Good afternoon and welcome to the Boxlight Corporation Third Quarter Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Jeff Stanlis of FNK IR. You may begin.

Thank you, operator and thank you, everyone, for joining. Earlier today, Boxlight issued a press release providing an operational update and discussing financial results for the third quarter ended September 30, 2024. This release is available on the Investor Relations section of the company's website at www.boxlight.com. Hosting the call today are Dale Strang, Chief Executive Officer; and Greg Wiggins, the company's Chief Financial Officer. Before we begin, I would like to remind participants that during the call, management will be making forward-looking statements. These statements may contain information about Boxlight's view of its future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety of factors, including but not limited to, risks and uncertainties associated with its ability to maintain and grow its business, variability of operating results, its development and introduction of new products and services, marketing and other business development initiatives and competition in the industry, among other things. Boxlight encourages you to review other factors that may affect its future results and performance in Boxlight's filings with the Securities and Exchange Commission. The company does not undertake and specifically disclaims any obligation to update or revise such forward-looking statements to reflect new circumstances or unanticipated events as they occur, except as required by law. And with that, I'd like to now turn the call over to Dale Strang, CEO of Boxlight. Dale, the call is yours.

Thank you, Jeff. And thank you to everyone for joining us today. Over the past several months, Boxlight has proven its ability to efficiently operate in what is a challenging environment while still positioning the company to thrive in anticipation of improved market conditions. We're continuing to align our expenses with our current revenue levels and we're effectively communicating our strategic advantages to the market while simultaneously strengthening our product and solution suites. The primary goal of the company is to clearly and effectively deliver increased value to our partners, customers, and stakeholders. We're laser-focused on simplifying our business and our solutions, our messaging, and ultimately having that be reflected with more efficient operational expenses. A current example of this focus is our simplifying our brand structure, in which our major product lines will be organized under three solution categories. Our worldwide IFPD and display products will all be under the Clevertouch label. FrontRow will be our global brand for all audio and communication solutions, while our STEM solutions, Curriculum, software, and professional development will continue to feature Mimio and EOS identities. Everything we do will carry the "By Boxlight" umbrella company brand. We'll be rolling these changes out through the first half of 2025. Among the benefits of these moves, we now have the ability to offer a highly regarded Clevertouch IFPD brand to our entire market, specifically the U.S. and Americas. We'll have a unified product lineup and a unified road map for our entire customer base globally. We'll have a simplified supply chain and logistics mechanisms, all while leveraging the Clevertouch, FrontRow, and Mimio brand equity that's been created by decades of dedicated market presence. We believe this clarity and expanded opportunity for our sales partners will provide flexibility, a heightened focus, and will benefit our partners and customers alike. We plan these adjustments carefully with the needs of these customers and partners top of mind. All services and warranties will remain exactly as our customers have come to expect and the new user experience we provide will be the best of the best in technology with ease of use in mind, so users can select a user experience that's familiar to them. We've had preliminary conversations with partners about these plans to consolidate and it's been very well received. Our internal teams share this enthusiasm. So, streamlining our brands and products is critical to our long-term success. Equally critical is a constant attention to building out what is the most robust end-to-end suite of solutions in our industry. Boxlight's broad portfolio gives us a significant competitive advantage against other players in the industry who often participate in one or maybe two areas and often with an inferior set of solutions. Here's one example of our ongoing focus. We recently launched the new upgraded IMPACT Max 2 interactive panel. This panel comes with upgraded storage, an exclusive chipset for a faster, more intuitive display, and a unique first-of-its-kind multi-configuration UI, all at a very competitive price point. We will have a number of product line expansions to announce in the months and weeks to come that will support both our education and our enterprise customers' modernization efforts. Boxlight solutions continue to win industry acclaim. Recently, our Clevertouch Edge won a prestigious Pro AV Best in Market Award for 2024. We also achieved an important Cyber Essentials certification, demonstrating our commitment to product safety and security across our whole product line. I'd also note that, as expected, our new FrontRow UNITY and FrontRow TimeSign solutions, which I've discussed on our last call, are now shipping. Both products support another important growth opportunity for Boxlight pertaining to school safety and communications and as such, we're receiving very positive, encouraging feedback. As we continue to expand the ecosystem of compatible Boxlight audio and video solutions, we're giving customers a simple interface to communicate broadly or narrowly to address threats and improve school-wide communication. As part of this, we're adding integration partnerships between Boxlight and major third-party emergency management platforms and we expect to add additional related platforms in the months to come. I believe we're better positioned today than we were at the beginning of 2024. We have a more robust suite of solutions, a more streamlined go-to-market message. We've expanded our sales channels. We've deepened our offerings and we're aligning our teams. But IFPD demand remains soft versus prior periods, particularly in some of our largest markets, particularly in the U.S. Europe has been notably stronger than the U.S. For example, our returns in Germany and Belgium in Q3 were up 29% and 18%, respectively. This benefits us due to our global presence. But as I said, we're aligning all of our resources with our current revenue reality, all while strengthening our business for the better days ahead. This will enable us to meet our profitability targets despite persistent revenue headwinds. We're bullish on the long-term outlook for our market. Our classroom solutions featuring campus communications, convergence, addressing school safety and security needs, our ever-improving digital signage platform, and our growth in higher ed and enterprise markets all represent growth areas that will only enhance our core position in K-12 interactive classrooms. As I've said, this progress will likely not be linear with challenging market conditions making quarter-to-quarter volatility an ongoing reality but we are on the right path. With that, I'll now turn the call over to Greg to discuss our third quarter results.

