Bos Better Online Solutions Ltd Q1 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the BOS First Quarter 2023 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. Cohen, I would like to remind everyone that forward-looking statements regarding 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 in product and technology development, and the effect of the company’s accounting policies, as well as certain 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 over the call to Mr. Eyal Cohen, CEO. Mr. Cohen, please go ahead.

Hello and thank you for joining our call today. BOS empowers technologies for inventory efficiency through its RFID business division. The Robotic division develops off-the-shelf robots that automate human activities in the production, assembly, parking, and sorting of inventory. The RFID division integrates software and hardware for marking, tracking, and enhancing inventory for the Supply Chain. Our Supply Chain division distributes electronic components. BOS’ competitive advantage is built on 20 years in the business of inventory efficiency, built on client trust with more than 2,000 active clients, quality service, and a comprehensive and innovative offering. Those points are critical criteria for retaining our clients. In recent developments, our Supply Chain division continues to distribute electronic components. Historically, we have focused on the defense and aerospace sector. Due to extensive business development that has occurred over the past year, we expect that in 2024, the portion of the civil sector, mainly hybrid, will increase significantly. In the RFID division, we have invested significant managerial resources to expand our product offerings organically by adding complementary technologies to increase revenues per client. We have also added alternative brands for each product to enhance the closing rates of deals. I believe that these developments will yield results in 2024. The Robotics division is transitioning to sell and integrate off-the-shelf robots rather than building custom-made machines. This will significantly reduce the risks associated with testing and shorten the sales cycle. Meanwhile, we have significantly reduced the operating costs of distribution. Now I want to turn the call over to Mr. Ziv Dekel, our Chairman.

Thank you, Eyal. Our growth strategy comprises two reinforcing dimensions. Based on our core expertise in highly advanced technologies for inventory efficiency, we actually have a two-fold growth strategy. The first dimension is to continue developing our core activities, which focus on automated inventory tracking and management. The strategic purpose will be the enhancement of our core capabilities, developing our expertise, know-how, and skills. The achievements we aim for include a steady, gradual strengthening of our market competitive position, client base, and thus revenues and cash growth. In his speech, Eyal described the key activities that he is overseeing with his management team to execute these strategies. It is not self-evident, yet with the capabilities that BOS is holding and constantly developing, I can see this becoming a reality in the short and medium term. The second dimension of our growth strategy involves stepping up and boosting our M&A activities, again focusing on inventory technology and management domain expertise. The strategic purpose here will be significantly expanding our M&A growth opportunities, becoming a specialized domain expert company, achieving results, realizing rapid growth in our revenues and profits, and significantly enhancing our competitive position. This course has great potential for BOS, and we are taking extensive and comprehensive actions to implement this endeavor. Thank you. Eyal?

Yes. We are ready for questions. Please.

Please.

Hey. Congratulations on a fantastic quarter there. It’s very impressive to see the growth in both revenue and net income, and thank you for taking my questions. My first question is regarding M&A activity. Do you expect any potential M&A activity to be in Israel, or are you looking at other countries?

Hey, Todd. Thank you for the question. Ziv, would you like to answer the third question?

Yes. Please. Our spectrum of opportunities is in Israel, but also in Europe and the U.S. I think that when we speak about our specific opportunities in Israel, it is quite wide in terms of all our activities, while in the U.S. and in Europe, where we need a much stronger competitive advantage, we will be sharper in the opportunities we pursue.

Okay. And I may have missed it, but did you give an update on your order backlog?

No. We didn’t publish it. But we opened the year with a robust backlog that gives us confidence and supports our outlook for this year. The backlog remains high, and we are working to ensure it stays that way throughout the year.

Okay. That’s great to hear. Regarding the current market environment, we have been experiencing high inflation, the war in Ukraine, and there has been a supply chain crunch. I know all those factors have affected your business, much of it positively, as seen in your margins, indicating that you seem to have had some pricing power. Do you expect the current market environment, where you are able to grow revenues and earnings at such a high rate and maintain higher margins than in previous years, to continue? I know a lot of that is due to your hard work and improvements in efficiencies.

Yeah. I think that the war in Ukraine supports the growth of our Supply Chain division, which has a high correlation with the Israeli defense industry. As long as the demand for such products from the Israeli defense industry continues to grow, we are involved in many projects, which will impact our growth. We provided an outlook to the market of $45 million, which reflects the growth in revenues from last year and the year before, which was approximately $35 million. This is a significant step, and we are working on 2024 to exceed the $45 million mark.

Okay. I read an article that mentioned that Israeli military orders were up over 900%. I guess people can’t buy arms from Russia or defense systems, as the American defense systems are too expensive. You have recently landed both Supply Chain work and Robotic systems with the Israeli military. Are most of those orders for the current year, or do you expect this business to continue into 2024 and 2025 and beyond?

Yeah. We have ongoing orders from the Israeli defense industry, mainly from the Israeli aircraft industry. We are in the process of delivering a relatively large order of more than $3 million that we announced previously. As long as we are working on specific projects with high market demand, we will continue to grow, and we are firmly engaged in this industry. In the Robotic division, we have transitioned to the defense sector in Israel, and most of the projects currently in progress are for that sector.

Okay. That’s great to hear. Thank you again for taking my questions, and congratulations on an outstanding quarter.

Thank you, Todd.

Thank you, Todd.

There are no further questions at this time. I would like to turn the call over to Mr. Eyal Cohen, CEO, to make a concluding statement. Mr. Cohen, please go ahead.

Thank you. I am pleased with the turnaround that started in the second half of 2020. We had a strong quarter, and we will likely meet our targets for the year 2023. However, our Chairman expects us to focus on the results for 2024. Thank you for joining our call today, and I look forward to meeting you on our next earnings call scheduled for August. Until then, you are invited to contact me for any matter. Thank you, and have a great trading day.

Thank you. 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. This concludes the BOS first quarter 2023 results conference call. Thank you for your participation. You may now disconnect.