Boxlight - Earnings Call - Q3 2019
November 12, 2019
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Boxlight Corporation Third Quarter twenty nineteen Earnings Results Call. All lines have been placed on a listen only mode and the floor will be open for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Stephen Hart. Sir, the floor is yours.
Speaker 1
Thank you very much, and welcome to the Boxlight's third quarter twenty nineteen earnings conference call. By now, everyone should have access to the earnings press release, which was issued earlier today after the market closed at approximately $4,000 This call is being webcast and is available for replay. In our remarks today, we 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, our relationships with our customers, market 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 Boxlight's most recent Form 10 Q and Form 10 ks and other reports filed with the SEC. The company undertakes no obligation to update any forward looking statements. On this call, we will refer to non GAAP measures that when used in combination with GAAP results provide us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our earnings release, which will be posted on the Investor Relations section of our website at investors.boxlight.com. With that, I'll now hand the call over to Boxlight's Chief Executive Officer, Mark Elliott.
Speaker 2
Thanks, and good afternoon, everyone. As you can likely tell, I'm recovering from laryngitis, so my remarks will be brief today, and our President, Michael Pope, cover most of the prepared dialogue. However, I will be available for the Q and A portion of today's call. We're pleased with our year to date progress. We reported today 14% quarterly and 7% year to date revenue growth, improvement in our gross profit margin to 30% for both the quarter and year to date, which was at the high end of our 2019 guidance and improved EPS and adjusted EPS.
Our CFO, Takesha Brown, will provide more financial details shortly. Our total classroom solution of interactive learning technologies continues to evolve and we're gaining market traction with both existing customers choosing to expand on their current solution and new customers looking to adopt new solutions to replace older technologies. With that, I'll turn it over to our President, Michael Pope.
Speaker 3
Thanks, Mark. Our comments today my comments today will focus on the continued execution of our sales and marketing efforts. Revenues during the third quarter were driven by newly awarded contracts and continued implementations across a number of school districts. During the quarter, we were awarded contracts or received key new orders from Owasso Public Schools in Michigan, Southeastern Cooperative Education Programs in Virginia, Administration de Cervicios Generales in Puerto Rico, Middletown City School District in New Jersey, Sedona Oak Creek Unified School District in Arizona, and Bennington Public Schools in Nebraska. We also continued rollout implementations with Beaufort County School District in South Carolina, Montgomery County Public Schools in Maryland, Clayton County Public Schools in in Georgia, San Diego Unified School District in California, Huntington Beach City School District in California, Anacorta School District in Washington, Aurora Public Schools in Colorado, and Tangipahoa Parish School System in Louisiana.
Internationally, we were awarded contracts in Chile, The Dominican Republic, Ecuador, Mexico and Peru. As we mature as a company, our revenues are becoming more predictable and taking on a recurring nature. School districts are typically on five to seven year technology replacement cycles. The majority of significant school wide awarded contracts call for multiple year rollouts. Once a school district has adopted one or more of our solutions, we are likely to obtain additional business with new products and services and are in an ideal position for the next upgrade cycle.
Examples of multiyear contracts include Atlanta Public Schools, a 2,000 classroom contract we began deploying in 2016 and expect to complete by next year and San Diego Unified School District awarded in Q2 of this year for a total of 7,000 classrooms to be installed over five years. We deployed the first thirteen fifty classrooms in San Diego during the second and third quarters of this year. We were also awarded a significant professional development contract in Clayton County Public Schools in the second quarter of this year, which is an example of a sales opportunity beyond the initial $12,000,000 contract awarded in 2018. We expect this professional development contract to produce greater than $1,000,000 in sales and continue through 2020. We have strong reseller partner relationships in key regions across The U.
S, highlighted by several key national partners such as Troxell, Howard Technology Solutions and CDWG. We also have a growing international channel. During the third quarter, we introduced new channel partners including Technologia in Bolivia and AV Associates of Nebraska. Our reseller partner network along with our experienced regional sales managers allow us to maintain a significant pipeline, target key opportunities and successfully deliver our award winning interactive technology solutions to classrooms globally. The education technology industry continues to see double digit growth both in The U.
S. And most countries internationally and we are optimistic in both our short term and long term growth potential in each of our product categories. Although interactive flat panels bundled with our Mimio Studio software currently account for over 50% of our total sales, we have a strategic focus on diversifying our product suite to include additional high margin proprietary solutions. We believe this diversification strategy will position us to maintain high margins and continue revenue growth in future years. We have made significant progress in this regard over the last several quarters through both strategic acquisitions and our R and D efforts.
Specifically, our product suite now includes several new software offerings, STEM products, accessories and professional services. These new solutions are differentiated in the market and generate high gross profit margins. The adoption of these higher margin products is demonstrated by our improved gross profit during 2019 of approximately 30%, which we believe will continue to strengthen in future years. Each of our STEM, accessory and other hardware solutions are integrated into our Mimio Studio software, providing educators a simplified and enhanced user experience. This is a key differentiator for us in the industry.
We are especially optimistic about the potential of our classroom audio distribution system, MimioClarity, which will begin to deliver to customers this quarter. MimioClarity has already received positive industry recognition, including a 2019 TechEDVOCATE award winner in Best Classroom Audio Visual Tool category, and we expect the audio system to be one of our top selling products. In addition, our Mimio MyBot robotic system was honored as a finalist in the Best STEM slash STEAM tool or app category by TechEducate and Boxlight was selected as a finalist in the best global ed tech company category. We are receiving positive feedback from industry experts, school districts and educators that use our solutions and we believe we are better positioned today than at any time in our history to become a leader in education technology globally. With that, I will now turn the call over to our CFO, Takesha Brown.
