Bos Better Online Solutions Ltd Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the B.O.S 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 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 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 for joining our call. Mr. Ziv Dekel, Chairman, and Mr. Moshe Zeltzer, CFO, are on the call with me today. We are excited to meet you again at our quarterly video meeting. I will start by presenting BOS operations and highlights of our financials. Ziv will elaborate on business trends and the strategy. After that, we'll have a Q&A session to address any questions or concerns you may have. Let's begin. BOS leverages cutting-edge technologies to optimize supply chain operations through its three business divisions. The Robotic division automates the inventory process by replacing manual work with robots. The RFID division improves inventory management by providing tools to enterprises to mark and track inventory through the supply chain. And the supply chain division distributes franchised electronic components. Let's dive into each division by sharing authentic field videos. I apologize in advance for any video delay due to Zoom. The Robotic division streamlines industrial and logistics inventory processes by automating routine human activities in production lines and logistics centers. It developed customized robotic cells and integrates off-the-shelf robots using its proprietary mechanical, electrical, and software solutions. Most of the Robotic division employees are mechanical engineers, system engineers, electrical engineers, and software programmers. The common goal of our robotic system is to reduce dependency on the workforce and increase efficiency and accuracy, all within an ROI limitation of less than three years. The Robotic division has successfully transitioned to the defense sector. Currently, 90% of the projects in process are related to the defense market. The Robotic division clients are mainly from the defense, high tech, and logistics segments. The primary client is Elbit System from the defense sector. The RFID division is a system integrator of software and hardware for marking, tracking, and managing inventory throughout the supply chain. It provides software for inventory management, offering handheld computers, forklift tablets, scanners, and printers from leading manufacturers such as Zebra and Honeywell. This equipment enables employees to report inventory movements on the floor. It provides workforce, equipment, and software for inventory accounting services as complementary sales. The RFID division's major clients are IKEA in the retail sector, Shufersal with 300 stores in the food retail sector, and Teva in the industrial sector. The Supply Chain division distributes franchised electronic components to the Israeli defense and high tech segments. Our franchise components are used in leading defense aviation and space industry projects. Our primary customers are the Israeli Aircraft Industries, the Elbit Systems, and Rafael, the leading manufacturers in the Israeli defense segment. Financially, the balance sheet shows total assets of $32 million, equity of $20 million, and cash net of loans $1.4 million, as of June '24. P&L for the trailing 12 months shows revenues amounted to $40 million, and the outlook for year '24 is $46 million. TTM EBITDA, trailing 12 months, amounted to $3 million. TTM net income amount is positive, and the book value is 2.2 versus less than 1 for BOS. I want to turn the call over to Mr. Ziv Dekel, Chairman.

Thank you, Eyal, and good morning and afternoon to everybody on the call. First, regarding the Supply Chain division, it has a wide range of products and solutions that are delivered by a very skilled professional team for the Defense sector. The third quarter of '24 shows a resurgence in demand for our defense customers, and we look forward to the resumption of growth in the second half of 2024 and for 2025. The full involvement in the Robotic division has been realized by now, with the organization’s capacity, expertise, and processes being established, and the division is successfully transitioning to serve the Israeli defense segment. As Eyal said earlier, 90% of the projects currently in process are related to the defense market. Despite Robotic division revenues in the trailing 12 months amounting only to $21 million, we see significant growth potential for the robotics division with the current projects in our pipeline and ongoing demand from the defense market, which gives us reason to be optimistic about the future. The RFID division is facing a challenging market nowadays. However, we continue expanding our product line and services, maintaining our revenues and profits. We expect growth to resume in 2025 based on our wide-ranging activities and services, anticipating a change in the economic segment in areas of construction, logistics, and our civil market segments. Regarding our strategy, it is fundamentally two-fold, focusing on both organic growth and acquisitions. Organic growth is based on adding more product lines and brands to our existing offerings and developing new markets by expanding our technology with complementary offerings. Our M&A efforts focus on targeting companies and activities in adjacent markets that add technology value with significant operating synergies to our current activities. I trust BOS's team, led by Eyal, to navigate these challenges with a broader perspective on our overall company strategy. Thank you for your attention. I will now hand it back to Eyal.

