Boxlight (NASDAQ:BOXL) Q2 2020 Earnings Call

0:00 Thank you and welcome to the BoxLight Third Quarter 2020 Earnings Conference Call. By now, everyone should have access to the Third Quarter 2020 Press Release issued this morning. This call is being webcast and is available for replay. The remarks today will include forward-looking statements that are considered forward-looking within the meaning of securities law, including forward-looking statements about future results of operations business strategies and plans, customer relationships, market trends, and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from the forward-looking statements.

0:58 a detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10Q, Form 10K, and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, management will refer to non-GAAP measures that, when used in combination with GAAP results, provide additional analytical tools to understand the company's operations. The company has provided reconciliations to the most directly comparable GAAP financial measures in the earnings press release, which will be posted on the investor relations section of the company's website at investors.boxlight.com. And with that, I'll hand the call over to BoxLight's Chairman and Chief Executive Officer, Michael Pope. Sir, the floor is yours.

1:50 Good afternoon, everyone, and thank you for joining the call. Our progress during the third quarter was the most significant in our history and included fundraising of over 60 million in debt and equity, the acquisition of Sahara Presentation Systems, a leading interactive solution provider with significant penetration in the EMEA region, the addition of tremendous talent to our sales leadership, our formalized partnership with Samsung, enhancements to our product offering, and a drastically improved balance sheet and financial outlook. Although our revenue of $9.5 million and gross profit of 21% lagged our expectations in Q3 due to several factors, including the effects of COVID-19, we are seeing increased demand in the fourth quarter and we are executing on a strong sales pipeline.

2:35 With the addition of the Sahara operations and considering our quarter-to-date results and current pipeline, we expect to generate greater than $27 million in revenue and positive adjusted EBITDA for the fourth quarter. During the third quarter, we had several new wins with interactive flat panel displays, including Bennington Public Schools and Ord Public Schools in Nebraska, Granite School District in Utah, and Ohio County School District in West Virginia. We also began deployments of our Mimeo Clarity classroom audio solution in two school districts in Michigan, installing over 300 units. We continue to deliver on key contracts such as San Diego Unified in California, Harford County Public Schools in Maryland, Tangipahoa Parish School System in Louisiana, and Highland Park, Klein, West Orange Cove and Alvin Independent School Districts all in Texas.

3:26 Outside the US, our Latin America business is growing through key partnerships in Puerto Rico, Peru and Costa Rica. In Europe, we delivered more than 500 interactive displays to the Academies Enterprise Trust in the UK and are seeing significant opportunities in Germany, Belgium, France and the Netherlands. We continue to win business with strong partners such as Trox, CDW, Howard Technology Solutions, Central Technologies, Tierney, Information and Data Network Supplies, Interactive Concepts, Abacus Computers, GV Multimedia, and Digital Age Technologies. During the third quarter, we closed a $34.5 million secondary offering and received a $22 million investment from the LIN partners. Additionally, we'd entered into a $6 million asset-based lending agreement with Sally Port Commercial Finance that provides substantially better terms than our previous factoring and PO finance facilities.

4:22 On September 24th, using the proceeds from recent financings, we completed the acquisition of Sahara Presentation Systems, our most significant transaction to date with a purchase price of approximately $80 million in cash and preferred stock. Headquartered in the United Kingdom, Sahara is a leader in providing audio-visual solutions for education and corporate environments, including its multi-award-winning touchscreens and digital signage products under the brand CleverTouch. Sahara is an ideal strategic fit with its significant penetration in the EMEA market and tremendous management talent, including Mark Starkey as CEO, Pat Foley as CFO, and Shaun Marklew as COO. In September, we added two seasoned sales leaders to our America sales organization, namely Scott Willett as Vice President of Sales and Dan Deem as Vice President of Sales over Platforms and Services. Both Scott and Dan bring tremendous experience in the industry from companies such as Apple, Promethean, Dell, and Panasonic, and will manage our sales organization in Americas.

5:24 In August, we formally announced our strategic partnership with Samsung Electronics America to provide their displays bundled with box-like software and Professional Development. We have dedicated substantial resources to the Samsung partnership and we expect to begin delivering sales this quarter with substantial growth in 2021. As a result of our recent fundraising as well as our acquisition of Sahara, we close the third quarter with a healthy balance sheet including cash and cash equivalents of $10 million, inventory of $22 million, working capital of $25 million and stockholders' equity of $44 million. We were recently selected as a finalist in five categories for the 2020 AV Awards, including for our Impact Plus Display as Visual Technology of the Year, our UX Pro as Collaboration Technology of the Year, and CleverTouch as Manufacturer of the Year.

