B.O.S. Better Online Solutions Ltd. (BOSC) on Q3 2023 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the B.O.S. Conference Call. [Operator Instructions] 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 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.
Eyal Cohen: Thank you. Thank you for joining our call. On the call with me today is Ziv Dekel in the remote site, Chairman; and Moshe Zelter, CFO. We are excited to meet you again at our quarterly video meeting. During this call, we will review our financial results, business trends and the growth strategy. And after that, we will have Q&A session. So the financial results for the first 9 months of the year '23 showed significant improvement compared to the comparable 9 months of the year '22. Revenues grew by 11%, EBITDA by 60% and net income by 128% and the EPS that was doubled. From a 3 years perspective, our trailing 12 months' revenues grew by 38% to $44.6 million compared to $32.2 million in year '21. Our trailing 12 months' EBITDA increased by 312% to $3.3 million compared to $0.8 million in the year '21. Our trailing 12 months as a net income amounted to $2.1 million compared to $0.5 million in year '21. Our trailing 12 months earnings per share amounted to $0.37 compared to $0.09 only in the year '21. Our balance sheet has significantly strengthened over those years. Our shareholders' equity increased from $14.3 million in December '21 to $18.4 million in September '23. Our bank loans remain roughly the same, around $2 million. And currently, most of it attributed to a long-term loan underlying the real estate that we acquired for our [terminals]. Our working capital as of September '23 amounted to $10.2 million, and we believe that it is sufficient for our ongoing operations. Business trends. Our Supply Chain division faced intense demand from the Israeli defense market. And those demands are attributed to the military conflict in Europe and the Middle East. Our Robotic division has shown consecutive improvements year-by-year and reached a breakeven point in the last 2 quarters. In addition, this division is in transition towards the Israeli defense market currently, and most of our projects in process are for the defense segment in Israel. Our RFID division has faced a decrease in revenues in the first 9 months of the year compared to the first 9 months of year '22. In the past several years, intense investments in new logistics centers in Israel have positively affected the RFID division's financial results. However, this trend was adversely affected during year '23 by sharp increase in the interest rate and by the political tension underlining the Israeli government's attempt to pursue extensive reform to Israeli judicial system. On October 7, '23, war started between Israel and terror organization Hamas. The war has not affected our workforce and production facilities, and there has been no significant interruption to our operation. I'm very proud of our team that has come together to work through this situation. We operate through 3 business divisions. The Supply Chain division and the Robotic divisions, which account for 70% of most revenues during the first 9 months of the year, has significant exposure to the Israeli defense industry. We, therefore, anticipate a growing demand for their products and services due to the current situation in Israel. And RFID division operates many logistic centers and retail chains in Israel. Therefore, it has suffered from a slowdown in sales processes. This division might be entitled to compensation from the Israeli government. Our customers and suppliers are resilient and experienced in working during challenging times, and there are signs of getting back to routine. Regarding outlook, our outlook for year '23, during the first 9 months of the year, we reached our annual target of net income. Still because of the current external circumstances, we keep our outlook for year '23 unchanged, which is revenues of over $40 million and net income above $1.5 million. I want to turn the call to Mr. Ziv Dekel, Chairman, who will elaborate on our growth strategy. Please, Ziv. So we have technical problem here to connect from remote. So I will say and give a few words on the growth strategy. The growth we are facing is due to implementation of various operative changes and business development that the company is implementing, especially and mainly strengthening our competitiveness by adding more brands to our existing offering, developing new markets by expanding our offering with complementary technologies and merger and acquisition. Those efforts have not been fully reflected in the result of '23, but they will gradually yield its goals.
A - Eyal Cohen: So at this stage, gentlemen, we will take questions. And just a moment. Okay. So at this time, we'll start the Q&A session.
Todd Felte: I just had a question. I know in the past, you've had several contracts with Israeli Defense Force regarding your supply chain division. Obviously, the IDF has been using a lot of products and equipment. What is the standard lead time between them using some of the components and equipment you provide them between them giving you another order.
Eyal Cohen: It's a good question. Usually, the normal lead time, it could be a few months. But I think they are not waiting to the last minute. And we feel that in this day that they are urgent in their orders to the Supply Chain division, a lot of bids. And because we are -- the corona issue, with all the logistic issues are behind us, I think there are no -- the lead time is shorter than we used -- than we had in previous years. So it could be a matter of months or 2 in the normal cases. Of course, there can be outstanding cases but this is normal.
Todd Felte: Okay. And do you anticipate announcing any significant orders that are received?
Eyal Cohen: As you can see, we are selling like $44 million a year. So we can assume that we are getting significant orders from time to time. Actually, we don't used to announce on each significant order that we get unless there is something dramatic game changer in that order, for example, new components, new segments, new client. Otherwise, it's ongoing orders.
Todd Felte: Okay. And regarding the slowdown in the RFID division and possible compensation from the Israeli government, when do we expect to hear more on that? Is there laws or litigation through to be passed to approve maybe a stimulus or a boost to companies affected? Can you give us some more color on that?
Eyal Cohen: Yes. First, as I mentioned, October was a tough month. But in November, we are getting back to the time as we were before the war. Even the unit that count fashion retail stores come to -- returned to work in full boost. So all the malls are back to normal, and it's a good indication for the Israel economy that 90.7% of the market -- of the retail market come back to normal. The regulations regarding the compensation were announced, and we are checking the implementation. The implementation in our case, I don't think it will be a huge amount, but we will take as much as we're allowed.
Todd Felte: Okay. That helps. And finally, historically, the fourth quarter has always been your strongest quarter. And I know you have already reached your net income guidance given for the year. Given the fact that you're not willing to boost that, are you anticipating any problems in Q4? Or are you expecting another strong quarter given that the fourth quarter is normally the quarter that has the most revenues and earnings per share?
Eyal Cohen: Yes. The fourth quarter usually is the strongest quarter in the year and also the first quarter of the year. We have not changed the outlook for now. We keep it on $1.5 million because of the current circumstances in Israel. So I think it's better -- this is -- I think this is the best way to keep the outlook. In the current circumstances, from legal point of aspect, it's not smart to do. Any follow-up questions? Let's wait another few seconds.
Eyal Cohen: Thank you for being with us today, and we are looking forward to meeting you again on B.O.S. Fourth Quarter Call, which will be in March '24. On that call, we will also provide our outlook for year 2024. Thank you.
