Boxlight Corp: more dilution for common shareholders despite a better than expected Q2

gorodenkoff

To note:

I covered Boxlight Corporation (NASDAQ:BOXL) previously, so investors should consider this an update to my previous articles on the company.

Last month, Boxlight Corporation or “Boxlight” reported better than expected second quarter results and full year guidance confirmed $250 million in revenue and $26 million in adjusted EBITDA.

Key financial indicators

Company press releases

For the strongest seasonal third quarter, management expects to generate over $70 million in revenue and $10 million in adjusted EBITDA.

To meet the company’s annual targets, Boxlight is expected to deliver a similar performance in the seasonally weaker fourth quarter. Asked about this by an analyst during the conference call, new financial director Gregory Wiggins provided additional granularity:

Jack Arde

OK. Great. Jack Aarde is here, analyst at Maxim Group. Congratulations on the good results guys and welcome aboard Greg Wiggins, CFO. Congratulations for that. A few questions for me. I’ll start with a question about orientation. So the third quarter forecast is over $70 million in revenue, and you’ve maintained that the 22 revenue guide is strong growth. This seems to imply stronger than normal seasonality in the fourth quarter. Maybe it’s due to FrontRow or maybe something else. Can you just talk about the variability of your revenue target of over $70 million for Q3? And then also if there is a changing seasonality dynamic in the fourth quarter?

Gregory Wiggins

Yes. So thank you Jack. Enjoy the introduction as well. So you’re right, based on our forecast, it’s expected to project a strong Q4 with a little stronger Q4 than probably under — in the past. However, as we shift our guidance for the third quarter, we are heading north of $70 million and $10 million of adjusted EBITDA. You note that the strength of Q3 will depend somewhat on the level that we will also need in Q4. I think where we look at that is that the pipeline is very strong. We have a large amount of backorders currently in progress. So while there could be potential timing between Q3 and Q4, I think we could potentially see a little stronger Q3, which could impact what we ultimately have to do in Q4. But I think for the second half of the year, we’re definitely seeing a strong pipeline, so we would hit our full year target of $250 million.

Adjusted gross margin of 30.2% reached its best level in eight quarters, driven by higher margin contributions from the recent acquired FrontRow Calypso, reduced manufacturing costs and some relaxation of freight costs.

Going forward, the company is expected to reap substantial benefits from rapidly declining container freight rates.

Unfortunately, Boxlight experienced additional cash outflows in the second quarter and ended the quarter with $11.6 million in cash and cash equivalents and $59.9 million in debt under its new credit facility with WhiteHawk Capital Partners (“WhiteHawk”).

During the quarter, the company’s poor financial situation led to the obligation to edit the credit facility for the second time in just two months on much worse terms (emphasis added by author):

The Second Amendment to the Credit Agreement was entered into for the purposes of the Lender financing a $2.5 million Deferred Drawn Term Loan and adjusting certain terms of the Credit Agreement, including adjustment of applicable margin (as defined in the Second Amendment) to 13.25% for LIBOR loans and 12.25% for benchmark loansincreasing the definition of change of control from 33% of the voting rights to 40% of the voting rights, rrequiring the Company to engage a financial adviser and grant additional time, until July 15, 2022, to the Company to comply with certain borrowing base requirements stipulated in the second amendment to the credit agreement, among other adjustments.

During the six-month period ending June 30, 2022, the Company repaid principal of $1.3 million and interest of $3.6 million to Whitehawk.

At the premium rates, Boxlight’s annual interest obligation is approximately $10 million.

The company’s borrowing base issues likely prompted the need to raise additional equity in July:

Boxlight Corporation, a leading provider of interactive technology, digital signage, classroom audio and services, today announced that it has entered into a securities purchase agreement with a single institutional investor to purchase approximately 5 .0 million of its common stock (or pre-funded warrants in lieu) and common stock purchase warrants under a registered direct offering. The combined purchase price of one common share (or pre-funded warrant in lieu thereof) and one common share warrant will be $0.68. Pursuant to the securities purchase agreement, Boxlight has agreed to sell 7,352,940 shares of common stock (or prefunded warrants in lieu) and warrants to purchase up to a total of 7,352,940 ordinary actions. The warrants will be exercisable six months from the date of issue, will expire five and a half years from the date of issue and will have an exercise price of $0.68 per common share.

Boxlight received net proceeds of $4.6 million, but in combination with the 7.35 million warrant sweeteners, the offering has the potential to increase outstanding shares by more than 20%.

Remember that the company will be required to repay $8.5 million to WhiteHawk through February 28, 2023.

In order to comply with the terms of the Amended Credit Agreement, the Company will either need to generate substantial free cash flow or raise additional equity or Boxlight risks missing the scheduled repayment of the 8.5% credit facility. million early next year.

Conclusion

Boxlight reported better-than-expected second-quarter results and confirmed full-year guidance, but tight credit facility terms apparently resulted in a requirement to further dilute common shareholders early in the third quarter.

With annual interest obligations of $10 million and the obligation to repay $8.5 million under the credit facility within the next five months, common stockholders may have to prepare for dilution. additional.

That said, H2 results should benefit from a significant reduction in freight costs, which should further boost margins.

Given the potential for an upside surprise, highly speculative investors and traders should pay close attention to the company’s third quarter report in November, but at this point I would suggest staying on the sidelines.

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