6:13 We were also nominated under the AV in Action category for our COVID-19 Reaction Strategy. We're committed to providing best-of-class interactive technology solutions that improve engagement and communication in diverse business and education environments. And we are proud of our progress during the third quarter to enhance our solution suite. We recently launched both our CleverTouch Technologies non-interactive CM series with embedded digital signage and our CleverTouch Technologies Pico 5, which is our compact yet fully featured digital signage player. On October 1st, we introduced our Lynx Swipeboard software, which was completely redesigned for touchscreens with drag and drop, pinch to zoom, and easy swipe menus.

6:58 Lynx Swipeboard runs across multiple platforms on an array of devices, and it's available for download in all major app stores. We are seeing positive interest in our subscription-based Mimeo Connect software platform designed for blended learning, which we announced in June of this year, and we are demonstrating and testing the platform in several districts. We added various enhancements during the quarter, including monitoring of student engagement with teacher visibility and one-on-one text coaching. We are also completing development to provide compatibility with Samsung's Tizen operating system. Our Mimeo Clarity audio solution is being piloted in several districts in Michigan in hybrid learning environments. Mimeo Clarity allows teachers to amplify their voices while wearing masks to both students in the classroom and those learning virtually.

7:45 Mimeo Clarity is also available with the CareHawk system providing functionality for bells, public announcements, emergency notices, classroom-to-classroom communications, as well as classroom-to-administrative communications. We have also enhanced the BoxLight Unplugged screen mirroring software to allow for nine simultaneous student shared devices and have developed a teacher control center which allows the teacher to highlight student screens control all shared screens through teacher feedback and control student collaboration functions. As you can see, we're fully committed to providing industry solutions that create engaging and collaborative experiences in diverse environments. Specifically, our feature-rich solution bundles provide integrated hardware and software partnered with professional development and training resources to drive adoption.

8:36 With our tremendous foundation of talented management and outstanding solutions, we are fully committed to delivering strong financial performance in the fourth quarter and showing continued improvement in future quarters with a specific focus on revenue growth, increased gross profit margins, and positive earnings. With that, I will now turn the call over to our CFO, Takesha Brown.

8:59 Thanks, Michael. As Michael noted, the company acquired 100% of the outstanding shares of Sahara on September 24th, 2020. Included in the three-month and nine-month periods of 2020, as will be discussed, are Sahara's operating results for the period from September 25th through September 30th. Sahara contributed approximately $1.1 million in revenue and approximately $0.1 million in gross profit. Sahara's total operating expenses were $0.3 million and they incurred a net loss of approximately 0.3 million. Sahar's gross profit and net loss was negatively impacted by the purchase accounting impact of 0.2 million as a result of marking the inventory up to fair value at acquisition dates.

9:46 I will now review our third quarter 2020 consolidated results. Revenue for the three months ended September 30th, 2020 was 9.5 million a decrease of $1.8 million, or 16%, compared to $11.3 million for the three months ended September 30, 2019. The decrease in revenues in 2020 is related to the reduction in sales of panels, software, and STEM, primarily attributable to the school closures as a result of the ongoing COVID-19 pandemic. gross profit for the three months ended September 30th, 2020 was 2 million, a decrease of 1.2 million compared to 3.2 million for the three months ended September 30th, 2019.

10:32 The resulting gross margin was 21.4% for the three months ended September 30th, 2020 compared to 28.6% for the three months ended September 30th, 2019. The decrease in gross margin from 29% to 21% was related to changes in the company's product mix with a reduction in higher margin products such as software and STEM, a 33% increase in distributor sales compared to 2019, and a $0.2 million purchase accounting impact of Mark and the Sahara inventory up to fair value at acquisition dates. General and administrative expenses for the three months ended September 30th, 2020 was 3.3 million compared to 4.2 million for the three months ended September 30th, 2019. The decrease primarily driven by reductions in compensation and benefits of 0.7 million, travel and entertainment of 0.2 million, and stock compensation of 0.2 million.

