sales.
Yeah.
Yeah.
Okay, Great and then maybe just one more for me.
In terms of the 2022 our guidance too.
$230 million revenue as.
As well as the 10% adjusted EBITDA are above the 10% adjusted EBITDA margins just given all of this uncertainty in the world with the supply chain environment and then also.
Pandemic related disruptions are always on the back of People's minds is how much what levels you're confidence to lay out that guidance in terms of like that's a big uptick in revenue.
So a lot more products you have to have a lot more components in inventory. So given the current state of the world.
What level of confidence you have that those targets are achievable given the.
How are things playing out right now.
I'd say very confident we are there.
The demand is there there's no question about that we're seeing higher to be anatomy, 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 that's baked into those numbers and we feel very good about achieving those numbers keep in mind, we have five five quarters in a row, where we beat the guidance. We provided we have a pretty good track record at this point and then we're going to beat those numbers as well.
Great well I appreciate the time guys I'll hop back in queue. Thanks.
Thanks Jack.
Uh huh.
The next question is coming from Scott.
Buck from H C Wainwright.
<unk>. Please go ahead and optimize.
Sure.
Alright.
Dot posture.
Got a couple questions.
Partners, who initiated coverage in October.
And I will come back to shop.
Your next question is coming from Martin Raw from third capital management.
Martin Your line is live. Please go ahead. Thank you good day gentlemen.
This is my first exposure to management, we purchased stock a few months ago, and we're gratified by the continuing trends.
And I don't know why maybe you have an idea the stock sold off immediately following in the earnings release and the last time I looked it was down about 9% on the day do you have any Florida 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 take a position and it's definitely good to meet you I mean as far as insight into movement in the stock.
The only thing that we could point to is.
Analysts had us at four cents per share and we came in on <unk> per share and I think that's the only thing that we potentially could point to now that was not our guidance. Our guidance was that we will be net income positive and we would be positive EPS, which we hit both of 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 is noncash and we think not applicable to our business.
We focus on that adjusted EBITDA number, which we think is the best number when you are evaluating the business and like I said, we're very very happy with our performance we'd be at all the guidance, we provided but I think there was just a little bit of a disconnect on a couple of analysts that cover us on EPS versus where we ended up.
I would say by the way that anyone sold on this news they are not long term players and chances are they were cleaning out 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.
Yeah, absolutely, yes, okay well.
My thought is that in a way you're on a different specialty but youre similar to CDW.
And that I see you as a wholesaler distributor of largely other people's products and what you do as 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 twenty's.
And thirdly in the next few years do you disagree with us.
Okay. So Martin just to clarify CDW is one of our largest retail partners. So they sell our solutions and we are quite different than CW or attracts 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 <unk> brand.
As well as our <unk> brand and we sell those through retailer partners or the channel globally in the U S as well as internationally and so we should be valued very differently, because we own IP, we own the technology, we're going to be able to prove much higher margins over time, then these various retail partners. So definitely should be evaluated differently then.
The nature of your sales come from self manufactured products.
Yes, yes.
Yeah in that 95, plus or 90% plus of our sales come from our own our own branded solutions.
So the question is how high can you go on your proprietary products as far as I know.
Cheesable gross margin, let's say in the next five years.
Yeah. 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 at 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 or 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 with 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 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 youre going to start to see that and I think youll start to see it as soon as next year, you'll see movement in the right direction.
Okay.
Michael just to add on that in terms of other things that will come obviously improve margins just on our inflight interactive flat panel displays and you'll see a I always kind of pick up the shift to the larger screen formats, which come with it.
Great for margin, but also importantly is it's not just in the educational sector, though we've now we also sell into the corporate sector and that tends to be a key growing parts of the business going forward, which come with much higher margins ordinarily just on Orange interactive flat panels.
So that also adds to the kind of the product mix as well on the margin mix.
I'm reading in between the lines of what we 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.
<unk> gross margins to be the crossover this situation that you have price increases have not carried enough.
With them to offset my correct.
For the year.
For the current year, yeah. So we do expect to be kind of you know as with all businesses globally.
Global pricing to actually normalize as a point for the moment, obviously, everyone is seeing significant increased cost of sales included in terms of product shipping and phrasing in globally.
I kind of mentioned that has had an impact of about 4% incremental kind of cost and that's it.
Stripes kind of margin so that should begin to normalize when we you know 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.
So the gap won't remain that you had in the third quarter, assuming we see more increases that for 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.
You know kind of revenue kind of <unk>.
All guidance is slightly under the Q2 revenues, but yeah that would be one of the reasons because of all these increased costs that we are currently bearing some of them. 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.
Cover the world.
No I think the 17 related to the acquired business that we're acquiring.
<unk> for the.
Front row has 44 employees of which 17 all their current sales staff, which increase some people located internationally now that we have a significant sales force.
