B.O.S. Better Online Solutions Ltd. (NASDAQ:BOSC) Q2 2024 Earnings Conference Call August 22, 2024 9:00 AM ET
Company Participants
Eyal Cohen – CEO
Ziv Dekel – Chairman
Conference Call Participants
Todd Felte – Advisory Group Equity Services
Michael Legg – The Benchmark Company
Operator
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 others 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.
Eyal Cohen
Thank you for joining our call. Mr. Ziv Dekel, Chairman, and Mr. Moshe Zeltzer, CFO, are on the call with me today. We are excited to meet you again at our quarterly video meeting. I will start by presenting BOS operation and highlights of our financials. Ziv will elaborate on business trends and the strategy. After that, we’ll have a Q&A session to address any questions or concerns you may have.
Let’s begin. BOS leather-edge cutting-edge technologies to optimize supply chain operations through its three business divisions. The Robotic division automate the inventory process by replacing hand work with robots. RFID division improves inventory management by providing tools to enterprises to mark and track inventory through the supply chain. And the supply chain division distributes franchise electronic components.
Let’s dive into each division by sharing authentic field videos. I apologize in advance for any video delay due to the Zoom. The Robotic division streamlines industrial and logistics inventory process by automating routine human activities in production lines and logistics centers. It developed customized robotic cell and integrate off-the-shelf robots using its proprietary mechanical, electrical and software.
Most of the Robotic division employees are mechanical engineer, system engineers, electrical engineers and software programmers. The common goal of our robotic system is to reduce dependency on the workforce and increase efficiency and accuracy, all within an ROI limitation of less than three years. The Robotic division has successfully transitioned to the defense sector. And currently, 90% of the projects are in process are related to the defense market. The Robotic division clients are mainly among the defense, high tech and logistics segments. The primary client is Elbit System from the defense sector.
RFID division is a system integrator of software and hardware for marking, tracking and managing inventory throughout the supply chain. It provides software for inventory management. This offers handheld computer, forklift tablet, scanners and printers from leading manufacturers such as Zebra and Honeywell. This equipment enables employees to report an inventory movement on the floor. It provides workforce, equipment and software for inventory accounting services as a complementary sales. RFID division major clients are IKEA in the retail sector, Shufersal with 300 stores in the food retail sector and Teva in the industrial sector.
The Supply Chain division distributes franchised electronic components to the Israeli defense and high tech segment. Our franchise components are combined in leading defense aviation and space industry projects. Our primary customers are the Israeli aircraft industries, the Elbit Systems and Rafael, the leading manufacturers in the Israeli defense segment.
Financial balance sheet, total assets of $32 million, equity of $20 million and cash net of loans $1.4 million, as of June ’24. P&L, trailing 12 months revenues amounted to $40 million, and outlook for year ’24 is $46 million. TTM EBITDA, trailing 12 months EBITDA amounted to $3 million. TTM net income amount [Technical Difficulty] book value is 2.2 versus less than 1 for BOS.
I want to turn the call over to Mr. Ziv Dekel, Chairman.
Ziv Dekel
Thank you, Eyal, and good morning and afternoon to everybody in this quarter. First between respective, the Supply Chain division has a wide range of products and solutions that are delivered by a very skilled professional deal for the Defense sector. The third quarter of ’24 shows a resurgence in demand for our defense customers. And we look forward to the resumption of growth in the second half of 2024 and for 2025.
The general involvement in the Robotic division has been fully realized by now, the organization capacity, expertise and processes being established, and the division is successfully trained to the Israeli transition to the Israeli defense segment. Currently, as Eyal said before, 90% of the project in the process are related to the defense market.
Despite Robotic division revenues in the trailing 12 months amounting only to $21 million, we see a significant growth potential for the robotics division with the current projects that are in our processing system and ongoing demand that we see from the defense market, which gives us the reason to be optimistic about the future.
The RFID division is facing a very challenging market nowadays. We continue expanding our product line and service parallel to our efficiency steps, thus maintaining our revenues and profits. We expect growth to review in the 2025 based on our wide-ranging offer of activity and services, and expect change in the economic segment, in the overall economic segment in the areas of construction, logistics and our civil market segments.
Regarding both our strategy, basically two-folds based on both organic growth as well as acquisitions. The organic growth is based on adding more product lines and brands to our existing offering and develop new markets by expanding our offering with complementary technologies.
Our M&A efforts are focused on surging of company and activities within — with technology added value in adjacent markets proportion activities with significant operating synergies to our current activities. I trust BOS’s team led by Eyal to win these challenging processes and a broader perspective of overall company strategy.
Thank you for your attention. I will now hand over back the presentation to Eyal.