Thanks, Dale and good afternoon, everyone. Before we review the financial results for Q3, I want to provide an update regarding our debt facility and our ongoing plans to reduce operating costs. Earlier this year, our current lenders provided a $4 million bridge loan to help meet the company's short-term seasonal working capital needs. As stated on previous earnings calls, our operations are seasonal with Q2 and Q3 being our busiest periods and the additional liquidity ensured that we would have the necessary inventory on hand to meet our customers' demand. These amounts were required to be repaid by the end of November 2024. We are pleased to announce that these amounts have been repaid in full. Aligning operating expenses with operational performance continues to be a priority. In late Q1, we announced that we would target an annual operating expense run rate of $12 million to $13 million per quarter, and we are expecting to achieve that target by the end of 2024. However, the prolonged industry softness requires that we continue to manage operating expenses to align with current revenue demand. To that end, we are actively identifying additional savings across our organization and we plan to share with you more detail of this initiative on our next earnings call. Now turning to our third quarter results. Revenues for Q3 2024 were $36.3 million as compared to $49.7 million for Q3 2023, resulting in a 26.9% decrease. EMEA revenues comprised approximately 49% or $18 million of our total revenues. Americas revenues totaled approximately 48% or $17 million of our total revenues, while revenues from other markets totaled approximately 3% of our total revenues. Flat panel displays comprised approximately 72% of total revenues. Audio solutions comprised 12% of total revenues with the balance of our revenues comprised of device accessories, software, professional services, and STEM solutions. Gross profit for the quarter was $12.3 million as compared to $18 million for the prior year period. Gross profit margin for the quarter was 33.8%, which is a decrease of 250 basis points over the comparable 3 months in 2023 and is the result of competitive pricing pressures and changes in sales mix between IFPD and audio products. Total operating expenses for Q3 2024 were $13.1 million compared to $29.6 million in Q3 2023 or $16.4 million in Q3 2023, excluding nonrecurring goodwill impairment charges. Other expenses for Q3 2024 was a net expense of $2.2 million as compared to a net expense of $3.1 million for Q3 2023. The majority of other expense is related to interest expense on our current credit facility and gain/loss on foreign currency exchange. The company reported a net loss of $3.1 million or $0.34 per basic and diluted share for the quarter as compared to a net loss of approximately $17.8 million or $1.90 per basic and diluted share for the prior year quarter. Adjusted EBITDA for Q3 2024 was $2.2 million as compared to $4.9 million for Q3 2023. Adjustments to EBITDA include stock-based compensation expense, severance charges, gains/losses from the remeasurement of derivative liabilities, goodwill impairment charges, and the effects of purchase accounting adjustments in connection with prior acquisitions. Turning to the balance sheet. At September 30, 2024, Boxlight had $10.5 million in cash, $45.8 million in working capital, $42.3 million in inventory, $141.5 million in total assets, $38.8 million in debt, net of debt issuance cost of $1.3 million and $6.5 million in stockholders' equity. At September 30, 2024, Boxlight had 9.8 million common shares issued and outstanding and 3.1 million preferred shares issued and outstanding. Subsequent to quarter end, the company paid down $0.5 million additional principal on its term loan, including the remaining amounts due under the short-term borrowings from Q2 and Q3 2024. Our current term loan balance is $39.3 million. With that, we'll open up the call for questions.

