Thank you, and welcome to the Boxlight Second Quarter 2022 Earnings Conference Call. [Operator Instructions] This call is being webcast and is available for replay. The remarks today will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about future results of operations, business strategies and plans, customer relationships, market trends and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from the forward-looking statements.

A detailed discussion of such risks and uncertainties are contained in the company's most recent Form 10-K, Form 10-Q and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, management will refer to non-GAAP measures that, when used in combination with GAAP results, provide additional analytical tools to understand the company's operations. The company has provided reconciliations to the most directly comparable GAAP financial measures in the earnings press release, which will be posted on the Investor Relations section of the company's website at boxlight.com.

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

Michael Ross Pope - Chief Executive Officer and Chairman

Hello, everyone, and thank you for joining today. I'm happy to report our Q2 financial performance of $81 million in customer orders, $60 million in revenue and $5.2 million in adjusted EBITDA, exceeding our guidance for the quarter. We also ended Q2 with $56 million in back orders, the strongest order pipeline in our history and a healthy balance sheet, including $12 million in cash, $45 million in inventory $5 million in working capital and $44 million in net assets. We further supplemented our working capital position subsequent to quarter end through a $5 million equity offering, as was required by our senior lender. On a go-forward basis, we expect to generate positive cash flows from operations and currently have no plans for additional fundraising.

We are experiencing strong demand for our solutions globally, particularly in the United States, Puerto Rico, Western Europe and Australia, and we expect to continue to deliver double-digit revenue growth over the next several quarters. Internationally, we recently opened two new sales offices in Ontario, Canada and Queensland, Australia, and welcome to significant new partner, Avion Interactive in Finland. The most significant improvement during the second quarter was our increase in gross profit margin from 25% in Q1 and 28% in Q2. This improvement was in part due to an easing of supply chain and logistics challenges. For the second half of 2022, we expect further gross profit margin improvement to approximately 30%. Key orders for the second quarter in the U.S. included $14.1 million from Bluum, $7.4 million from D&H Distributing, $6.1 million from ELB, $3.1 million from Visual Techniques, $2.7 billion Data Projections, $2.3 million from Central Technologies, $2.1 million from Advanced Classroom

Technologies and $1.4 million from Digital Age Technologies. Internationally, we received significant order intake of $7.1 million from Camera Mundi in Puerto Rico and $1.3 million from Roche Audiovisual in the U.K. The third quarter is seasonally our strongest, and we expect to deliver greater than $70 million in revenue and $10 million in adjusted EBITDA. For the full year 2022, we reiterate our guidance of $250 million in revenue and $26 million in adjusted EBITDA. We have been awarded several of the largest K-12 education projects in the U.S. and are delivering our solutions to Dallas ISD, Houston ISD, Montgomery County Public Schools, Cleveland Metropolitan and San Diego Unify to name a few. Overseas, we have recently won significant opportunities in both Denmark and Switzerland. We are also experiencing notable growth in our enterprise vertical and have delivered solutions to the United States Air Force, Bloomberg, DHL and various higher education customers such as Braydon Young University, Riverside College and Northwestern State University. During the second quarter, we launched our next-generation Mimio Pro4 and our Clevertouch Impact Max interactive panels with upgraded hardware and software offerings. We also introduced Cleverstore three, our browser-based app store with hundreds of education applications and Clevershare five, our collaboration tool, providing enhanced screen sharing and screen casting functionality.

Also during the quarter, we announced a partnership with Logitech to offer collaborative meeting room solutions with our Clevertouch ecosystem for the enterprise market. Specifically, the Microsoft Teams Room solutions from Logitech integrates seamlessly with both interactive and commercial displays powered by CleverLive. Companies can now easily deploy Microsoft Teams room environment at scale with the Clevertouch enterprise ecosystem of hardware, value-added services and the CleverLive management system and the Logitech Rally Bar, an all-in-one audio and video conferencing solution. In response to the increased need to communicate messages to all school and district personnel and students quickly, our brand front row released attention and an integrated AV campus communication system. Attention enables announcements, bells and alerts can be delivered as both audio and video simultaneously to every speaker and display in a school. This new integration makes communicating across school campuses significantly easier and natively integrates via the CleverLive application. Our best-in-class solutions continue to make ways in the industry. And during the second quarter, we received industry awards from tech and learning, EdTech Innovation Awards and AV News for our interactive displays, software solutions, STEM tools and professional development services.

