Boxlight Corp Q1 FY2023 Earnings Call

Thank you, and welcome to the Boxlight First Quarter 2023 Earnings Conference Call. By now, everyone should have access to the press release issued this afternoon. This call is being webcast and is available for replay. The remarks today will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about future results of operations, business strategies and 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'll hand the call over to Boxlight's Chairman and Chief Executive Officer, Michael Pope.

Hello, everyone, and thank you for joining the call today. After my remarks, you will also hear from Mark Starkey, our President; and Greg Wiggins, our Chief Financial Officer. 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. Our current and future success is entirely dependent on your support. 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 with us today as well as Hank Nance, our Chief Operating Officer; and Shaun Marklew, our Chief Technology Officer. Hank and Shaun bring decades of industry-specific experience and have been instrumental in developing and maintaining our best-in-class product suite and support organization. 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 at Promethean; Clint Knudsen, Vice President of Sales covering the Western U.S., an industry veteran of 15 years, including 11 years at our largest channel partner, Bluum; Julia Moore, Sales Director covering Germany and Austria also previously at Promethean; and Mark Tildesley, Enterprise Sales Director for the EMEA region, bringing over 20 years' experience, including 14 years at Maverick Tech Data. Our employee retention has consistently exceeded 90%, well above the industry average, and we are attracting industry talent often from our largest competitors. 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. For the first quarter, I'm pleased to report we delivered $41.2 million in revenue and $3.3 million in adjusted EBITDA, exceeding our guidance. 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%. Driving our improved profitability was our strong gross profit margin of 37%, an increase of 1,190 basis points over Q1 2022 and our best result to date. For the trailing 12 months, we have delivered $212 million in revenue, 32% gross profit margin and $22 million in adjusted EBITDA. 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 our organization for both continued growth and maximum profitability. As of March 31, we maintained a strong balance sheet, including $11 million in cash, $45 million in inventory and $62 million in working capital. Our debt balance was $49 million, a reduction of $9 million from March 31, 2022. We continue to expect modest single-digit revenue growth for the full-year 2023, with the 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 in key global markets. Additionally, there are still substantial government funds allocated for the purchase of Education Technology Solutions, particularly in the U.S. and certain European markets. In the United States, billions of dollars of ESSER 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 to utilize the allocated funds. We recently filed our annual proxy statement and provided notice of our Annual Meeting on Tuesday, May 23 at 11:00 a.m. Eastern. We invite all shareholders to cast their proxy votes prior to the meeting. We have requested your support for several proposals, including the reelection of our seven board members, the ratification of our audit firm, approval on an 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 effect a reverse stock split if deemed in the best interest of our shareholders at any time prior to July 2, 2023. Market valuations have been challenging over the last year, particularly for microcap technology stocks driven by broader economic concerns. As a result, despite our positive financial performance, our stock prices declined to under the minimum $1 stock price requirement by NASDAQ. If the vendor stock price does not organically increase to the required level, we will need to consider a reverse stock split to maintain our NASDAQ listing. In future quarters, we plan to utilize the $15 million share repurchase program we announced earlier this year, repurchasing our stock during times when we have excess cash flows from operations and are trading below our intrinsic value. We maintain a long-term focus and are confident that as we demonstrate continued improvement in our financial fundamentals, in time, the market will reward us with an appropriate enterprise value. 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., U.K., and Western Europe, and that user data is not accessible by unauthorized parties, including foreign corporations or governments. We are unique in that statement as our key competitors are foreign owned and controlled. We continue to offer the most comprehensive integrated solution 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 U.S. market and CleverHub meeting room collaboration solution. We have started to gain traction with our new products and have begun shipping to customers. This quarter, we are launching our new generation interactive displays for Mimio and Clevertouch and will be the first in the industry to include a full Google Enterprise Devices Licensing Agreement certification. This is a significant advancement in the interactive touch for our industry, and we look forward to developing our solutions further with Google. Our EOS Education and Professional Development team is also certified with Google, having an education services partner specialization and Google Cloud Partner Advantage. With the partner specialization, our EOS Education team has the capability and capacity to build customer solutions in the education services field using Google Cloud technology. Our dedicated training specialists provide customized professional development, supporting educators using Google platforms in classrooms and schools efficiently and with confidence. In January, we received 10 awards from tech and learning for several of our hardware, software and service offerings, including Attention!, MimioPro 4, CleverLife, Robo 3D printers, and EOS Education professional development services. Our front row attention solution also won the EdTech Cool Tool Award and our Clevertouch brand won three best-in-show awards at ISC for IMPACT Max, UX Pro 2, and LYNX Whiteboard. 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 will, in turn, deliver durable long-term value to our shareholders. With that, I will now turn the time over to our President, Mark Starkey.

