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. 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 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'd like to turn the call over to Mr. Eyal Cohen, CEO. Mr. Cohen, please go ahead.

Good morning, everyone, and thank you for taking the time to join in today's meeting. It is a pleasure to connect with you again. Joining me, as always, Mr. Moshe Zeltzer, our CFO. Let's move into the presentation. BOS integrate cutting-edge technologies to streamline and enhance supply chain operation across 3 specialized divisions. The Robotics division automate inventory process, replacing manual labor with robotic solutions. The RFID division optimize inventory management by tagging and tracking inventory throughout the supply chain. And the supply chain division integrate our franchise electromechanical components directly into our clients' product. Let's explore each division in more details. Our supply chain division is dedicated to integrating franchise electromechanical company into the products of leading defense and high-tech companies. Our engineering team works hand-in-hand with our customers' R&D department to ensure since less integration into innovative designs, generating long-term OEM revenues as products move into production. The primary growth lever here is a number of components we embed into our clients' product. That's why expanding our integration capabilities is central to our strategy. Over the last 2 years, we have doubled our engineering team and tripled the number of manufacturers we present, strengthening our market position and growth trajectory. We are proud to serve global defense leaders such as Israel aerospace industries, Elbit Systems and Rafael. Our network extends both directly to these companies and indirectly via their subcontractor across the U.S.A., India and Europe. These network served our launch pad for global expansion without the need for costly overseas sales offices. Our RFID division enhance inventory management across the supply chain by integrating proprietary software with cutting edge off-the-shelf equipment. We deploy ruggedized solution for industrial and logistics operations such as handheld computers, forklift mounted tablet, industrial scanners with printers, RFID readers and wireless system from top brands like Zebra and Honeywell. Our proprietary interfaces ensure that every on-site inventory transaction is instantly reported to the client TRP, WMS or EMEA system in real time. As a value-added service, our expert team performs inventory count for warehouses and stores using specialized hardware and software. Our business model is designed to generate recurring revenues, including the annual service contract from hardware and software, inventory count services and ongoing demand for consumables like barcode labels, RFID tags and ribbons. We are proud to serve top-tier enterprises across Israel, Supersal like in the Food Retail, IKEA, nonfood retail and Teva in the industrial sector. Our robotic division streamlines industrial and logistics process by automating labor-intensive task. Our multi-disciplinary primary team includes mechanical and control engineers, programmers and production crews specializing in mechanical assembly. Together, we deliver robotic cells that reduce dependency on labor, increased production capacity and improved accuracy all within 3 years ROI. We offer 2 main type of robotic solutions. First, our custom-built robotic cells that are designed and built from ground up to meet each client's unique needs. Second, we provide off-the-shelf robotic arms using top-tier modules FANUC and YASKAWA. We customize them with specialized gripper and programming, adapting them perfectly to our clients' production and logistic processes. Today, 90% of our robotics projects serve the defense sector, where production is still heavily reliant on labor and facing increasing pressure for faster and higher quality output. This shift presents both challenge to the industry and a major opportunity for us. Our flagship client here is Elbit Systems, with additional high-tech clients validating our capabilities in this space. Team and leadership, BOS is led by a skilled executive team of 8 and Board of 4 members. Given the importance of technology, we employ 2 dedicated CTOs, one for the robotics and one for the RFID. Our total team includes 80 professionals with 30% being engineers and technicians. Financial. Balance sheet as of December '24 shows total assets, $34 million; equity, $21 million, working capital $14 million, cash, $3.6 million, real estate of $2.1 million and long-term loans underlying the real estate in the amount of $1.4 million. Operational results and outlook. After a record setting in year '23 with $44 million in revenues, year '24 is stabilized at $40 million reflecting a return to normalized purchasing after post-COVID restocking. We are optimistic about year '25, aiming for $44 million in revenues and $2.5 million in net income a 10% increase year-over-year. This confidence is backed by a growing backlog, which rose by 35% to $27 million at the end of year '24. A key driver of this growth is our exposure to the booming defense sector. Israel defense budget rose 73% year-over-year, and Europe defense budget rose 16% year-over-year. These trends directly impact our key client and in turn on us. Our growth strategy has 2 pillars: strengthening our proposition and expanding internationally. Strengthening our proposition, we will deepen relationship with a defense client by broadening our offerings, such as the recent addition of cabling line. The RFID division will increase its sales force to capture the rebound in the Israelis civil market and will add to its portfolio off-the-shelf packing machines for logistics centers. Expand overseas, we will leverage our Israeli defense client base and in line with the global subcontractors. This strategy already yielded $4 million in overseas sales in year '24 of our Supply Chain division. Our robotics division is preparing for first installation of robotic production line in Europe in the first half of this year. Now let's take a look at our valuation and position in the capital markets. As of today, our market capitalization is $23 million when we factor our cash and debt, our enterprise value comes to $21 million only. In terms of valuation multiples compared to the Russel 2000, our price-to-earnings ratio is 10 while Russel sits at 18, our price-to-book ratio is 1.1 compared to Russia's 2.1. This clearly indicates that BOS is trading at a significant discount compared to the broader market. Investor Relations. To strengthen our presence in the U.S. capital market, we've partnered with the U.S.-based Investor Relations firm and significantly ramped up our outreach. Since September last year, I have been hosting weekly investor calls, actively sharing our story and engaging with the investment community. We have also participated in major events included LD Micro conference in October last year and the Emerging Growth conference in February this year. And the results speak for themselves. Our average daily trading volume has grown from 4,000 shares in last September to 58,000 shares this month. To conclude, BOS is a solid position for continued success. We have demonstrated consistent profitability with steady growth in net income year after year. Looking ahead, we are projecting 10% increase in both revenues and net income for year '25, reinforcing our strong trajectory. Financially, we are in excellent shape with $21 million in equity and 0 bank debt. We have the flexibility to grow strategically. From a valuation standard point, BOS is trading at just 10x net income, offering compelling opportunity compared to the broader market benchmark. We have also significantly expanded our Investor Relations effort, increasing our visibility and engagement with the investment community. And perhaps most importantly, we have a strong and growing presence in the global defense industry in markets that continue to accelerate. With our solid foundation, focused strategy and strong momentum, we believe BOS is well positioned to deliver long-term value for our shareholders. Thank you for your attention, and I'm happy to take your questions. You can unmute if you want to ask a question. Any questions?

