Bos Better Online Solutions Ltd Q1 FY2024 Earnings Call

Thank you for joining our call. Mr. Ziv Dekel, Chairman; and Mr. Moshe Zeltzer, our CFO are on the call with me today. We are excited to meet here again at our quarterly video meeting. Today, we have a comprehensive agenda. We will start by reviewing our financial results, business trends and growth strategy. After that, we'll have a Q&A session to address any questions or concerns you may have. Let's begin with the looking forward statement.

Ladies and gentlemen, thank you for standing by. Welcome to the BOS Conference Call. All participants are at present in listen-only mode. As a reminder, this conference call is being recorded and will be available on the BOS 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 respected 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 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. The first quarter reflects record net income of $740,000. We have achieved this goal gradually and consistently as a team, reflecting our collective effort and dedication. Our trailing 12 months revenue amounted to $43 million, EBITDA $3 million, net income of $2.5 million and EPS in the trailing 12 months of $0.36. These results put us on track toward achieving our financial targets for 2024, which includes reaching our revenues of $46 million and our net income of $2.2 million. We have a relatively strong balance sheet with $34 million of assets, $20 million of shareholders' equity, which accounted for 60% of the assets, and our surplus of cash net of loans stands at $1.7 million. Our business performance combined with our healthy balance sheet provides us with the right ecosystem for taking, exploring, and developing agents for future growth. The following slide presents BOS's current valuation ratios based on the trailing 12 months. The market cap ratio to net income is 7.7, the market cap ratio to projected net income for year '24 is 7.3, the market cap ratio to EBITDA is 5.3, and the market cap ratio to shareholders' equity is only 82%. Despite our positive trends in progress, our market cap remains roughly unchanged, which was $15 million in December '21, when we earned only $0.5 million a year, and remains $15 million today when we earned more than $2 million, also 365%. I hope BOS will have analyst coverage this year to explore BOS's value opportunity to more investors. Business trends. The Supply Chain division has expanded the list of electronic manufacturers it represents and increased its sales force. Hence, we expect revenue growth from those products in 2024 and beyond. In addition, we are facing increased demand from the Israeli Defense segment and we anticipate it will positively affect the Supply Chain division revenues this year. The Intelligent Robotics division is successfully transitioning from the Israeli Civilian sector to the Israeli Defense sector, which will promote its continued growth in '24. This division's revenues in the first quarter of the year will not reflect its potential revenues for year '24 because a significant portion of the orders we receive are in production. The RFID division sales are mainly to logistic centers in Israel. We have significantly expanded our offerings for new sales and expect this will yield revenue growth in year '24. I want to turn the call over to Mr. Ziv Dekel, our Chairman.

Thank you, Eyal. Good morning and afternoon to everybody. In reference to Eyal's review and within a broader framework, BOS's first-quarter record net income is the primary effect of the comprehensive growth build-up process that Eyal has been leading for the past years. The meaning of it is the rejuvenation of most of our core business while bringing it to a consistent course of sound organic sales and profit growth as we see. Specifically, the first quarter was characterized by the continued implementation of significant steps to strengthen capabilities with productivity and expand organic sources of income as well as strengthening the organizational structure and the basic processes in the activity. Looking ahead to the rest of the year and next year, combining our strong competition with favorable market dynamics in the Defense and High-Tech segments, we are optimistic about the future. We plan to continue expanding the business lines of all of our divisions in the premium segments in Israel, which should lead to further growth. In addition, we plan to expand the RFID division footprint to the production floor and warehouse to the retail store. I trust BOS's team led by Eyal to achieve these challenging goals. Our team's dedication, expertise, and hard work have been instrumental in our success so far, and I am very confident that they will continue to drive our growth and achieve our goals. Thank you for your attention. I will now hand back the presentation to Eyal.

Thank you, Ziv. At this time, we begin the Q&A session. If you have questions, please unmute and present yourself while all other participants remain on mute. Thank you.

Hi, Eyal.

Hi, how are you?

