Boxlight Corporation
Q2 2018 Earnings Call Transcript

Published: 17 Aug 2018

[Operator:]

Greetings and welcome to the Boxlight Corporation's Second Quarter 2018 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host [indiscernible]. Thank you. You may begin.

[Unidentified Company Representative:]

Thank you. Welcome to the Boxlight Corporation second quarter 2018 earnings conference call. By now everyone should have access to the earnings press release which was issued today at approximately 4 o'clock PM Eastern time. 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 meanings of securities laws including forward looking statements about future results of operations, business strategies and plans, our relationships with our partners and resellers and market and potential growth opportunities In addition management may make additional forward looking statements in response to your question. Forward looking statements are based on management's current knowledge and expectations as of today August 14, 2018 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 our most recent Form 10-K and in 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 reconciliation to most directly comparable GAAP financial measures in our earnings press release which will be posted on the Investor Relations section of our website at and investors.boxlight.com. And with that I'll hand the call over to Boxlight's Chief Executive Officer Mark Elliott.

[Mark Elliott:]

Thanks, Laurie and good afternoon everyone. We're very pleased to speak with you all again as we have many positive developments to cover. As you will hear it's an exciting time at Boxlight, our mission to improve learning engagement in classrooms and to help educators, enhance student outcomes is taking hold as we continue to grow our reach and relevance in classrooms around the world. Without a doubt today's classrooms are changing. Primary and secondary school districts, colleges and universities increasingly recognizing importance of using technology to more effectively provide information to educate students. They have been in progression of technology in the classroom has enabled multi-modal training and varying in curricula helping educators to create classroom experiences that are individualized, interactive and collaborative. Boxlight has a clear vision to help lead the future of education in the classroom. Through an integrated solution suite of hardware, software that protects our customer's investment and their existing lesson plan and services our goal is to become a single source partner to satisfy the needs of educators around the globe and provide a holistic approach to the modern classroom. Our mission is particularly relevant here in the United States where K12 education is embraced the need for technology in the classroom. We believe that the customisation of learning programs enabled by technology will help drive innovative and growth strategies that will improve student performance in our nation's schools. Our aspirations reach beyond the United States, the global education technology market is expected to grow at a compound annual growth rate north of 20% to nearly $600 billion by 2021. Connectivity of hand-held devices increased collaboration and increased focus on eLearning and technological advancements were all factors behind this growth and we seek to be a leader in every one of these. Today our products are sold in approximately 60 countries around the globe and our software is available in 32 languages. Our solutions have been sold into more than 850,000 classrooms worldwide contributing to improved learning for millions of students. We offer the most comprehensive solutions we know in the market and our products are designed to meet and operate within the budgetary constraints of any school or district anywhere in the world. Our vertically integrated approach means that in addition to developing selling and servicing interactive classroom technologies we also provide software in content development, installation, training, consulting and support. We sell our products and software through a growing network of more than 500 global reseller apartments that are an integral part of our success. Our approach continues to translate into strong financial results. The second quarter of this year we grew revenues over 61% year over year to $9.7 million. During the quarter we provided Boxlight's to over 5000 classrooms. Once again our growth continues to reflect greater adoption of our existing product suite, continued product introductions and growth in our reseller network. We enter the second half of 2018 with over $10 million in bank orders [ph] which was equal to our total Q3 sales last year. We expect to deliver the majority of these orders in the current quarter including significant installation in Buford County School District South Carolina and Clayton County school districts in Clayton, Georgia. There are multiple methods and purchasing vehicles utilized in the K12 public school market including competitive bids, competitive quotes with a pilot, state national contracts and ongoing purchases once the district has cleared one of these hurdles and established the vendors, the preferred vendor are standard across the district. The deployment of the selective technologies will be influenced by a variety of factors including the district's funding; their rollout strategy whether it's big bang or phased and they can [indiscernible] professional development requirements. Boxlight is proud to announce that we have won multiple awards in the first half of 2018 in each of these categories. Competitive bids at which we were selected after oftentimes exhaustive public scrutiny include Clayton County schools in Georgia were approximately 3200 classroom with flat panels and our integrated suite that are currently scheduled to be installed in calendar year 2018. Buford County Schools in South Carolina for nearly 1800 classroom with our 75 inch flat panel to be installed primarily in 2018 and first quarter 2019. Clint Independent School District in Texas with over 3500 classrooms this bid was awarded in 2017 for our 65 inch flat panel and has been deployed in 2018 through 2020. Stephens County School District in Georgia will be installed in 77 classrooms this summer with a 75 inch flat panel with a potential of up to 500 classrooms. West Bloomfield school district in Michigan selected Boxlight and will be installing 89, 75 inch panels this summer. There are a large number of smaller but equally important districts that selected Boxlight in competitive bids and districts including [indiscernible] all in Texas. We have also been notified we've been selected for our flat panels in a large district in Florida, and in school board approval in August, as well as a large district in California subject to board approval in September. In a competitive quotes with pilots, we received northern districts including all county schools in Florida, a district with over 3,000 classrooms that selected our new interactive frame for 442 classrooms. Columbia county schools in Florida ordered our 70-inch flat panel for 20 classroom pilot in a district with a potential of nearly 500 classrooms. Northwest ISD in Texas, a rapidly growing district in Texas with approximately 1,800 classrooms that has started a pilot in '17 of their media centres with our 75-inch flat panel. Boxlight was also selected in two large districts in the Northeast and New England areas where significant pilots after a very competitive prices, as well as being selected in a prestigious district in Mississippi. All of the pilots have the potential to have Boxlight as the district standard assuming the installations go well which we intend to see happen. Districts that have established Boxlight as a preferred vendor, and are excellent reference sites and our approach to having customers for life include Atlanta Public Schools, Fort Worth ISD, Anderson One, South Carolina, Henry County Georgia, Calvita Georgia, Huntington Beach, California, Island Park, Texas and a host of others. Our business with existing customers is going incredibly well as we deliver on their expectations. Our customers were telling a compelling story as to why they selected and