BATM Advanced Communications Ltd. (BVC) Earnings Call Transcript & Summary

Good morning, everyone. Thank you, everyone, for joining us this morning for BATM's interim results webinar. My name is Harry Chathli, and I'll be the moderator of this webinar. Before I hand over to Moti Nagar, the CEO of BATM, to start the presentation, I would like to remind everyone that you are in a listen-only mode. Thank you, everyone, who took the trouble to submit questions in advance. We will be answering these questions at the end of the presentation. If there are any questions arising out of the presentation, then please do submit them through the chat function, which is available to you. Please note that if it is not to host and panelist, then we may not be able to see your question. So with that said, let me please hand over to Moti Nagar, Chief Executive Officer of BATM, to start the presentation. Over to you, Moti.

Thank you, Harry, and thank you, everyone, for taking the time to join this webinar on BATM results. My name is Moti Nagar, and I am the CEO of BATM. And together with me, we have Leor Miles, the CFO of the Company. I wanted to dive directly into the maybe the most important things in the interim results of BATM, and this is the execution of the strategy. I can share with you that finally, after a couple of years of executing the strategy, BATM of today is a much more simpler high-growth, higher-margin technology business. As you remember, a few years ago, BATM announced a new strategy about being -- focusing around 2 line of businesses, one is Networks and the second one is Cybersecurity. And during this time, we did a lot of efforts in selling all of these noncore activities of BATM, all of the businesses that we had around mostly biomedical but also pathogenic waste treatment and the other. And today, we became to a much more focused company. We succeeded to sell almost all of the businesses or almost all of the noncore businesses inside BATM, and we stayed only on the places that is growing. We stay in places with a very big size of the market, billions of dollar market that is growing year-over-year, and we are achieving much better results than the market itself. For example, our networks revenue grew by 20% in the last 6 months, and this is after a 10% of increase that we had in the previous year. We improved our margin in the Networks division to 50.7% while in the cybersecurity, we entered into a completely new field that BATM never had any present in, and this is the tactical encryption market. And we are doing all of this with a very strong balance sheet that will be even stronger after we will complete the next or the coming transaction. As you are all familiar, and you saw it probably in the call for the general meeting of BATM, we are going to complete the selling of the noncore activities in a deal with a value of around $36.6 million. We are going to sell all the remaining noncore activities in BATM, and we will actually remain with only 1 small business. Harry, can you please move to the next slide, please? We will remain only with a small business in Hungary that I believe that we will sell it by the end of this year or the latest, the beginning of next year. These businesses that we entered is including the sales of the businesses that we had in Moldova, in Italy, and we are getting around -- above $13 million in cash which is 33x the adjusted profit of all of these businesses together. And together with that, we are issuing also 96 million shares in a value of 18.15p per share, which was at the time that we announced, it was 33% premium on the share price. But today, if you are looking at, it's around 50% on the share price. Why is it matter? It's matter because we are now much more simpler business, much more simple to manage and to control because the different kind of businesses that we had carried a different kind of opportunities, different kind of risk, and we are remaining with a very focused business that we know how to handle. And second, it became much more easier story to be understand by the market, which I believe that will help us to show the market the real value that exists in BATM. And of course, we leave the management to deal with the businesses that we believe that can bring the maximum value to the shareholders. If we are looking on the interim results of BATM, we are seeing improvement in many of the parameters in all the parameters revenue grew by 5%. If you are looking on the company in a comparable basis. I want to remind you that last year, we had more businesses in the P&L of BATM. We had the businesses in Romania that we sold. We had [ Laboto ] in Israel and others. So if we are trying to compare April to April, we have 5% growth in the business compared to the same period last year. If we are looking only on the core activities of BATM, which is the networks and the cyrosecurity, we are seeing 9% improved in the revenue in compared to the previous year. As a result of the increase in revenue and the improvement in our results, we are seeing that the EBITDA increase compared to last year. And of course, we -- as I said before, we are remaining with a very strong cash position of above $20 million. I will pass it now to Leor that will dive into the numbers of the company and the units, and then we will talk about each 1 of the divisions. Leor to you.