Thank you, Ziv. We will now start the Q&A session. Thank you.

Hi, guys. Can you hear me?

Yes. Hi, Todd.

Hi, Todd.

Hey. Congratulations on another profitable quarter there. Can you talk about maybe some of the investor relations events that you had coming up? It was good to see the analyst coverage by ThinkEquity, but I still see a company that has a book value of over $3.50 a share but is still trading under $3 a share. So hopefully, some investor relations will help that?

Yes. So starting next week, we will commence a two-month period with extensive one-on-one meetings. In October, at the end of the month, I will be at the LD Micro Conference in L.A. Those are the activities currently on board.

Okay. And then a follow-up question. Can you talk about margins across the board? Are you seeing any dramatic increases or improvements in the margins due to inflation around the world, increased labor costs, and shortages of various components that you could address?

Yeah. In the first half of the year, we presented impressive improvement in the gross profit margin because we have a very wide range of products. I hope this trend will continue in the second half of the year as well. This is regarding the gross profit margin. Regarding the revenues, as I mentioned in the press release, and as Ziv mentioned, we expect a higher level of revenues in the second half of the year.

Additional comments regarding the gross margin. I think the improvement is also due to the competitive position that BOS is building in all our sectors, improving from quarter to quarter. The skill level of the people we bring into the competition is reflected in our gross profit.

Okay. Thank you. And a final question regarding robotics. Right now, the revenues are just kind of a footnote. I think we're sub $1 million. Do you anticipate the robotics becoming a significant division that's a decent percentage of your revenues in the future?

I think there are a lot of projects in process within the robotic division. So the current revenue does not reflect the real business on the floor and the production flow. Currently, we see a business of $4 million a year, but we have to deliver $4 million a year. This is a challenging automation process right now. However, I believe we should meet this target this year or next year to reach $4 million and possibly even $5 million. Those are the first steps. After that, we will consider what operational changes are needed to build the business for the next phase.

Thank you for taking my questions.

Thank you, Todd.

Thank you, Todd.

Hi, Eyal. It's Mike Legg from Benchmark. Good. How are you? A quick question, you mentioned the Supply Chain division, and that the defense sector in 2023 was strong. The first half was weak and that you're starting to see a resurgence of orders from that area in the third quarter. Can you just expand on that, please?

Yes. I can give you an example in numbers. In the first half of the year, we received orders from the defense sector totaling $40 million. During July and mid-August, we received substantial orders as they need to renew certain inventory levels. Because of that, we are maintaining our outlook of $46 million in revenues.

Great. Thank you.

By the way, Michael Legg is the analyst from Benchmark. Just to introduce you, Mike. Shuki, do you have any questions?

Yeah, I just missed the conference call, just came in. But I wanted to know—I saw your outlook for the second half, and I wanted to know if you think that the third quarter will also be much better than the first or second in revenues, or do you expect the fourth quarter to be significantly stronger than the third—or a little bit better or similar to the first and second quarters? And do you have any indication for 2025 or how do you see the year or any outlook?

Okay. Usually, our strongest quarters are the first and the fourth. Because of that, I think that the third quarter will be a little bit stronger than the second one. We will work very hard to supply all the orders that we received at the beginning of the third quarter. In the fourth quarter, it’s challenging with regards to transportation. We are maintaining our outlook as $46 million. As for next year, we have not released any outlook, but our plan is to remain focused on the Israeli defense market, which is consistently in a growth trend. Therefore, the Supply Chain division is 95% in the defense market. The RFID division is entirely within the defense market, and we hope to grow alongside the defense industry. Okay. I see that there are no further questions at this time. We appreciate your active participation and the valuable insights you shared during this meeting. If you have any further questions or concerns, please contact us. Thank you and see you next time. Bye-bye.

Thank you, everybody.