Q3 2025 B.O.S. Better OnLine Solutions Ltd Earnings Call
Speaker #2: Ladies and gentlemen, welcome to the BOS Conference Call. All participants are in listen-only mode. Thank you for your presence. As a reminder, this conference will be available on the BOS website as of tomorrow.
Speaker #2: Before I turn the call over to Mr. Cohen, I would like to call is being recorded and will be statements for the respective company's business, financial condition, and results of its operations are subject to risk and uncertainties.
Speaker #2: Which could cause actual results to differ materially from those contemplated. Such forward-looking to product demand, pricing, market acceptance, changing economic conditions, risks and the effect of the company's accounting policies, as well as certain other risk product and technology development, and factors which are detailed from time to time in the company's filings with the various securities, authorities.
Speaker #2: I would now like to turn the call over to Mr. Eyal Cohen, CEO. Mr. Cohen, please go
Speaker #2: ahead. Thank you.
Speaker #3: Good morning, and thank you for making the time to meet with us today. Joining me is Mr. Moshe Zeltzer, Officer, BOS, our Chief Financial Officer. We aim to integrate cutting-edge technologies to streamline and enhance supply chain operations.
Speaker #3: We delivered strong growth in the first nine months of this year, revenue grew year over year by 28% to $38 million, continuing our record performance this year.
Speaker #3: We are strategically expanding with international subcontractors of clients. This markets are relatively untapped by BOS and represent potential growth our Israeli defense for BOS.
Speaker #3: We see overseas markets by partnering with India as a major target, as it is a global hub for wire and assembly where we have a competitive advantage.
Speaker #3: Through this approach, our international connector grew by 24% year over year, demonstrating revenue growth potential in international markets. Our net income increased by 54% year over year to $2.8 million, while our revenues grew by 28%, showing our ability to convert revenue into bottom-line results, plus profit leverage as we scale the operating base of the business.
Speaker #3: We have demonstrated consistent profitability with steady net income growth, achieving a compound annual growth rate of 51% from year 21 through the year 2025.
Speaker #3: These results underscore the strength of our strategy, reflecting years of defense-focused investment in product diversification and operational excellence that position us to capitalize on the defense sector's robust growth trajectory.
Speaker #3: Given our strong execution and stable backlog, exceeding $24 million, we are raising our full-year 2025 financial guidance. We now expect to meet the high end of our previous guidance range of $45 million to $48 million in revenue, and $2.6 million to $3.1 million in net income.
Speaker #3: There are several tailwinds that have accelerated our growth momentum, and we believe will support our long-term organic growth. First, as you know, the global increase in defense budgets.
Speaker #3: Second, replenishment and expansion of Israeli defense forces' inventory and equipment and vehicles. Third, the potential stabilization and improving geopolitical conditions in the Middle East, which is a pivotal tailwind for the growth and will positively impact the of the Israeli civil market growth of our RFID division.
Speaker #3: This driver supports our continued organic growth in efforts; we continue to look conjunction with our outbound sales for opportunities to enhance our organic growth with strategic actions that fit our business and diligent pricing parameters.
Speaker #3: Through the combination of these efforts, we intend to grow B.O.S. over the coming years. Without further ado, I will turn the call over to Moshe Zeltzer, our CFO, to discuss our financial position.
Speaker #3: Please, Moshe.
Speaker #4: Thank you, Eyal. Our financial foundation has never been stronger. Cash and equivalents grew to $7.3 million, up from $3.6 million at year-end. Our shareholders' equity amounts to $25 million, which accounts for 66% of our balance sheet.
Speaker #4: We have positive working capital of $18 million and $1.1 million in long-term loans, secured by real estate. We are using this flexibility for our own operations.
Speaker #4: Capitalize on opportunities as they arise, supporting organic growth and strategic acquisitions. Our valuation offers attractive upside compared to multiples. The price-to-earnings ratio for the Russell 2000 at 20 was versus BOS to the Russell 2000 index at 11.
Speaker #4: Price-to-book ratio: Russell 2000 at 2.2 versus BOS at 1.7. Thank you for your time and attention. We are happy to take your questions.
Speaker #1: Yeah. Hi,
Speaker #5: Eyal. Can I ask a question? Yes, Great. This is Scott Weiss
Speaker #5: at Semco Capital. please.