11:36 Research and development expenses for the three months ended September 30, 2020 was $0.5 million compared to $0.4 million for the three months ended September 30, 2019. The change in research and development expense is primarily driven by an increase in contract services related to software consultants. operating loss for the three months ended September 30th, 2020 was 1.8 million, a decrease of 0.4 million or 30% compared to 1.4 million for the three months ended September 30th, 2019. Other expense and income for the three months ended September 30th, 2020 was an expense of 2.5 million, an increase of 3.4 million or 381% compared to income of 0.9 million for the three months ended September 30th, 2019. The increase in other expense was related to a change in fair value of derivatives liabilities of 1.6 million and a loss from settlement of land debt of 1.7 million.

12:45 Net loss for the three months ended September 30th, 2020 was 4.2 million compared to 0.5 million for the three months ended September 30th, 2019. The increase in the net loss was primarily driven by decrease of gross profit and increase in other expenses offset by decrease in operating expenses. The resulting EPS loss for the three months ended September 30th, 2020 was 10 cents per diluted share compared to 4 cents per diluted share for the three months ended September 30th, 2019. adjusted EBITDA loss for the three months ended September 30th, 2020 was 0.9 million, an increase of 0.4 million or 66% compared to 0.5 million for the three months ended September 30th, 2019.

13:38 Our financial results for the nine months ended September 30th, 2020 were as follows. Revenue for the nine months ended September 30th, 2020 was 23 million, a decrease of 4.1 million or 15% compared to 27.1 million for the nine months ended September 30th, 2019. The decrease in revenue in 2020 is related to the reduction in sales of panels, projectors, software, and STEM, primarily attributable to school closures as a result of the ongoing COVID-19 pandemic. gross profit for the nine months ended September 30th, 2020 was 6.3 million, a decrease of 1.6 million compared to 7.9 million for the nine months ended September 30th, 2019. The resulting gross margin was 27.4 million, 27.4% for the nine months ended September 30th, 2020 compared to 29.1% for the nine months ended September 30th, 2019.

14:44 The growth margin decreased from 29% to 27% which related to changes in the company's product mix with a reduction in higher margin products such as software and STEM, a 15% increase in distributor sales compared to 2019, and a 0.2 million purchase accounting impact of Mark and the Sahara Inventory up their value at acquisition date. General and administrative expenses for the nine months ended September 30th, 2020 was 10.4 million, a decrease of 1.5 million or 12% compared to 11.9 million for the nine months ended September 30th, 2019. The decrease was driven primarily by reductions in trade shows of 0.3 million, contract services of 0.6 million, compensation and benefits of 0.4 million, and travel and entertainment of 0.4 million.

15:39 Research and development expenses for the nine months ended September 30, 2020 was $1.1 million, an increase of 18% compared to $0.9 million for the nine months ended September 30, 2019. The increase in research and development expense was driven primarily by an increase in contract services for software consultants. Operating loss for the nine months ended September 30th, 2020 was 5.2 million compared to 4.9 million for the nine months ended September 30th, 2019. Other expense for the nine months ended September 30th, 2020 was an expense of 2.4 million, an increase of 0.8 million or 49% compared to expense of 1.6 million for the three months ended September 30th, 2019.

16:29 The increase in other expense was related to a loss on settlement of land debt of 2.3 million, increased interest expense of 0.3 million, offset by a gain on settlement of EDI accounts payable of 1.7 million, and a decrease in change in fair value of derivative liabilities of 0.3 million. Net loss for the nine months ended September 30th, 2020 was 7.6 million, an increase of 1.1 million or 17% compared to 6.5 million for the nine months ended September 30th, 2019. The resulting EPS loss for the nine months ended September 30th, 2020 was 31 cents per diluted share compared to 62 cents per diluted share for the nine months ended September 30th, 2019.

17:19 The increase in the net loss was primarily driven by a decrease in gross profit and increase in other expense offset by decrease in operating expense. Adjusted EBITDA loss for the nine months ended 2020 was 1.6 million, a decrease of 1.5 million or 50% compared to 3.1 million for the nine months ended September 30th, 2019. With that, we'll open up the call for questions. Ladies and gentlemen, the floor is open for questions. If you do have a question, please press star then 1 on your telephone keypad to join the queue. If you're using a speakerphone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star then 1 on your telephone keypad at this time.

18:11 And first, we'll go to John Nobile with Taglich Brothers. Please go ahead.

18:17 Good afternoon, Mike and Takesha. Thanks for taking my questions. My first question, actually I have a lot about Sahara. I know that they have a portion of their sales are to the corporate market. I was hoping you could kind of break out what percentage of Sahara's sales are to the education market.