Thank you very much, Moti. So we can take a look about the result of the first half of 2026. As Moti mentioned, we can see the growth in the revenue on comparable basis without the companies that we sold in 2025, we have an increase driving by the networks, 20% by the networks, and we have 5% total for the company. In the next slide, we will talk about the gross margin, and we split it between the core and noncore and we can see that the EBITDA -- adjusted EBITDA, if we will do it by a comparable basis, and we had in this year, a significant impact of the FX on the operation profit. And if we take it out, we can see that we have significant increase in the adjusted EBITDA by comparable basis. And of course, we stopped the loss in the companies what we sold in the discontinuing eco-med. Last year, it was a loss of USD 4.3 million. And this year is none. So we improved this dramatically. We can take a look about our balance sheet, and we continue -- Harry, you can -- thank you. We can take a look about the balance sheet, and we continue with a strong balance sheet after we sell the company in 2025, the Laborator in Israel and Romania, the operation in Romania and a strong cash position. We will see it in the next slide that we will talk about the cash. About the margin, we can take a look the split in the margin between the core and the non-core. And we can see that in the noncore the margin is low compared to the total company. We can see in the core business, network and cyber, we are in a high margin. We have a split a little bit between the half in '25 and '26 between the network and cyber, where we continue with a high margin for the core business. And this is aligned with our strategy to keep the core business with high margin and to sell the noncore with low margin. If we go and take a look about the cash, we started the year with USD 23.4 million, and we closed the half with USD 22.5 million. You can see that most of our cash goes actually to investment in the company. We can see that we improved our operation -- cash from operation compared to last year. And of course, the balance that we have end of the period not included the cash that's supposed to be received from the disposal of the company after we will finish, as Moti mentioned, as a transaction to [indiscernible] the remainder of the noncore activities. Thank you. And back to you, Moti.