Across the four operations on the wholesale price we have yes, we have looked at we have over 25 already in the U S and probably over 60 across EMEA.
We've got significant sales force, obviously, the extra 17 coming in from the front row fantastic.
But you know.
Don't get confused.
Only happened 17 salespeople, Okay I got that thank you.
One other question regarding the.
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.
Yeah.
Yeah. So we so as far as savings there will be maybe some small amount of savings, but I think that the major focus of us as revenue capture in future profitability from growing our overall business. So I think again, you know minimum minimum cost savings and more focus on combined growth.
All of our business, which will drive more to the bottom line.
Okay. Thank you very much.
Thank you. Thank you Martin.
Okay.
Your next question is coming from Ryan now from 10, 32 private exchange group.
Ian Your line is live you May go ahead.
Hi.
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 think 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.
Theres no terms disclosed, but I noticed your cash position is.
It was just $6 million, what you perceive as your cash burn going forward.
Okay.
Pat how about you think the first question I'll take the second question about the front row.
So sorry could you just repeat the first thing is that when you split.
Tiptree volatile sorry, please say again.
[laughter] I'm, sorry, I got greedy.
Well one of the questions was based on the margin improvements and the purchase of the front row.
And revenues of $230 million do you have kind of a guidance as to the earnings forecast.
Earnings per share yeah. So.
Yeah. So obviously, we are forecasting unimproved position so as Michael said, we're not expecting too.
Kind of a cost saving exercise as 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 getting into kind of giving total as kind of a forward looking.
<unk> the results as we are calling this year you've heard.
Our adjusted kind of EBITDA number we calling for this year for next year, that's going to grow significantly and the difference will be that in 2022.
Net income position.
This year, we should there's still going to show you a forecast for net income loss 2022 would have a net income results for the year and beyond thereafter.
So it's going to be a fundamental change you've seen the growth.
Year on year, and what we've been going through on a quarter to quarter basis, as well yesterday seasonality, which explained earlier, but that will continue throughout 'twenty two we've got the accretive and incremental.
Front row business, which is really excellent it's high margin business, which is really excellent.
<unk> is purely incremental to the total results. So we should see good performance improvements throughout 2002 would you say five five cents a share is there is a number that you guys can hit or is that too optimistic.
I don't want to give too much color.
Kind of like information lets say on the call.
Yes.
And then Mike you said it.
Alright.
Adjusted EBITDA, Yeah, Yeah, our guidance our guidance is specific to the adjusted EBITDA figure, which you can figure. We think is the most important figure in evaluating the business on bottom line and so yes, we've got it to for next year $230 million in revenue and 10% or $23 million and adjusted EBITDA. That's what 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 of more comments Ryan on front row, because I think it's good that you brought that up when 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.
You can go look at that and then we provided some more information today when I 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 theres going to be roughly about $11 million and net assets at closing and so if you add those two numbers together its approximately $34 million as the purchase price now.
That $34 million you commented what our balance sheet showed for cash we don't have $34 million and our balance sheet. So the way that we're looking to close the transaction as 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 given where the stock prices 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 that we expect.
And then the.
The service of that that we think will be covered by front row very comfortably by by just the cash flow front row 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 company structure a deal where they they bought another company and they had a certain amount of cash upfront, but then they also had it based on revenues going forward.
And over the next eight.
18 months 12 to 18 months.
Which I thought was pretty pretty pretty good you know.
And I'm wondering do you have are you you have eyes on for other acquisitions are there any candidates, particularly for that type of M&A.
M&A growth or or is this pretty much it for the next year or so.
Yeah. So we're constantly looking at opportunities and we are evaluating opportunities as we speak.
Have anything that we can share specific at this time, but also as we structure those transactions oftentimes, we'll look at it earn out.
Broaches like you mentioned and we've done that with some of our previous transaction. So that's definitely something that we'll evaluate on a case by case.
Thank you.
Thanks Ryan.
Once again, ladies and gentlemen, the floor remains open for question you May Press Star one on your telephone keypad now if you would like to enter the queue to ask a question once again that'll be star one on your telephone keypad to enter the queue to ask a question.
And we have a question from Kyle Levine.
Your line is live please go ahead.
Hey, guys awesome quarter.
Real quick question two part.
Bauxite Gotta credited with Texas instruments curriculum K through 12.
Every seen any contracts or revenue from the accreditation and are we trying to get any accreditation from any other state curriculums right now.
Yeah. So 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 that we talked about.
Some opportunities that we successfully.
<unk> been able to tackle with Google and another big names and so I would say, yes, we're constantly looking for different partnerships and accreditations to be able to grow the opportunities and we can provide within that professional development group and I would just say, maybe a little bit 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 and we understand that theres 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 their 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 yeah. We're looking at all sorts of opportunities where we can receive.
Areas partnerships certifications et cetera.
Awesome. Thanks, guys.
Yes, Thank you Kyle.
Thank you.
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.