Thank you, Michael, and good evening from London, where we are holding our EMEA partner event this week. Apologies. 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. As the world returns to some form of normality post-pandemic, we are seeing a return to the more usual ed-tech buying patterns in both the U.S. and EMEA with Q2 and Q3 being the busiest buying seasons and with Q4 and Q1 being much quieter. As a result, we are seeing slower order intake and revenues in Q1, albeit with stronger profitability. Order intake in Q1 was $41.5 million, down 35% year-on-year with 50% being derived from the U.S., 47% from EMEA, and 3% from Asia-Pac. Interestingly, despite order intake being down, we continue to grow our market share with our U.S. market share increasing from 5.3% to 7% year-on-year during Q1 and our EMEA market share increasing from 5.6% to 6.2% year-on-year according to future source. Some of our key orders in the U.S. included $4.4 million from GDI, our U.S. distribution partner, $2.2 million from Bluum, $1.6 million from data projections in Texas and $1.3 million for advanced classroom technologies. Overseas, we had some excellent orders, including $1.4 million from Bischoff AG, our partner in Switzerland, $1 million from IDNS in the U.K. and some significant orders from NIAVAC based in Northern Ireland to name a few. In Germany, we have invested in our sales team, and we now have eight Sales Heads, a Marketing Head, and a Country Manager. 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 our Q1 margin increased by 26% year-on-year in Germany. We recently also invested in our first showroom in Germany based in Dusseldorf, with an expectation to open in the next few months. We also won some significant tenders in Germany during Q1, including a 900 screen order from Hammam District for 86-inch IMPACT plus screens 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. Africa may not be our biggest market, but we are passionate about building the best education solutions possible and supporting emerging markets. We have a fantastic dedicated partner in Africa, IAVS, who share our passion for innovation and solutions and have grown our business to be the number one interactive screen for education in Africa. During Q1, they won two large projects in the education sector and also opened a second experience center in South Africa. They are expanding rapidly across territories in Africa and recently trained over 200 educators in Namibia and hosted their first partner event in Botswana. In summary, Q1 order intake and revenues were down, but our profitability continues to improve. Our expectation 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. Revenues for the three months ended March 31, 2023, were $41.2 million as compared to $50.6 million for the three months ended March 31, 2022, resulting in an 18.6% decrease. FX headwinds continue to impact operating revenues in Q1 2023 compared to the prior year quarter. On a constant currency basis, operating revenues decreased approximately 14% for the three months ended March 31, 2023. Taking a closer look at Q1 2023 revenues, EMEA revenues totaled $18.3 million or 45% of our total revenues. Americas revenues totaled $21.3 million or 51% of our total revenues, while revenues from other markets totaled $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% and are based across a number of markets, namely the U.S., U.K., and other European countries, approximately 63% of total sales are covered by the top 20 customers. In Q1 2023, hardware comprised the largest proportion of total revenues at approximately 90%, of which approximately 69% related to our flat panel displays with the balance related to classroom audio solutions and device accessories. The balance of our total revenues is 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. Gross profit margin for Q1 2023 was 36.8%, which is an increase of 1,190 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 for the three months ended March 31, 2022. 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. Total operating expenses for Q1 2023 was $15.3 million compared to $16.1 million in Q1 2022. 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. The decrease was primarily due to losses recognized from the change in fair value of derivative liabilities of $224,000 in Q1 2023, coupled with a gain on settlement of debt of $854,000 in the prior year period. The company reported a net loss of $2.9 million for the three months ended March 31, 2023, as compared to net loss of $4.9 million for the three months ended March 31, 2022. 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 31, 2023 was $2.4 million compared to total comprehensive loss of $6.6 million for the three months ended March 31, 2022 reflecting the effect of foreign currency translation adjustments on consolidation with the net effect in the quarter of approximately $600,000 gain and $1.8 million loss for the three months ended March 31, 2023 and 2022, respectively. EPS loss per basic and diluted share was $0.04 for Q1 2023 and $0.07 for Q1 2022. EBITDA for the quarter ended March 31, 2023, was $1.8 million as compared to negative $300,000 EBITDA for the quarter ended March 31, 2022. 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 debt instruments and the effects of purchase accounting adjustments in connection with the recent acquisitions. Turning to the balance sheet. At March 31, 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, $44.4 million in debt, net of debt issuance cost of $5 million, and $49.8 million in stockholders' equity. At March 31, 2023 Boxlight had 75.1 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.