18:39 Yeah, John, thanks for joining the call and great question. So, you know, we're still going through the Sahara financial statements and we're actually working on having their financials audited in preparation for filing our APK in early December, which will include their standalone historical as well as, of course, the pro forma combined statements with Boxlight. But historically, their corporate over recent quarters, their corporate business has been about 15% of their total sales and about 85% has been education. So that's kind of a rough number for you. It's a little higher in the U.K., and then it's a little lower throughout other parts of Europe that they sell into.

19:15 Okay, so, well, the bulk, obviously, education, but 15% corporate market. I'm just curious, being you're really focused in on the education market, if you'd be looking to grow the corporate or the non-education market of Sahara's business or you're looking really to just focus on the education market?

19:37 Right now, our focus primarily is education, but we do expect to grow the corporate market as well. We follow pretty closely a resource called Future Source. They put together some research on the interactive flat panel or interactive display market, and we follow that pretty closely, and we're seeing an uptrend in interactive displays being sold into the corporate market. We're about in line with that with the Sahara Group, where I think about 15% of the total market today. But FutureSource is projecting that to increase pretty dramatically over the next few years. In fact, I believe by 2024, it was supposed to be upwards of almost 30% of total value and north of 20% in units. And so, you know, I would expect, you know, if we're at 15% today approximately within that group, I think we're going to start to see that increase over the next few years.

20:25 But again, overwhelmingly, our business will be education.

20:30 Okay. I just want to make sure I understand that going forward, you had mentioned, what was it, looking at growing to like 30%. Is that of total sales? Am I getting this correct? Yes. For Sahara?

20:46 Well, so Sahara today is about 15% is where they are of their total sales. I do think that'll start to increase over future quarters because it is a focus of ours. Yeah, the 30% number was from FutureSource about the total interactive display market, which still is largely education, but they're projecting that by 2024 that of total sales that the corporate market will make up almost 30% of the total market. So I would think that we had a trend at a minimum. We had a trend with that, I think, within that vertical. Okay.

21:21 And actually for Takesha, I was hoping to get an idea of what the blended gross margins would be with Sahara going forward. Now, you're going to have a complete fourth quarter with Sahara. So I know that typically, well, you had some things in this quarter, but we were looking at not high 20s, but 30% gross margins before the acquisition. So now with Sahara... What would be a good ballpark figure to kind of figure for gross margins?

21:55 So we're saying from an adjusted perspective, we probably have a range of 25 to 30%. But one of the adjustments that I spoke about in my discussion today was related to the markup of the inventory to fair market value. As a part of purchase accounting, we had a markup of about $4 million to inventory. and only about 200 of that turned in the last six days of the quarter. So if we just take that run rate, we would anticipate about $3 million of that to reverse out during the fourth quarter, which is going to have a significant impact on our margin for the quarter. So unadjusted, it could be in the range from 15% to 20%.

22:33 But, John, that's just for the Q4. Yeah, that's for Q4 only. And that's due to the county.

22:41 Right, Q4, that's what I wanted to make sure. For Q4, 20%, 15% to 20%. But after this inventory, Mark, if we could just kind of figure out for 2021, if you could give a ballpark figure for what the gross margins would be once this is finished.

22:59 Yeah, and I think that's going to be that original adjusted range that I talked about of the 25% to 30%. 25% to 30%. Yeah, closer to the 30% end of it.

23:10 Okay, so it's not that far off from 30%. pre-acquisition margins then?

23:16 That is correct. Because if you think about it, the largest majority of Sahara is going to be the panels, right, which is kind of in line with what it is that we've been experiencing at BoxLight.

23:27 Okay. Great. Thank you for that. I just have one final question, general question. If you could just kind of talk about the synergies that you expect from this acquisition of Sahara.

23:41 I think the most significant synergies are going to be around top-line opportunity. So by combining the companies, we're bringing in some more talented management, which is helpful. Of course, we're opening up our opportunities in other markets, but also we're able to combine the product suites to really come up with best-class solutions. And we're seeing improvements on both sides of improvements to the product suite. So I think at the end of the day, we're going to start to see more revenue, top-line opportunity in both Europe as well as in the U.S., as a result of combining the companies.

24:12 Obviously, there's going to be some good cross-selling opportunities with that.

24:18 That's right. Just a couple quick examples. In Europe, Sahara has been selling a great solution suite, but they haven't had a core audio solution. We have one, of course, in Mimeo. Clarity, that's something we're going to look at potentially selling over into EMEA. On the flip side, there's some great assets, including on interactive flat panels that Sahara sells. They have an Android app store. That's something that we haven't had, so that's something we're looking at adding to our displays under the Mimeo or Boxify brands. So there's a lot of things like that we're looking at, dozens of potential opportunities around the solution suite. Over the next couple quarters, we'll start to realize those benefits.

