Boxlight Corporation Q1 2023 Earnings Call

Speaker 1: Good afternoon ladies and gentlemen, thank you for holding. Your conference will begin in just a couple of minutes. Please hold the line. Your conference will begin very shortly.

Speaker 1: Thank you and welcome to the Boxlight First Quarter 2023 earnings conference call.

Speaker 1: By now everyone should have access to the press release issued this afternoon.

Speaker 1: 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.

Speaker 1: In addition, management may make additional forward-looking statements in response to your questions.

Speaker 1: Forward-looking statements are based on management's current knowledge and expectations as of today, under subject to certain risks and uncertainties, and may cause the actual results to differ materially from the forward-looking statements.

Speaker 1: A detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10K, Form 10Q and other reports filed with the SEC.

Speaker 1: The company undertakes no application to update any phone looking statements.

Speaker 1: On this call, management will refer to non- GAAP measures that when used in combination with GAP results provide additional analytical tools to understand the company's operations.

Speaker 1: The company has provided recommendations 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 boxlight.com.

Speaker 1: And with that, I'll hand the call over to Boxlite's chairman and chief executive officer, Michael Pope.

Speaker 2: Hello everyone and thank you for joining the call today. After my remarks, you will also hear from Mark Storky, our president and Greg Wiggins or Chief Financial Officer. Thank you.

Speaker 2: Mark and I are joining from our London showroom and Greg from our corporate headquarters in Atlanta. I'd like to start by thanking all of our supporters across the globe, including our employees, business partners, customers and shareholders.

Speaker 2: Our current and future success is entirely dependent on your support.

Speaker 2: In particular, I'd like to recognize our loyal and dedicated employees. We have the most talented team in the industry, including our executive team members, Mark Starkey and Greg Wiggins, who will share their thoughts today, as well as Hank Nance, our Chief Operating Officer, and Sean Mark Lew, our Chief Technology Officer.

Speaker 2: Hank and Sean bring decades of industry specific experience, have been instrumental in developing and maintaining our best in class product suite and support organization.

Speaker 2: Over the last few months, we have attracted several new team members, including Karen Adams, Vice President of Professional Services, joining us after 16 years of Promethean, Clint Knudson, Vice President of Sales, covering the Western U.S., an industry veteran of 15 years, including 11 years, at our largest channel partner, Bloom.

Speaker 2: Julia Moore Sales Director Covering Germany and Austria, also previously at Prometheon, and Mark Tillesley Enterprise Sales Director for the MIA region, bringing over 20 years experience, including 14 years at Maverick Tech Data.

Speaker 2: Our employer retention is consistently exceeded 90% well above industry average, and we are attracting industry talent often from our largest competitors.

Speaker 2: A key reason for our success in hiring and retaining top talent is our strong company culture built on core values of trust, leadership, teamwork, and purpose.

Speaker 2: For the first quarter, I'm pleased to report we delivered 41.2 million in revenue and 3.3 million in Adjusted E with exceeding our guidance.

Speaker 2: Due to softer demand across the industry and changes in foreign exchange rates, our revenues declined by 19% over Q1 2022. However, our gross profit improved by 20% and adjusted EBITDA by 171%.

Speaker 2: Driving our improved profitability was our strong gross profit margin of 37% and increase of 1190 basis points over Q1 2022 and our best result today.

Speaker 2: For the trailing 12 months, we have delivered 212 million in revenue, 32% gross profit margin, and $22 million in adjusted EBITDA.

Speaker 2: In addition to our company-wide focus on improving margins, we have also taken a conscious approach to reduce operating expenses where appropriate. For Q1 2023, we reported 15.3 million in operating expenses, a reduction of $700,000 compared to Q1 2022. We will continue to consider ways to optimize organizations for both.

Speaker 2: from March 31st, 2022.

Speaker 2: We continue to expect modest single-digit revenue growth for the full year 2023 with a bulk of that growth coming during the second half of the year. For Q2 2023, we are guiding to 50 million in revenue and $4 million in adjusted EBITDA. Our confidence in delivering full-year revenue growth is based on our global sales pipeline and an increase in significant tenders and key global markets.

Speaker 2: for the purchase of education technology solutions, particularly in the US and certain European markets. And the United States, billions of dollars of extra funding are still set to expire if not obligated by September 2023 and 2024. Over the next few quarters, school districts will be making significant purchasing decisions.