Speaker 4
Thanks, Michael. I will now review our third quarter twenty nineteen results. Revenue for the three months ended September 3039, was $11,600,000 an increase of $1,400,000 or 14% compared to $10,200,000 for the three months ended September 3038. The increase is primarily attributable to the increase in sales of hardware, software and professional development services. Gross profit for the three months ended September 3039, was $3,400,000 an increase of $1,000,000 compared to $2,400,000 for the three months ended September 3038.
The resulting gross margin was 30% for the three months ended September 3039, compared to 24% for the three months ended September 3038. General and administrative expenses for the three months ended September 3039, was $4,300,000 relatively flat compared to $4,300,000 for the three months ended September 3038. Research and development expenses for the three months ended September 3039, was $400,000 an increase of $300,000 or 255% compared to $100,000 for the three months ended September 3038. The increase was due primarily to software and engineering costs. Operating loss for the three months ended September 3039, was $1,200,000 a decrease of $700,000 or 39% compared to $1,900,000 for the three months ended September 3038.
Net loss for the three months ended September 3039, was $300,000 a decrease of $900,000 or 76% compared to $1,200,000 for the three months ended September 3038. The resulting EPS loss for the three months ended September 3039, was $03 per diluted share compared to $0.12 per diluted share for the three months ended September 3038. The decrease in net loss was primarily due to increased revenue, a decrease in cost of sales as a percent of revenue and change in the fair value of derivative liabilities. Adjusted EBITDA loss for the three months ended September 3039, was $400,000 a decrease of $800,000 or 69% compared to $1,200,000 for the three months ended September 3038. Our financial results for the nine months ended September 3039 were as follows: Revenue for the nine months ended September 3039, was $27,700,000 an increase of $1,800,000 or 7% compared to $25,900,000 for the nine months ended September 3038.
Gross profit for the nine months ended September 3039, was $8,300,000 an increase of $2,700,000 compared to $5,600,000 for the nine months ended September 3038. The resulting gross margin was 30% for the nine months ended September 3039, compared to 22% for the nine months ended September 3038. General and administrative expenses for the nine months ended September 3039, was $11,900,000 an increase of 700,000 or 7% compared to $11,200,000 for the nine months ended September 3038. The slight increase of $700,000 was primarily attributable to the increase in employee salaries of $600,000 bonuses of 300,000 and an increase in contract services of $200,000 which was offset by a decrease in stock based compensation of $700,000 Research and development expenses for the nine months ended September 3039, was 900,000.0 increase of $500,000 or 147% compared to $400,000 for the nine months ended September 3038. The increase in research and development expense was related to contract services primarily for software consultants of $300,000 for Quizdom and salaries of $100,000 each for Quizdom and Modern Robotics engineers.
Operating loss for the nine months ended September 3039, was 4,600,000.0 a decrease of $1,300,000 or 23% compared to $5,900,000 for the nine months ended September 3038. Net loss for the nine months ended September 3039, was $6,100,000 a decrease of $500,000 or 7% compared to $6,600,000 for the nine months ended September 3038. The resulting EPS loss for the nine months ended September 3039, was $0.58 per diluted share compared to $0.66 per diluted share for the nine months ended September 3038. Adjusted EBITDA loss for the nine months ended September 3039, was $2,800,000 a decrease of $700,000 or 21% compared to $3,500,000 for the nine months ended September 3038. With that, we'll open up the call for questions.
Speaker 0
Thank you. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, order Our first question comes from Brian Kinstlinger from Alliance Global Partners.
Please state your question.
Speaker 5
Great. Thanks so much. Last quarter, you guys guided to 25% revenue growth in the second half of the year and said the majority of the $15,000,000 in 2Q orders would be recognized in the September. First, can you address the shortfall? And then I noticed you didn't provide an updated outlook, but you said your business is becoming more predictable.
So is there updated guidance as well for the year or your goals maybe for the future?
Speaker 2
Well, the fourth quarter, what we're looking at or expecting is that we're going to be flat over prior year. We had a good fourth quarter twenty eighteen, and we're expecting 2019 to be a slight uptick for the year. We had a lot of activity in the third quarter, Brian, and a lot of good things happened in the quarter. However, some of the major deals that we're working on moved out. We didn't lose them.
They're still out there and they're either going to be moved into the fourth quarter or into the first quarter next year. So we're still upbeat about our possibilities and things like that. But we're as dependent on some of these larger deals and deployments as we are when they slip and move, then it has a big impact on our total earnings.
Speaker 5
One more comment maybe Sorry, go ahead.
Speaker 3
I was going to add just one more comment, I think it's important to note. So if you look last year, we won a large deal in Clayton County, you remember, right, which was 3,200 classrooms, And they had us install that all within seven months, which hit last year. That was a $12,000,000 contract. So comparatively for the current year, we actually haven't had any of those larger contracts with a short installation period. I mean we've won some large contracts like San Diego, which is going to be bigger than Clayton County was, but that was a that's a five year rollout, right, versus an immediate rollout.
And so I think that's kind of what Mark was speaking to, that we have some larger opportunities. Some of those have either got pushed out or we've had several multiyear rollouts where we don't have that one big uptick. And in Clayton County, if you look at just last year, was about 30% of our total sales last year. So if we had another Clayton County this year,
Speaker 2
of course, that would have tipped our numbers. And Michael referred earlier to Clarity. We had some product delays with Clarity. Clarity is going to be a big contributor to our overall success. So we think that we've got an outstanding product solution right there, but the delays there had an impact on some of the key opportunities we have, including places that may not have just been totally looking at Clarity as an add on, but that wanted to add that as part of their decision making process for everything.