25:03 Okay, great. I appreciate the input. That's all I have. Thank you.

25:08 Thanks, Shaun. Thank you. Next, we go to the line of Brian Kenslinger with Alliance Global Partners. Please go ahead. Hi, everyone. This is Jacob on for Brian. Thanks for taking my questions. You talked before about the corporate market. Is there ultimately a software play on that?

25:30 Absolutely. Every display that we sell, we're including software on the display. So in the corporate market, we have whiteboarding software that can be used in corporate environment, which is key. We also, the Sahara Group had acquired a company by the name of Sadeo, which is a digital signage company, and there's a great amount of software that we have within that group, too, through the digital signage acquisition. And so there's a good amount of software we're offering, yes, as part of the solution that we're selling to the corporate market. Okay. And can you talk about the progress you're making on the Samsung partnership and have they started to sell the bundle yet? And has this had any material impact on the results so far?

26:13 Yes. So it has not had a material impact at this point in time. But we expect to start seeing some business go through this quarter with a real focus on 2021. So I would just tell you that we've invested a tremendous amount of resources. into the relationship as have they. And we're just now to a point to where we can offer the solution and actually ship the solution. Now agreements finalized, logistics is finalized, and now we're turning our focus to sales and marketing. And we have a pretty big target for 2021, but I expect in 2020 in the fourth quarter now that we'll see a handful of units, but nothing ultra substantial. But again, you're gonna see the real uptick in 2021.

27:00 Okay, and then a follow-up on Samsung. Is your plan to ultimately leverage the Samsung partnership and use them as a supplier to Sahara as well?

27:10 You know, that's something we look at. Right now, our agreement with Samsung is just for the United States, so our focus is on the U.S. today, and our focus is on the bundle we're offering, which includes their displays with our software as well as our training modules that we're offering. And so... I think right now we're focused on 2021 to start to see, you know, get good uptick in selling units. And it's something we could evaluate down the road. But right now, again, our focus is just selling that bundle in the U.S. And we'll see where that leads. Okay. And can we expect to continue seeing with the businesses combined some seasonality in the December and March quarters? And what kind of levels of seasonality do you think we would see?

28:00 Yes, so it's going to be stabilized a little bit as we become more global because, you know, schools have different schedules internationally in some areas than they do here in the U.S. That being said, we still expect to see a lighter Q1 and then it's uptick a little bit in Q2. Q3 is still going to be the strongest quarter. Q4 will be strong as well. But you've got to expect to see Q1 lighter. And we'll provide some more guidance on that as we start to stabilize our reporting internally. Okay. Okay, and last one from me. What was the reason for the increase in distributor sales and something that you might see in future cores?

28:40 The increase in distributor sales was because we entered into a new distribution agreement with D&H Distributing, which is a large $4.5 billion distributor here in the U.S. They have multiple logistics centers throughout the U.S. and they sell a tremendous amount of education. And we entered into that agreement for a couple reasons. they had committed to carry inventory in their distribution centers. And then number two, they've committed a quick turnaround to ship. If our partners that we sell through, if they place orders with D&H, there'll be a quick turnaround in inventory. So those were the main reasons. Beyond that also, D&H has a large network of channel partners, some of which we don't sell through today in education, and we had hoped that we could start to gain access to some of those partners, and I believe we'll start to see that happen more But that being said, there is a cost of selling through D&H distribution or through other distribution.

29:32 And on average, it's costing us from 2% to 5%, depending on the orders that we place through them. And so we did see an uptick because we had a lot of our partners that chose to buy from D&H versus directly through us. And we pushed some partners to D&H as a result of, again, providing better service to our partner network. But we believe that over time we can offset that a little bit with with improving margins in other areas. But we did take a little bit of a hit to last quarter with the shift of that business to distribution. Great, thanks. That's all for me. I apologize. Next, we go to the line of Jack Vanderaard with Maxim Group. Please go ahead.

30:19 Great. Hi, Michael. Hi, Takesha. Congrats on the quarter and the Sahara acquisition. Thanks for taking my questions. So, Michael, in your prepared remarks, you mentioned that you're seeing increased demand in the fourth quarter and you expect to generate revenue of at least $27 million along with positive adjusted EBITDA. I'm not sure if you provide this or if you feel comfortable providing this yet, but can you provide any more granularity on that 27 million plus revenue guide between maybe what you expect core BoxLite versus Sahara to what that mix would be?