Speaker 2: to utilize the allocated funds.

Speaker 2: We recently filed our annual proxy statement and provided notice of our annual meeting on Tuesday, May 23rd at 11 a.m. Eastern. We invite all shareholders to cast their proxy votes prior to the meeting.

Speaker 2: We have requested your support for several proposals including the re-election of our seven board members, the ratification of our audit firm, approval on a advisory basis of our executive compensation, an amendment to our equity incentive plan increasing the number of shares available for issuance, and authorization for our board of directors to affect a reverse charged by fraud, by the Chairperson of Tribes cola proposed? Choative Actresspoch spl? Champs-2, The Chairperson of Tribes cola proposed? Choative Actresspoch spl? Champs-2,

Speaker 2: If deemed in the best interests of our shareholders at any time prior to July 2, 2023.

Speaker 2: Mark evaluations have been challenging over the last year, particularly for micro-cap technology stocks driven by broader economic concerns. As a result, despite our positive financial performance, our stock prices decline to under the minimum $1 stock price requirement by NASDAQ. And the vendor stock price does not organically increase to their core level.

Speaker 2: We will need to consider a restock split to maintain our NASDAQ listing.

Speaker 2: And future quarters we plan to utilize the $15 million share repurchase program we announced earlier this year repurchasing or stock during times we have excess cash flows from operations and are trading below our intrinsic value

Speaker 2: We maintain a long-term focus and are confident that as we demonstrate continued improvement and our financial fundamentals, in time, the market will reward us with an appropriate enterprise value.

Speaker 2: We have a significant competitive advantage as a U.S. company that is committed to data privacy and security. Our software solutions that store sensitive student and user data are developed and hosted in the U.S., UK and Western Europe , and that user data is not accessible by unauthorized parties, including foreign corporations or governments.

Speaker 2: We are unique in that statement as our key competitors are foreign owned and controlled.

Speaker 2: We continue to offer the most comprehensive integrated solutions suite in the industry and are consistently enhancing our existing solutions and introducing new products to market. Last quarter we launched a number of new products including our LED video walls, non-interactive screens for the US market, and clever hub meeting room collaboration solution.

Speaker 2: We have started to gain traction with our new products and it begins shipping the customers. This quarter we are launching our new generation Interactive Displays from MIMI on Clevver Touch and will be the first in the industry to include a full Google Enterprise Devices Licensing Agreement certification or EDLA certification.

Speaker 2: This is a significant advancement in the interactive touch for an industry and we look forward to developing our solutions further with Google.

Speaker 2: Our EOS education and professional development team is also certified with Google having an education services partner specialization in Google Cloud Partner Advantage. With the partner specialization, our EOS education team has the capability and capacity and building customer solutions in the education services field using Google Cloud.

Speaker 2: our hardware, software and service offerings, including attention, MIMIAL Pro 4, Clevver Live, Robo 3D printers, and EOS education professional development services.

Speaker 2: Our Front Road Tension Solution also won the EdTech Cool Tool Award and our Clevver Test Brand won three Best and Show Awards at ISC for Impact Max, UX Pro 2 and Lynx Wipe-Word.

Speaker 2: We are demonstrating thought leadership, significant product innovation, and meaningful financial growth. By staying the course to realize our mission to be the industry leader, we won't turn delivered durable, long-term value to our shareholders.

Speaker 2: With that, I will now turn the time over to our president, Mark Starky. Thank you, Michael, and good evening from London, where we are holding our Mia Pover event this week. Thank you.

Speaker 3: We've had a fantastic day here showcasing our latest products and solutions that we will be launching this summer, including our latest Google accredited solutions for the classroom.

Speaker 3: As the world returns to some form of normality post-pandemic, we are seeing a return to the more usual ed tech buying patterns.

Speaker 3: in both the US and the MEA, with Q2 and Q3 being the busiest bind seasons and with Q4 and Q1 being much quieter.

Speaker 3: As a result, we are seeing slower order intake and revenues in Q1s, all be it with stronger profitability.

Speaker 3: Order intake in Q1 was $41.5 million, down 35% year on year and with 50% being derived from the US.

Speaker 3: 47 cent per ameah and 3 cent per ameah from Asia PAC.