So that's been a good thing that these districts have waited until we can come in and show them the complete installation of what it can do. And so that had a significant impact, I think, on our projections for the end delivery in the third quarter.
Speaker 5
So but to Michael's point, you know, going into giving that guy into 25% growth in the second half of year, figure you took into account that Clayton was very large. So were there a handful of deals that size that you thought would move that quickly that you had that 25% guidance? Is that what happened? And how many such large contracts were there out there?
Speaker 3
So I wouldn't say of that size, right, because we grew 14%, right, shy of our north of 25%. Keep in mind, I guess, too, that Q4 last year was strong, and so we probably should have been an uptick of that in Q3. But not $12,000,000 size in one quarter, no, but we're in a couple of quarters. But in aggregate, the opportunities that got pushed out would be not too sure. Think it's probably
Speaker 2
Right. We had some very big districts that are just looking right now, waiting for the clarity. We also spent a lot of time getting positioned to sell it at New York City. We were selected in New York City to be added to the contract, one of three vendors now. There's from Eaton and Smart.
They can sell in New York City, and there was a push within the district to add another vendor and we were selected for that. The start up time to get us in and the contracts approved and the pricing and the bundles and the logistics and everything took longer than we had anticipated, but we're now seeing that that started to happen in the fourth quarter and we're seeing significant activity and excitement in New York City to the point that we think New York City is going to be probably our largest customer for 2020. So Brian, kind of the
Speaker 3
heart of your question, definitely we were slower than we anticipated in Q3, right, but not for lack of opportunity. I think it's a timing it's been a timing struggle for us because a lot of these, especially larger opportunities, there there's a lot of different individuals involved and there's a lot of different moving pieces. And so the deal down when those get closed, apparently, we were a little optimistic versus what actually happened.
Speaker 2
We were but we have a very good forecasting system here, and, we work it with our channel partners, with our channel managers that are here. And this is what they rolled up to us, and so the surprises that came were just surprises. And Yeah. Okay. But we didn't lose them.
Speaker 3
That's a good thing. On the seasonality
Speaker 5
of your business and when when the school year happens, will a lot of these deals not likely get recognized till the second or third quarter of next year? Or will the first quarter maybe not be as seasonally weak as it traditionally is?
Speaker 2
I think we're going to have a better first quarter than we've had in a long time because of some of these rollouts and the delays that we've had. New York City, too, traditionally buys in the first quarter. And we've never been selling into New York City whereas our two key of our competitors have been and they've done a vast a good percentage of their total revenue from that. So with New York City coming on board and with some of these other deployments that we're looking at right now in some big school districts, I think we're going to have a good first quarter and that's what all the expectations Can
Speaker 5
you talk about what products you're seeing the most demand for and maybe specifically, I know it was early, but maybe talk about the adoption of your robotics technology on top of what else is producing strong growth?
Speaker 2
Well, there's no question plant panels are hot right now across the board. But we're seeing a lot of interest too in other districts for our video frame solution. We've got a big opportunity in in South Florida there that that they're looking to deploy this in 3,200 classrooms. We're now in a test mode with them for that. But flat panels, without question, are there people are replacing them.
And I think I referred in the last call, you know, that they're looking at a lot of different things because it's a replacement market. And it's not like potentially in the past where they would just roll out, you know, 1,200, 1,500 all in once they're testing the water to see what's working. And and that's good for us because in these tests, like we had in San Diego, Montgomery County and other extensive rollouts in places like Hartford Of Maryland, County Maryland, where they decided that we're the choice there. But they do a lot of extensive evaluations and looking and then they start deploying and that's where we have excelled is in rolling out. You know, we we deployed 1,200 classrooms in seven weeks in San Diego and 3,200 in seven months in Clayton County.
So those are the things that speak well for us with as the district start looking at who can effectively take on projects of this size and deploy them effectively. So flat panels are really high. The STEM solutions are really taking hold now. We we talked about our relationship with the Aldrin Foundation and that's that's gotten us into multiple large districts. They've already deployed, I think, 25 of their maps into Clark County.
And they did a big press release out there and public remarks and things for that. But they have 241 schools there. And our goal would be to have at least 10 to 20 of our robots that go with each one of those. So we've done the training there, and it's gone incredibly well. From that, the superintendent's referent referenced to us and recommended us to New York City.
So we've had meetings with them, and they've started an evaluation process. And out of that, we had Philadelphia. And then here in Georgia, Gwinnett County, we've had multiple meetings with them where we've had a doctor, Andy Aldrin come in with us, meeting with the superintendent and his staff there. Gwinnett County is a 180,000 student district. 10% of the students in the state of Georgia are in Gwinnett County.
And so we're now meeting with them to look at how we can, deploy this. So so we're getting a lot of ground swell for the stem approach right there and our robotic solution there is standing up incredibly well to the competitive pressures there. They're seeing that this is a breakthrough technology and it's developed by a guy, Steve Barker, who had a lot of experience working in the LEGOs organization. They're providing them a lot of sensors. So we've developed a product, very competitive, and, we're getting a lot of interest in that.
So stem solutions, flat panels, and then audio. You know, audio with the microphones and things of that nature being able to tie into potential public announcement systems and things of that nature with a lot of the issues that we have with special needs, being able to hear properly in the microphones in the classroom and then being able to have security tied into that potentially. So those are the hot items, Brian.