30:58 Yeah, I could provide a little bit. Let me just mention that the way we came to that $27 million number was number one, looking at, of course, orders that have shipped already during the quarter. and then number two, we look at our back orders that we believe we can fill and then number three, we look at our weighted pipeline and look at realistically what we believe that we can sell and deliver from within our pipeline. So we feel really good about that $27 million number. I'm not in a position right now to try to break out what the historical box light was versus kind of what the Sahara would be because honestly, we don't even track it like that anymore. We're really focusing on markets. So internally, we're tracking U.S. as a market, and then we track EMEA as a market. Largely in EMEA, we're going to be selling the CleverTest brand. And so a lot of the partners in the past that we're selling are Mimeo-branded solutions.

31:48 A lot of those will start to shift over. And in the U.S., we're focused primarily on our Mimeo K-12 brand. There is some clever touches being sold in the U.S., and that's going to continue. But our key focus going forward is going to be on the Mimeo brand. So that being said, I think I could give you kind of an idea, perhaps at the end of the quarter, but generally it's going to be market-based. As far as what we're seeing for the historical core box flight business, we're having a great quarter. I'll just leave it at that, that we started off really strong, much stronger than where we started off last year. And so we expect even that core business to be significantly stronger stronger than it was the same quarter last year. And I would just mention that the industry also is seeing a strong increase. I mentioned some of the research from FutureSource, which is the research report that we track pretty closely. But if you look at what they say around the growth in interactive displays, they're expecting Q4 to be a really, really good quarter.

32:42 In fact, Q3 was actually a strong quarter for the sale of interactive displays, where Q3, if you look at the globe excluding China, it actually had a pretty good increase of about 11%. and then if you look at just the US alone, the US also had an increase that was about 11% over the same quarter last year. And then EMEA had about an 8% increase over the same quarter last year. So even though it's been a strange environment with COVID and schools trying to figure out how to operate in this new environment, there actually was an increase sales of Interactive Flat Panels last quarter over the same time last year. Now, we actually got hit with some of our contracts where I don't know that we saw that broad impact, but now that we're a much larger, more global company, I expect us to trend a little closer to the market going forward.

33:38 And then if you look at FutureSource, what they're projecting in future years, they're showing good growth. 2021 is going to be higher than then 2020 and 2019 were. 2019, 2020, they expect to be roughly flat, which shows that Q3 was good. Q4 should be strong. And then if you're looking at growth over the next few years, they're showing good growth. So, again, I think we're going to see good uptick in both the U.S. and EMEA on a go-forward basis.

34:04 Got it. That's helpful. A lot of added clarity there. I appreciate it. and then maybe if I look at Sahara's 2019 financial statements and, you know, just do a rough conversion of U.S. dollars, their 2019 revenue looks like it was about $100 million USD. Can you provide just any insight or any color on how Sahara's revenue has tracked during 2020 relative to their 2019 numbers? Has revenue been up, down, flat, you know, given COVID and everything or just heading to zero? insight into that. So I'm wondering if you could provide any clarity there.

34:42 Yeah, so we're a little hesitant, Jack, to provide too much in the form of numbers just because, again, we're still going through the audit. And once that's complete, you know, we're going to provide those pro forma combined statements, both standalone and pro forma combined. And that's going to be first week of December. So it's just around the corner. But I would tell you that they're performing quite strongly.

35:00 and we had, so they've had a good year, year to date.

35:04 They had a tremendous October and we're expecting a really strong, really strong Q4. So they have not seen a significant decline. You know, they've been upticking the most markets. That being said too, they've had strong, strong gross profit, actually slightly stronger than historical. And so that's why we're expecting to see, as Takesha mentioned, combined gross profit of 25 to 30 points and possibly on the higher end of that gross profit margin. uh, range. Got it.

35:33 Okay. That's helpful as well. Um, and then maybe if I just, um, back to like box, like core products, um, can you provide maybe a status update on Mimeo clarity and what your, your business expectations are from, from this product in terms of revenue? Cause I believe earlier in the year, um, a couple of quarters ago, you had initially planned for this to be like a 10% of revenue contributor. before the launch was delayed because of COVID-related issues. But any update on Mimeo Clarity sales and, I don't know, revenue attribution?