Thank you. We will now begin the question-and-answer session. The first question today is from Brian Kinstlinger of Alliance Global Partners. Brian, your line is open.

Hi, good evening guys. Thanks for taking my question. You said you expect modest single-digit revenue growth. Sorry to ask you, is that constant currency or reported revenue? And then with the drop in orders, what gives you the confidence that you can offset the 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?

Yes, you're correct that Q4 is generally not one of our strongest quarters. However, based on the incoming orders and tenders, we anticipate an increase in activity during the second half of the year. One factor contributing to our confidence is the current tenders being placed and the level of overall activity. Additionally, we believe there's some pent-up demand following the slower pace in the first half. While we don't foresee double-digit growth for the entire year, we do expect modest growth. Specifically, we are looking for stronger performance in Q3 and Q4 compared to our historical results.

Okay. But you're talking about total year-over-year revenue growth, not just growth in the second half of the year. Is that right?

That's correct. Yes.

Okay. First, could you clarify what tenders are? Are they orders or more like RFPs? I'm uncertain about what tenders refer to. Additionally, can you discuss the current pipeline of deals compared to a year ago? Are there more or fewer deals? Is the total value greater or lesser? It would also be helpful to hear about the U.S. versus international perspective.

Yes, we're focused on pipeline growth. In the third and fourth quarters of last year, we noticed a slowdown in order intake, which has continued into the first quarter. We anticipate this trend will carry into the second quarter to some extent. There is considerable activity, particularly in the U.S., with a significant increase in the opportunities being added to our pipeline weekly. This gives us confidence that school districts will begin placing orders soon, likely in the third or fourth quarter, which aligns with trends we're observing in the EMEA region as well. Although we've experienced a post-pandemic slowdown, we expect that spending in education will ultimately continue.

And just to be clear, regarding the pipeline, could you clarify whether the total for both the U.S. and international markets is higher than it was about a year ago? I understand you're gaining market share, which might mean you require less pipeline to grow, but I'm curious about how it compares to last year.

Yes, 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 in the queue.

Hey, Brian, one more comment I was going to make up. On the second part of your question about tenders. So 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. And so with those larger projects, if we win several of those projects, which we expect to, of course, that won't influence our numbers in a big way, and we're seeing a lot more of those now than we have in the previous few quarters.

Are those typically sole sourced or multi-sourced? Do multiple companies win those big RFPs, or do we just win them outright?

Generally sole sourced.

Okay. Last question I've got, and then I'll get back in the queue. Last quarter, you talked about inevitable pricing pressure. Your gross margin this quarter was quite impressive. In fact, 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. Maybe help us with near-term targets versus medium to long-term on all of those things?