Speaker 5
The last question I've got I appreciate the last question I've got. We've talked previously about needing to fund cash in the cash cycle for your business. So I'm curious if capital has been a constraint at all to your growth. And during the quarter, how much did you raise from Lind Partners? I know you have that agreement.
So I'm just trying to understand how much capital was raised during the quarter.
Speaker 3
Yes. So let me speak first to the agreement with Lind Partners. So we signed that agreement March, and we brought in $4,000,000 from Lind Partners between March and April. That really helped kind of buffer us until now for inventory purchases and operating expenses. We're actually in a better position today than we were the same time last year.
So I'm not going to say that we're not going be in need of additional cash. We're still figuring that internally and going through some of those projections, we're actually in an okay position today. The worry is come Q1, right, because Q1 traditionally has been a little bit slower. And so we're analyzing that right now as far as what our cash needs would be. But a couple of things that have helped us on the cash front is a better arrangement with our factoring facility.
We also have credit insurance that's allowed us to borrow a little bit more with our factor. And then on top of that, we have some better terms too with our manufacturers through some other partners. And so terms, combined with the fundraising with Lind Partners has put us in a pretty okay position through this point in time.
Speaker 5
Great. Thanks so much for taking all my questions.
Speaker 2
Yes. Good question. Thanks, Brian.
Speaker 0
Our next question comes from Allen Klee with National Securities. Please state your question.
Speaker 6
Yes. Hi. Can you go through all the add backs to get to adjusted net income?
Speaker 3
Yes. So to the adjusted EBITDA figure. EBITDA, right, Alan?
Speaker 6
But you also have an adjusted EPS in your press release.
Speaker 4
Yes. So to get to the adjusted EBITDA, right, if we start with our net loss to just get to EBITDA, we add back the normal depreciation and amortization and interest expense. And then to get to adjusted EBITDA from there, we add back stock compensation expense and then the change in the fair value of the derivative liabilities. That line is the larger one, some warrants that we have that we have to re fair value them every quarter. And so depending on where our stock is at that point from one quarter to to the other, you can see some significant swings there.
So that gets us to the adjusted EBITDA number. And then the adjusted EPS is basically taking those adjusted EBITDA numbers and looking at how many shares we have outstanding to do that calculation.
Speaker 6
Okay. So the adjusted EPS is really adjusted EBITDA per share?
Speaker 4
Yes.
Speaker 6
Okay. And then you talked in the press release about that a lot of your contracts are delivered over multiple years. Is there a way of thinking about for the contracts that you already have, what amount of additional orders you might be able to that you can reasonably think you would get from them over the next quarter and over the next twelve months?
Speaker 2
There is and that's what we look at. We're obviously going through quota establishment this year. That's part of what we look at for all of our sales reps is what are the deals that they already have in place and what are the rollout schedules is they know them. Now the rollout schedules we mentioned Atlanta Public School, you know, four years up, they had a loss of revenue one and during one period of time with a lawsuit that came in against them from the park line or the Beltway people right there that caused them to delay that. So there are unexpected things that can potentially happen.
But like San Diego, they passed a five year referendum out there. They got the money there and they put everything out of the board scene. So, that's their deployment schedule now. They should have more money come in, they could potentially move it up. But other than unexpected type things, we work very closely with the district to make sure that we're doing everything to get the product in with the schedules that they're going to be installing.
And most of them do install typically started in the May timeframe through into August and September for the major rollouts that we have. That's why the third quarter is historically bigger. However, with some of the larger opportunities we're seeing in new schools coming on board and things like that, we see a pickup started in the first quarter now and into the second quarter. And then the fact that we've diversified some, but we don't have major rollouts with flat panels and interactive projectors and things like that, but we have robots and things of those nature that can be rolled out more effectively during the year. So we're going to have more predictability not quite as much seasonality there.
And the fact that another issue is we're we'd hope to have more revenue out of our European operation and we're restructuring that this year. We hired several people over there that had industry background and we had a tremendous foundation in Tony Cann's company, Kahaba, but the European market was flatter than everybody had anticipated. And so we're restructuring and looking at that and evaluating there. Then South America, which has historically done well for us, Mexico, was down considerably with the government restructuring. So if you were to take those two, EMEA and Latin America and then the product delays, we would have had, I think, a more significant impact on our revenue for the fourth or the third quarter as well.
Speaker 3
So just a couple more points on that. Even though international did not perform where we expected, international was still greater than 10% of our total sales. And so we actually saw a lot of growth internationally over last year, and we'll expect to continue to see that. And then Alan also back on your previous question as far as how you should think about some of these multiyear rollouts. We haven't provided more detailed numbers on that.
That's something we're looking at internally and maybe in future quarters we can provide you a little bit more guidance on how you should look at that. Mean, I of course, you can do the math on the large ones we announced like San Diego and some of these others. But yes, we'll see if we can shed some more light on that maybe next quarter.
Speaker 6
Okay. My last question is for the higher margin products that you've mentioned such as professional services, STEM, robotics, in aggregate, what percent of that is of sales? And how has that been growing?
Speaker 3
I mean if you look at all those in aggregate, it's well over 10% sales. And we haven't broken those out at this point in time, but it's becoming more and more significant, those areas. And so we'll look at maybe bringing some of that out as well in future quarters. But the hot items, as Mark had talked about earlier, core STEM, including our robotics solution, which we're going to see we think a lot of growth in that, professional services and then software, those are kind
Speaker 7
of the hot adds.
