Bos Better Online Solutions Ltd Q2 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the BOS Second Quarter 2022 Results Conference Call. All participants are present 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. Cohen, I would like to remind everyone that forward-looking statements for the respective company's business, financial condition, and results of its operations are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks and product and technology development and the effect of the company's accounting policies, as well as other risk factors which are detailed from time to time in the company's filings with the various securities authorities. I would now like to turn the call over to Mr. Eyal Cohen, CEO. Mr. Cohen, please go ahead.

Thank you for joining our call today. We have progressed towards BOS’s long-term growth during the first half of the year, and our revenues grew by 28% compared to the comparable period last year. The RFID division revenues grew by 22% in the year's first half compared to the comparable period last year. In addition, this division completed the integration of its acquisition earlier this year. The Supply Chain division has leveraged the global shortage of electronic components, and its revenue grew by 40% in the first half of the year compared to the comparable period last year. In addition, the Supply Chain division has established a new sales engineering department to increase the number of electronic manufacturers we represent, which is a substantial element for long-term growth. In the robotic division, we made some progress in increasing the portion of revenues from the sale of catalog machines versus custom-made machines, which we believe will improve the profitability of this division. You are invited to review our catalog machines on the BOS Robotics website. In addition, the Robotic division successfully developed and launched a new line of automatic sorter machines for logistic centers, which we believe has good sales potential. We will distribute impressive videos soon. On the cost side, we are in a challenging period characterized by increased operational costs. Hence, recently, we purchased part of the facilities lease. In addition, we plan to relocate the robotic factory by the end of this year. Furthermore, there are shortages in goods and employees; however, the BOS approach sees it as a business opportunity rather than a business obstacle. That completes my review. Thank you. Let me go to the Q&A session.

Thank you. The first question is from Todd Felte of AGES Financial Services. Please go ahead.

Hey, guys. Congratulations on another strong quarter. I noticed that you have done over $21 million in revenue for the first six months and your guidance is only for $35 million for the year. Historically, the fourth quarter has been your strongest quarter. Do you expect a downturn in business going forward? I'm just curious as to why you haven't raised your guidance levels.

Thank you, Todd. No, I think you're right. The second half of the year is historically much stronger than the first half of the year. But in the projection, we provided that we will exceed the $35 million. So I'm sure that we will exceed this number.

Okay. That's great to hear. And moving on to the Robotics, I see that you had the first gross profit for the Robotics division in quite some time. And the overall operating loss has really improved. Do you expect the Robotics division to become profitable within the next year?

Yes. This is the plan, and we did a lot of restructuring in this division, in addition to a change in the business strategy. As I mentioned, we also relocated the factory to a new place in order to save significant costs. So we are reducing the burn rate of this division and changing the business model of this division. I think we will see the fruits in the next year.

Okay. And then my final question just refers to the market environment in Israel. I saw a report on Bloomberg, where inflation is at a high for Israel in the last few years. How does that affect your company and are you able to pass on much of these price increases?

It's a big challenge in two aspects: first, on the financial expenses, although we don't have a huge amount of loans. But we do have loans, and recently we acquired part of the facilities that we are working in Rishon Lezion, Israel, and we will consume, I think in the coming days, a loan of NIS 4.5 million. The interest will have an impact, but it's better to have these assets on our hands rather than continue to lease them because the rent prices are going dramatically up. Regarding inflation, there are two elements here. First, we need to build a mechanism that can adjust the sales price to our clients more frequently, not as we used in the past to do it once every two or three years or not at all. So we have to change. We are working to change our information system that will support it. We are very close to completing this stage, and we’re also in the process of changing sales prices to our clients who are in annual contracts with us, and we are doing well on that aspect. On the other end, inflation has a very adverse impact on payroll, and we have to address it; in order to do so, we have to increase sales prices. This is a significant headache, but it’s part of the business for the coming year or two.

Okay. And one last question, I noticed in the first half of the year you had a substantial amount of orders from the Israeli Military. I read an article where Israeli military orders were up over 900% based on the fact that no one is ordering any Russian military equipment. Is the Military division and your supplying of components still a big factor in your business? Do you expect it to continue?

Absolutely. As you can see in the Supply Chain section, the growth in revenues is about 40% in the first half of the year compared to the comparable period last year. So it's clearly a result of the trend that you just mentioned. Our backlog is also at a record number which is above $20 million, a record number compared to any period in the history of BOS. It's a direct effect of the growth in the military segment in Israel.

Great to hear. Congratulations on a great quarter. I know most shareholders should be very happy with it. Thank you.

There are no questions at this time. Before I ask Mr. Dekel 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 by tomorrow. Mr. Dekel, would you like to make your concluding statement?

Thank you. Yes. So hello everybody. What Eyal has just described is the picture as well as the key elements of BOS’s strategic plan manifestation, which we already are implementing. The full fruition of that is yet to come; we don't see it significantly. Improvement has been made, and I can see the springs of it partly from what Todd asked before. Working closely with the company, I trust BOS's management team led by Eyal’s vigorous leadership, investing in all aspects and levels of the system with innovative, bold, and imaginative thinking. I'm highly impressed by the team's commitment to the company and to the target of improving shareholder value. Thank you for being with us today. Looking forward to meeting again on BOS's third quarter call.

This concludes BOS second quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.