Speaker 3: Interestingly, despite ordering and taking down, we continue to grow our market share with a US market share increasing from 5.3% to 7% year on year during Q1 and our Amir market share increasing from 5.6% to 6.2% year on year according to future source.

Speaker 3: Some of our key orders in the US included $4.4 million from GDI, a US distribution partner.

Speaker 3: $2.2 million from Bloom, $1.6 million from data projections in Texas, and $1.3 million from advanced classroom technologies. Overseas we have some excellent orders including $1.4 million from Fish Off AG, our partner in Switzerland, $1 million from IDNF in the UK, and some significant orders from Niveback.

Speaker 3: based in Northern Ireland to name a few.

Speaker 3: In Germany we have invested in ourselves team and we now have 8 sales heads, a marketing head and a company manager.

Speaker 3: There is a lot of focus in Germany to gain traction in the corporate market where the margins are much higher. As a result, I am pleased to report that our Q1 margin increased by 26% year on year and Germany. We recently also invested in our first showroom in Germany based in Dusseldorf with an expectation to open in the next few months.

Speaker 3: We also won some significant tenders in Germany during Q1, including a 900-screen order from PAMMEN District for 86-inch Impact Plus screens.

Speaker 3: and an 800 screen order for 86 inch impact max screens in Dusseldorf. We have 15 other tenders currently in the bidding process and we hope to report next quarter on the continued success and expansion in Germany. Finally, I want to mention a few words about our development in Africa.

Speaker 3: Africa may not be our biggest market, but we are passionate about building the best education solutions possible and supporting emerging markets.

Speaker 3: We have a fantastic dedicated partner in Africa, IABS, who share our passion for innovation and solutions and have grown up business to be the number one interactive screen of education in Africa.

Speaker 3: During Q1 they won two large projects in the education sector and also opened a second experience centre in South Africa.

Speaker 3: They are expanding rapidly across territories in Africa and recently trained over 200 educators in Namibia and hosted their first partner event in Botswana.

Speaker 3: is that we will return to revenue growth in the second half of the year as there remains significant funds available for education establishments to invest in technology. With that, I will now turn the call over to our CFO , Greg Wiggins. Thanks, Mark, and good afternoon, everyone. I will now review our first quarter results.

Speaker 4: Revenue for the three months ended March 31st, 2023, were 41.2 million as compared to 50.6 million for the three months ended March 31st, 2022, resulting in an 18.6% decrease.

Speaker 4: FX headwinds continued to impact operating revenues in Q1 2023 compared to the prior year quarter. On a constant currency basis, operating revenues decreased approximately 14 percent for the three months at March 31, 2023.

Speaker 4: Taking a closer look at Q1 2023 revenues, and the A revenues totaled 18.3 million, or 45% of our total revenues.

Speaker 4: markets total 1.5 million or 4% of our total revenues. Our top 10 customers represented approximately 40% of total sales in Q1 with the single largest customer at approximately 11%.

Speaker 4: And are based across a number of markets, namely the US, UK, and other European countries. Approximately 63% of total sales are covered by the top 20 customers.

Speaker 4: In Q1 2023, hardware comprised the largest proportion of total revenues at approximately 90 percent, of which approximately 69 percent related to our flat panel displays, with the balance related to classroom audio solutions and device accessories.

Speaker 4: The balance of our total revenues are comprised of software, professional services, and STEM solutions. Gross profit for the three months ended March 31, 2023 was 15.1 million as compared to 12.6 million for the three months ended March 31, 2022.

Speaker 4: Gross profit margin for Q1 2023 was 36.8%, which is an increase of 1190 basis points over the comparable 2022 quarter. Gross profit margin, adjusted for the net effect of acquisition related purchase accounting, was 38.3%, as compared to 27.4% as adjusted.

Speaker 4: For the three months in March 31st, 2022.

Speaker 4: The improvement in gross profit margin in Q1 2023 compared to Q1 2022 is primarily due to lower manufacturing costs and continued reductions in freight costs over the prior year period.

Speaker 4: Total operating expenses for Q1 2023 was 15.3 million compared to 16.1 million in Q1 2022.

Speaker 4: Other expense for the three months ended March 31, 2023 was a net expense of 2.7 million, as compared to net expense of 1.5 million for the three months ended March 31, 2022.