Speaker 3
And I would add also under accessories is our Clarity products, like Mark talked about. So those kind of four areas, we'll look to provide more on that. All those are very early in their infancy, right? And so we're seeing we are seeing growth in opportunities there. And we'll look to start to break those out in the future.
Speaker 2
I think we're especially pleased with Quizdom and the software side right there. They're becoming the de facto standard for the outside of the three key players that provide interactive solution for classroom development, which would be smart for meeting and us. Gartner, Quizdom has now become the the primary software choice of preference from all of our competitors, including people like USANA, NewLine, Vestal, Cuomo, Galaxy, CTouch, Elo, BenQ, Planar. They are all standardized on that. And I think that it was an incredibly good merger for us right there because not only are we making sure that we're tied in and developing software for all these providers that are out there that they select and like, and we get good margins for it, but it also allows us to be able to develop the best of both solutions.
So you'll see some new products coming out in the future in our software side and allow us to take the best of what we had out of the Wisdom solution, coupled in with our existing maybe a studio to make that product suite even stronger. And so that's high profit and high margin there and it's very well accepted by the customers and by our competitors.
Speaker 3
Great. Thank you.
Speaker 0
Our next question comes from Jack Vander Meyers with Maxim Group.
Speaker 7
So while you guys mentioned some deals may have pushed out or pushed forward into future quarters here, I'm curious, just given the guidance from last quarter on the top line, was there anything in particular that was serving as somewhat of a bottleneck maybe in terms of classroom implementation from the channel?
Speaker 2
The the biggest thing would be again, we the Clarity solution that we have there, we're we're partnering with some engineers that are some of the best in the industry. We were anticipating being able to deliver that started in the second quarter and the third quarter. We're now believing that we're gonna have that ready. But we had some startup issues with quality and things like that that we wanted to get, reconciled. And so we had anticipated, doing, you know, a couple of million dollars worth of Clarity business this year.
But it wasn't just that lost business. They are moved out business. It was also other big districts that were saying, we like what we're hearing from you. The addition of Clarity makes it even stronger. When can you show us that complete solution?
And so that was an impact on us, Jack, no question about it. And we're optimistic that we're behind that. We've been working night and day with the engineering and development group there to get the issues corrected and we've gotten samples out now and are starting to deploy this and feel like we'd be right on schedule here to get the initial installations starting in the fourth quarter and then major volume releases starting in the first quarter of next year.
Speaker 7
Okay, got it. That's helpful.
Speaker 3
I I was going to mention, Jack, well that we look at opportunities all the way down to with a partner at the school district level, right, opportunities that they put in our system. And I would say atypically, have large a lot of opportunities, which they were planning on closing. Our sales manager were planning on closing during the third quarter. They got pushed out, as Mark had talked about previously. And we typically don't talk about those by name until we win those contracts.
But I would say, uncharacteristically, have a lot of opportunities that are still in the pipeline, but just got moved out. Got it. That's helpful.
Speaker 7
And then as it relates to Clarity, for example, is there would those deals be reflected in the in the 2,200,000.0 in back orders?
Speaker 2
Or is that outside of that? No. We we had some back orders for that, right there, but most of it is in future orders that we're looking at, and they're significant. I mean, we've got one district with 1,800 classrooms, and they're looking at this. And had we been able to show them that was something that we had looked at very strongly, and we had a strong potential there.
It was one of our existing customers that was there. So it's significant. And I think it'll be as much as 10% of our revenue moving forward. There are more. And it's just a hot aisle.
You know, there's so much research on the the benefits of having microphones and students being able to hear clearly in the classroom and the fact that it enhances the ability for the teachers to present and not have the impact on their vocal cords and everything else. And so we've got we've got an outstanding solution here and we've got a great customer base that's receptive to looking at how we can bring this in because it is part of our strategy. It's also integrated. And that's a that's a big issue is they they they can go to their toolbar and they can start doing all sorts of things with audio, recording it, can't tie it in and our software that's integrated. So we have an inherent advantage in our existing customers being able to deliver this new solution and a significant amount of revenue.
Speaker 3
Got it. And then if
Speaker 7
I just follow-up and sticking along the revenue topic. So Mark, I believe you mentioned earlier on the call that you expect 4Q revenue to be maybe flat, maybe slightly up year over year. Is it safe though to expect that 4Q revenue would will increase sequentially from this 3Q? Or is that kinda up in the air as well?
Speaker 2
Explain it. Say that again.
Speaker 3
Yes. Let me simplify it.
Speaker 7
Do you is it safe to assume that 4Q revenue will will increase from 3Q here? So will 4Q be higher than 3Q? Is that safe? Or is that still uncertain?
Speaker 3
Yes. Mark, you had mentioned that we expect Q4 to be flat approximately then up for the year, right? So think approximately flat for Q4. We're up for the year 7%, right? If you're looking somewhere without providing exact guidance, you're looking somewhere around there for the year is what we're looking at.
Okay. Got it. That's helpful. That's all my questions. Thank you.
Speaker 2
Thanks, Jay. Thanks, Jay.
Speaker 0
Okay. Our next question comes from John Mobile with Taggartel. Please state your question.
Speaker 8
Hi. Good afternoon, and thanks for taking my question. A lot of them have been addressed already. The main one, which was brought up several times, obviously, this year looks like it's going to look like last year as far as product being delayed into the fourth quarter. Like we just mentioned, we're going to see a higher revenue number we should see a higher revenue in Q4 versus what we just saw in Q3.