remained Boxlight customers. We have published case studies with Atlanta Public Schools, Clayton County and Woodhaven-Brownstown; additionally we have conducted podcast with Huntington Beach, California, like Man-County, Tennessee, and Clayton County, Georgia. We are also conducting showcase account events, we had one in Huntington Beach, California back in May and it's scheduled events in Mickman County, Calvita County, Cline ISD, and Woodhaven-Brownstown, Michigan; our customers are our best sales people. I would like to now highlight two outstanding districts, Duford County School District in South Carolina, and Clayton County School District in Georgia. In Duford County, South Carolina; we look forward to making our integrated products fleet available to teachers and students in over 1,800 classrooms. A key point of differentiation in Boxlight's offering is our ability to protect teacher's investment and lessons planned, previously developed on competitors platforms which we believe was [indiscernible] in this competitive RFP. Clayton County, Georgia's fifth largest district will be installing our Mimio suite which includes 75-inch flat panels, Mimio vote for elementary schools, Mimio pads for teachers, Mimio document cameras, and our Mimio studio software platform. Clayton County is a great example of how we leverage Boxlight's integrated suite of products to solve county-wide challenges. Overwhelmed in the past by district-wide implementations that relied on disparate systems and solution, not all of which played well with one another. Clayton turned to Boxlight and helped it assemble cohesive package of classroom tools. The district's key search criteria included good alignment with a four C's; critical thinking, collaboration, communication, and creativity, and a strong teacher training and professional development component. Boxlight integrated solution was the perfect solution and we're thrilled all of our solutions to the students and educators of Clayton County. Subsequent to quarter end, we've been notified that we have been awarded biz [ph] for several large and prestigious school districts, many of which will be converted from competitive products and solutions. Increasingly, school districts are communicating a desire to standardize on one solution and select Boxlight which have ability to protect existing lesson plans, offer a comprehensive and integrated hardware, software and solutions suite and provide strong partner references. In the coming weeks, we intend to announce more details for these awards which span 15 U.S. school districts and over 30,000 classrooms. We also continue to expand our reach in international markets; through the acquisition of Cohuborate, we gained access to well-known talent in education space and a new brand we will be cultivating for the corporate and government market. The acquisition is progressing well with the integration nearly complete, and we've recruited top talent to help grow our presence in the U.K. and greater Europe. As a result, we've seen a meaningful increase in our sales pipeline and were recently selected by one of the largest academies in the U.K. to deploy as their standard across their trust of over 60 schools. We've also won strategic opportunities in the EMEA region; Germany, Spain, Russia, Kuwait and Ghana. Pan-America is also doing really well across the entire region with a team projecting to exceed their 2018 objective. We're seeing great progress in Puerto Rico, now recovering from the hurricane in the Caribbean, as well as Mexico, Chile, Equador, Peru and Colombia; this region represents significant upside opportunity for Boxlight. We continue to deliver on our contract with the Ministry of Education, Jalisco, Mexico. Year-to-date we deployed over 2,200 of a potential 4,500 classroom, project with our interactive projectors which gives teachers the ability to create large touch-enabled areas that will allow upto 10 students to collaborate while engaging with clear beautifully detailed image that are large enough to be seen from every part of the classroom. The projector comes with our Mimio studio classroom software where the projectors are used in conjunction with the software and the Mimio mobile app; teachers can perform collaboration of assessment activities at the front of the room and almost any student device. Our lab to STEM solution, a handheld portable app in a box is also doing very well. We received an order for 2,492 in Broward County, Florida, the fifth largest school district in the country, and an order for 512 units which TEQ Tech, our partner in New York State. We're increasingly seeing districts and counties with Boxlight products often integrating our software, hardware and related accessories into the classroom solution. Not only does this drive our average revenue per classroom up but we expect to see margin accretion from the growth of our higher margin accessory services and software offerings. We head into the important back-to-school season with our strongest sales pipeline yet, and we expect Q3 to be our strongest sales quarter in our history. We also continue to innovate and develop award winning solution, including MimioSpace which was named as a best of show winner by technology and learning that the 2018 International Society for Technology and Education, that is the conference and expo. [Indiscernible] has talked about before; MimioSpace is a collaborative system consisting of a laser projector, touch board, and a mini PC to create an expansive 32-point touch interactive area. Students work together in an area spanning 11.5 feet wide, and over 4 feet tall making collaborative learning at the front of the classroom a reality. Because it doubles as a dry array surface, the ultra-wide touch board is also able to completely replace the traditional white board. Innovation will remain front in center at Boxlight. We will continuously develop and introduce compelling new products that help students engage with learning and a collaborative interactive environment while also developing the tools necessary for teachers to properly assess, tailor and enhance student learning. We intend to do so through both organic R&D, as well as through strategic acquisitions. With this in mind, I'm excited to highlight our recent acquisition of Qwizdom, an education software providing a classroom presentation and engagement solution. Michael will discuss the details of acquisition momentarily, but I'd like to cover a few highlights as well as welcome Qwizdom CEO and software industry veteran Darin Beamish and Qwizdom employees to Boxlight. Darin will assume the additional role of Vice President, Software Development at Boxlight to help manage our global software roadmap through both the Qwizdom software platform, as well as the Mimio classroom solutions suite. Founded in 1984, Qwizdom develops software solutions that are quick to implement and designed to increase participation, provide immediate feedback and most importantly, accelerate and improve comprehension in learning. Darin and his team bring tremendous expertise and value partner relationship, and we look forward to working to advance our collective software offerings. As a reminder, we sell our products and services to a dedicated network of reseller partners. Our reseller partners are experts in their respective markets and can offer the local expertise training and support the school districts require. Part of our strategy is to grow this network and expand our region and markets where Boxlight has limited penetration today. On this front, we're pleased to announce new partnerships with DHE Computer Systems in Colorado, of Sam Design in Monterey County, California; Micro Technology Consultants in Georgia, and Troxell Solutions in Phoenix, Arizona which employs over 70 sales reps across the United States. So all in all, it was another very solid quarter for Boxlight. Adoption of Boxlight's products suite continues to accelerate, we're delivering innovation to support learning and engagement, and we're building meaningful relationship with school districts, both domestically and abroad. We look forward to building on this momentum in the second half of 2018 and beyond. With that I'll hand the call over to Michael.