Additionally, Boxlight was named the overall EdTech Company of the Year at the 2022 EdTech Breakthrough Awards. Lastly, I'd like to introduce Greg Wiggins, who accepted the role of Chief Financial Officer at Boxlight in June of this year. Greg is a certified public accountant with more than 15 years of experience providing corporate finance leadership to high-growth companies.

With that, I will now turn the time over to Greg to provide additional financial insights.

Gregory S. Wiggins - Chief Financial Officer

Thanks, Michael, and good afternoon, everyone. I will now review our second quarter results. Revenues for the three months ended June 30, 2022, were $59.6 million as compared to $46.8 million for the three months ended June 30, 2021, resulting in a 27.5% increase, primarily due to the inclusion of FrontRow and increased demand for our solutions across all markets. FrontRow revenues the three months ended June 30, 2022, totaled $6.8 million or approximately 11% of our total revenues. Taking a closer look at Q2 2022 revenues, EMEA revenues totaled $20 million or 34% of our total revenues. Americas revenues totaled $37.3 million or 62% of our total revenues, while revenues from all other markets totaled $2.3 million or 4% of our total revenues.

Our top 10 customers represented approximately 54% of total sales in Q2 with the single largest customer at approximately 16% and are based across a number of markets, namely the U.S., Puerto Rico, Australia and the U.K. Approximately 68% of total sales are covered by the top 20 customers, which is comparable to Q1 2022. In Q2 2022, hardware comprised the largest proportion of total revenues at approximately 93% of which approximately 79% related to our flat panel displays with the balance related to classroom audio solutions and interactive flat panel device accessories. The balance of our total revenues are comprised of software, services and STEM solutions. Gross profit for the three months ended June 30, 2022, was $16.8 million as compared to $12.8 million for the three months ended June 30, 2021.

Gross profit margin for the three months ended June 30, 2022, was 28.2%, which is an increase of 80 basis points over the comparable three months in 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting was 30.2% as compared to 29.2% as adjusted for the three months ended June 30, 2021. The improvement in gross profit margin in Q2 2022 compared to Q2 2021 is primarily due to higher margins associated with FrontRow products and reduced manufacturing costs previously discussed during our Q1 2022 earnings call. While reductions in certain freight costs have been experienced during Q2 2022, gross margins continued to be adversely impacted by increased freight costs from pre-pandemic levels. Total operating expenses for the three months ended June 30, 2022, were $16.0 million as compared to $11.3 million for the three months ended June 30, 2021. The increase primarily resulted from additional overhead costs associated with the acquired FrontRow operations, including related intangibles amortization and employee-related expenses to support the growth of our U.S. and EMEA operations.

Other expense for the three months ended June 30, 2022, was a net expense of $0.8 million as compared to net expense of $1.3 million for the three months ended June 30, 2021. The key movements were a $1.6 million decrease in the fair value of derivative liabilities and a reduction of $0.5 million and losses recognized upon the settlement of debt obligations in the prior year quarter, partially offset by an increase in interest expense of $1.7 million associated with increased borrowings related to our new credit facility. The company reported net income of $26,000 for the three months ended June 30, 2022, as compared to a net loss of $2.2 million for the three months ended June 30, 2021. The net loss attributable to common shareholders was $0.3 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively. After deducting the fixed dividends to Series B preferred shareholders of $317,000 in both 2022 and 2021, and the fair value revaluation deemed contribution of $367,000 following the redemption amendment with the Series B shareholders in the second quarter of 2021.

Total comprehensive loss was $4.6 million and $1.7 million for the three months ended June 30, 2022 and 2021, respectively, reflecting the effect of foreign currency translation adjustments on consolidation with the net effect in the quarter of $4.6 million loss and $0.5 million gain for the three months ended June 30, 2022 and 2021, respectively. Earnings per share for the three months ended June 30, 2022, was $0.00 compared to a $0.04 loss for the three months ended June 30, 2021. EBITDA for the three months ended June 30, 2022, was $4.8 million as compared to $2.9 million EBITDA for the three months ended June 30, 2021. Adjusted EBITDA for the three months ended June 30, 2022, was $5.2 million as compared to $5.4 million for the three months ended June 30, 2021. Adjustments to EBITDA include stock-based compensation expense, gains losses from the remeasurement of derivative liabilities, gains losses recognized upon the settlement of certain debt instruments and the effects of purchase accounting adjustments in connection with recent acquisitions.

