Bos Better Online Solutions Ltd Q3 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 quarterly video conference. It's a pleasure to connect with you again. Joining me today is Mr. Moshe Zeltzer, our CFO. Unfortunately, our chairman, Mr. Ziv Dekel, is unwell and unable to participate in today's call. I will begin by presenting an overview of BOS operations, financial performance, and growth strategy. Following that, we will open the session for a Q&A discussion. Let's get started. BOS integrates cutting-edge technologies to optimize, streamline, and enhance supply chain operations across three specialized divisions. The robotic division automates the inventory process by replacing manual labor with robots. The RFID division optimizes inventory management by marking and tracking inventory throughout the supply chain. The supply chain division integrates its franchise electromechanical components into our clients' products. Let's dive into each division by sharing authentic videos. The robotic division streamlines industrial and logistics inventory processes by automating routine labor activities. The robotic division develops custom-made robotic cells and integrates off-the-shelf robots using proprietary mechanical, electrical, and software solutions. Our robotic cells for the civil segment mainly consist of machine tending for production lines, meaning the robot serves a production machine instead of an employee, and palletizing robots for logistics centers. The goal of our robotic cells is to reduce dependency on the workforce and increase capacities and accuracy in inventory production and logistics processes, all within an ROI limitation of not more than three years. The robotic division has successfully transitioned to the defense sector with 90% of our projects in process serving this rapidly growing market. The current production processes in the defense industry rely heavily on labor and struggle to meet the increasing demands for larger quantities, higher quality, and shorter lead times. This transition is a call to action for the industry to embrace robotic processes and offers an opportunity for us to grow our business. The robotic division's flagship client is Elbit Systems, a global leader in the defense industry. Additionally, we serve prominent clients from the Israeli high-tech sector, showcasing our expertise in developing advanced robotic cells tailored to industry needs. The RFID division optimizes inventory management throughout the supply chain by integrating our proprietary software and cutting-edge off-the-shelf equipment. We integrate ruggedized equipment for industrial and logistics processes such as handheld computers, forklift tablets, industrial scanners, thermal printers, RFID readers, and wireless access from leading manufacturers. Through our proprietary interfaces, each inventory transaction on-site is reported instantly to the client's ERP system, ensuring real-time data updates. We provide our warehouse management software, and as a complementary service, we count our clients' inventory in warehouses and stores, mostly twice a year by our professional staff using our proprietary software. The RFID division measures our clients at Shufersal with 300 stores in the food retail sector, IKEA in the non-food retail sector, and Teva in the industrial sector. Our supply chain division is dedicated to integrating our franchise electromechanical components into the products of our clients from the defense and high-tech industries. Our team of engineers collaborates closely with the customers' R&D engineers to integrate our franchise components into their cutting-edge products, ensuring ongoing OEM revenues. We supply directly to them and indirectly through their subcontractors worldwide in the USA, India, and several countries in Europe. Financials. Our twelve-month revenues amounted to $40 million. While we now anticipate falling short of our projected $46 million annual revenues target, we expect to close year '24 with approximately $40 million in revenues. This shortfall is temporary. The primary reason for this deviation is a delay in delivering certain customer orders by year-end, as the boosting orders began in the second half of the year and were not evenly distributed throughout the year as initially anticipated. Despite this temporary decline, we remain on track to achieve our net income target of $2.2 million for year '24, showcasing our ability to effectively manage costs and maintain profitability even in the face of fluctuating revenues. Looking ahead, we are optimistic about our growth prospects for year '25, supported by strong indicators of future performance. Our backlog increased by 15% to $23 million as of the end of September this year, compared to $20 million at the end of year '23. Additionally, the $2.7 million order from a defense customer announced earlier this month underscores our growing momentum. A significant factor in this is that the Israeli defense budget grew by an impressive 73% between the years '23 and '24, while the European defense budget increased by 16% between the years '22 and '23. These budget increases directly impact our major clients such as Israeli Aerospace Industries, Rafael, and Elbit. As defense spending continues to rise globally, we are well positioned to capitalize on these opportunities and drive future growth. Balance Sheet. As of September '24, our company balance sheet shows total assets of $32 million, equity of $21 million, which is still higher than our current market cap, and cash net of loans of about $1 million. BOS growth strategy is twofold, focusing on expansion overseas and strengthening our proposition. Regarding growth overseas, we aim to expand our international sales by leveraging our strong relationships with Israeli defense customers who operate globally. By aligning with their international activities and offering tailored solutions, we are well positioned to capitalize on new opportunities in the growing global defense market. This strategy has already borne fruit, with $6 million in overseas sales achieved in year '23 and recent agreements finalized with subcontractors in India and Greece. Furthermore, our robotic division is set to install a production line in Europe during the first half of year '25. To strengthen our proposition, we will continue to enhance our relationships with our strategic defense customers by broadening our offering and ensuring that we meet their evolving needs. The RFID division, which engages in the civil market, will grow through acquisitions of complementary businesses or competitors, as we have successfully done twice before. Our team. The BOS team includes four Board members, three of whom are independent and one of whom is me. The BOS executive team consists of eight members with various skills and extensive experience in sales, marketing, technology, operations, and finance. Since cutting-edge technology is a substantial foundation of our proposition, we engage two CTOs, one for the robotics division and one for the RFID division and supply chain. BOS has engaged 83 employees, 30% of whom are engineers and technicians. Valuation. There is a significant gap between the valuation ratio of the Russell 2000 Index and BOS. The Russell price-to-earnings ratio is 18 compared to 9 for BOS. The Russell price-to-book value ratio is 2.1 compared to less than 1 for BOS. Recently, for the first time, BOS was covered by an analyst report. According to the recent research report released by ThinkEquity, the target stock price for BOS is $5, which is higher by more than 40% than the current stock price. Increasing exposure to BOS will help bridge this gap. This leads to the next item, which is investor relations. At BOS, creating value for our shareholders is driven by consistent improvement in our financial performance, particularly through increasing profitability and effectively sharing these achievements with a broader audience of public market investors. To achieve this, we plan to partner with US-based investor relations firms to enhance our visibility in the US capital markets. These efforts are specifically aimed at attracting investors who actively trade in the public market. Thank you for your attention, and I'm ready to take your questions. Question, please unmute and present yourself while other participants remain muted. Thank you. Please.