[Michael Pope:]

Thanks, Mark. My comments today will focus on Boxlight's M&A strategy including our recent acquisition of Qwizdom, as well as our few other recent investor focused developments. As we have previously communicated, a key killer of our strategy is a compliment organic growth through strategic acquisitions. We are interested in opportunities that are immediately accretive and that enabled us to access our worldwide distribution network or enhance our technology offering that we can sell into our global reseller network. We have a specific focus on distribution opportunities in EMEA region and Latin America, as well as high margin services and innovative hardware solutions. Our acquisition of Qwizdom meets both of these criteria providing a trusted network of partner relationships around the globe, as well as innovative research based software and hardware solutions designed to make teaching more effective and efficient and facilitate learning and comprehension. Previous transaction we gained an experienced team committed to developing industry-leading software solutions to enhance our classroom learning and engagements, significantly strengthen our software strategy and software development resources. On June 22 we completed the acquisitions of Qwizdom for a total consideration of approximately $2.5 million through a combination of common stock, debt and cash. With the integration well underway, we look to building on our proven track record of successful and accretive acquisition. This acquisition provides several benefits to Boxlight, notably Qwizdom's world class software solutions and trusted partner relationships around the world would enhance Boxlight's comprehensive product suite and expand our distribution network providing access to new markets and enabling deeper penetration within our existing markets. And as Mark noted, the acquisition brings expertise of Qwizdom's talented software development team, as well as Qwizdom's CEO, Darin Beamish to Boxlight. Darin will help lead software development and manage the global comprehensive software product roadmap for both, Qwizdom and Mimio classroom solution suite. As our integrated software is not only the backbone of our product offering but also our key point of differentiation, continuing to have innovative cutting edge software is a critical element of our future strategy to emerge as a global leader and provider of interactive technologies. Darin will manage both our development resources in Northern Ireland and Boston, Massachusetts. Another exciting development I'm pleased to highlight was our recent includes in the Russell Microcap Index effective June 25, 2018. Boxlight's member shift means automatic inclusion and the appropriate growth in value style indexes widely used by institutional investors, defense market performance of active investment strategies; this is an important achievement as it will serve as a valuable tool to raise Boxlight's visibility and profile within the investment community, and help broaden and diversify the shareholder base. I would also like to highlight that on July 5, 2018 Boxlight filed for a proposed follow-on offering led by AGP Alliance Global Partners, The Maxim Group, and The Benchmark Company. If we consummate the offering, we intend to use the proceeds for strategic acquisitions and to invest in our growth including investing in our sales and marketing teams, funding research and development, and satisfying our working capital needs. And with that, I will now turn the call over to our CFO, Takesha Brown.