Now turning to our results for the year-to-date period. Revenues for the six months ended June 30, 2022, were $110.2 million as compared to $80.2 million for the six months ended June 30, 2021, resulting in a 37.5% increase due primarily to the acquisition of FrontRow in December 2021 and increased demand for our solutions across all markets. Gross profit for the six months ended June 30, 2022, was $29.4 million as compared to $21.4 million for the six months ended June 30, 2021. The gross profit margin was 26.7% for both the six months ended June 30, 2022, and the six months ended June 30, 2021. Gross profit margin adjusted for the net effect of acquisition-related purchase accounting for the six months ended June 30, 2022, as compared to 28.7% as adjusted for the six months ended June 30, 2021. Total operating expenses for the six months ended June 30, 2022, were $32.0 million as compared to $21.9 million for the six months ended June 30, 2021.

The increase primarily resulted from additional overhead costs associated with the acquired FrontRow operations in December 2021, including related intangibles amortization and employee-related expenses to support the growth of our U.S. and EMEA operations. Other expense for the six months ended June 30, 2022, decreased to $2.1 million to net expense of $2.3 million as compared to net expense of $4.4 million for the six months ended June 30, 2021. The decrease was primarily due to a $2.7 million loss recognized upon the settlement of certain debt obligations in exchange for issuance of common shares and a $1.9 million decrease in the fair value of derivative liabilities in Q2 2022, partially offset by an increase in interest expense of $3.0 million associated with increased borrowings under the new debt facility. The company reported a net loss of $4.8 million for the six months ended June 30, 2022, as compared to a net loss of $7.4 million for the six months ended June 30, 2021.

The net loss attributable to common shareholders was $5.5 million and $7.7 million for the six months ended June 30, 2022 and 2021, respectively, after deducting fixed dividends to Series B preferred shareholders of $635,000 in each period, and the fair value revaluation deemed contribution of $367,000 following the redemption amendment with the Series B shareholders during the six months ended June 30, 2021. Total comprehensive loss was $11.2 million and $7.1 million the six months ended June 30, 2022 and 2021, respectively, reflecting the effect of cumulative foreign currency translation adjustments on consolidation with net effect year-to-date of $6.4 million loss and $0.3 million gain for the six months ended June 30, 2022 and 2021, respectively. Earnings per share loss for the six months ended June 30, 2022, was negative $0.08 per basic and diluted share compared to negative $0.13 per basic and diluted share for the six months ended June 2021. EBITDA for the six months ended June 30, 2022, was $4.4 million as compared to $0.5 million of EBITDA for the six months ended June 30, 2021. Adjusted EBITDA for the six months ended June 30, 2022, was $6.4 million as compared to $7.0 million for the six months ended June 30, 2021. Turning to the balance sheet. At June 30, 2022, the Boxlight had $11.6 million in cash and cash equivalents, $53.8 million in working capital, $45.3 million in inventory, $196.7 million in total assets, $53.4 million in debt and $43.5 million in stockholders' equity. At June 30, 2022, Boxlight had 66.2 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding. With that, we'll open up the call for questions.

Question & Answers

Operator

[Operator Instructions] Your first question for today is coming from Jack Vander Aarde.

Jack Vander Aarde - Maxim Group LLC - Analyst

Can you hear me okay?

Michael Ross Pope - Chief Executive Officer and Chairman

Yes, we can hear you great, Jack.

Jack Vander Aarde - Maxim Group LLC - Analyst

Okay. Great. Jack Vander Aarde is here, analyst at Maxim Group. Congrats on the solid results guidance and welcome aboard to Greg Wiggins, CFO. Congrats on that. A couple of questions for me. I'll start with a question on guidance. So the third quarter guidance greater than $70 million of revenue, and you maintained the '22 revenue guide is strong growth. This seems to imply a stronger than typical seasonality in the fourth quarter. Perhaps it's due to front row or maybe something else. Can you just speak to how much variability maybe your upside in that $70 million-plus revenue target for the third quarter? And then also if there's any shipping seasonality dynamics in the fourth quarter?

Gregory S. Wiggins - Chief Financial Officer

Yes. So thanks, Jack. Pleasure to please make the introduction as well. So you're right, it does from our forecast to project a strong Q4 with a little bit of stronger Q4 then probably under in the past. However, as we guide forecast for Q3 as we're guiding north of $70 million and $10 million in adjusted EBITDA. You note that the strength of Q3 will somewhat depend on the level we need in Q4 as well. I think where we kind of look at this is, the pipeline is very strong. We've got a strong amount of back orders currently in play. So while there could be potential timing between Q3 and Q4, I think we could potentially see a little bit stronger Q3, which may impact what we ultimately need to do in Q4. But I think for of the second half of the year, we're certainly seeing strong pipeline such that we would meet our full year guidance of $250 million.