36:08 Yeah, so the delays on Clarity, which we did have substantial delays, those were on the manufacturing side where we had a lot of complications trying to get that to market. Those are essentially largely behind us. And so we have a finished product. We're actually piloting the product in several school districts as we speak, and it's going quite well. And we picked up our first sales during the quarter. We sold about 300 units that were sold during the quarter. I still think that 10% or even potentially something north of that is very possible for that solution and a time margin. And so I think Q4 is going to be a good quarter for us to be able to give you another update after Q4 of what we sold of that audio solution. But we stand behind it. I believe it's the best in the market. and we think that we're going to have a really good attachment to the displays that we sell, of selling that audio solution as well.

37:00 Got it. And then just one more question from me. Can you talk about your, just as it relates to your overall customer base, and maybe what percentage you would say have already purchased a Boxlite virtual hybrid learning solution from you, which I believe would be considered your Mimeo Connect offering? What would you say your overall penetration is of your existing customer base and what's left for remaining opportunity to sell the Mimeo Connect offering?

37:30 Yes, so I would tell you first that we are very optimistic about the platform. It's fantastic. I don't think there's a better platform out there. And it was built directly to address the need of today in these hybrid environments, but also virtual, but also It's fantastic in a traditional environment, so it's built for all environments. That being said, we're early on to where we launched the platform recently. We've been demoing it, showing it. We don't have any large implementations that we can point to yet, but we are having it used in several districts, and we're expecting to start to see those. In addition to that, something that we're offering to districts that buy panels, that we're going to include Mimeo Connect for a trial period, and so that's going to give them a chance to test it and use it as well.

38:16 And we're just now starting to launch some marketing efforts. So I think, again, I think Q4, Q1, you're going to start to see some good adoption. But to this point in time, we don't have any large deployments yet of Connect. I would say there are several potentially in the works, but none that we could announce at this point in time.

38:34 Okay. Great. Thank you, Michael. I appreciate the added color and Look forward to what Q4 and beyond brings to the BoxLight story. That's it for me. Thanks.

38:44 Thanks, Yannick. Our next question or comment comes from the line of Alan Klee with National Securities. Please go ahead.

38:52 Hi. This might be a definitional question, but you're guiding to, you know, $27 million plus of revenue, but You said your orders increased to 9.3 and your backlog is 9.7. Those numbers sound kind of low to be estimating 27 million plus of revenue. Could you explain that a little more?

39:22 Well, the order figure you're looking at, those are orders for last quarter. Those are Q3 orders. So that's not applicable to the guidance we're providing for Q4. Now, the back orders are, that back order figure, you could expect the vast majority, if not all of that, would be fulfilled within Q4. So when we're coming up with a Q4 number to guide towards, number one, it's those back orders, right? And we can even, you know, at this point, we know what has been fulfilled to this point in time, which would be a large chunk of that. Number two, we're looking at new orders that have come in during the quarter that we can fulfill. and then number three, we're looking at our pipeline, our sales pipeline and the combination of those that they've allowed us to guide to that 27. Now we'll say also we've done a lot of diligence on the historical pipeline that Sahara has had as well as their performance to pipeline and also performance to their forecast and so we feel really confident the combination of where they are, where they've been as well as what we have with historic FoxLight business Again, we feel really strong about those figures.

40:25 But the only relevant figure of those two, Alan, just to be clear, is just going to be the backlog that would be fulfilled in Q4. Okay.

40:34 Would you know what your amortization expense run rate would be and depreciation going forward?

40:42 Going forward. We're still working on finalizing the purchase accounting. We have, of course, so long to kind of finalize that since we closed the acquisition on September 24th. So we have not yet finalized that. But once we get that number finalized, once we get those balances finalized, we'll be better able to provide an amortization amount. From a depreciation perspective, we have minimal PPE, both box flight and So there's not going to be much of a change there, but the bigger change is going to be related to the intangibles that have been identified for the Sahara acquisition.

41:25 Okay. If I look at the historical financials that are available on Sahara, and I realize they're not GAAP, so you have to take them with a grain of salt, but is there any reason to think that those type of financials Bottom line numbers are somewhere in the range of kind of where the run rate could be for their contribution.

41:50 Alan, I think you're generally safe on that. We're not making substantial changes to their business. So I think you're generally safe on that. Now, the one thing, though, is you've got to be careful if you're trying to calculate a net income number. that there could be some things in there from the purchase accounting. So we're hesitant to speak to a net income number because we don't know what the amortization will be or if there'll be other implications from the purchase accounting or otherwise. But if you're looking at adjusted EBITDA number, we feel very comfortable about adjusted EBITDA number to be in line with what you would calculate with their numbers generally, historically.

