BOS Better Online Solutions Ltd (BOSC) 2022 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the BOS Third Quarter 2022 Results Conference Call.

(Operator Instructions)

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 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 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 the various securities authorities.

I would now like to turn the call over to Mr. Eyal Cohen, CEO. After this Q&A session, Mr. Ziv Dekel will give his concluding statement.

Mr. Cohen, please go ahead.

Hello, and thank you for joining our quarterly meeting. Both working plan is comprised of 4 key elements: first, achieve ongoing improvement in the financial results; second, invest in a long-term growth engine; third, increase our market share; and four, reduce our operational cost.

During the first 9 months of the year, we have made significant progress in all the 4 key elements of our working plan.

Let's start with the financial results. Our 9 months 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 upgrade for all of the acquired Dagesh customers. We expect to see the impact of these actions in the result 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 our valuable long-term asset that support 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 fourth quarter, the Robotics division successfully developed and installed automatic sorting machines for logistics centers, which had the potential to be sold to customers of the RFID division.

Market share. During the first 9 months of the year, we participated in 4 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 toward increasing our market share were responsible in part for the 13% revenue growth we have seen in the first 9 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 plant to a new facility near our headquarters. These actions increased efficiencies and in turn, are expected to improve our profits commencing the fourth quarter of this year.

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

(Operator Instructions) The first question is from Todd Felte of Advisory Group Equity Services.

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 that margins are continuing to improve? And at what level margins are you targeting?

It depends on -- thank you, Todd, for your question. It depends on the division, for example, in the Supply Chain division, I think the margin that currently exists, 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 the company that will represent, manufacturers that will represent will increase. And in this segment, when you represent manufacturer, 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 quarter, and we completed the round of price upgrade to all of Dagesh customer price upgrade between 10% to 25%, and it will be affected the gross margin going forward. So these are the trends that we expect in the next quarters.

By and large, 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 market.

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.

Yes. Regarding international expansion in the -- [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 defense industry over the seas -- overseas.

Regarding the RFID division, we have certain thinking of acquisition of a similar company in Europe, small company, but to have the first step -- initial step in Europe, we consider it, but we don't see it happen in the year '23.

Currently, I think we have -- we have planned 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 a higher market share in the Israel market.

Okay. And finally, I noticed in your report, you mentioned that you had a 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?

Yes; I think there are 2 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 in cost. But on the other hand, the increase of the interest will increase our financial expenses. I don't know exactly what we lost to and in what level, but these are the trends.

So I believe that -- that the -- 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.

Okay. And do you denominate most of your contracts outside of Israel in U.S. dollars?

Yes. On the contracts outside of Israel are in U.S. dollars. And recently, all the contracts in Israel are linked to the consumer index linked to the inflation in Israel.

Okay. Well, all that's very helpful. Congratulations again on a great quarter, and I look forward to seeing the continued progress of the company.

(Operator Instructions) There are no further questions at this time. I would now like to turn the call over to Mr. Ziv Dekel, Chairman, to make a concluding statement.

Mr. Dekel, please go ahead.

Thank you for joining us today. Well, this quarter was characterized by the continued execution of our plans -- successful execution of our plans of business improvement, capabilities buildup and solution offering expansion, which Eyal and the team are successfully leading.

Accordingly, we already expected the notable achievement of realizing our targets for 2022.

Looking forward to Q4 onwards, I trust Eyal and the management to further implement BOS' strategy to yield our top line growth and increasing profit margin, market share and competitive position.

Thank you for spending your time with us, please do not hesitate to contact Eyal or me for further information or questions. Looking forward to meet with you on our next quarterly call.

Thank you. I would like to remind participants that a replay of this call will be available on the company's website, www.boscom.com, by tomorrow.

This concludes BOS' Third Quarter 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.