Eyal Cohen
Thank you, Ziv. At this time, we begin the Q&A session. [Operator Instructions] Thank you.
Question-and-Answer Session
Q – Todd Felte
Hi, guys. Can you hear me?
Eyal Cohen
Yes. Hi, Todd.
Ziv Dekel
Hi, Todd.
Todd Felte
Hey. Congratulations on another profitable quarter there. Can you talk about maybe some of the investor relations events that you had coming up? It was good to see the analyst coverage by ThinkEquity, but I still look of the company that has a book value of over $3.50 a share and is still trading under $3 a share. So hopefully, some investor relations will help that?
Eyal Cohen
Yes. So starting next week, we will start to have a [Technical Difficulty] I guess, for two months period. So it will be very extensive one-on-one meeting. And in October — at the end of October, I will be in the LD Micro Conference in L.A. And these — those are the activities that are on board.
Todd Felte
Okay. And then a follow-up question. Can you talk about margins across the board? And are you seeing any dramatic increases or improvements in the margins just due to the inflation around the world, increased labor cost, and shortages of various components that you could address?
Eyal Cohen
Yeah. In the first half of the year, we presented impressive improvement in the gross profit margin, because we have a very wide range of products. I hope that this trend will continue in the second half of the year as well. And this is from — regarding the gross profit margin. Regarding the revenues, as I mentioned in the PR and as Ziv mentioned, we expect higher level of revenues in the second half of the year.
Ziv Dekel
Additional comment regarding the gross margin. I think the improvement in the gross margin is also due to the competitive position that BOS is being — is building in all our sectors, getting improved from quarter-to-quarter, the capacity of the people that would bring into the competition, it is shown or it is coming into action in the gross profit.
Todd Felte
Okay. Thank you. And a final question regarding robotics. Right now, the revenues are just kind of a footnote. I think we’re sub $1 million. Do you anticipate the robotics becoming a significant division that’s a decent percentage of your revenues in the future?
Eyal Cohen
I think the — there are lot of projects in process in the robotic division. So the current revenue does not reflect the real business on the floor and the production flow. Currently, we see a business of $4 million a year, but we have to deliver $4 million a year. This is a challenging automation process right now. But I think we should meet this target this year or next year to reach to the $4 million and even to the $5 million. Those for the first step. Then after, we will consider what operational changes we need to do and how to build the business for the next step.
Todd Felte
Thank you for taking my questions.
Eyal Cohen
Thank you, Todd.
Ziv Dekel
Thank you, Todd.
Michael Legg
Hi, Eyal. It’s Mike Legg from Benchmark. Good. How are you? A quick question, you mentioned the Supply Chain division, defense sector 2023 was strong, first half being weak and that you’re starting to see a resurgence of orders from that area in the third quarter. Can you just expand on that, please?
Eyal Cohen
Yes. I give you an example in numbers. In the first half of the year, we got orders from our — from the defense sector in the amount of $40 million. And in the — during the July and mid-August, we got [Technical Difficulty] is a good [Technical Difficulty] line to reach to a certain level of inventory that they need to renew it. And because of that, we keep our outlook remain as before for $46 million revenues.
Michael Legg
Great. Thank you.
Eyal Cohen
By the way, Michael Legg is the analyst of Benchmark. Just to introduce you, Mike. Shuki (ph)? Any questions?
Unidentified Participant
Yeah. I just missed the conference call, just came in. But I wanted to know, I saw your outlook for the second half, and I wanted to know if you think that the third quarter is also will be much better than the second or the first by revenues, or you expect most likely the fourth quarter to be very strong than the third — a little bit better or similar to the first and two quarters. And do you have any indication for 2025 or how do you see the year or any outlook?
Eyal Cohen
Okay. So usually, our second and the third quarter — the strongest quarters are the first and the fourth. And because of that, I think that the third quarter will be a little bit stronger than the second one. And we will work very hard to supply all the orders that we got during the — at the beginning of the third quarter in order to supply them. During the fourth quarter, it’s a challenge regarding all the transportation. And the — and we keep our outlook as it is for $46 million.
Regarding next week — in next year, we have not released any outlook, but we will — our plan is to stick very hard to the defense market in Israel, which is — all the years is in a growing trend. So the Supply Chain division, I can say that it’s 95% in the defense market. The RFID division is 100% in the defense market. And the RFID is on the other segment. So we hope to grow together with the defense industry with the Israeli defense industry.
Eyal Cohen
Okay. I see that there are no further questions at this time. We appreciate your active participation and the valuable insight you shared during this meeting. If you have any further questions or concerns, please contact us. Thank you and see you next time. Bye-bye.
Ziv Dekel
Thank you, everybody.
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