[Takesha Brown:]

Thanks, Michael. I will now review our second quarter 2018 results in greater detail. We are happy to report that revenues for the second quarter were $9.7 million, an increase of 61.5% from $6 million in the prior year period. Total revenue growth reflects increased sales volumes driven by greater adoption of Boxlight product solution suite. Gross profit for the second quarter was $1.7 million, unchanged from $1.7 million in a prior year period. As a percent of revenue, gross margins of 17.9% in the second quarter compared to 28.6% in the prior year period. The decrease in gross margin was largely a result of lower margins on the initial deliveries of two large projects of Clayton County, Georgia and Duford County, South Carolina; resulting in a total gross margin reduction of approximately 8%. In addition, we incurred another 2% total gross margin loss due to our financing arrangement with one of our distributors that allowed us to accelerate the delivery schedules as was requested by both districts. We have negotiated a reduction in cost of goods with our key vendor for these projects that will increase the profit margins by approximately 10% beginning this quarter. Also we plan to continue to introduce new products with a focus on high margins including our recent product launches of MimioFrame, MimioTable, and MimioSpace. Total operating expenses were $3.9 million in the second quarter, up 62% from $2.4 million in the prior year period. This is primarily driven by $1.4 million increase in general and administrative expenses which includes higher stock compensation of $0.6 million, contract services of $0.3 million, commissions of $0.2 million, and professional fees primarily related to our management advisory agreement of $0.1 million. Research and development expenses increased for the second quarter of 2018 as a result of higher fees paid to research and development contractors which totaled $0.1 million in the quarter. As a reminder, a significant amount of our R&D expenses on our hardware, a paperback contract manufacturers and ultimately built into the price at which we buy. Loss from operations for the second quarter was $2.2 million compared to a loss of $0.7 million in the prior year period, primarily driven by the $1.5 million increase in operating expense previously discussed. Net loss for the second quarter was $4.5 million compared to $0.8 million in the prior year. The year-over-year decline reflects the $1.5 million increase in operating expenses, and $2.2 million for the change in the fair value of the derivative liability. Net loss per share was $0.45 on 9.8 diluted shares outstanding for the second quarter of 2018 compared to $0.18 or $4.6 million diluted shares outstanding in the prior year period. Adjusted EBITDA for the second quarter which backs out stock based compensation and change in fair value and derivative liability was a loss of $1.2 million which is up from $0.5 million. This results in an adjusted loss per share of $0.13 compared to an adjusted loss per share of $0.11 in the prior year period. Achieving profitability remains a guiding objective of the organization and we will continue to work towards this goal. Turning to our balance sheet; cash and cash equivalents as of June 30, 2018 were $1.8 million, down from $2 million at December 31, 2017, primarily driven by our operating activities and the $410,000 cash consideration for the system purchase. To further improve our liquidity position and fund the continued growth of the company, we anticipate raising additional capitals through either debt or equity. Total inventories were $3.5 million at June 30, 2018, down from $4.6 million at December 31, 2017. Total debt at June 30, 2018 was $2.3 million, up from $0.9 million at December 31, 2017. The increase was related to an increase in the proceeds received from the accounts receivable factoring line of $0.5 million, the operational loan was $0.5 million, and a no payable related to the consideration for the Qwizdom acquisition of $0.7 million offset by the payout of loan of $0.3 million. I would also like to note that we recently filed a restatement of the 2017 10-K at March 31, 2018 10-Q to correctly reflect the accounting called warrant as a derivative liability instead of an equity instrument. The restatement resulted in a reclassification between equity and liability, and the recording of a gain or loss related to the change in fair value of the warrants at each reporting period. The company recorded a gain of $0.9 million in the 2017 10-K and a gain of $1 million in the March 31 10-Q. To conclude, we are pleased to have closed out the first half of 2018 with exceptionally strong revenue growth year-over-year and the strongest sales pipeline in our history. We look forward to carrying this momentum into the third quarter, typically our strongest quarter, and updating you on our performance on our next earnings call. With that, we'll open up the call for questions.

[Operator:]

[Operator Instructions] Our first question is from Brian [ph] from Alliance Global.

[Unidentified Analyst:]

You mentioned a few large deals recently signed; can you talk a little bit about these orders and are they going to delivered do you believe this calendar year, over the next two years; and could you give us a sense for some of those recent large order wins?

