B.O.S. Better Online Solutions Ltd. (BOSC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the BOS conference call. [Operator Instructions] 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 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. With me today, 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 Q&A discussion. Let's get started. BOS integrates cutting-edge technologies to optimize and streamline and enhance supply chain operation across 3 specialized division. The Robotics division automates the inventory process by replacing hand work with robots. RFID division optimizes inventory management by making -- by marking and tracking inventory through the supply chain. And the Supply Chain division does integration of its franchise electromechanical components into our clients' products. Let's dive into each division by sharing authentic videos. Robotics division streamlines industrial and logistics inventory processes by automating routine labor activities. The Robotics division developed custom-made robotic cells and integrate off-the-shelf robots using its proprietary mechanical, electrical and software. Our robotic cells for the Civil segment are mainly machine tending for production lines, meaning robot serves a production machine instead of employee and palletizing robots for logistics centers. The goal of our robotic cells is to reduce dependency on the workers and increase capacities and accuracy in inventory production and logistics processes, all with an ROI limitation of not more than 3 years. The Robotics division has successfully transitioned to the defense sector, with 90% of our project in process serving this rapidly growing market. The current production process in the defense industry relies heavily on labor and struggling to meet the increasing demand for larger quantities, higher quality and shorter lead time. This transition is a call to action for the industry to embrace robotics processes and opportunity for us to grow our business. The Robotics division flagship client is Elbit -- called 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 robotics cells tailored to industry needs. 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 logistic processes such as handheld computer, forklift tablet, industrial scanner, thermal printers, RFID readers and wireless access from leading manufacturers such as Zebra and Honeywell. Through our proprietary interfaces, each inventory transaction on site is reported instantly to the client ERP or MES, ensuring real-time data update. We provide our warehouse management software. And as a complementary service, we count our clients' inventory in warehouse stores mostly twice a year by our professional staff equipment and proprietary software. RFID division major clients are Shufersal, with 300 stores in the food retail sector; IKEA in the nonfood retail sector; and Teba, in the industrial sector. Our Supply Chain division is dedicated to integrate our franchise electromechanical component into the products of our clients from the defense and high-tech industries. Our team of engineers collaborate closely with the customers' R&D engineers to simply integrate our franchise components into their cutting-edge products, ensuring ongoing OEM revenues. [Audio Gap] Our primary customers. We supply directly to them and also indirectly through their subcontractors worldwide, spanning the U.S.A., India and several countries in Europe. Financials. Our [Audio Gap]

I think you're on mute, Eyal.

Thank you. Thank you. I'll start again in the revenues. Our trailing 12 month's revenues amounted to $40 million. While we now anticipate falling -- let me see that. It's open -- falling short of our projected $46 million annual revenues target and 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 customers' orders by year-end. As the boost in orders began in the second half of the year, as was not evenly distributed throughout the year as initially anticipated. Just a moment. Okay. Sorry for the technical issue here. 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 prospect 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 defense customer announced earlier this month underscores our growing momentum. A significant factor [Audio Gap] 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. This budget increased -- increases have a direct impact on our major clients such as Israel aerospace industry, [ Raphael ] and Elbit and subsequently on us. 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, based on expansion overseas and strengthening our proposition. Growth overseas. We aim to expand our international sales by leveraging strong relationship 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 agreement finalized with subcontractors in India and in Greece. Furthermore, our Robotics division is set to install a production line in Europe during the first half of year '25. Strengthen our proposition. We will continue to strengthen our relationship with our strategic defense customer by broadening our offering and ensuring that we meet their evolving needs. The RFID division that engaged in the civil market will go through acquisitions of complementary business or competitors as we successfully did twice before. Our team. BOS team includes 4 Board members, 3 of whom are independent and one of whom is me. BOS executive team include 8 members, with various skills and extensive experience in sales, marketing, technology, operation and finance. Because cutting-edge technology is a substantial foundation in our proposition, we engaged 2 CTOs, 1 for Robotics division and 1 for the RFID division and supply chain. BOS has engaged 83 employees, of whom 30% are engineers and technicians. Valuation. There is a big gap between the valuation ratio of Russell 2000 Index and BOS. Russell price-to-earnings ratio is 18 versus 9 for BOS. Russell price-to-book value ratio is 2.1 versus less than 1 for BOS. Recently and 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 bridge -- will help to bridge this gap. This led me to the second item -- the next item, which is the IR. At BOS, creating value for our shareholders is driven by consistent improvement in our financial performance, particularly through increasing profitability and effectively showing this achievement with a broader audience of public market investors. To achieve this, we plan to partner with U.S.-based investor relations firms to enhance our visibility in the U.S. 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.

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

Yes. I think the momentum of the indication -- the indicators for growing momentum is continue. As the backlog as of September increased by 15% as compared to December, we're still seeing this day that the backlog continued to grow to a level of approximately $24 million, which is 20% higher than the backlog of December last year. And it's a clear indication that the current decrease in revenues as compared to the -- to our initial forecast is temporarily, let's say -- technically, let's say, on the -- related to the operation side. And according to the backlog, we will close this gap next year.

Okay. 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?

Yes. First, I think that the ceasefire is great, but -- and there are 3 major factors that will positively affect the Israeli defense industry. First, that during the recent conflict, Israel faced embargoes from some countries. And it's highlighting the urgency of reducing dependency on foreign suppliers. And as a result, we anticipate and we feel that a surge in demand for local-produced defense solution is starting to be done. We see new facilities that start to work on new line of products. So this is one effect. Additionally, the recent war in Israel was exceptionally long, lasting over 1 year, where the reserved level in military warehouses were initially planned for much shorter conflict. Consequently, the replenishment of these inventories will require restocking to level significantly higher than before the war, and it's going to -- I anticipate that it will create substantial demand for munitions. And at the same time, we see what is happening in Europe. The ongoing conflict between Russia and Ukraine continues to have a profound long-term impact on the defense budget in Europe. As we saw before in the chart, it's growing -- the defense budget is growing. And the Israeli defense industry, known for its advanced technology and innovation, plays a critical role in fulfilling a substantial portion of the repay in defense demand. So we believe these factors position us to capitalize on the growing global defense market and to grow 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?

We are currently selling to -- again, to which -- to BOS at all or to a specific division?

Overall.

Overall, to -- currently, we are selling to 3 countries in Europe, but it's in a growing trend. And we are selling also to the U.S. and to India. Is there any other further 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. And we are looking forward to connecting with you again in our next update. Wishing you, all, a great day. Thank you.