But I have a couple of other questions here. Historically, you've derived the greatest portion of revenue from sales of interactive flat panel displays. And in light of acquisitions that have expanded your business into services and robotics over the past year, what percentage of sales would you say displays currently contribute to your overall picture?
Speaker 3
Yes. If look over the last two years, you're saying all displays or just interactive flat panel displays?
Speaker 8
Let's take all flat panels, not just interactive. But I think that was the majority of your revenue with the interactive. But let's look at all of them because I'm looking to get an idea of the sales mix.
Speaker 3
Yes. Got it. Yes. So if you're looking at flat panel displays, right, which we sell interactive flat panel, that's about half of our revenues come from that as you look at the last couple of years. And that's going to start trending where it's going to be less and less, we believe, of our total sales over time, but that's what you're looking at.
Some of our other displays that we sell also would be in addition to that, like projectors and some of our other interactive whiteboards and our portable interactive whiteboard. Those the projectors are trending down as becoming less and less important in our product suite versus some of these portable interactive whiteboard solutions potentially could start to scale up a little bit as we sell them internationally in developing markets. But if you're looking at currently, the interactive flat panels is by far our largest solution. That's about half. Keep in mind too that that's packaged with our Mimio software solution as well.
And so it's not just a panel stand alone.
Speaker 8
Which is why it it's about 50% now because I believe a year or two ago, weren't we looking at the the majority, like like, 70 or 80% really being derived from your flat panels? But I I guess that plays into the services Flat
Speaker 3
panels plus our projectors, if you're looking back one or two years, you would have to take all displays, and that's about accurate, yeah, a couple of years ago. So that's down a little bit. You know, we we we plan, John, we're gonna start to break some of that out. You know, we talked internally about it. So we just want to we want to make sure we can start
Speaker 2
to break that out a little bit
Speaker 3
for you in future quarters. And so we'll talk about that. And the hot items, of course, are going to be flat panels and displays, stem products, accessories and professional services and stem. Those will be kind of the categories we'll start to break out. But yes, you can think of interactive.
If you think of flat panels, half of everything.
Speaker 8
Okay. And I appreciate that breakout. Look, I have a question here. I just want to bring it up only because you currently do business with hundreds of resellers. And I noticed that recently you put out the press releases on an agreement with the vertucom vertucom, if I'm pronouncing that correctly, and Sussman.
And I thought I said, well, to put out press releases on these, I'm just trying to get an idea of how significant these particular agreements are that you decided to put press releases out. I mean, is this just going to be like a norm for with all the other resellers that you have? Or do you anticipate even greater things with these guys?
Speaker 2
Well, we have had press releases over the years for all of them. These are typically the newer ones that we've added.
Speaker 8
Alright. Alright. Alright. That's I wasn't sure if this was, like,
Speaker 2
These are brand new ones. Verticom is a significant one. They've got a multistate reach there, and they they represent other lines besides us. And so the fact that they brought us on board was significant. And then Sussman only represents us.
And because they're in New York City and tied into the CDW and GDI group up there with a new contract, there. That was very significant. They've been in business for over fifty years, and they've got a tremendous sales group there. So but these are typically press releases that we do on new channel partners we've added.
Speaker 8
Okay. So Sussman is is your main reseller in New York City. Is that correct?
Speaker 2
Right now, this is why New York City. Primarily because of family contract. The schools in and I think there are are 1,841 schools in New York City, and they all purchase separately there. So having and we're one of three vendors that they can be that can buy that can be purchased by the schools there off of a contract called FAMIS. And CDWG administers that contract.
And so the fact that we're now being brought into that is a very major major opportunity for us. And so Sussman is well positioned in New York City to have that coverage in all of these different schools. They've been selling educational products and services in there, like I said, for over fifty years.
Speaker 8
Okay. And if I could back up earlier comments, you believe that New York City should be the largest customer affecting the first quarter starting in the 2020. Now do you have actual orders on hand right now for New York City? Or is this something you're looking at maybe in another month or so?
Speaker 2
We're starting to get the orders coming in now. We've been doing we just did a major conference there with our construction group there. They had, like, 1,100 of the principals, in from New York City there, and, we had a big exhibit there. And a lot of leads were generated from that. And we're an ideal solution there, John, because they have Smart or they have Promethean interactive whiteboards in the past.
And our software allows them to run and continue to run any lessons that have been developed by the teacher in either smart or for medium. So we can go into a school that's mixed and then they can take our lesson our software and continue to run. So, you know, we're Switzerland for them. We're an easy choice. We're very price competitive And what we've done there, they like our integrated solution.
And they like the fact that we have other products that tie into it, whereas our competitors don't necessarily sell audio and a lot of the other solutions, document cameras and voting devices that we include in our product offering in the STEM solutions. We are very excited about New York City.
Speaker 8
And if I could be so bold as to get into even the first quarter guidance, only because of what you've mentioned about New York City starting to come in now, should be a contributor in your first quarter. And you had mentioned product delays in the third quarter, which pushed into the fourth quarter and actually into Q1. So I'm looking back, last year, you actually had a very strong first quarter. I'm hope that sorry, was my I'm sorry, last year. I'm looking at 2018.
Actually, in '19 no. It's a slower quarter. It was a 5,000,000 even quarter. So I would anticipate yeah. That was that was a pretty slow quarter.
The year before was a 6,000,000 quarter. But if I could even look at, like, a $6,000,000 number in in the first quarter, I would think with what I see here, it looks like there should be a revenue, if I could say guidance, as far as the first quarter is concerned, to be kind of strong versus the prior two first quarters. Is this kind of correct to look
Speaker 2
Yes. At this It's not hard to improve over the first quarter of this year, but we're in much better position here. And some of it is because of the product delays there that we'll be able to deliver and start moving into the first quarter of this year. So our sales team and going through their forecast, everything like that, the first quarter is shaping up to be much stronger than it was this year.