Thanks, Leor. Let's dive into the 2 units and talk about commercial momentum and business results, and we are starting with the Networks division. Revenue increased by 20%, as we mentioned before, to $8 million and margin improved to 50.7%. As a result of this, the operating loss went down dramatically to only $0.5 million, the ones that are with us for a long time know that this division lost money as a result of investment, a very high investment during the years. And right now, and we are looking on the interim results, we can see how we are going to balance this business or even to make it slightly profitable in the year-end. The results of the increase in revenue is coming because of the investment that we did in the previous years around marketing. We built a completely new teams around sales and marketing. We talked about it in the past that we are going to invest in sales and marketing teams mostly by focusing in North and South America, and this is what we did. And when we are looking on the results of BATM, most of the increase is coming from these places. And the good news is that we are looking on the pipeline of BATM today in compared to the pipeline that we had at the same time last year, our pipeline is much bigger and what it is, what's giving us the confidence that we will be able, together with all of the challenges that exist in the market that we will be able to meet our expectation in the year-end. When we are looking on the increase, we are seeing that there is a very good feedback in the market around our carrier Ethernet portfolio all the way from 1 gig to 100 gig. We presented a new product during last year and in 2026, and we are seeing the demand that is coming from the customer. We got back in recruiting a big customers. We announced and even the announcement of today was around a very big cable customer in North America, this is a $1.5 billion revenue company that BATM succeed in the several months ago to bring, and we signed on a contract of $0.5 million. At that time, I said that we believe that we will see more revenue that is coming from this customer. And you also this morning the announcement of BATM that we received additional order of $1 million that is coming from this customer. And I believe that this is not the end. And this customer will stay with BATM for a long time. We also entered into a proof of concept with Tier 1 customers in South America and we are starting to see finally synergies that are coming between Carrier Ethernet and edge computing, and we are starting to sell them as a bundle. We talk a lot around strategy that we want to focus around. These 2 line of businesses, the networks and the cyber because we are seeing a lot of synergies that we can create, and this is something that BATM didn't enjoy it too much in the past, and we -- this is a great example of how we are saying a package -- how we are selling a package of Carrier Ethernet together with agility solution with edge computing solution or Flex Connect solution. And I believe that the next stage will be that we will see that BATM is selling Carrier Ethernet together with Agility and together with the security solution mostly around post-quantum cryptography. So we are trying also to enter and to get contracts that will create an ARR model inside BATM, annual recurring revenue, and we signed a $1.3 million of a service agreement. This is the first time that BATM in the last year that BATM is signing a long-term service agreement. And as you can imagine, service agreements, usually carrying a very nice margin around them. And this is a great example because we secured already the $0.5 million, sorry, for '27 and another $0.5 million for 2028. And this is exactly what we are trying to achieve. So we are trying to achieve in this division that we will see synergies and cross sales between the different products of BATM trying to increase even more the margin that exists in this group and create a very profitable growing activity. When we are moving to the cyber business of BATM. We are seeing a slightly decrease in revenue. This is coming mostly as a result of timing with our major customers. We have 1 major customer in this group and there was issues around budget. This is a governmental customer, and this is why we saw some delays in order. And as a result of this, we didn't arrive to our expectation in this first 6 months, but I believe that it will be recovered in the next 6 months also that I must mention, and we stated it in the announcement that there are election in Israel in the end of October, and it might also influence but right now, we have some visibility that we will get this order in this year in 2026. As a result of this revenue decrease, also the margin went down and the operating profit went down. But the good news is around the future and the new product that we have in this division. We announced that we've been selected by the major customer of BATM to develop the next-generation ultra-high-speed encryption solution. I want to remind you for the 1 that don't remember that this was exactly the process that we had before the previous order, the $22 million order that we received several years ago, there is a process of proof of concept of building or developing a product that is partially financed by the customer. And then when we are completing it, we are getting a real order to deliver the product. The order is usually for a period of between 3 to 5 years. This is what we saw in the previous time. And right now, I don't see any reason to believe why it's going to be different in this time. We are continuing to run a proof of concept around post-quantum, virtual encryption solution in different kind of customer. We want to do more. There is a huge demand around quantum threat. If several years ago, it was a question of if there will be a quantum computing. Today, I think that the question is not if, it's just a question of when IBM, for example, which are the leaders around this quantum computing as stated that by the year of 2029, they will be able to sell commercial quantum computers to commercial customers. So I believe we are already there and we are starting to see more and more organizations, not only defense and lots of commercial telecommunication companies, infrastructure, financial big operators that are all trying to find a solution for encryption. And of course, it's supported by instruction or letters that governmental supervising organization are putting into the markets and looking for solution and BATM is running today several proof of concept and RFP around -- and RFI around the quantum -- post quantum solution. Recently, we announced also when entering into a tactical encryption new area. BATM until today had only products around network encryption, and this is a very big change because now BATM can deliver also a tactical equipment. We announced when we've been approached by our major customer in the cybersecurity to look and to try to develop solution for tactical platforms. We thought that it will take us much longer. But after 6 months, we've been able to present to this customer the solution and to run a proof of concept, and we receive the order of total of $1.6 million to deliver it. I believe or I hope that we will be able to deliver everything in the current year. And this is a very major step for us because it's showing 2 main things. One is there is a huge value inside intellectual properties that exist inside BATM. This is something that you don't see in the balance sheet, you don't see in the P&L of the company. Maybe you are seeing it in a way of expenses and not in a way of assets, but the capabilities or the -- what BATM can do in the 6 months is of developing a completely new solution to something that we've never done before. This is a result of all of the investment and all of the intellectual properties that exist inside the company. And this is the value that exists in tech companies because the way that they can enter into a very new market in a very quick way, this is a value that exists, and this market is a huge market. Only in Israel, we are talking about hundreds of millions of dollars size of the market around tactical equipment, and we can now offer it, of course, to our customer, but also to take it to different kind of customers. We are starting to see recognition that is coming from other countries into the product of BATM. We've been selected as a cybersecurity partner for FPT or the guys that joined the call from London. They are the sponsor of Chelsea. I don't know if it's good or bad, but they are a very big reputable company, and they've been chosen in BATM of being their partner for cybersecurity solution. So this is what we did in this 2 businesses during these 6 months. And we mentioned before about the strong balance sheet of BATM and that we believe that it will become even stronger than what it is after we will complete the transaction, and we will get more cash into our balance and what we -- and what we want to do with these resources. So first, we want to do more proof of concept right now, we have limitation of the numbers of proof of concept that we can approach. Of course, that not each one of the proof of concept is mature into a contract, but as many proof of concept that you will participate you are increasing the chances that you will be able to win more and more contracts. And I'm talking about mostly around post-quantum encryption and we need and we want to be in a more proof of concept. We cannot do it today because of limitation of manpower and limitation of equipment. We can do much more. We've been approached in much -- by much more of a customer that what we can do today and we want to increase this tool of BATM and participating in more proof of concept. Second, we want to invest in R&D. We have R&D plan that was supposed to take between 2 to 3 years to develop next generation of equipment, both for networks and cybersecurity, we want to accelerate it. We want to go to the market much sooner than what we planned with a new product, new technology. There is a very big -- I mentioned it several times, very big interest around quantum threats. We want to be there. We want to recognize. We want to present different kind of products around this field, and we want to accelerate what we are doing in the R&D. Let's talk for a second about working capital. You are all familiar, I guess, with the problem around supply chain in the world. There is lake of components around the telecommunication equipment. You know it around NVIDIA, Intel and Broadcom that have full capacity of manufacturing and everything is getting delayed. I can share with you that our major competitors like Cisco and Ciena just announced to their customer that the delivery time is going to be between 50 to 60 weeks. Think about it. You will order today equipment or components, and you will get it only on the last quarter of next year. Now this is a huge challenge that exists in our market. But for a company and the size of BATM,this could be an opportunity. If we would be able to get the components, we don't need to sell yet billions of dollars of revenue around like Cisco or Ciena, we just need to deliver to some of the customers. And we -- and this is the opportunity for us to bring more Tier 1s, more big customers that cannot wait 50 to 60 weeks. And a great example and a good example that we can give is the last announcement. The announcement of today is coming mostly because of 2 things. One is the quality of the equipment that we are giving to the customer. And second is that we've been able to deliver it in 20 weeks instead of 50 or 60 weeks that Ciena and Cisco offered, and this has created us the opportunity, and this is what brought us this customer that will bring us, as I said before, more revenue, but also a reference to other Tier 1 customer. So what we want to do, we want to get more working capital. We want to get more inventory of components in BATM that we will be able to deliver the demand. Because right now, the challenge for everyone is getting the components to deliver. It's not even a challenge of getting the order. It's a challenge to get the competence to be able to manufacture and deliver to the customer and the company like BATM, and we did it in the past, can take it as advantage and take it as an opportunity and not only as a risk, and this is why we believe that we should invest more in our working capital, mostly around components in networks and cybersecurity. And the last is M&A. We are looking on M&A all the time. We want to buy a company, who wants to buy a company that will bring us 1 of the 2, or market share, which means a company that have presence right now with Tier 1 customers around the globe and can enter us, and we will be able to go with our products and to offer the other solution that exists. This is one. The second kind of companies that we are looking at, this is a company that can close us the gap in the technology, the gap in the R&D is something that will save us a year or 2 of development and product that we will be able to present to the market immediately and not wait until the completion of the transaction. Together with that, we are very sensitive about what kind of companies we are buying. So of course, we don't need to mention it, but I will mention it in anyhow. We are looking only on companies around networks and cybersecurity. And even if we are talking about cybersecurity, let's be more focused and talk about companies that can deal only in encryption. We are going to be very focused. We are not going to move to different direction, different field. And even in our places, we want to be very focused on what we want to do and what we know how to do. So this is the kind of a company that we are looking. Second, we are looking for a company that is not burning cash or can be at least balanced in the day of the acquisition as a result of the synergy. We will not buy companies that is -- that needs investment around cash, we are very sensitive about these resources that exist in BATM and of course, we don't want to pay too much for these kind of businesses. So this is why it's very challenging, as you can imagine, with all what I described to find this kind of a company, but we are sure that there exist and there are some opportunities inside the market today that we believe that we can take the advantage on. So if I want to summarize, we are on track with full year growth in our core businesses and execution of the strategy of BATM. We are going to be we are a much more simple business in 2026 and forward, much more easier to maintain on the day-to-day businesses with a very strong balance sheet and enough resources for investment in the growth of the company. So this is the BATM results and our planned for the end of the year and ahead. Thank you very much for your time again.