Your first question comes from Brian Kinstlinger with Alliance Global Partners.

I've got a couple of questions. As you consolidate to one brand, Clevertouch, what is the impact on your exclusive channel partner agreements, if at all? And if the Clevertouch brand, I think you said, isn't that widely sold in the U.S., do you see losing any market share before you educate the market and then regain share?

Thanks, Brian. That's a great question. This is Dale. A few things. Clevertouch has been established in the U.S. for years on a limited basis. We had a series of exclusive Clevertouch relationships that both predated and postdated our acquisition of that company about four years ago. We view this move as a way to expand Clevertouch's reach, and we're hearing from people who have wanted to. We've addressed the exclusivity provisions with our channel partners and settled them amicably. In one case, we had a partial state-by-state exclusive for Clevertouch with one major reseller. This move allows us to make Clevertouch available to their entire market, not just the limited geographic region we had carved out. Additionally, the worldwide brand recognition that Clevertouch has built has been present in the U.S. for quite some time, and we found that brand equity is translating really well in our conversations. We see it as an expansionary move without short-term market share risk. It's important to note that we aren't neglecting the customers who have chosen Mimio over the course of our Boxlight days. In fact, the products we're shipping during this transition will allow those customers to choose the Mimio software stack and user experience they are accustomed to, or they can opt for the Clevertouch interface. We've engineered a toggle for this, and we have spent several months on it. Along with that, all the same support, warranty, and other coverage will remain in place, which gives us confidence about this transition.

Got it. So you can still buy Mimio. It will just be under a different brand name.

Yes, these panels have been in close resemblance to each other in terms of the hardware itself, the functionality of the chipsets, and so on. And there's been some minimal differences. And in the case of preferences for how people have it look and feel and what they're used to using for software, we're addressing that. But by having one supply chain and one product pipeline, we're going to eliminate conflicts on our supply logistics but also in our sales conversation. And I think that that's going to be a really good move towards clarity.

Great. Second question I've got, especially as it relates to the U.S. What do you attribute the market shrinking so quickly to? Is there so much spending that we're in this kind of pause phase for K-12 buying technology? I guess I'm just curious why in the last 1.5 years or so, we’ve been on this steep decline.

It is indeed a global phenomenon, as you've described. The significant spending over an 18-month to two-year period has resulted in a sort of hangover regarding the funds available to school districts across the country. This issue appears to be particularly pronounced in the U.S. Additionally, one insight that the industry didn't anticipate but is learning is that these devices are exceptionally well-engineered, durable, and have a long lifespan. As a result, the anticipated refresh or replacement cycles, which were expected to not only expand their existing footprint but also to upgrade the technology already in use, are taking longer than expected. The good news for us is that educators remain committed to using flat panels as a fundamental technology for education and student empowerment, which is steadfast. The challenge now lies in timing, especially regarding budget availability and addressing the urgent needs that we believe will improve in the coming months.

Two more questions. The first one is, Dale, you used the word bullish and I believe the market opportunity or the business. I guess in the face of this multiyear weakening demand trends, what makes you bullish? And do you have any insight on how long this downturn might last?

We rely on our observations and discussions with customers and partners to guide us. Additionally, we have a significant history, as Clevertouch, Boxlight, and FrontRow have been operational for 20, 25, and nearly 40 years. This is not a cyclical business that we are new to; we understand its fluctuations. Secondly, when I express optimism, I believe we can benefit from the eventual cyclical recovery, and external analysts suggest that this may start next year. We are already noticing some early signs this year in certain areas, particularly in EMEA. Furthermore, we've had numerous informal discussions with school districts and partners who have been planning initiatives for this year that are now starting to clarify for next year. Therefore, we feel cautiously optimistic in the short term and very positive about the long term, as we believe the industries' interrelations and the growth opportunities we have identified alongside our core market will contribute to a strong future for the company.