[Mark Elliott:]

We never know a lot of times how the disuse is going to be rolling out and deploying these, there are a lot of factors involved in this and it really depends on a lot of variables that we have there. But the two large orders we've got, initially we planned on our Platant [ph] County being deployed over like a two-year period. Happily for them and for us, everything came together for them from their budgeting and their initiatives and their - both, superintendent and their focus down there, they're making a big movement in enhancing their whole program down there. They decided to deploy this calendar year, so that's 3,200 classrooms that did have an impact on us in the second quarter because we haven't expected that, and as you heard, we had to deliver from inventory that we had that was not at the negotiated price we worked at with our supplier there. So that one is going to be this year and the Duford County is the other one; again, we had an initially thought that might be deployed over a two years but they are also rapidly moving ahead and we're on-schedule to have them. It looks like from our last update that I got, it may be completed this year as well, potentially had some rollover in the first quarter of next year. But those were the two big ones, but we've got a lot of other big deals that are starting to work in outcome as well, and if we talked about the different types of arrangements that the districts have as far as deployed there - with the bids and we've won the vast majority of the deals that we've been involved in on those as there - others where they do quotes and then they'll do a pilot, we've got some very large initiatives working on those fronts as well. And then we've got existing customers like we do - land of public schools and others that are deploying over a period of several years. And so that's kind of the update on that. Did that answer your question?

[Unidentified Analyst:]

Yes, great, thanks. And then only because you mentioned I was going to get that at the end of my questions; the lower gross margins even with the accelerated delivery it would be about 10%, it sounds like on the initial deliveries. Can you once again - I think you just intimated in your answer but can you go through the dynamics of why that margin was 10% on the early deliveries?

[Takesha Brown:]

As I spoke earlier because these are risks too really big, competitive bids, right. So the 10% is kind of broken into maybe 2% related to the accelerated delivery, and then the 8% is not having to lose margins in order to be competitive so that we could actually win the bid.

[Unidentified Analyst:]

So essentially you bid a little bit lower on price and now you've gone to the suppliers to ask for better pricing which they've agreed upon; is that accurate?

[Takesha Brown:]

Exactly, that is true. And so in third quarter we anticipate having better margins because it will have the lower cost from our vendor.

[Unidentified Analyst:]

And then my final question is, maybe talk about the competitive landscape. I mean obviously, the results suggest your win rates are improving but maybe talk about the committed landscape coupled with pricing trends, going forward how often do you think you're going to have to use price as a lever to - or at least that aggressively to drive growth in the topline?

[Mark Elliott:]

Well, the competitive landscape - we traditionally have a multiple - since we have a complete integrated solution approach there, we compete in projectors and we also compete in flat panels to draw the categorizations right there. In the flat panel market there, we're competing with companies like Smart Technologies and Promedian [ph], traditionally, they are primarily selling flat panels and they've gone away from selling an integrated solution approach there but they also have software that allows them to compete. The other group that would be tied in to that would be the others that are coming along in the flat panel market; and others would be companies that are traditionally have been hardware providers in the education space, these are companies that are - like bit BenQ [ph], and ViewSonic, and ViviTech, that traditionally sell projectors only, and now they're moving into this. But again, they don't have the integrated solution, they don't have the software for development and they don't have the community that we provide nor the references. So those are in that area and those are - that's how we compete against them is the schools like a one-stop shop, they've like referability and they like to be able to take their existing lessons that they've had and be able to run those, and we do that better than anybody. And then in the projector side, only our primary competitor is Epson and again, they are primarily hardware without all of the other things that we have that surround our solutions suite. So pricing…

[Unidentified Analyst:]

Yes, we think about pricing; the need to lower pricing when it's a hardware intensive solution with less software. I mean, I'm curious given that you have this full platform, I would think the need to discount pricing would only happen once in a while if really the large deals where - you need a little bit more edge?

[Mark Elliott:]