Speaker 4: The decrease was primarily due to losses recognized from the change in fair value of the rivet liabilities of 224,000 in Q1 2023, coupled with a gain-on-settlement of debt of 854,000 in the prior year period.

Speaker 4: The company reported a net loss of 2.9 million for the three months ended March 31, 2023, as compared to net loss at 4.9 million for the three months ended March 31, 2022.

Speaker 4: Net loss attributable to common shareholders was approximately 3.2 million and 5.2 million for Q1 2023 and 2022 respectively. After deducting the fixed dividends to Series B preferred shareholders of 317,000 in both 2023 and 2022. Total comprehensive loss for the three months ended March 31st.

Speaker 4: $1.8 million loss for the three months ended March 31, 2023 and 2022, respectively.

Speaker 4: EPS loss per basic and diluted chair was 4 cents for Q1 2023 and 7 cents for Q1 2022. Evidoff for the quarter-ended March 31, 2023 was 1.8 million, as compared to negative 300,000 Evidoff for the quarter-ended March 31, 2022.

Speaker 4: Adjusted EBITDA for Q1 2023 was $3.3 million, as compared to $1.2 million for Q1 2022. Adjustments to EBITDA include stock-based compensation expense, gains losses from the remeasurement of derivative liabilities. Gains losses recognized upon the settlement of certain dead instruments.

Speaker 4: and the effects of purchase accounting adjustments in connection with recent acquisitions. Turning to the balance sheet at March 31st, 2023, Boxlight had 11.3 million in cash, 61.6 million in working capital, 44.7 million in inventory, 179.6 million in total assets.

Speaker 4: 44.4 million in debt, net of debt issuance costs of 5 million, and 49.8 million in stockholders equity.

Speaker 4: At March 31, 2023, Boxlight heads, 75.1 million common shares issued in outstanding and 3.1 million preferred shares issued in outstanding. With that, we'll open up the call for questions. Thank you. At this time, we'll be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star 1 if you have any questions, and please hold while we pull for questions.

And the first question today is coming from Brian Kinslinger, calling from Alliance Global Partners. Brian Kinslinger, thank you for taking my questions.

You said you expect modest single digit revenue growth. Sorry to ask, but is that constant currency or reported revenue? And then with the drop in orders, what gives you the confidence that you can offset a 16 to 18% year-over-year decline in the first half, especially with your comments that the fourth quarter is seasonally weak along with the first quarter? In order to alpha agendas could you, at thepyriacAME HON operated at an increase of 15.6? Or hit the.) 0. warrant higher than physical Jeff Smith how generations of innovation should improve on time growth rates?

Apologies Brian , it looks like Michael's line has disconnected, Greg, and especially as reconnected. Brian , if you wish to repeat your question. Sure. Essentially, with a single digit revenue of A, I'm curious if that constant currency or reported revenue. And then with the drop in orders.

And with the guidance year-over-year revenue declining, 16 to 18 percent in the first half of the year, what gives you the confidence that you can hit single-digit revenue growth for the year, especially in the lay of your comments at the first and the fourth quarter, seasonally weak.

with a guidance year-over-year revenue declining 16 to 18 percent in the first half of the year. What gives you the confidence that you can hit single-digit revenue growth per year, especially in lay of your comments at the first and the fourth quarter, seasonally weak, suggesting the fourth quarter won't be that strong.

So you're right typically that typically Q4 is not one of our stronger quarters. However we do expect you know just from the order the tenders we're seeing coming in we do think that activity will pick up in the second half of the year. I think part of that is from

that gives us a little confidence in that is one, just the tenders we're seeing currently that are being placed in the level of activity. Also, we think there is a little bit of pent-up activity, you know, just following the slowness in the first half of the year. You know, we don't expect, you know, double-digit growth for the full year. We, you know, expect to see a lot of growth in the next year. So, you know, we're seeing a lot of growth in the next year.

second half of the year. Is that right?

That's correct. Yes. Okay. And then first, sorry for help on the dictionary here for me. Are tenders actually orders? Are they kind of RFP? I'm not really sure what a tender is, but then the bigger question is, you can talk about the pipeline today.

of deals that you're looking at versus maybe a year ago? Are there more? Are there less? Is there more an aggregate value or less? Maybe from a US international perspective would be great. Yeah, it's more the pipeline growth.

