Bos Better Online Solutions Ltd Q1 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the BOS conference call. 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 regarding the company's business, financial condition, and operational results are subject to risks and uncertainties that could cause actual results to differ significantly from those anticipated. These 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 impact of the company's accounting policies, along with other risk factors that are outlined periodically in the company's filings with various securities authorities. I would now like to turn the call over to Mr. Eyal Cohen, CEO. Mr. Cohen, please go ahead.

Good morning, everyone, and welcome to BOS First Quarter 2025 Earnings Call. I'm joined today by our CFO, Mr. Moshe Zeltzer. We delivered exceptional results this quarter, with record revenues and record net income that underscore the strength of our defense-focused strategy. The results reflect years of deliberate investment in product diversification and operational excellence, positioning us to capitalize on the defense sector's robust growth trajectory. With our strong Q1 performance and a healthy $22 million backlog, we are raising our confidence in exceeding our full year 2025 targets of $44 million in revenues and $2.5 million in net income. Our outlook remains grounded in the organic opportunities we see today and maintaining our conservative approach. Our growth strategy rests on two foundational pillars. First, deepening client relationships. We are extending our value proposition to our defense customers through complementary offerings, exemplified by our successful launch of a new cabling line that leverages existing client relationships. Second, international expansion. We are strategically expanding overseas by partnering with our Israeli defense clients' global subcontractors. This approach generated $4 million in overseas sales in year 2024 through our Supply Chain division. Our Robotics division will install its first European production line this year, marking a significant milestone in our international growth. BOS presents a compelling investment opportunity built on four key strengths. First, we hold a strong and expanding position in the global defense industry during a period of accelerating market growth. The defense sector fundamentals continue to strengthen globally. Israel's defense budget increased 73% year-over-year, while Europe rose 16%. This creates a sustained demand environment that directly benefits our business. Second, we have demonstrated consistent profitability with steady net income growth year after year, with a compounded annual growth of 49% from the years 2021 to 2025. Third, our balance sheet provides flexibility for strategic growth with $23 million in equity, no bank debt, and $4 million in cash; we have the financial foundation to execute our expansion plans while maintaining operational stability. Fourth, BOS is traded just at 10 times on net income and price-to-book value ratio of 1. Our valuation offers attractive upside compared to broader market multiples. Thank you for your time and attention. Moshe and I are now happy to take your questions.

Congratulations on a great quarter. It was nice to see the margin improvement. Can you talk about margins moving forward as the company continues to grow and expand?

Yes. First, the gross margin represents the average margin that we have had, and we don't see any change in the future. This is the market that we are in. But we're expanding our offering to our clients. And as our offering is wider, the prices that we can set are higher, and the margin will also improve.

And do you see the continued growth coming from the defense sector? I know you brought on the former procurement officer from the IDF, Avi Dadon. Do you think you'll see some larger contracts come from defense? And do you see your future growth as being a mix of organic and inorganic, as in M&A activity? Or do you just see organic growth?

I think in the current market, especially in the defense market, our hands are full of work with organic growth. There are opportunities in the Israeli market and overseas as well, especially in India. We have to put all our focus and effort into capitalizing on those opportunities. In parallel, we are exploring opportunities for acquisition of companies that have synergy with our business, whether it's for the civil market with our RFID division, or for the defense market with the Supply Chain division.

Congrats on the great quarter. Could you address the backlog, please? The backlog dropped to $22 million.

Yes. The backlog was at a record number in December last year. It was $27 million, and this contributed to the confidence that we had to provide a positive outlook for the year 2025 with a 10% growth. We are in a very, very hot market, and the demands are high, and sometimes there are peaks like we had in this quarter.

Okay. Also, last question. Can you share with us if there was any specific defense program that drove the defense side of the business? Or was it broad-based?

Sorry, can you repeat the question? I'm not sure I understand it.

Was there a specific defense program that drove that side of the business in this quarter? Or was it broader-based?

Yes, it was in relation to one of the leading munitions in Israel. Our components are embedded inside.

I have another question, Eyal. Are you guys going to be in the United States anytime soon to do investor relations conferences, anything like that?

Yes. First, we plan to participate in a virtual conference in the coming months. Matt, our IR firm person, arranged it. And of course, we plan to visit the U.S. this year.

Okay. And your $4 million in cash, any plans for that?

Yes. First, transactions in the defense market are relatively big, and we need working capital to execute them. We intend to use this cash for that purpose and also for M&A.

I want to ask about the backlog. The backlog is for 9 months, 6 months, 12 months? How long is the backlog? How do you see the second quarter, from what you can say? We're two-thirds through it. So you have the ability to replace some more than it seems like your prospect for the year is a bit conservative, and I want to raise some comments about that, if you can. But first of all, the backlog.

Yes. The backlog will be spread throughout year 2025, and the $22 million covers about 50% of our annual revenues, so it's relatively high. I remember our call last year when some of the deals moved to year 2025. You can see the effect of that in this quarter. It's related to the Supply Chain business and the timing of order purchases affecting delivery times, billing, and revenue recognition. But we feel confident that this level of backlog will enable us to exceed our outlook for 2025 of $44 million in revenues and $2.5 million in net income, which already reflects a 10% growth.

Okay. But you said that it's too early to predict now. So you prefer to wait maybe one or two more quarters.

Yes. I think in the second quarter, which will be released in August, we will have much more information to provide more operational outlook.

Okay. You can say any comment about the second quarter, or do you prefer just to talk after the results?

Yes, usually we provide an outlook for a year, not for a quarter. But you can try. You attempt every quarter. So try again next quarter to ask.

Okay. Great results. I hope you will continue the same way because it is a magnificent quarter. So you have to repeat it.

We will try, yes. There are peaks. It's a very hot market, and we are doing our best to capitalize on all those opportunities that we have on the table with our different clients, with whom we have great relationships, and we are trying to do our best. Any further questions? Okay. To conclude, BOS is strategically positioned for continued success. Our focused approach, strong execution, and solid financial foundation create a platform for delivering sustained shareholder value in the years ahead. Thank you for joining us today. Please do not hesitate to reach out if you need additional information or would like to schedule a follow-up discussion. Have a great day. Thank you. Bye-bye.