Good morning, Eyal. This is Todd Felte. I had a question about your backlog. You had mentioned it was $23 million as of September 30th. Is there any update that you can give us on that backlog?

Yes, I think the indicators for growing momentum continue. As the backlog as of September increased by 15% compared to December, we are still seeing growth in the backlog, now reaching approximately $24 million, which is 20% higher than the backlog from December last year. It’s clear that the current decrease in revenues compared to our initial forecast is temporary and related to operational constraints. Based on the backlog, we expect to close this gap next year.

Okay, thank you. And then kind of a broader question. I noticed a 60-day ceasefire was announced between Israel and Lebanon yesterday. How will that affect your defense business, and do you continue to see your defense business being strong over the next few years?

Yeah, first I think that the ceasefire is great. There are three major factors that will positively affect the Israeli defense industry. First, during the recent conflict, Israel faced embargoes from some countries. This highlights the urgency of reducing dependency on foreign suppliers. As a result, we anticipate a surge in demand for locally produced defense solutions. We see new facilities starting to work on new lines of products. Second, the recent war in Israel was exceptionally long, lasting over a year, where the reserve military warehouses were initially planned for much shorter conflicts. Consequently, the replenishment of these inventories will require restocking to levels significantly higher than before the war. This will create substantial demand for munitions. Finally, we see what is happening in Europe; the ongoing conflict between Russia and Ukraine continues to profoundly impact the defense budgets in Europe, which, as we saw before, are growing. The Israeli defense industry, known for its advanced technology and innovation, plays a critical role in fulfilling a substantial portion of the repairs to defense demands. We believe these factors position us to capitalize on the growing global defense market and expand our business in the long term.

Okay, that's very helpful. Do you know how many countries in Europe that you're currently shipping components to?

Currently, we are selling to three countries in Europe, and it is a growing trend. We are also selling to the US and to India.

Okay, thank you for taking my questions.

Thank you too. Are there any other questions? Friends, investors? If you have questions, please unmute and present yourself. Okay. There are no further questions at this time. Thank you all for joining us today and for your continued interest in BOS. We appreciate the opportunity to share our progress, financial results, and growth strategy with you. Your support and trust are critical as we work toward delivering long-term value to you, to the shareholders. If you have any further questions or need additional information, please feel free to reach out to me directly. We look forward to connecting with you again in our next update. Wishing you all a great day. Thank you.