Speaker 8
Okay. I just have my last question. You've had several acquisitions over the past few years. I'm just curious if you're looking at anything that might happen in the near term?
Speaker 2
We'll let Michael address that.
Speaker 3
So John, we are looking at opportunities. We've been very open over the last few quarters that we're constantly looking for targets that we think will enhance the products that we offer or allow us to move into territories and sell where we're not currently selling. That being said, we have several targets. I think we absolutely will close more acquisitions at some point in the near future and we hope to deal with announces at some point. I wouldn't expect anything transformative necessarily, but I think just like the last several acquisitions that we've closed where they have been small enhancements, I think you have to look at new acquisitions being similar to where they'll enhance our product suite or again allow us to sell the new territories.
And profitable. Yes, definitely. New opportunities we're looking at, we're looking at opportunities that are going to bring some revenue and that are cash flow positive by day one and they're going be accretive to us on a profitability standpoint.
Speaker 2
But we're not in a shortage for companies that are coming to us, wanting us to take advantage of our sales and distribution and our integrated approach there. So we've got the pick of the litter, I think, as far as a lot of the solutions that are out there.
Speaker 3
Yes. I think even though it may look like we were a little slower, right, this year thus far than anticipated, we've had a lot of very successful implementations out in the marketplace. And so we have a very good reputation that's been growing the last couple of quarters. So Marshall and we've got a lot more companies coming to us and we're able to be able to find partners in that way.
Speaker 2
And I think what Mike was referencing there, I mean, one of the things we've accomplished, if you get a chance, I'd encourage you to look at our website at Clayton County and at Huntington Beach. We've done the right things there from project management to training to installation to to getting them tied in using a total solution there, that they are outstanding references. And and on a scale, Huntington Beach is not nearly as large as a Clayton County, but it's still, you know, very prestigious district. But Clayton County, you know, 55,000 students, 3,200 classrooms, and and you can see their superintendent in one of the sessions that we have there going through why they selected us, how it's gone, and the results that they're expecting, and that they're realizing that. That speaks volumes in a very risk averse world in an education space.
Like we said in the past, they can't afford to make a mistake. It's public and there is just something that they're not gonna do. So to be able to have the reference like we've got from Clayton County, Beaufort County, Atlanta Public Schools, I mean, they're there. And some of the other companies we compete with, you know, they're they're primarily hardware companies. And, their software and solution and training and things like that, they're dependent on us for that.
And so we're doing the best we can to help, them get that. But we've got incredible references there, and that's something you earn. And that's what we have, and that's something that, we're very proud of. That's something we're going to be continuing to build off of.
Speaker 8
Great. Well, guys, thank you for taking my questions.
Speaker 3
Thank you, John. Thanks, John.
Speaker 0
Our final question comes from Hunter Diamond with Diamond Equity.
Speaker 1
So just I wanted to know in terms of the new technologies you're seeing, I guess, generally in education technology, what's exciting you most? And what are you seeing as potential you discussed acquisitions, I guess, but areas where you're looking to invest in R and D, etcetera?
Speaker 2
I think STEM is the one right there. There's a lot of emphasis on STEM globally. Everybody understands the economic advantages that STEM brings to their economies and schools and things like that and they all want to have that. What we're seeing though is that there's a lot of solutions and a lot of confusion and a lot of toys on those that have been able to blend in and get some recognition there. But there's nothing that's really taken hold other than potentially Legos and a company called Saks.
And we think that we can can provide that that cohesiveness there by tying it together into an integrated solution and being able to to complement that with products like our lab disc, which ties into that. And then also other things we're looking at as far as mergers or alliances with other companies like we've done with the Aldrin Foundation with the whole stage program and the initiatives they've got there. So STEM is exciting. It's fundamental to to making our world a better place and every country has programs and every school district is doing something there. But I think there's a drive to see something that's cohesive and they can kind of bring it all together.
So that's what we're looking at doing. And then I think the audio side, again, is something that's really exciting, because there's just so many studies that show the impact that, you can have by having children be able to hear all over the classroom as opposed to just upfront and then tie that together into some kind of a safety type approach there that, you know, with all of the emphasis that schools have there. So there's just a lot of excitement in all those areas.
Speaker 3
Yes. I would add as well, Mark. I would add professional services, right, in this area that we acquired the EOS team, remember, last year, and they're making great headway over the last few months. But we're looking at other potential opportunities and services. And then also, would add software.
Rami software is a glue that holds all of our solutions together. And we have a great software solution, but there's areas where our software currently doesn't touch, and there's a lot of opportunity for us to to branch out a little bit more broadly with our software, and and that's something else we're looking at also.
Speaker 1
Right. No. It makes a lot of sense. And have you also thought, in terms of getting, like, celebrities or other people I know Chegg very well, and they have a lot of celebrity endorsers that promote their services. They do events in universities.
They get, you know, rappers or, you know, famous people, actors, actresses. Have you thought about, you know I mean, even get, you know, like, Ivanka Trump posting an Instagram thing with a box slate thing. Any of that would be great exposure for box slate that's free. Right?