I would like to know why the revenue of the first quarter of this year was less than last year. And is there any impact from the world that influenced this quarter? And what do you think about the gross margin? Do you think these levels are going to stay? Do you think they can improve? And do you think that the second quarter could be better because of the war or there's no impact? That's all for now.

Okay. Regarding the decrease in revenue compared to the first quarter, it's not a sign of any negative effects. Because of that, we keep our outlook for the year. We plan to maintain a level of $46 million, and part of the decrease is related to deferred revenues of the Robotics division, which had very low revenue this quarter because most of those are in process and we recognize revenue upon delivery. Regarding the situation in Israel, about 75% of our business is linked to the Israeli Defense segment, and we are trying to increase this portion. This will absolutely support our continued growth during this year and I believe beyond.

Okay. So you'll see another place for improvement in the gross margin?

I'm not sure regarding the gross profit margin, but regarding the revenues, we will reach $46 million this year. We believe we will continue the growth of revenue next year as well.

Okay. Thank you.

Thank you. Hi, Todd.

Hey, congratulations on the great quarter and the record earnings. It's nice to see that. I know you just mentioned that about 75% of your revenue is Defense-related. What was this a year ago? How much has the Defense business grown?

I guess it was about 60%, and it will continue to grow because as long as the Robotics division grows, I think that 90% of its revenue is from the Defense segment. Regarding the Supply Chain division, we are seeking more opportunities in the Defense segment to extend our offerings, so we're going to gain more bids, for example. Recently, we integrated a new line of products to the Defense segment which are wires from an American company called WireMasters. We believe this line of products will increase the revenue for the Defense segment.

Okay. That's great to hear. I know the last caller had talked about the first-quarter revenue being a little lower. During the last conference call, you had said that there was some business in Q4 that was being pushed back to Q1 and Q2 due to everything that has happened. Given your projection of $46 million in revenue, can we expect a stronger Q2 and Q3 than last year?

I think we don't provide the outlook based on quarters, but in general, year 2024 will be better than year 2023 in terms of revenues and profits.

Okay. And then finally, it was nice to see the profitability in the Robotics line. If you had to estimate which one of your segments would have the greatest revenue growth, do you think the Robotics division is finally poised to have significant revenue this year and maintain the profitability that you've now achieved?

Yeah, I think the Robotics division has transitioned from gross losses to gross profit, then from operating loss to operating profit, and now from breakeven to profit. It's a natural process, and we see that in the recent three or four quarters it has been breakeven. In Q4 last year, we became profitable, and we are working very hard to continue this trend this year. Absolutely, I think that this year the Robotics division will have the highest growth rate, but we have to work very hard to produce all the products and install all the projects that we are committed to in the Defense industry.

Another aspect of that is that I think that in the Robotics division, we have successfully built a relatively strong competitive position in the market, meaning that you can trust that if we keep the total work that we're doing there, then revenues and profits will follow. The compatibility is there, and the segments are poised to grow during market trends.

Okay. And then one quick follow-up. I really appreciated the slides showing how undervalued the company is. By my math, I now have your book value per share at over $3.40 a share based on this quarter. Is there any M&A activity, either you acquiring some other companies or has there been interest in possibly you being acquired? I just can't understand why your stock is so undervalued. At this time, do you have any M&A updates you can give us?

Regarding the stock price, you are correct. That's reflected in my slide. The price is undervalued. The company is undervalued. The market setup requires beyond M&A, which is not to increase the shelf life, but for the long-term to develop the company. Most of my efforts are focused on having analyst coverage, which I believe will have an immediate impact on our valuation. This process takes too long, and I hope that it will happen soon. Regarding M&A, we are seeking opportunities for M&A across all divisions. We have several processes that we are examining, and this will establish from now.

Okay. Thank you for taking my questions.

Thank you, Todd. Any further questions? Okay. So we appreciate your active participation and the valuation insights shared by Todd. If you have any further questions or concerns, please feel free to reach out to us. Thank you for your time.

Thank you, everybody.

Thank you. Bye-bye.