That's exactly the case because we haven't integrated solution there. A lot of the people that want our solutions they include those in there, and that separates us from everybody else. And so that means we're not having to compete purely on price because they can provide all of the things and they're ultimately interested in having a successful implementation with happy teachers and students who are using all the technology effectively. And so that gives us a big advantage against the - what I call the point solution providers that are there, that have to compete primarily on price. So our manufactures like that and our channel partners like that, because no one likes to compete purely on pricing. Now what we're seeing in the U.K. which was one of the earlier markets there to start the replacement cycle of interactive whiteboards which is where interactive whiteboards sales really began, we're seeing as you would expect, a lot of the smaller companies and the weaker competitors are starting to fall-off [ph]. And I would anticipate that that's going to be the same in this market here is that we're going to see people that can't just compete on price alone, that won't because the customers are demanding. Now there will be some customers out there that's all they are looking for but typically when that is the case, they've may win in the short-term but in the long-term they're going to come back to somebody that can take care of all of their requirements; and that's what we provide. That's why we're very optimistic about our ability to compete effectively against everyone out there, and that's why we're winning these bids. And let me tell you, these bids are not something that just happen; they put you through the ringer on this because the last thing they want is public humiliation; so when you go to bid, typically there will be 15 or 20 vendors that we've seen respond to a bid but out of that then they will sub-narrow down to like 3 or 4, and then they have to go through all sorts of things; we just want to bid and - in California, we worked on for over 18 months there and we had to put the products in with teachers, with teacher evaluations, with all sorts of approvals that they had to do the technology people, and on and on and on. And then when you come in to what they call the shootout there, they will come in and force you to do things like show them how you run their existing lesson plant and prove that you're on the spot. And then all the other factors that come in there like that the maintenance, the serviceability, the integrated solution products there, references are critical, and these districts because they're not going to be taking chances on companies that can't deploy and do this effectively. So that's - those are the reasons in the competitive landscape and why the pricing is a factor on the bigger bids but on the ones that we've got, that we've sold, and overtime where they are deploying over several years, and typically our manufacturers are coming out with lower prices on margins improved, plus us they are adding additional peripherals and components to that that they don't have to go to bid or they work with us because it's integrated and it works together with our software.

[Operator:]

Our next question is from [indiscernible].

[Unidentified Analyst:]

Could you talk a little about your longer term financial model in terms of margins and what - how large do you think you have to be to hit the inflection point of profitability?

[Michael Pope:]

We're focused right now on taking advantage of the sales opportunities that we're seeing, and that's been a major focus of ours. And we're trying to balance that with getting to a point where we're profitable as well and so that's something we've been balancing internally. I think looking forward, we've been looking to approach roughly at 30% margins. It looks like we maybe a little bit shy of that for this year at this point, but I think that's kind of a good mark for us, and moving forward that we're going to shoot for. As far as profitability, our goal is to hit that this year, we're going to see where that shapes out, we maybe just shy of that this year as well. But we're working on really going back to that model internally, and really focusing on trying to balance the extreme growth that we're looking to achieve when the opportunities are there, yet still maintaining good margins and profitability. You know, but the last thing we want to do is let the opportunity go by where there is so many large opportunities out there, and now take advantage of winning this business.

[Mark Elliott:]

And I think a good point on that is that you do end up with doubly or triply type arrangements there to where customers are they like you're going to see people gravitating towards two or three providers there because of their size and the risk factor districts you're looking at and so when you have what has been effectively called or affectionately a land grab type and that's happening to some extent right now where customers are upgrading from their own technology their interactive whiteboards to newer you know the land grabbers happening and so then it shakes out and then you end up with a much more stable arrangement and that's exactly where I think we are right now.

[Michael Pope:]

I think it's important to note too something that Mark said earlier in that when we win a lot of these large opportunities or leave large school districts you know there's an opportunity to continue to sell to those schools just to stay on initial contract and we look to make a lot more margin off those additional products or services that we can sell them in the future and then of course those projects that are being stalled over a long period of time are margin improve on those as well so again the focus really has been to take advantage and find that right balance between profitability and how to grow those margins.

[Mark Elliott:]

In another area we analyze these bids every one of them tremendously and we're never the low bid, we're not the highest bid because we're trying to be right in the middle but because we have our integrated approach in all of the other things that surround our solution there you know that's the reason we're able to win these bids because most of the bids that come out are the competitive pilots they look at they're looking at what's the best buy value, and they recognize it's not purely prized because if they buy something from a vendor that's not going to be around they can't support and they can't do all the other thing that's just a big [indiscernible] and they've had enough experience on that. So that's a big advantage that we offer there so we're not low bid, we are not high bid we're in the middle but we're also very competitive and the best bag and that's what they're selecting.

[Unidentified Analyst:]

Thank you. Could you talk a little bit potential as you have combined a couple companies over the past few years and recent acquisition. Just how you think about the synergies and the advantages of what you've put together?

[Michael Pope:]

Yes, good question. So the two acquisitions we reached to close of course were Cohuborate and Qwizdom, Cohuborate if you remember that was a company based in the UK. The main focus on acquisition of Cohuborate was to acquire a sales and operations team there in the UK that would allow us to really try to tackle that market both UK and great Europe and that's something we're already starting to do, you heard Mark mentioned you know good opportunity that we recently closed there we're also looking at several other large opportunities that we look forward to talking about in the near future. And then secondly you know we announced we were going to relaunch that Cohuborate brand and use that as our corporate and government brand and that's going to happen by the end of the year here so that was cool however we are tackling UK market we do think there's an opportunity for business in government in the near future.