Well, think idea
Speaker 2
is that Ron Clark Academy is a company is a very well known private school here, but they have, like, 12,000 teachers a year that come through there just to watch them teach. And so, you know, we've got a lot of our STEM solutions tied into what they're doing there so we get exposure. But we haven't looked at that. I just found out Michael was a cheerleader at Brigham Young, so maybe he could
Speaker 3
he could tie up to do something from that. And it's starting right back in the football team, both at the same time. Mhmm. I don't believe either one
Speaker 2
of those. Yeah. That's a great idea. We're right here in Atlanta, and we should be able to do that with Atlanta Public Schools, Clayton County. That that was my point point.
I think, you
Speaker 3
know, we're we're we're selling to to school districts. Right? And and we're trying to get the attention of superintendents in their offices. And so I think for us, the high profile school districts, those are the ones that really allow us to be able to branch out. And so I think our celebrities really are the Clayton and Beaufort Counties and San Diego and Atlanta Public Schools.
These are large school districts, some of the largest ones in the country, and those allow us to branch out and attract other large school districts.
Speaker 2
But we've also added Jim Clark to our board. He was he is the CEO and president of the Boys and Girls Clubs of America, and they've got a who's who do of of people that have been tied into the boys and girls clubs that I think would love to be tied in and sponsor this because we have a similar message in our approach. It's changed the classroom, changed the world. And we do it through education. And so with their their reach into the boys and girls clubs, which we think, you know, we'll probably end up doing some potential business in there.
There with their preschool and post school programs that they have, but, and stem and a lot of other things. So I think we could certainly tap into Jim Clark and all of the incredible celebrities and ties that they have that have been part of the alumni out of the Boys and Girls Club, which is just an incredible institute for America. That's great understanding. That's something we should certainly look at.
Speaker 1
Yeah. No. I just think it's free advertising, and you just have a business that's so, you know, aligned with sort of, you know, the country and sort it's a positive service. You know? It's not like JUUL or something where it's, you know, making billions, but, you know, has very negative health implications and mental health stuff.
So you might as well use sort of the momentum that, you know, companies like Chegg and these other ones are doing. And I think it's done very yeah. It's done very well. The other thing I was just thinking the other day, just going back to Chegg, their strategy they're like a I don't know how familiar you are with them. I just bring them up because their strategy was basically they were shipping textbooks, and then they acquired maybe fifteen, twenty companies.
Right? And they're not even that integrated. But for some reason, the mark like, one is an internship company, one is, you know, a tutoring company. But for some reason, the market values them at like 12x revenue, right, 12x trailing revenue. And their growth is only is 25% of your top line.
So I'm just trying to figure out, maybe I don't know if you like or you've talked to investors, is that something you think as you guys just acquire other businesses, if you have this just a bigger base that they sort of reset this valuation because it just seems such a disconnect from your fractional trailing revenue multiple?
Speaker 3
Yes. So we follow Chegg and some of the others
Speaker 4
in the industry that fit
Speaker 3
in this EdTech category. Mean their model, of course, is very different than ours as well as some of the others that have those high valuations. I think a couple of things. One, I think at scale, right, we'll be valued differently, at least we hope we will. So we think given kind of our size currently.
Also, I know there have been some concerns about our cash flow situation, which we feel like we have a handle on it, but I can see outsiders looking in, maybe having a little concern about that. So I think as we start to turn a profit, as we scale and become a larger business, we hope to be trading something more like a JAG or some others in the industry. I think that's a potential for us.
Speaker 1
Yes, good performance. But Makes sense. No, I was just thinking about it the other day just because the rig side Brad, I guess, one comment
Speaker 3
real quick, as you mentioned, you're checking with some acquisitions. We're looking at acquisitions, but not just for the sake of acquisitions, right? We really are big on making sure that the acquisitions that we bring in, that those integrate well with our management team and with our product suite. And we're really delivering the best solution integrated solution for the market, right? So we're not looking for flux acquisitions or acquisitions that better numbers.
We're really we're planning on being a much bigger company, and we believe our building cadence of a real integrated solution suite is the best option for the market, and we think we'll be rewarded later on. So that's where we are.
Speaker 1
No. That that definitely. Completely agree. And I think going back to the Chegg, a lot of their acquisitions from my understanding because I spoke to their CFO recently, they haven't been integrated at all. They just have, an internship site, then they have a tutor site, and they're charging kids who don't have money anyway.
But they just have like a market side slide and they say, oh, we're entering this market that's $50,000,000,000 and this one that's $100,000,000,000 for some reason the market is valued. So I was just wondering, again, markets can correct rapidly, right? And maybe they'll look for more of these real acquisitions like you guys are pursuing.
Speaker 3
Yes. Today, differentiator between Chegg and some of the others, we're classroom focused, Not today, we're not beyond the classroom. That's something we may look at in the future, but yes, we have a little bit of revenue model that we have today we have. But I think as we become more software focused, which I think we will over time, and we have more of these differentiated products, which we've been coming out with that are higher margins. I think that's another thing that will have a large impact on our valuation as we see gross profit margins increase and we're less dependent on things like interactive flat panels.
I think I would hope that the investor base would see that and and and that would correct our valuation as well.
Speaker 1
Exactly. Exact exactly. Yeah. Flat panel, you know, you're gonna get the the hardware valuation, which is very low. So No.
I completely agree. So thank you for taking my questions.
Speaker 2
Thanks, Glenn. Great questions and great ideas for us.
Speaker 0
Okay. I'd like to turn the call back over to Mark Elliott for closing remarks.
Speaker 2
Well, thanks for everybody for joining. We look forward to speaking to you again in March. We report on our full year of 2019, and thanks for all your support and being part of our our family here. Thanks a lot. Bye bye.
Speaker 0
Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.