So what we're seeing is obviously in Q3, Q4 we started last year, we started to see order intake slow down. Let's continue doing Q1, we've started to continue Q2 a little bit.

There is significant activity, especially in the US, and we see every week the amount of opportunities being registered in our pipeline.

quite significant increases. So that gives us some level of confidence that we think ultimately...

the school district is going to have to start ordering soon. We think that will probably be more likely Q3, Q4.

And that's similar to kind of what we're seeing in the mirror as well. So we know that there's been kind of a post pandemic slowdown, but we expect ultimately that the education spend will continue. And just to be clear on the pipeline, again, maybe you can't answer when you can. Sorry to ask this again. The pipeline.

in aggregate, US International, more than say a year ago? Is it about similar? I know you're gaining shares, so you need a little less pipeline probably to grow, but I'm just curious how that kind of compares to last year.

Yeah, I don't have the exact number here in front of me, but generally I would say it's increasing, the pipeline is increasing.

Okay, one more question, and I'll get back to you as I have others. Yeah, sorry. One more comment I was going to make on the second part of your question about tenders. We are seeing a large number of tenders or RFPs out there, which are larger projects where school districts are requesting...

several vendors or partners provide pricing and essentially bid for the business. With those larger projects, if we went several of those projects, which we expect to, of course, that will influence our numbers in a big way. We're seeing a lot more of those now than we have in the previous few quarters.

And those are generally sole sourced or multi-sourced.

Did two people win that or did you just win that? Generally self-sourced.

Okay, last question I've got and then I'll get back in the queue.

Last quarter you talked about an epidural pricing pressure. Your gross margin this quarter was quite impressive. In fact, the historical trends obviously higher than any other quarter. You've talked historically about 30 to 32%.

On this call, you talked about lower manufacturing costs and freight driving margin. Can you help us with near-term targets versus medium to long-term on all those things?

Yes, so we've been quite conservative the last several quarters mentioning this north of 30 percent. Of course, we came in at 37 percent Q1. Do you remember Q4? We came in at 34 percent. Q3 was 31 percent. Okay. We've seen some nice growth there. We've seen some nice growth there.

We don't believe we can maintain the kind of a higher 34 to 37 margin. I think it's going to come back down. So we continue to say north of 30%. The reason we've come in higher than even what we've guided is just because we've done a good job of maintaining high pricing. So we have seen the benefits, as you mentioned, from cost downs and lower cost for transportation.

But we've also made it a conscious effort across the company to try to maintain this higher pricing. And that's worked, but we're going to start seeing a lot more price pressure. We're starting to see already, particularly in these larger opportunities and these bigger tender RFP processes, we're going to have to be slightly more competitive on pricing. And so we do expect that to come down in the short term, meaning over the next couple quarters.

Again, we believe north of 30%, but we believe the 37% is probably an anomaly. Now when you're looking out years, we do think that we can grow that gross profit margin, but that's less about trying to maintain high prices, and that's more about us selling in additional verticals like the enterprise vertical, which is higher gross profit margin.

business. As well, it's about broadening our product suite and selling higher growth profit margin products or solutions like software and professional development and accessories and we've talked about some of those.

business. As well, it's about broadening our product suite and selling higher gross profit margin products or solutions like software and professional development and accessories and we've talked about some of those. Great, thanks so much. I'm going to get back in the queue with my other questions.

Okay, great. Thanks for taking my questions, guys. I appreciate the update. Michael, maybe I'll just follow up with a few of those questions that were just asked. It's good to see you you still expect a four-year growth for revenue. Obviously a big second half growth rebound.

Can you maybe talk about how the current status of the corporate side of the business in terms of revenue mixes and how that piece of the business is expected to contribute to that second half growth and also in addition to the corporate side of the business as well as the front row business, which I think was a little bit subdued recently and in prior periods but.

Yeah, thanks for the question, Jack. Maybe I'll mention a couple things. I'll have you jump in, Mark, and fill in some of the gaps. So first off, again, speaking on first year versus second half of the year, on the first half of the year, given our guidance of $50 million for Q2 plus $41 million in Q1, we're going to come in somewhere around $91 million is what we're guiding to. That's down about 17% from the first half of last year. So we definitely have a little bit of a mountain to climb to be able to get to the single digit climb.

