Stock: Boxlight
Stock Rating: BUY
Price Target: $5.13 +138% Upside
Market Price: $2.37
Research Publication Date: 1/21/21
We had a chance to catch-up with management and discuss the
performance of the company with the CEO of Boxlight, Michael Pope. For the most
part, we were able to gain greater clarity on the Samsung Partnership, and the on-going
integration with Sahara Presentation Systems PLC.
Software revenue ramp
The synergies tied to Sahara Presentation tie heavily into
the heightened overlap of the panel maker, whereby both Boxlight and Sahara use
the same manufacturer. So, we anticipate some positive synergies tied to the
more expanded sales force, and volumes from the manufacturer. They use a
Chinese manufacturer, or what many refer to as a white label. The differentiation
of Boxlight ties into their Mimio Connect Software, which is a necessary
component of selling into K-12 schools where the company bundles the
interactive display with the necessary learning resources/tools needed to
leverage the product.
So, typically Boxlight’s displays are sold with a 3-year software
license tied to those displays, and assuming the K-12 school system wants to
continue the use of the software following those 3-years, they would then have
to renew the software license creating an annuity-like revenue model. In other
words, the reason why software revenue ramp is a little lumpy ties into the
timing of some of the older interactive touch display contracts, and the sales
performance of the stand-alone software following the expiration of the 3-year license.
Samsung partnership details
Furthermore, we were able to understand the Samsung Partnership
in greater granularity. For the most part, the deal with Samsung has a positive
impact on software and hardware revenue contribution. The differentiator
however is that Samsung doesn’t have much of a presence in the interactive display
segment when pertaining to K-12 schools. To sell into K-12, Samsung would need
to invest resources into developing a separate sales force, develop software
and learning tools. Whereas Boxlight already has all of these features tied to
their Interactive Displays via their MimioConnect Blended Learning platform.
This helps differentiate the Samsung bundle, because it is
anticipated that Samsung Interactive Displays will still be the best or
industry leading tech, whereby Samsung has 50% of display revenue market share,
according to HCT. More specifically, Boxlight anticipates that it can ramp
volumes with the higher priced displays, when compared to their pre-existing
displays due to the quality of Samsung’s brand, disproportionate market share
in the OLED space, where Samsung reported 90% market share in the segment in Q1’20.
We anticipate that in terms of physical hardware, Boxlight
is future proof, where they provide cheaper white label equivalents, and higher-quality
displays from Samsung. So, this helps round out the product portfolio, so that
if educators want higher ASP products with better quality displays, perhaps in
situations where this would be more advantageous (art or design classes) than
the higher quality touch display makes more sense. Of course, the key takeaway
is that Samsung strictly sells the display through Boxlight (when selling to
K-12 education) and earns revenue from the contract from selling hardware strictly,
whereas Boxlight earns all the revenue from the accessories, software, and
whatever mark-up they charge per unit on Samsung interactive displays.
The CEO indicated however that there might be room to be
more competitive on an ASP basis, which would smoothen the adoption of higher
quality Samsung displays. However, we anticipate that even at the current
selling price the adoption of the Samsung Bundle will improve over time.
Industry trends suggest a path to revenue acceleration
Keep in mind, we also got an update on the Sahara
Presentation Systems software suite, and it’s likely that Boxlight will
eventually simplify the software to market primarily the Mimio Connect and that
the Mimio Connect software suite will be invested into heavily to remain
competitive with other competitors in the space like Promethean World, which
tends to be similar, but is a privately held company.
We anticipate that with the combined scale of Boxlight +
Sahara that the lesson delivery software will become a higher component of
revenue with the CEO mentioning that they can also take market share in the
space while anticipating organic growth across all tech solution in K-12
educations to grow 10%+ in the USA alone, whereas European organic growth
across K-12 tech will be in the 5%-6% range. This is based on third-party
industry data, where results at Boxlight could differ materially from broader
industry trends.
Keep in mind, Joe Biden’s stimulus plan also proposes $175
Billion to reopen schools on top of the $54 Billion that was passed as part of
the $900B stimulus bill from December. The heightened funding levels may have
also contributed to the optimism in the education tech space. So at the federal
level, it is implied that $229B in added school funding will be made available
by the Fall Semester, which is why investors should be positioning in
anticipation of organic growth, political themes, post-merger accretion. Hence,
we raised our Price Target on Boxlight in our prior report: Boxlight
Raising Price Target to $5.13 A Big Upgrade.
Financial Model Overview
Figure 1. Financial Model Overview
Source: Cho Research
We’re providing our estimates for FY’21 where we anticipate
some strong organic growth across the Boxlight business and anticipate $102.36M
revenue contribution from Sahara Systems PLC. We anticipate some added upside
from FX impact, as the division reports revenue in terms of GBP (British
pounds).
We believe consensus expectations on topline revenue are
rather conservative given the scope of revenue upside tied to new contract
wins in both K12 education and corporate displays. We think some of this upside
could translate through FY’21, as budgets across the United States and Rest of
World normalize and continue to grow. When combining all reporting segments, we
anticipate revenue of $136.972M which is above consensus, though we believe we
are conservative and likely below management guidance for FY’21 when they
report results on Q4’20 results.
This being said, the reason we are below consensus
expectations on Dil. EPS has much to do with our other expense figures, which
we anticipate some negative headwinds tied to the financing cost of the debt
convertible, and eventual share dilution from the convertible impact, or
additional secondary cap raise, where we anticipate a 15.8% increase to share
outstanding. The pace of dilutive impact will slow when compared to prior
year.
We also exclude the FX computation, as we anticipate that
the FX impact will be factored into the topline revenue figure, and that
inter-segment reporting will likely change when compared to prior year when
Boxlight reports Q4’20 earnings.
Figure 2. Valuation Estimate
Source: Cho Research
We value the stock on the same forward sales multiple as
prior year given the prospects of potential headwinds in the business
environment. However, we think the converse scenario of higher multiple and
revenue surprises could result in price target increases down the road.
We provide a $5.13 price target, even when factoring the
impact from added dilution, and anticipate that the stock will likely trend
higher heading into the next quarterly earnings report. The negative bias
towards education-tech will likely improve over the course of the year, and
assuming the valuation does start to normalize we could see room for more upside.
That being said, our valuation is in-line with the consensus median PT of $5.
We believe consensus estimates are mostly attainable, and given the small cap
nature of stocks, there’s certainly room for more upside. Of course, our price
multiple is lower vs. consensus whereas our revenue estimate is higher.
Final thoughts
We though the insights tied to our management meeting continued
to support our bullish thesis on the stock. We continue to maintain our BUY
Rating and $5.13 Price Target. The company has yet to provide a quarterly
earnings date, though they technically do have until March to report quarterly
earnings.
We will provide more updates to our financial model, as we get closer to the next quarterly earnings report.
Disclosure: Cho Research was not compensated by Boxlight to publish “Boxlight Management Meeting Key Takeaways” Though Cho Research does use the research dollars it generates from other clients of our research service to fund market research
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