42:24 Okay, very good. Thank you so much.

42:28 Thanks, Alan. Next, we go to the line of Howard Schwartz with microcap headlines. Please go ahead.

42:36 Hello, Michael, and hello, Takesha. I tip my hat to you for the recent, what I consider, blockbuster news announcements over the last several months, so I just want to start with that. Now, the Sahara acquisition, what were the terms of the preferred stock? It's convertible, correct? Correct.

42:58 That's right, Howard. So the preferred stock is convertible. The price was set the day after the acquisition, which ended up being $1.66. So all of that preferred stock is convertible at $1.66. Now it's redeemable, meaning, of course, the company could pay off that preferred stock at any point in time prior to the conversion. And then it's only convertible after there was 10 million pounds of in Series C and 12 million pounds in Series B convertible preferred. The Series B is convertible after 2024, and the Series C is convertible after 2026. So my point is we have a long time before that potentially could convert, and then between now and then it's redeemable. If it is allowed to convert at some point in the future, right after those dates, it's $1.66. That's the conversion price, and there is a leak-out provision to where it couldn't hit the market all at the same time.

43:51 But $1.66 is the absolute set price,

43:58 correct? That's right, $1.66, yeah.

44:03 Okay, so currently there's approximately 50 million shares total outstanding. Is that fully diluted with taking into account the preferred stock converted or no?

44:15 Yeah, so there's about 51 million shares outstanding, yes. But it's only going to take into account a portion of the preferred. Takeshi, you want to speak to that?

44:26 Yeah, so currently we have about 51.2 million shares outstanding. Then we also have the land convertible debt, which is about $24 million on the balance sheet right now. We amortize that monthly over two years. and we pay it utilizing stock. There's a stock or a cash option. We pay it using stock and there's a 10% discount and a 20-day look back on that. So we have that as well in addition to the preferred stock that Michael talked about previously.

45:00 So you got 51 million shares approximately in Australia and you got about 24 million in the convertible notes to Lynn Partners and then you got about 29 million in preferred stock. So, you know, depending on how you look at that, again, the convertible notes amortized over two years. We're on the early end of that. And so we could elect to pay that off with cash if we wanted to, which in that case it wouldn't be dilutive. Or same thing with the preferred. If we redeem the preferred at some point, you know, it wouldn't be as dilutive. Or if we were to do an equity raise in the future and we have multiple years to address that, perhaps not as dilutive, but you'll have to kind of run your own calculations on that.

45:36 Right. But absolutely, it's true. Toxic provision with LendPartners or the preferred, of course.

45:44 No, so the payments to LendPartners, like we said, it's over two years, monthly payments, and those are payable in stock or cash at our option. So, yeah, I don't believe it would fit into that toxic category. And then also it's convertible at a premium. The most recent $22 million we raised is convertible at $3.50. So if the stock were to run north of that, Yeah, they could convert it $350,000. And then also I would mention that the cost of capital is relatively low, and we had a low interest rate on that. Total cost was low teens if you take the OID plus the APR.

46:22 Right. All right, so, I mean, to me it looks like with approximately $44 million in shareholders' equity with what's total outstanding, your book value is about $0.90 a share. So you're trading right now under two times book and trading under one times revenue with the current price of the stock. I mean, at $2, you'd only be trading at one times revenue.

46:49 Just making a statement. That sounds like a good entry point, maybe. Look, we're believers. We've come a long way. Those of us that have been following us the last few months,

47:01 Yeah, I'm just making the statement that the stock has been moving up over the last few days to over $1.70, and it closes today down at $1.50. Kind of baffling to me. Maybe whoever the sellers were didn't fully understand this acquisition. They're just looking at the third quarter, not taking into account that you're only picking up a fraction of the revenue for the third quarter. It's all going to be in the fourth quarter.

47:29 Yeah, we're definitely excited to share the fourth quarter and start sharing next year because then you're going to see the combined financials of both companies. So you're spot on.

47:40 Okay, great. Well, thanks again. Thanks for the answers.

47:44 Thank you, Howard.

47:45 Okay. This concludes our question and answer session. We return to Michael Pope for closing remarks.

48:02 Thank you everyone for joining the call. Thanks for your support and we look forward to speaking with you again in March when we report our fourth quarter results. Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.