So front row was down a little bit last year. If I remember right, we came in around 23 million in revenue last year. Growth profit margin was a little bit under 50%. We are going to see growth this year. We haven't published a number on that, but it is going to come in well north, we believe, of that 23 million. Also, the growth profit margin has been a little bit higher already.

in Q1 and beginning of Q2. So we're gonna see, I believe, north of 50% growth profit margins. So that will have some, you know, some movement for our total numbers, certainly. But then the enterprise, I'll have Mark talk about. Yeah, hi Jack. So in terms of corporate or corporate higher education, we probably know about 15% of our revenues in the Mia is corporate based.

In the US it's probably more like 5%. So it blends at probably just under 10% across the globe. We do expect, and if you look at the future source data, over the next 3 to 5 years we'll see a bigger growth in the margins coming from corporate compared to education.

which will basically help us as we grow that part of our business increase our average margins over time, which is why it's so important to us. So that's kind of how we're looking at corporate. That kind of answers your question.

Yeah, no, that's very helpful. I imagine, I guess what I'm also trying to get a read through is with the strong gross margin, the record gross margin this recent quarter, and the fact that front row is supposed to kind of higher margin, it's going to ramp up in the back of the tier, it sounds. I think front row had a great Q1, if I'm honest. We were pleased with the front row result Q1.

And that helped with the gross profit margin, but it really was more driven by a higher gross profit margins on our core panel sales. That's really what it was that helped bring that margin up to where it was. And like we said, we're going to see some compression of that margin on interactive flat panels. We'll maintain a high margin on all the other solutions, but interactive flat panel margins will come down a little bit.

One more comment on enterprise, which I think maybe we've talked about the last couple quarters, but we've really invested in our enterprise team, particularly in the US. We've hired several individuals that are focused on enterprise, and we do expect to see some substantial growth over the next few quarters in that vertical. And then just a follow up in terms of, I think you had drawn down.

lower liquidity expectations for the rest of the year. Thanks. Yeah, sure. So, yeah, that's right. Oh, yeah, go ahead, Greg. Okay, yeah, that's right. We did draw down 3 million on our delay draw facility in April and that was a facility that was set to expire at the end of June , so we terminated that.

facility at the time we did that. So we drew down 3 million, you're right, it's for working capital purposes. We're obviously, you know, ramping up for what we expect to be, you know, an increased order activity period, you know, here toward the end of Q2, Q3, you know, in the second half of the year. So this is really just, you know, deposits for stocking up on inventory to meet the future sales demand, combined with the fact that

We, you know, typically this is, you know, from a seasonality standpoint, this is a little bit lighter time of the year for us. We still have, you know, requirements under our credit facility to maintain certain cash balances as well. And so those factors coupled with the fact that we paid down $8.5 million of our debt in Q4 of this past year, you know, a little lighter, but you probably saw that the $3 million is going to be paid back by the end of September of this year. So we feel like, you know, we will be.

So it sounds like, Michael, in your prepared remarks, it sounds like you guys have had a lot of talent come in the door from your competitors as well. So it sounds like you're really beefing up your professional staff and capabilities here. What does this do, though, for your OPEX as you look forward relative to where it was last year and then this first quarter?

If that would be anything that would be helpful. Sure, yeah. So, you know, as Michael mentioned in his remarks, you know, we have brought in some really good talent. There's been, you know, a couple positions that we've brought in, you know, due to, you know, retirements or replacements of certain individuals that bring a lot of experience. So not necessarily, you know, a net increase from an...

OPEX standpoint, if you're thinking from a salaries and wage perspective, our growth as it comes to a headcount perspective is really just through the normal revenue growth that we want to obtain. We have, I think, done a good job of controlling OPEX over the last year, kind of post the front row acquisition, kind of reaching an optimal level, I think, for the year for 2023. So we were obviously about 700,000 less Q1 over Q1. So I guess far, maybe the biggest suggestion in 2020 is that we capture

Some of that was some third party contractor costs we've been able to save. In other areas we've been able to be more efficient with. I think you'll see Q2, Q3 and really the duration of the year start to trend more to the way it was last year. lease.

such that on an annual basis will probably be comparable to slightly under where we were on OPX for 2022.