[Mark Elliott:]

And I will add on the Cohuborate acquisition there, it was a company that Tony Cann is now an investor in our company he was the original founder of the Promethean and we've brought in some tremendous talent from Cohuborate. We have Andy Pennington who is the Former Head of Product Management for Promethean was a General Director for Cohuborate and we have Pauline Healey, who was had the number two role in the operations side, she's got tremendous background and experience in the dealer and supply chain area right there. So the management talent bringing those people in and then get us an entry level point into the European market and one of the things Cohuborate really needed was a stronger education solutions and that's what we brought them. So we're now repurposing our sales in Europe and they will be selling to the education market exclusively with the Boxlight Mimio brand and all of the other things and that's one of the reasons that we're seeing a turnaround and they are or pipeline and seeing a big uplift in what their outlook and as far as their prospect is concerned.

[Michael Pope:]

And UK is a huge market for an interactive displays that you know as we see in our reports that it's been third largest market for interactive displays. We sold very little there last year especially nothing and so we thought we're missing the boat, this puts us there where we can start to generate some business there. The second acquisition was Qwizdom, Qwizdom we acquired just last month actually in June of this year. Qwizdom was a little bit more of an established company and the benefits of Qwizdom we could talk a lot about it but in short of the benefits of Qwizdom were really two fold, number one they have great software in our industry and software is a major focus of ours, we think that of course we need to continue to innovate on the SAP we're front and generate more sales on the software front, you know software makes our hardware sticky also has higher margin and so that was number one is the great products that they had in software and secondly they had a very experienced robust team that has been developing software for a long time and so the combination of their existing products puts the software development team really feel the gap that we feel we had. I mean as far as how they're going to contribute going forward and I think for this year you know looking at the numbers you know they're going to be a small percentage of our sales perhaps about 5% or so of our sales for this year but we do think looking out beyond that that this software should be a larger percentage of what we do and we plan to leverage that Qwizdom team to help get us there.

[Michael Pope:]

And if you look at the main competitors we have there you know Smart and Promethean and then the other others category right there of the points of [indiscernible] the vast majority of those companies are utilizing Qwizdom for their education approach there so that's a big advantage for all of us right there so it's back into a triply I think you know between Smart, Promethean, Boxlight and the others group together with Qwizdom there so we are right in the middle of having the best solutions for the classroom and for the lesson plan development and connectivity.

[Unidentified Analyst:]

Thank you. My last question is do you think there's any value in partnering with another company that does education sales and just to help on distribution?

[Michael Pope:]

Well the only way we sell it is through an our partners and so we have some tremendous partners now across the United States, across the world here in the United States you know we have national partners of companies like Howard Technologies. They are in multiple states probably 30 states across the United States, CDW is a big partner for ours and they're one of the best sales, telesales marketing and sales and education space they're huge. We also have in Florida one of the top providers in there, called UDT and then we just recently picked up Troxel, Troxel is a selling machine out of Phoenix, Arizona they've got over 70 sales reps now and we have just partnered together with them on some of the recent bid opportunity there and they see all the advantage that we have. So we are partnering, that's the only way we sell and then in states a lot of the states we have traditionally you know the strongest channel partner and these are people that have earned the right to be selling in those districts, there are people that have years of relationship experience in reference of ability of delivering and being trusted advisors. So we have the strongest network and we've been adding these people like we did KCAD up and the mid-west we are adding them constantly and they're coming to us because they recognize that the things that the customers are asking for the things they won't be able to provide and we are the ones that with a partner can do that for them.

[Operator:]

Our next question is from John Noble from Taglich Brothers. Please go ahead.

[John Noble:]

Actually a lot of my questions were already addressed previously but something to get a little bit more detailed specifically I believe you mentioned that the Clayton County school district you've about $11 million with them which is going to be shipped by the end of 2018. Now you did mention some of that into Q2 I'm trying to get an idea of what to still expect, if you could break down how much of Q2 incorporate Clayton County and what's remaining for the second half of the year?

[Takesha Brown:]

Yes, so for second quarter we were kind of looking at that information. So for Clayton and Buford which are the two projects that we have been kind of keeping our eyes now and those with the ones that we didn't anticipate much from this quarter because they want us to accelerate and we are and they are about third of the revenue that we had during the quarter with Clayton County being the majority of that.

[John Noble:]

And that was about 3 million this quarter roughly.

[Takesha Brown:]

Yes.

[John Noble:]

All right so we still have about 11 million to be shipped in the second half roughly?

[Michael Pope:]

Yes.

[John Noble:]

In the second half and in regards to Qwizdom I assume Qwizdom is going to be accretive to earnings starting in the third quarter?

[Michael Pope:]

Yes that's fair to assume.

[John Noble:]

Okay. Can we get an idea of what to expect Qwizdom will deliver on an annual basis I'm talking in terms of revenue and margins, I believe Mike had said it was going to be about 5% of total sales this given year but on an annual basis I was hoping you might be able to elaborate a little bit on what the revenue is and not only that being a software based company I imagine margins would be higher than mid-20s upper 20s historically so what are we looking at from margins in this business?