Yes. We've been quite conservative the last several quarters mentioning this north of 30%. Of course, we came in at 37% Q1. And you remember Q4, we came in at 34%. Q3 was 31%. So we've seen some nice growth there. We don't believe we can maintain the kind of the higher 34% to 37% margin, and 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 reductions and lower costs 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, in 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 of 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 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 into queue with my other questions.

Great. Thanks, Brian.

Thank you for taking my questions. I appreciate the update. Michael, I’d like to follow up on some of the questions that were just asked. It's encouraging to see that you still anticipate full-year revenue growth, particularly with a significant rebound expected in the second half. Could you discuss the current state of the corporate segment in terms of revenue mix and how it is projected to contribute to that growth in the second half? Additionally, could you address the FrontRow business, which seemed to be less robust in previous periods but is known for generating higher-margin revenue? Do you expect it to see a strong recovery in the latter half of the year as well? Thank you.

Yes, thanks for the question, Jack. Maybe I'll mention a couple of things, and I'll have you jump in, Mark and fill in some of the gaps. So yes, 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 amount decline to be able to get to the single-digit growth for the full year. But again, we think it's achievable mainly based on really our Education business, which is the business that drives most of our sales, and that's 90-plus percent of our sales is specifically K-12 education. Now we are seeing growth in those other areas. And Mark, maybe you could talk a little bit about enterprise. And then let me say a couple of quick things about FrontRow and I'll have you talk about enterprise. So FrontRow was down a little bit last year. If I remember right, we came in around $23 million of revenue last year. Gross profit margin was a little bit under 50%. And 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 gross profit margin has been a little bit higher already in Q1 and beginning of Q2. So we're going to see, I believe, north of 50% gross profit margins. So that will have some movement for our total numbers, certainly. But then enterprise, I'll have Mark talk about.

Yes, hi Jack. In terms of corporate and higher education, approximately 15% of our revenues in EMEA come from corporate sources, while in the U.S., it's about 5%. Overall, this results in a global average of under 10%. We anticipate that over the next three to five years, corporate margins will grow more significantly than those from education, which will help us improve our average margins as we expand this part of our business, an important goal for us. That's our perspective on corporate, and I hope that addresses your question.

Yes. No, that's very helpful. And 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 FrontRow is supposed to kind of higher margin, it's going to ramp up in the...

FrontRow had great Q1 at the moment. I mean, we were pleased with the FrontRow result in Q1.

And that helps 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 high margins in all the other solutions, but the 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 of quarters, but we've really invested in our enterprise team, particularly in the U.S. 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.

I have a follow-up regarding your recent drawdown on the credit facility or debt, possibly due to working capital needs for increased orders. Can you confirm if that's the reason for the drawdown? Additionally, could you provide insights on your cash flow or liquidity expectations for the remainder of the year? Thank you.

Yes, sure. So.

Go ahead, Greg.

We drew down $3 million on our delayed draw facility in April, which was set to expire at the end of June, and we terminated that facility at that time. This drawdown is intended for working capital purposes as we anticipate increased order activity toward the end of Q2 and into Q3. The funds will help us stock up on inventory to meet future sales demand, especially since this time of year tends to be slower for us. We also need to maintain certain cash balances under our credit facility. Additionally, we paid down $8.5 million of our debt in Q4 of the past year. We expect to repay the $3 million by the end of September, and we believe we will easily cover this from our available cash. We generally see our cash balances increase throughout the year, with a larger influx typically occurring in late Q3 and early Q4, as we collect payments from our busier period in late Q2 and Q3.

Great. That's helpful. And then maybe just one more in terms of OpEx, if I could sneak this in. 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 staffing capabilities here. What does this do to for your OpEx as you look forward relative to where it was last year and then this first quarter? Just anything there would be helpful.