Got it. I appreciate the color. I'll hop back in the queue. Thanks, guys. Thank you, Jack. Thank you. And once again, just a reminder, you can press star one on your phone if you wish to enter the Q&A queue. The next question is coming from Daniel Zolletta.

From true inversion Daniel your line of life Right. Hi mark. Hi Michael. I had a lot of questions about sales that were asked before so I want to skip to the incentive plan and in 2021 you asked for 5 million shares that were supposed to last three years and now you're asking for 7.5 million

and it's increasing 50%. I want to know why you're asking more, since sales are not growing that fast.

and it feels like you're compensating the low share price with grumpy more shares and I feel it should be aligned with shareholder value.

Thanks for the question. The request for the additional shares for the pool, it really is to make sure we have the proper allotment to be able to meet the needs in the future. That's first off. Just by making the pool available doesn't necessarily mean that we will issue those right away, but we'd like to have a pool of shares available.

As far as the number of shares that we issue, we try to meet the industry standard and issue compensation based on what we need to to attract top talent. That's a combination of working with our board of directors and talking as an executive team, but also with your professional third-party organizations.

that have also helped recommend what compensation should be, including share issuances. And so, you know, given our size, I understand the concern, you know, given the market cap of the company, but given our size, a $200 million-plus company, you know, we try to set compensation for executives and other team members appropriate for the positions that we're offering.

that include both base compensation, perhaps commission or bonuses, and then an equity piece. And I would add one more thing that I think we want our executives in particular, and our board members, to hold shares in the company. I mean, us holding shares aligns us with our shareholders where we want the share price to go up because that's how we're compensated to make money as the share price goes up.

I don't think as shareholders, myself being one, that we would want our executives and decision makers not to hold shares and be aligned. And so we believe that's actually a way to align executives to the shareholders by making sure again, they hold shares that are substantial enough to make a difference.

All right, thanks for the flight. And another question, Michael, have you considered any time-winder for the buy-back? I know they're still time because of the cash flow. But if it applies too low to store buying back, let's say the market cup is 10 million. I guess 1 million of buy-back takes down temporary-

repurchase program, though it will be a function of a couple things. One is it requires board approval, so we talked to our board about it and we're going to make sure we utilize that when we and the board thinks it's the appropriate time. Secondly, we can only use the stock buyback program when we're in open trading windows. We've been blacked out until now, for example. We only have certain trading windows throughout the year that we can use to make sure that we're not using the stock buyback program.

say we will consider all those factors over the next weeks and months and quarters. We fully plan to utilize the stock repurchase program. That's why we put it in place. It's because we plan to utilize it. When we do, we'll make the shareholder base aware. For now, we're just going to monitor things over the next few months.

and try to find the appropriate time. All right, thank you. And I guess last question about the reverse split. Do you have another file extension going on or it's just reverse split or deleting? What are your choices there or your options? Yes, we've already gone through two extensions with NASDAQ. We do not believe...

needs to be above the $1 stock price requirement or the other option would be the reverse tax split. So that's going to be something that we're going to consider over the next few weeks as we get closer to our deadline, which the deadline to comply is early July . So it's going to be late June when we look at whether the reverse tax split is needed or not. So that's going to be late June .

We don't think it's in the best interest of the shareholders to have the stock be listed from NASDAQ. So we clearly believe that's in the best interest of all of us to maintain our listing. And so again, if required, then we'll consider a diverse stock split. Now my belief, maybe one more thought on that is, my belief on the reverse stock split is even if that is the case, then we've held it up as long as we could.

We believe that we provided financial results where we thought that the stock would recover and be north of where it should be, but market conditions have made that difficult. But even in the event that we have to affect the reverse stock split, I don't think that changes the long-term potential. Shareholders that believe in the story, believe in what we're doing, believe in the intrinsic value of the company, that's going to be realized in the future, even if the share accounts slightly lower fine. We're going to continue to deliver positive results, build a great company, and the value will appreciate in time to where it should be. Great to hear Michael. Yes.