Thank you, Moti. And Lior for the presentation. Just a reminder to everybody that if you have any questions, then please do tend to it into the chat function, as I mentioned earlier. Some questions were submitted in advance Moti so I will go through those with you now. The first question from Alasdair at Shore Capital. He asks could you please outline the reasons you were able to win the recent U.S. telco contracts, example, price, delivery times, technical capability. What was the reason that you were chosen by such a large to win such a good contract.

So I think -- and you mentioned it, there are -- 2 reasons why we won this new customer. One is technical capabilities, the product of BATM offered under the new line is suitable or much more suitable to the customer than what they had before, and this is what creates an opportunity. But the thing that creates the order is the delivery times that we've been able to offer them much shorter delivery time than what they are using today. We offer them 20 weeks while the current suppliers offer them between 50 to 60 weeks. And this was the game changer. The fact that we can bring them a better solution in a much quicker than the other, this was the thing that brought us into this customer, and we are seeing it all the time. This is -- we are seeing kind of this kind of a customer that is looking for solution for this crisis, and this is why I said that I believe that BATM can take this crazy situation around this market, but -- and transfer it from a risk to opportunity.

Fantastic, Moti Nagar and the next question comes from [ Nick Gomes ] Who are you -- who is -- sorry, who are your competition in quantum security. Are there many companies in this space? If not, why not?

So there are companies in this space. I was very worried if I will be the only 1 that is competing or only 1 that exists on this field. So there are companies around this quantum safe threat. All the way from giant companies like Thales, that's huge billions of dollars, a well-known front companies to German companies, was in [indiscernible] and, of course, also some small companies and also some start-ups. All of them are around quantum safe. Of course, that around Quantum's not only encryption there are a lot of of a risk that was created or will create as a result of the quantum computing. One of them is -- or maybe the most important on the most -- the 1 that have the most awareness is around encryption, but there are companies in this field, and we -- and we are competing them, and we are seeing them on the field. But I feel very strong around the product of BATM. In the end, we have a very reputable customer that is using already today a solution that includes a post-quantum protocol.