Sure. As Michael noted, we have brought in some excellent talent. We've added a few positions due to retirements or replacements, which brings in a lot of experience, so there hasn't been a significant increase in operating expenses from a salary and wage perspective. Our headcount growth is mainly driven by the normal revenue growth we aim to achieve. I believe we've managed our operating expenses well over the past year following the FrontRow acquisition, and we are close to an optimal level for 2023. In fact, we were about $700,000 less in Q1 compared to Q1 last year, partly due to savings from third-party contractor costs and improved efficiencies in other areas. I expect that Q2, Q3, and the rest of the year will trend similarly to last year, meaning our annual operating expenses will likely be comparable to or slightly below those of 2022.

Got it, I appreciate the color. I will hop back in the queue. Thanks guys.

Thank you, Jack.

Thank you. The next question is coming from Daniel. Daniel, your line is live.

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. In 2021, you asked for five million shares that were supposed to last three years and now you're asking for 7.5 million, and it's an increase in 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 granting more shares, and I feel it should be aligned with shareholder value.

Yes, thanks for the question. Yes, so the request for the additional shares for the pool really is to make sure we have the proper allotment to be able to meet the needs in the future. So that's first off, right? And 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 and we try to meet the industry standard and issue compensation based on what we need to, to attract top talent. And that's a combination of working with our Board of Directors and talking as an executive team but also we've used professional third-party organizations that have also helped recommend what compensation should be, including share issuances. And so given our size, I understand the concern, given the market cap of the company, but given our size, a $200 million-plus company, 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 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 reply. And another question, Michael. How do you consider any time window for the buyback? I know there's no time because of the cash flow. But is it a price too low to for buying back, let's say, the market cap is $10 million, I guess $1 million of buyback takes down 10% of the company. I mean, is there a price too low to consider start buying now?

We believe the stock price is significantly undervalued and not reflective of its true value. The use of the repurchase program will depend on several factors. First, it requires approval from our Board, and we will ensure it is used at the right time in consultation with them. Secondly, we can only implement stock buybacks during open trading windows, and we've been in blackout periods recently. Thirdly, our cash flow situation will influence our decision. We want to use excess cash to maximize value for shareholders, whether that means investing in the business, paying down debt, or buying back shares. We will evaluate these factors over the coming weeks, months, and quarters, and we do intend to utilize the stock repurchase program as planned. We will keep shareholders informed when that happens, but for now, we will be monitoring the situation before proceeding.

All right. And I guess last question about the reverse split. Do you have another file extension going on? Or is this just reverse split or the lifting? What are your choices there or your option?

Yes, we've gone through two extensions with NASDAQ already, and we don't expect another extension. While it would be beneficial to have one, we've inquired but haven't seen any instances of NASDAQ granting an additional extension. We'll inform you if that changes. However, if we can't extend any further, the stock price needs to be above the $1 requirement, or we will need to consider a reverse stock split. We will evaluate this in the coming weeks as we approach our early July deadline for compliance. By late June, we will assess the necessity of a reverse stock split. We believe it is essential for shareholders that the stock does not get delisted from NASDAQ, and maintaining our listing is in everyone's best interest. If needed, we will contemplate a reverse stock split. My perspective on this is that even if we reach that point—after doing everything possible to avoid it, believing our financial results would drive the stock price up—the current market conditions have made it challenging. Still, if we must implement a reverse stock split, I think it won't impact our long-term potential. Shareholders who believe in our vision and the intrinsic value of our company will see that realized in the future, even if the number of shares is slightly lower. We will continue to deliver positive results and build a great company, which will lead to appropriate appreciation in value over time.

Great to hear, Michael. I understand the dilution, but it's 16% of the total shares. Last time, it was $5 million for three years, and the previous two years give me some concern. I'll keep you updated. Feel free to continue.

A quick comment on that. I would say that's fair. So that's noted. I will say just because we authorize the pool doesn't mean the shares we issued. It's a pool that we'd be authorized for issuance. Of course, the board will approve all the issuances at the time that we issued the shares. But no, that's a valid point. And we will absolutely take that into consideration in the future as we look to potentially issue shares.