[Michael Pope:]

Those are good question John, so we haven't reported to this point in time like what the percentage of our sales that are on the software side and we really look at it as we're integrating Qwizdom into our business we're really looking at rather than on a company level right we're looking at that as a product segregation and software would be one of our products but that's not something we have reported yet but I think you know on the safe side Qwizdom like we said maybe 5% or so of our sales you could use as a rough estimate.

[John Noble:]

On the software sales or total sales? I want to make sure I'm clear on that.

[Michael Pope:]

No our total sales. I would say Qwizdom will provide approximately 5% of our total sales and then you can get an idea I was going to say - you can take also at our Q that we filed because we did utilization a pro-forma statement in there and you can get an idea of what you know financially what both Qwizdom and [indiscernible] have been together provided because you can compare that to our quarterly numbers excluding those two companies.

[Mark Elliott:]

We are going to continue to prefer the OEM side there and so with that as well. So that will you're right software here is much higher margin so we expect to see that growing. We are not walking away at all from that market. We think that's going to grow as the market is growing with a replacement market here and globally are happening and the acceptance of our products everywhere and their software runs not just on flat panels but it runs on our entire suite of solutions. So it would be sold on a teach device for you know $700 and it goes into Chile or it could be sold on you know $3000, $4000 flat panel here in the United States.

[Operator:]

Our next question is from question from Hunter Diamond from Diamond Equity Research. Please go ahead.

[Hunter Diamond:]

My question relates more to general high level question because most of the manufacturing is done in China, Taiwan overseas, have the [indiscernible] pricing or the sales growth or has there been any issue with distributors?

[Mark Elliott:]

Well it's certainly a concern. All of our manufacturers we are working with them own that and they are doing all that they can to ensure that this doesn't become an issue especially in the education sector because there's no reason to impose those extra costs on enhancing education you know across the United States. We've also met with the Department of Commerce here to let them be aware of what our expectations are and what we would like to see their on this and we tomorrow have a U.S. Congressman Rob Woodall coming into our office for tour and meeting with us. So we're getting the message across there and you know we're optimistic who knows what's going to but with the administration. We are doing everything that we can to make sure that that does get communicated and that it shouldn't be punitive for the education market across the Board and I met with a Congressman Woodall yesterday and that he's certainly protective to communicating that and he recognizes that there's no advantages at least from what we have discussed that that could offer. So it's out there but the manufactures that we have in China they are preparing to do everything that they can to ensure that that they continue and they are very large companies with a lot clout behind an economic resource to draw upon.

[Michael Pope:]

One more comment on that as well you know, we are working as Mark said on contingency plans but also I think I guess it's important note that it's going to hit all of us equally, right our competitors are also manufacturing in China as well so you know if this does hit us and we're not able to fight around it which we think that there may be some things that we can do but it's going to hit us all equally and ultimately have a cost of project [ph] go up to the end users but we don't anticipate we're going to take a large hit on margins just because there's not really enough you know to squeeze I think between us and the various competitors.

[Hunter Diamond:]

Right and whatever it is it that would pass through with any bid than anyone else is submitting?

[Michael Pope:]

Yes and it does get pass through to the end user and who knows they may - what they would do with the tariffs if they receive they may put that back into education.

[Hunter Diamond:]

Right that makes sense. And the other question just relates to also to the trump administration the educational budget cuts, as discussed with your customers are not really an issue with that anything that's going to affect demand or doesn't think it's a major issue at this point I mean with the sales growth it seems like you're definitely not too effective right now.

[Mark Elliott:]

Hunter, in the past back in 2008 the majority of the funding for our schools and education in the public sector in the United States come from property taxes and so that stabilized greatly back in 2008 President Obama had to put back Economic Recovery Act in the place there and so they did that and so they were more dependent on the federal government but that's just not the case anymore, Federal Government gets tied into title one and some special running an innings like that but it's not impacting these districts they're going out and they are refreshing their technology. The good news is that they're 70% of the classrooms here in the United States that have interactive technology and they're not saying we don't need it they're saying it's something we have to have, we can't go backwards and we are going to move ahead and we're going to do with the most effective interactive technology available because it does you know there's just the teachers won't ahead with it, the students won't move ahead without it and so that's a good news and so they are replacing it and it's going to continue to be replaced and technology is here to stay in the classroom. It's not like back in the 2000s early 2000s you know when there was more technology in the police cars than there was in a school, classroom you know that we have passed that right now and they are using all of the technology effectively and to make a difference in learning

[Operator:]

[Operator Instructions]. And if there are no further questions I would like to turn the floor back over to Mr. Elliott for any closing comments.

[Mark Elliott:]

Well I'd like to thank everybody for your support and for joining us today on our second quarter conference call and we look forward to speaking to you next quarter. So thanks everybody and have a great evening.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.