Congratulations on a strong quarter. Just wanted to talk to you about -- if you could give some guidance. I know you said you had a new robotics line starting in Europe. Can you talk about your defense business in Europe and how that has been affected by the war in Ukraine?

Yes. Actually, we don't have direct sales in Europe. We are aligning with our major client in Israel, Elbit Systems, in Israel aircraft industry and Rafael which are exporter and the global leaders in the defense segment. And usually, when they have a contract overseas, we are getting into the picture because part of the production of the product sold must be produced locally in the customer side. And in that case, our supply chain division provide to the local subcontractor components and our robotic division provide automatic production line in case it needed, if it's a duplication of, for example, a site in Israel. So this is the business model in Europe, overseas in general.

Okay. And also in your valuation, I know you didn't mention the tax loss carryforward by looking at your financials, I believe you have over a $60 million tax loss carryforward, which would equate to $10 a share. Is that correct? Or am I missing something?

Yes. We have approximately $30 million in carryforward tax losses, which could provide up to $6 million in future tax savings, assuming a 23% corporate tax rate. And as a conservative measure, we recognize only $1 million of this potential benefit as an asset in the fourth quarter of this year, out of the $6 million. But on the other hand, this income didn't affect on the bottom line because we recorded an impairment charge of $1.2 million related to goodwill. So this resulted in net impact on this quarter, on this year in year '24 of $200,000 on the net income of year '24 because of an increase of $1.2 million in operating expenses due to the impairment of goodwill that offset by $1 million in tax income related to the tax deferred assets of $1 million.

Okay. And then just a last question. I noticed recently you had brought on the head of procurement from the IDF from 2017 to '23. Do you expect him to be able to bring in -- help bring in additional defense contracts for BOS? And if so, will you update your guidance during the year?

Yes. I think as strategic decision several years ago, we focused -- we have been focused on the defense segment. And I think it will be a major element in helping us to capitalize the opportunities in this market to guide us, to lead us in this market. And absolutely, if there will be any significant development during this year, so we will give an update. Any further questions? Okay. Thank you again for joining us today. If you need more details or would like to follow up, please feel free to reach out. And wishing you all a great trading day. Thank you.