Taken in consideration the dilution. I mean something like I understand it, but it's 16% of the total shares Last time was 5 million for three years and the last two years. So

That's the only thing that keeps me a little worried, so I'll let you know. And the last thing about – A quick comment on that. I would say that's fair. So that's noted. I would say just because we authorized the pool doesn't mean the shares will be issued. It's a pool that would be authorized for issuance. Of course, the board will approve all the issues.

was at the time that we issue the shares, but no, that's a valid point and we will absolutely take that in consideration in the future as we look to potentially issue shares. Thank you very much. Last thing I didn't hear is about the Bloom partner. We had a lot of great news in the past, something partner cheated.

What would a fix? I mean, they have worked out very well. I mean, you're right, the market is definitely, you know, subdued, comparing it to where we were 12 months ago. But Bloom is still, you know, very, very significant partner for us. And they were our second biggest partner in Q1.

So, you know, we still have a very significant relationship there. We're working on lots and lots of bids with them. So you know, there's great relationship, lots of engagement, and it's all in a good place. Yeah, and I would say again, it's not so the revenue coming down slightly from where you know, where we thought we'd be and down from last year for

Q1 guys for Q2, that's not a function of any one partner not performing. That's really across the board. Sales have been slower and we've seen that through most of the globe, the just sales have been a little bit slower. We believe that's a low, just a slight low after a nice ramp over a second or beginning of last year and in 2021. We saw a nice ramp in sales during those time periods post-COVID and we think it's going to start to pick up again.

In fact, we're starting to see that already as we've guided to, we expect the second half of the year to be a tremendous second half of the year. All right. Well, thank you very much for taking my call. Congratulations on the improvement margin.

Sorry if you've folded questions so hard. Thank you, Bronzer. I'm going back to the question. Those are all great questions. Yeah, thank you. We love to get questions from shareholders. We always invite shareholders to call in and so yeah, appreciate that. Thank you. Thank you. The next question we have a follow-up from Brian Kinsinger, from Alliance Global Partners. Brian , your line of life. Thanks, two questions first. We talked about unspent budget dollars for the year.

That's one of the drivers of why you expect orders and revenue to start to pick up. Are those budget dollars mostly subsidized government dollars? And if you look back in the last two years post COVID money, government money, to most school districts use all of their budget to be able to them or the lot left unspent.

So to answer the second half of that question, schools absolutely generally use all of their budget because generally budgets in the US and throughout the world, their user lose it and schools don't want to lose budget money. Also if you come in under your budget, you have the risk of a budget adjustment the following year where the decision makers may decide, hey, maybe you need less money this year because you didn't use all your money last year. So it's very rare. And that really drives a lot of money.

They have nice, still robust budgets. On top of that, in certain areas, they've gotten additional federal money, as we've talked about on previous calls, here in the US being the largest, almost $200 billion allocated from the federal government to education spending, a lot of that being spent on technology like the technologies that we sell, and the bulk of that, the largest bucket of that, which was about $120 billion, which was the ESSER III fund.

Bye.

Okay. And then one, one of the balance you have followed up, think I heard Greg say $3 million a September , but can you remind us of the balloon payments due in 2023 and 2024, and how much cash does your covenant require you to maintain?

Yes, so remember we paid down $8.5 million in Q4. Now that was an amount that was due in February of 2023, so we were able to pay that down a little bit earlier than expected. So that amount was paid. Our debt service costs on an annual basis range from $10 to $11 million of which we

the late draw term loan facility, which is due to be repaid by the end of September this year.

So there's no more balloon payments is what you're saying. Correct. Okay. And then how much cash did you have for your... Two and a half million of principal per year. Yeah, the principal amortization is two and a half million per year, right? That's it. It was a four year term on the facility. So, you know, we're just over one year in. So we got just under three years left on that. Right. On that one. Right. Yeah. Okay.

And the cash you have to maintain.

Yeah, on the cash we have to maintain its $4 million, you know, global consolidated cash balances, $4 million. That was relaxed through the month of May to $1 million. Now obviously we expect to be, you know,

Above above that those amounts, you know through throughout the time, but it was relaxed It was relaxed to 1 million through May then it reverts back to 4 million per the original agreement after after that starting in June Okay. Thanks so much guys Thank you, there were no other questions in queue. I would now like to hand the call back to my Michael Pope for closing remarks

Great, thank you everyone for your support and for joining us today on our first quarter of the 2023 conference call. We look forward to speaking to you again in August when we report Q2 2023. Thank you.

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