B.O.S. Better Online Solutions Ltd. (NASDAQ:BOSC) Q3 2022 Earnings Call Transcript

B.O.S. Better Online Solutions Ltd. (NASDAQ:BOSC) Q3 2022 Earnings Call Transcript November 30, 2022

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BOS third quarter 2022 results conference call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. For Operator assistance during the conference, please press star, zero. As a reminder, this conference call is being recorded and will be available on the BOS website as of tomorrow. With us on the line today are Mr. Ziv Dekel, Chairman, Mr. Eyal Cohen, CEO, and Mr. Moshe Zeltzer, CFO. 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 in 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 various securities authorities. I would now like to turn the call over to Mr. Eyal Cohen, CEO. After the Q&A session, Mr. Ziv Dekel will give his concluding statement. Mr. Cohen, please go ahead.

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Eyal Cohen: Hello and thank you for joining our quarterly meeting. BOS’ working plan is comprised of four key elements: first, achieve ongoing improvement in the financial results; second, invest in a long-term growth engine; third, increase our market share; and fourth, reduce our operational cost. During the first nine months of the year, we have made significant progress in all four key elements of our working plan. Let’s start with the financial results. Our nine-month results show a $750,000 net income which brings us close to our annual net income target of $1 million as compared to $450,000 of net income last year. Growth engine – in the first quarter of the year, our RFID division acquired the assets of Dagesh, which provides inventory counting services mainly for retail stores.

We have completed the operational integration of this long-term growth engine during which we have introduced efficiencies, as well as achieved significant price upgrades for all of the acquired Dagesh customers. We expect to see the impact of these actions in the results of coming fourth-quarter results. In addition, during the year’s second quarter, we significantly strengthened the engineering department of the supply chain division. The purpose of this is to increase the numbers of manufacturers we represent. These representations are a valuable long-term asset that supports long-term growth of this division. We have also invested in the launch of new products to expand our offering to our customers. For example, during the first quarter, the robotic division successfully developed and installed automatic sorting machines for logistics centers which have the potential to be sold to customers of the RFID division.

Market share – during the first nine months of the year, we participated in four trade shows and have been very active in most digital marketing platforms. We have also successfully varied our procurement resources to provide attractive and competitive offers to our customers. These steps geared towards increasing our market share were responsible in part for the 13% revenue growth we have seen in the first nine months of the year. Operational costs – in March this year, we purchased part of our facilities and by the end of this year, we will complete the transfer of our robotic division planned to a new facility near our headquarters. These actions increase efficiency and in turn are expected to improve our profit, commencing the fourth quarter of this year.

This completes my review, and now I will be happy to answer your questions.

Operator: Thank you. The first question is from Todd Felte of Advisory Group Equity Services. Please go ahead.

Todd Felte: Hi Ziv and Eyal. Congratulations on a great quarter and the progress in the turnaround. Was looking at the improvement of over 20% revenues and earnings, and I know you talked about the acquisition of Dagesh and the margin improvements there. Do you see margins continuing to improve, and at what level margins are you targeting?

Eyal Cohen: Thank you Todd for your question. It depends on the division – for example, in the supply chain division, I think the margins that currently exist, I think we’ll see the same margin in the next year, but I believe in year ’24, we will see higher margin before we anticipate that the portion of companies that we represent, manufacturers that we represent will increase. In this segment, when you represent manufacturers, the margins are higher. In the RFID division, I think we expect higher gross margin because the effect of the acquisition of Dagesh affected on the–reduced the gross margin during the second and the third quarters, and we completed a round of price upgrades to all of Dagesh customers, price upgrade between 10% to 25%, and it will be affecting gross margin going forward. These are the trends that we expect in the next quarters.

Ziv Dekel: By and large, our strategy is to grow to places, to market segments, to markets, to arenas in which the margin is higher than our current margin since we are going to be more professional and more unique in what we are doing, facing competition and the markets.

Todd Felte: Okay, and speaking of that, regarding market share, have you captured a significant market share in your RFID and supply chain in Israel, and is that why we’re focusing a little more on maybe expanding outside of Israel, or is there still a lot of growth potential in Israel? I know we’ve had mixed results in the past on international expansion.

Eyal Cohen: Yes, regarding international expansion in these, first, the supply chain division, I think about 50% of the business is outside of Israel and the expansion is related directly to the expansion of the Israeli industry overseas. Regarding the RFID division, we have certain thinking of acquisition of a similar company in Europe, small company but the first step, initial step in Europe. We consider it but we don’t see it happening in year ’23. Currently I think we have plans to expand our product offering in the RFID division and by that to grow the business and gain–strengthen our position with the customers and gain higher market share in the Israeli market.

Todd Felte: Okay, and finally, I noticed in your report, you mentioned that you had financial expenses of $342,000 that was attributed to foreign exchange differences between the shekel and the U.S. dollar. With the U.S. dollar weakening considerably when compared to the shekel since September 30, the end of the last quarter, do you see actually possible financial expense gains from the currency there, or is that just something that will continue?

Eyal Cohen: Yes, I think there are two trends in the financial expenses. First, the weakness of the Israeli shekel against the U.S. dollar in the fourth quarter actually will reduce the currency expenses difference–cost; but on the other hand, the increase of the interest will increase our financial expenses. I don’t know exactly at what level, but these are the trends, so I believe that because we took a loan on the third quarter of the year to finance the acquisition of the facilities, we will face–we will see increase in the financial expenses in the fourth quarter as compared to the third quarter.