Bos Better Online Solutions Ltd Q1 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the BOS First Quarter 2021 Results Conference Call. All participants are in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference call is being recorded and will be available on the BOS website as of tomorrow. With us on the line today are Mr. Ziv Dekel, Chairman; Mr. Eyal Cohen, CEO; and Mr. Moshe Zeltzer, CFO. Before I turn the call over to Mr. Ziv, I would like to remind everyone that forward-looking statements regarding the company's business, financial condition, and results of operations are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated.

Okay. Thank you for joining our earnings call. I hope that everybody is well. I'm encouraged by the improvements in our financial results for the third consecutive quarter. Led by Eyal, the company continued its process of enhancing its capability and market competitiveness. Specifically, I would like to refer to the synergies we built between the Robotics and the RFID divisions that have already generated sales as we see it along the way. Looking forward, the management team is working extensively to strengthen and develop the growth engines of our division by branching into new segments, penetrating new territories, and expanding the product offering for existing and new clients. Now, I would like to turn the call over to Eyal Cohen to elaborate on our growth plan. Eyal, please.

Thank you, Ziv, and thank you all for joining our call today. Regarding branching into a new segment, currently, most of the sales of the Robotics division are to the industrial segment. By the end of this year, we plan to launch a new line of Robotic systems for the logistics segment. This line will automatically sort products received in the logistics center and allocate them into shipping boxes. We already received an initial order at a pre-sale price of $430,000 from a fashion retailer for an automatic sorting system. This system will automatically sort and allocate in your logistics center into shipping boxes for its 160 stores. This new line of systems leverages the strong footprint of the RFID division in the logistics segment and the technological capabilities of the Robotics division. We anticipate that the first installation of this automation line will kickstart the sales of this line and be a fundamental growth engine for the RFID and Robotics divisions. Regarding penetrating new territories, at the beginning of this year, we re-established the robotic division's sales office in the U.S. We are working extensively to achieve our initial goal of closing significant orders in the first half of this year. Regarding expanding our product offering to our existing clients, we are exploring various alternatives to significantly increase the number of franchises that we can offer to our supply chain division clients to support their growth.

Thank you. The first question is from Todd Felte of Advisory Group Equity Services. Please go ahead.

Good morning, Eyal. Just hoping you could share with us some information on the status of the sales in the U.S. I know that the sales cycle is a few months, and we've got our new North American Sales Director at the beginning of this year, so I was kind of hoping that we could be close to landing some significant sales or contracts. Thank you.

Thank you, Todd. Thank you for participating in the call. I think this is your 20th call that you have participated in. Thank you. Regarding your question, up to date, we have generated a pipeline, meaning sales proposals of about $9 million, and the average of each bid was about $1 million, which is a good indication of transaction volume. The penetration into the U.S. during the COVID time was harsh, mainly because of the absence of physical meetings. Now that we’re back to normal, it will make our mission much more achievable. So, we are optimistic.

Okay. One other question here. As the world comes out of COVID, and economies are roaring back, it seems to me that you're extremely well positioned in some of the sectors you do business in. I know there's a strong demand for resistors, capacitors, discrete semis, and you supply those. You have Supply Chain Solutions, and you also have Robotics, which seems to be in demand considering we have trouble finding workers at $15 or $20 an hour in the U.S. However, I noticed that your inventory climbed by a million dollars from 4.8 to a little over 5.8 over the last quarter. Are you experiencing some of these tailwinds? Can you elaborate on the growth in that inventory?

Yes, Todd. There are several reasons for the increase in inventory. First, we anticipate an increase in Q2 revenues. To cut the lead time, we increased the inventory level in advance during the first quarter. Second, due to the situation you just described, a major franchise of our supply chain division demanded all its distributors to keep a higher level of inventory to reduce lead time. So, we did that. Third, we had to purchase inventory in advance to back up prices for long-term frame orders. To conclude, the inventory increased for these reasons, and all this inventory is designated for clients.

Okay, that's helpful. Finally, I noticed during the quarter you received your first contract with the UAE. I also read headlines about the United Arab Emirates making significant investments of billions of dollars in Israel. Do you expect to receive further orders from that country and from some of the other markets that have now opened up that would have been unavailable to Israel, say, 10 or 15 years ago?

Yes, absolutely. This presents an opportunity for our supply chain division, and potentially for the other divisions in the future as well. We received an initial order, and we expect continuing orders. We just recently got another order from the same client, but it's not a significant amount. However, I believe that gradually we will increase the business with this territory because we have a good source of components and experience with all segments of aerospace and defense in relation to our supply chain division. So, this represents a good opportunity for us.

Okay, thanks for answering my questions, and I'll hop back in the queue. Thank you.

Thank you.

There are no questions at this time. Before I ask Mr. Cohen to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available on the company's website www.boscom.com by tomorrow. Mr. Cohen, would you like to make your concluding statement?

Yes, thank you. The BOS team is on board to accomplish its missions. When the war in Israel is ended and COVID is behind us, and life is back to normal, it will make it easier. I hope to see you again in our next earnings call in August. Thank you.

Thank you. This concludes the BOS first quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.