Bos Better Online Solutions Ltd Q3 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the B.O.S. Conference Call. As a reminder, this conference call is being recorded and will be available on the B.O.S. website as of tomorrow. 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 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 the call over to Mr. Eyal Cohen, CEO. Mr. Cohen, please go ahead.

Thank you. Thank you for joining our call. On the call with me today is Ziv Dekel at the remote site, Chairman; and Moshe Zelter, CFO. We are excited to meet you again at our quarterly video meeting. During this call, we will review our financial results, business trends, and the growth strategy. After that, we will have a Q&A session. The financial results for the first 9 months of 2023 showed significant improvement compared to the comparable 9 months of 2022. Revenues grew by 11%, EBITDA by 60%, and net income by 128%, and the EPS doubled. From a 3-year perspective, our trailing 12 months' revenues grew by 38% to $44.6 million compared to $32.2 million in 2021. Our trailing 12 months' EBITDA increased by 312% to $3.3 million compared to $0.8 million in 2021. Our trailing 12 months' net income amounted to $2.1 million compared to $0.5 million in 2021. Our trailing 12 months' earnings per share amounted to $0.37 compared to $0.09 in 2021. Our balance sheet has significantly strengthened over those years. Our shareholders' equity increased from $14.3 million in December 2021 to $18.4 million in September 2023. Our bank loans remain roughly the same, around $2 million, mainly attributed to a long-term loan underlying the real estate that we acquired for our terminals. Our working capital as of September 2023 amounted to $10.2 million, and we believe that it is sufficient for our ongoing operations. Business trends: Our Supply Chain division faced intense demand from the Israeli defense market, and these demands are attributed to the military conflict in Europe and the Middle East. Our Robotic division has shown consecutive improvements year by year and reached a breakeven point in the last two quarters. In addition, this division is transitioning towards the Israeli defense market, currently focusing on projects for the defense segment in Israel. Our RFID division has faced a decrease in revenues in the first 9 months of the year compared to the same period in 2022. In the past several years, intense investments in new logistics centers in Israel positively impacted the RFID division's financial results. However, this trend was adversely affected in 2023 by a sharp increase in interest rates and by the political tension underlying the Israeli government's attempt to pursue extensive reform to the Israeli judicial system. On October 7, 2023, war started between Israel and the terrorist organization Hamas. The war has not affected our workforce and production facilities, and there has been no significant interruption to our operations. I'm very proud of our team that has come together to work through this situation. We operate through three business divisions. The Supply Chain and Robotic divisions, which account for 70% of our revenues during the first 9 months of the year, have significant exposure to the Israeli defense industry. We, therefore, anticipate a growing demand for their products and services due to the current situation in Israel. The RFID division operates many logistic centers and retail chains in Israel; therefore, it has suffered from a slowdown in sales processes. This division might be entitled to compensation from the Israeli government. Our customers and suppliers are resilient and experienced in working during challenging times, and there are signs of getting back to routine. Regarding our outlook for 2023, during the first 9 months of the year, we reached our annual target of net income. Still, because of the current external circumstances, we keep our outlook for 2023 unchanged, which is revenues of over $40 million and net income above $1.5 million. I want to turn the call over to Mr. Ziv Dekel, Chairman, who will elaborate on our growth strategy. Please, Ziv. So we have a technical problem here connecting from remote. So I will say a few words on the growth strategy. The growth we are experiencing is due to the implementation of various operational changes and business development that the company is executing, especially strengthening our competitiveness by adding more brands to our existing offering, developing new markets by expanding our offering with complementary technologies and mergers and acquisitions. Those efforts have not been fully reflected in the results of 2023, but they will gradually yield their goals. At this stage, gentlemen, we will take questions. Just a moment. Okay. So at this time, we'll start the Q&A session.

I just had a question. I know in the past, you've had several contracts with the Israeli Defense Force regarding your supply chain division. Obviously, the IDF has been using a lot of products and equipment. What is the standard lead time between them using some of the components and equipment you provide them and giving you another order?

It's a good question. Usually, the normal lead time can be a few months. But I think they are not waiting until the last minute. We feel that today they are urgent in their orders to the Supply Chain division, and there are a lot of bids. Because we have overcome the corona issue with all the logistical problems behind us, I think the lead time is shorter than in previous years. So it could be a matter of months or two in normal cases. Of course, there can be outstanding cases, but this is generally the norm.

Okay. And do you anticipate announcing any significant orders that you have received?

As you can see, we are selling around $44 million a year. So we can assume that we receive significant orders from time to time. Actually, we don’t usually announce every significant order we receive unless there is something dramatically game-changing about that order, for example, new components, new segments, or a new client. Otherwise, it's ongoing orders.

Okay. That helps. And finally, historically, the fourth quarter has always been your strongest quarter. And I know you have already reached your net income guidance for the year. Given that you're not willing to boost that, are you anticipating any problems in Q4? Or are you expecting another strong quarter, given that the fourth quarter is normally the quarter that has the most revenues and earnings per share?

Yes, the fourth quarter is usually the strongest quarter of the year and also the first quarter of the year. We have not changed the outlook for now. We maintain it at $1.5 million because of the current circumstances in Israel. So I think it's better to keep the outlook as is. In the current circumstances, from a legal perspective, it's not wise to change. Thank you for being with us today, and we are looking forward to meeting you again on B.O.S. Fourth Quarter Call, which will be in March 2024. On that call, we will also provide our outlook for 2024. Thank you.