Great. My last question is for Greg regarding the balance sheet. You mentioned that the $4 million bridge loan has been repaid. However, in your press release, you indicated that you are not in compliance with your senior credit agreement, which seems different. Are you currently out of compliance? If so, could you explain what the negotiations are like at this moment and when you anticipate receiving a waiver or amendment?

Sure. Yes. So, these are two different issues to think about. So, earlier in the year, we did receive a $4 million smaller amount bridge loan just to meet seasonal working capital needs as our busier periods are in the summer months. That $4 million was to be repaid by the end of November of this year. And we have actually repaid the $4 million early. So that obligation has been satisfied. Your reference to working through a waiver with our lender. So, that is in relation to a senior leverage ratio covenant that's contained in our agreement and was not met for Q3. We're in the process of finalizing a waiver. We do not anticipate there being any difficulty in obtaining it. But just in the sense that it hasn't been finalized as of today, there could always be a chance something we'll not be able to finalize but we don't expect that. We've maintained good relationships with our lenders. So, we have every expectation that we'll finalize that in the very near term.

Can you remind us what the interest coverage ratio needs to be? Do you foresee any penalty? The leverage ratio required was 1.75x, with step downs over time in our original credit agreement. We are actively looking to refinance our debt. For the current trailing 12-month period, 1.75x is a low bar and could be challenging to meet. Regarding potential waivers, we cannot provide details at this moment, but we don’t expect any obligations that we can't meet. Overall, we've successfully paid down a significant amount of debt earlier than expected, bringing our debt balance below $40 million, which we are pleased with. So, to answer your question, we believe the requirements for finalizing this waiver will be manageable for us.

Your next question is coming from Jack Vander Aarde with Maxim Group.

It's good to see that you are managing the operating expenses well despite the challenging revenue environment. Dale, I'm curious about the historical aspects; can you provide some insight? Traditionally, the third quarter has been the strongest for the company. Given the current market complexities, do you have any indication of when we might see more stable sales trends, or are we not there yet? Additionally, do you foresee a timeline for when the company might achieve year-over-year growth? Any details you can share would be appreciated.

Yes, there are several factors to consider. Jack, it's great to speak with you. The Americas and EMEA present very different situations regarding their market trajectories. While they share an overall cyclical pattern, the details differ significantly. In the U.S. market, the typical pattern is that Q3 serves as a seasonal peak, which we expect it will be again next year. However, this year, we’ve seen a notable shift. Traditionally, a few districts would make significant purchases after lining up funding over several months. This year, that pattern has not emerged, primarily because securing funding has become more challenging and time-consuming. Delays in bond issuance have been more pronounced this year than in previous years. In contrast, the situation in some European markets is somewhat different; they haven't been as reliant on large tenders, which is an exception in some cases. Overall, if public funds are available, spending tends to occur. Therefore, to sum up, this year's seasonal deviation was stronger than usual, largely due to funding constraints, especially for major initiatives. We are beginning to see signs of easing funding pressures in EMEA, reflected in some of our markets' performance. For instance, while the U.K. has experienced low single-digit declines year-over-year, other markets are showing growth. We anticipate a similar easing in the U.S. next year.

Okay, that's helpful information. I appreciate it. It might be early to say, but there was a significant U.S. election recently. I'm curious if you've considered how your high gross margins, which have slightly decreased this quarter but remain stronger than historical averages during Boxlight's tenure, may be influenced by U.S. tariffs. Any insights on how this might affect your current strategy and manufacturing operations would be valuable if you have any thoughts.

We've encountered similar situations in the past, so this isn't entirely new for us. No one can predict exactly what will come from the election. However, our primary suppliers in China are fully aware of the situation, as are we. We've been working with them for months on backup plans and strategies to manage potential high tariffs. I believe we're well-prepared to handle this effectively. The impact will depend on which countries are affected and the specifics of the tariffs, but we're not waiting for changes to occur; we're proactively addressing potential challenges. As for the impact on school funding, I think it will shift to being more of a local and state issue, moving away from the broad federal initiatives seen during the pandemic. The focus will likely return to the needs of parents, teachers, and educators. Greg, do you have anything to add?