Thank you very much. Last thing I didn't hear is about the Bluum partner. We had a lot of great news in the past, Samsung partnership the merge from Trott with Bluum. But we haven't seen a ramp in sales yet. I guess you said is about the market, but what can you tell me about all these partners that you have partnership you have made, but they haven't worked out that well as we would expect?

Yes. I mean, they have worked out very well. I mean you're right, the market is definitely subdued compared to where we were 12 months ago. But Bluum is still a very, very significant partner for us. They were our second biggest partner in Q1. So we still have a very significant relationship there. We're working on lots and lots of bids with them. So there's a great relationship, lots of engagement and it's still in a good place.

Yes. I would say that the revenue is slightly lower than we anticipated and down from last year for our Q1 guidance for Q2, but this is not due to any particular partner's underperformance. It is a general trend we are observing globally, as sales have been a bit slower across the board. We believe this represents a minor dip following a significant increase at the beginning of last year in 2021 when we saw strong sales growth after COVID. We anticipate that sales will start to improve again, and we are already observing some early signs of that. As we have indicated, we expect the latter half of the year to be very strong.

All right. Well thank you very much for taking the call. Congratulations on the improvement in margin. Sorry if all the questions are so harsh. Thank you for answering. I'm going back to the queue.

Those are all great questions. Yes. Thank you. We love to get questions from shareholders. We always invite shareholders to call in. And so yes, I appreciate that. Thank you.

Thank you. And the next question, we have a follow-up from Brian Kinstlinger from Alliance Global Partners. Brian, your line is live.

Thank you. I have two questions. Firstly, you mentioned unspent budget dollars for the year, which is one of the reasons you anticipate an increase in orders and revenue. Are these budget dollars primarily government-subsidized? Also, when reflecting on the last two years of post-COVID funding, did most school districts utilize their entire budgets, or is there a significant amount that remains unspent?

Yes, to address the second part of your question, schools typically use their entire budget because they operate under a use-it-or-lose-it policy. Schools aim to avoid losing budget funds. Additionally, if they come in under budget, there's a risk of receiving a reduced allocation the following year, as decision-makers might conclude that less funding is needed based on prior spending. It's rare for budgets to go unutilized. This year, budgets appear strong, with little decline noted, especially for technology expenditures in the U.S. and across most Western European markets. They still have solid budgets. Moreover, in some regions, schools have received extra federal funding, with nearly $200 billion designated for education in the U.S. alone, much of which is earmarked for technology similar to what we offer. A significant portion of this funding, approximately $120 billion from asset three funds, remains unspent and is expected to be utilized in the coming year or two. Overall, budgets are healthy, and the recent dip in spending seems to be more of a temporary pause from the extensive technology purchases schools had been making. I anticipate they will resume buying soon.

Okay. And then one on the balance sheet, a follow-up. I think I heard Greg, you say, $3 million in 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. We paid down $8.5 million in the fourth quarter, which was due in February 2023, allowing us to settle it earlier than anticipated. Our annual debt service costs are between $10 million and $11 million, with about $2.5 million allocated to principal payments. The $8.5 million was a required balloon payment. Currently, we only have our regular debt service obligations besides the $3 million we recently drew from the delayed draw term loan facility, which must 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 are you...

$2.5 million of principal per year. Yes, the principal amortization is $2.5 million per year, right? That's it. It was a four-year term on the facility. So we're just over one year in. So we got just under three years left on that.

And the cash you have to maintain?

Yes. On the cash, we have to maintain, it's $4 million global consolidated cash balances, $4 million. That was relaxed through the month of May to $1 million. Now obviously, we expect to be above those amounts throughout the time. But it was relaxed to $1 million through May, then it reverts back to $4 million per the original agreement after that starting in June.

Okay. Thanks so much guys.

Thank you. And that concludes today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.