Jack Vander Aarde - Maxim Group LLC - Analyst

Okay. Understood. And then maybe a follow-up. We see the gross margin rebound and recover, best I was expecting. And given your - I think I heard your targets for the back half of the year is 30% or so, just wondering how much of that is due to supply chain costs and the disruption kind of improving versus expected. Maybe first expected change or shift in revenue mix of higher-margin revenue streams. We have FrontRow added to the mix here as well as we've got higher margin, but maybe just talk about maybe the revenue mix shift going forward between interactive displays and then some of your higher-margin services and software, and how that's contributing to the gross margin upside?

Gregory S. Wiggins - Chief Financial Officer

Yes. So I think we've seen a lot of the growth in the gross profit margin really due to the effect of some of the lower manufacturing costs starting to take hold as well as some of our improved pricing measures that we've started to implement in the first half of the year. Certainly, we do want continue to grow some of our non-panel display products as well that are higher margin as well. We kind of see that more as future growth in the profit margin, whereas some of the short-term increases that we're seeing are really more tied to the improved pricing and the lower manufacturing costs that we're starting to take hold in Q2, and we foresee continuing on through the second half of the year.

Jack Vander Aarde - Maxim Group LLC - Analyst

Great. And then maybe one more follow-up question for Michael. Sounds like you guys are having some great new, I guess, traction with CATclassrooms in school districts. Can you just give us an update kind of on the refresh cycle opportunity again of the customer demand from the school district. Are you seeing increased traction or increased demand from new districts, or is it expansion and takedown opportunities of prior districts? Just any comments there would be helpful.

Michael Ross Pope - Chief Executive Officer and Chairman

Yes. No, thanks, Jack. So most of the opportunities we're seeing are refresh opportunities. So these are school districts that are replacing old technology often its old interactive whiteboards they're replacing. And in some cases interactive flat panels - first-gen interactive flat panels so largely refresh. Now when they're refreshing, they're taking out competitors' products and then generally, the contracts we're winning at putting in our solutions, replacing a competitor. But it's an interesting time for the industry, largely because there's a lot of money in the industry. And that's really driven by the fact that school districts already had relatively robust budgets. But those budgets were augmented with federal funds. And as we've talked about in the past, we have these ESSER funds, about $191 billion that was allocated to education. Most of that $191 million billion hasn't been spent. So that's being spent now. The bulk of that expires in 2024, if it's not extended - if it's not expended. And so we're seeing the school districts looking at ways to utilize that money, and we're as well as the industry is benefiting from this additional money within the system. And so as we're looking out, we're expecting more and more of these large refreshes. And I would add as well that we're seeing some really big districts right now where there's opportunities for us to compete. There's various RFPs out there with some of the largest school districts in the country, and we're hoping we win some of those, which will further expand our opportunities going forward.

Jack Vander Aarde - Maxim Group LLC - Analyst

And that's great. And actually, just I'll sneak one more question in there. Given the strong customer orders of like over $81 million received in the quarter. And inventory is nice to me. It looks like it's building over $45 million. Can you just talk about your inventory levels on hand, and how you expect that to build or to shift going forward? Just giving you such strong customer orders and seem like you have a pretty loaded back half of this year, how are you planning the inventory?

Michael Ross Pope - Chief Executive Officer and Chairman

Yes. So I would say, first off, from an inventory standpoint, we're in a better position now than we've been in the last couple of years in that we have inventory in-house where we have it on the way or being manufactured now to hit our targets for Q3, and we're already scheduling that for Q4. And that was not the case even a quarter ago, we were having more struggles of getting deposits down and getting inventory planning in place. So we're in a really good place. As far as dollars, we're going to see that inventory balance start to decline a little bit through the slower part of the year and then it ramps up again in Q1 preparing for the strong season in Q2, Q3. So you'll see that kind of come a little bit and then ramp back up, of course based on our projected growth, those inventory levels should be a lot higher come this time next year. But we're really kind of out of the - we're out of the crunch that we run into seasonally to where there's higher demands on having inventory production in place.

Operator

Once again, if there are any questions on your phone at this time. There appear to be no further questions in queue. I would like to turn the floor back over to Michael for any closing comments.

Michael Ross Pope - Chief Executive Officer and Chairman

Great. Well, thank you, everyone, for your support and joining us today on our second quarter 2022 conference call, and we look forward to speaking with you again in November when we report our Q3 2022 results. Thank you.

Operator

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