No, I think you covered it, Dale. The main takeaway is that our suppliers have encountered similar situations before to some extent. There has been considerable preparation regarding what could happen due to the election. A lot of advanced planning has occurred, and we have been proactive in working with them to mitigate any potential negative consequences.

I appreciate the information provided, gentlemen. That makes a lot of sense. I have one more question looking ahead regarding potential growth drivers. Higher education and enterprise have been smaller segments of Boxlight's historical focus and revenue. However, you mentioned these as long-term growth areas and positive prospects. Dale, could you share your thoughts on the enterprise and higher education sectors? What opportunities do you see there, and how might they become a more significant focus for Boxlight in the future?

Thank you, Jack. At a high level, there are currently more meeting rooms in hybrid workplaces than classrooms, indicating plenty of opportunities for enhanced communication and technology deployment. We recognize the different funding sources available in both higher education and corporate markets, including small and medium businesses as well as Fortune 1000 companies. However, from Boxlight's perspective, we have faced challenges in some markets due to a lack of appropriate mechanisms, dealer relationships, and sales connections to effectively engage with these potential customers. We've been careful and methodical in our approach, gradually building our capabilities. Importantly, we now have products that align more closely with enterprise needs compared to last year. Our high-end panels, equipped with built-in conferencing capabilities and advanced audio and video features, do not require additional equipment to function effectively. This is a recent development that has been well-received in the market, especially our high-end edge panel. In the EMEA region, around 20% of our business comes from these end customers, and while our channel partners vary, we believe this trend is promising for growth. We expect our growth in these areas to be steady rather than explosive, and while it may not fit as neatly as K-12, which will remain our primary focus for a while, we see significant potential for growth.

You have a follow-up question from Brian Kinstlinger with Alliance Global Partners.

You talked about pricing pressure as the market has been shrinking and even as it starts to recover, do you see pricing pressure being more pronounced as your competitors as well as yourself try to gain that market share back? Or do you see pricing pressures easing at any time in the next 12 to 18 months?

Yes, I will begin with an explanation and then Dale can add his thoughts. In the short to midterm, we are noticing some competitiveness in a slower industry. However, I believe we will see more stabilization in the longer term as the industry starts to grow again. The pricing pressures we are experiencing may be more significant in the short to medium term, but I don’t anticipate them being as pronounced over an extended period.

I was going to say in the past and this probably predates you guys but the gross margin of this business was in the high-20s for a while. And so I'm wondering, are we headed back to like 30% range at a sustainable basis? Or do you think that's overstating what might happen?

I believe there will be some downward pressure in the IFPD market on certain deals during specific time frames. I don't think this will ever completely disappear, as the range of products we and our competitors are bringing to market is expanding. We are pushing the boundaries as these technologies become cheaper to produce and more efficient, thereby affecting both the lower and upper price thresholds based on performance. However, I am confident that we can maintain better than industry average margins for a few reasons. First, our experience and volume with our provider, as we are one of the top five providers of these devices globally, give us significant buying leverage to keep costs low. Second, we understand the trade-offs between price, performance, and the desired effectiveness of the products. Customers who have made multiple purchases recognize that the lowest-priced options do not always deliver the necessary performance. We collaborate with our customers and resellers, who understand this as well. Third, we are focused on integrated solutions rather than just selling individual products based on price. The way these components work together will be increasingly important, and our position in this area strengthens our case. I am uncertain where industry margins will ultimately stabilize, but I don't believe we are headed for a race to the bottom. We see plenty of opportunities to add value at all price points, which aligns with the outcomes we are delivering.

Thank you, everyone. This does conclude our Q&A section of the call. I would now like to turn the floor back over to Dale Strang for any closing remarks.

Thank you, everyone, for your support and for joining us today. As I indicated, Boxlight's competitive position continues to improve. We're making progress to align our costs with current revenue levels and despite less than desired visibility, working to position Boxlight to thrive when those market conditions improve. With the broadest and deepest offering and industry-leading solutions in several key categories, we're capturing market share today and bolstering our position for the future. I am increasingly confident we're on a sustainable path for ultimate success. I'm incredibly proud of the Boxlight team for responding to our industry challenges and operating with both professionalism as well as integrity. With that, I'd like to thank you and wish you the best.

Thank you, everyone.

And we look forward to speaking with you again when we report on our Q4. Sorry about that.

Apologies. Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.