Speaker #5: Hi. Great Hi. quarter. Terrific quarter. I have a few questions, and if it's okay, I'd like to ask them one at a time. In the press release, you highlighted that you're excited about your expanding opportunities with new and existing customers.
Speaker #5: Can you highlight a couple that you're particularly enthusiastic about and specifically new
Speaker #5: customers? Yeah.
Speaker #3: customer that we The main are joining to our portfolio mainly overseas clients, mainly from you that in the India, and I can tell recent week, there was a huge delegation here from Israel, from India, including ministers from India, and we were happy to meet with the many, many companies from India, and those are the major clients that we are joining our group.
Speaker #5: Okay. When would you expect revenues to hit the bottom line? To impact your P&L?
Speaker #3: What do you mean?
Speaker #5: When do you expect revenues from this new Indian customer to impact your financials?
Speaker #3: Yeah. It
Speaker #3: impacted these nine months. We already see the growth in revenues from international market by 24% as compared to the comparable period last year, and this is P&L?
Speaker #5: you. Second question. Can you expand on the loss in the RFID division and exactly what you mean by logistics center slowdown in Israel?
Speaker #3: Yeah. The RFID division engaged mainly in the civil market, not in the defense market, segment. And there were this segment had very challenging time in the recent two years because of the conflict in the Middle it is adversely East.
Speaker #3: affected the business, recent two quarters, we also saw the effect and in the of the US dollar devalued against the Israeli And shekel. That also adversely affected the because business.
Speaker #3: took of some measures we as well, and the change in the environment in Israel, especially in operationally and in the business model the geopolitical environment, But in the fourth quarter, we see a rebound in the demands, and we are optimistic about returning back to profit in the fourth quarter.
Speaker #5: Okay, great. And then that was my next question. Can you expand on the currency impact and how much you can quantify the effect it had on your P&L?
Speaker #5: And do you hedge? And if not, are you going to start hedging?
Speaker #3: Yes. So the US dollar devalued against the Israeli shekel by about 11% in the six months that ended Actually, it's the second and the third quarter.
Speaker #3: operations expenses are And since most of our September 30 this year. denominated in shekels, while our revenues are primarily in dollars, this currency movement created approximately half a million dollars in additional cost pressure on operating income during this period, or roughly about a quarter million dollars per quarter.
Speaker #3: So as I mentioned before, we are proactively addressing this headwind through strategic sales price adjustment initiated in the fourth quarter and operational efficiency
Speaker #3: improvements. And starting the Okay. hedging, we are hedging the balance sheet exposure and for every hedging each hedging has a limitation period. And we don't believe that it's a temporary exchange rate.
Speaker #3: I think it will be with us for the long term. hedging on the So any kind of dollar is temporary. And we are trying to build to find a solution for the long term.
Speaker #3: That we are in a process, and because of subsidized adjustment and operational efficiency improvements.
Speaker #5: Okay. One more question, and I'll jump back in the queue. One of the potential concerns on your P&L and continued growth is the impact of the end of the war in Gaza.
Speaker #5: Can you address this? And how should we think about the end of the war impact?
Speaker #3: I think there are two coins. Two sides for the coin. On one side, we are in supply chain division, the biggest division business is in the in both, 90% of its the defense segment.
Speaker #3: defense. And its customers are the major client in Israel. So there is a The the tension. On the other hand, we have the RFID division, which is in the civil market.
Speaker #3: market doesn't benefit from the And the war. But because the biggest we have the big exposure to the defense, because of that, we are growing, and in the top line, and in the bottom line.
Speaker #5: Historically, have you grown faster on the defense side in a time of war or in a time of peace?
Speaker #3: All the years, the growth, the main growth came from the supply chain. Because even in times of peace, those three clients are the biggest exporters in Israel.
Speaker #3: And they are growing year by year. Additionally, the defense budget of Israel is growing year by year, even before the war. While I'm not sure about the exact number, I believe the average growth rate of the defense market in Israel over the years has been about 7%.
Speaker #3: It's growing. Sometimes, in some periods, in a sharp way, like in the recent two years, at about 17% each year, or more. In normal years, growth is about 10%.
Speaker #5: Thanks. I'll jump back in the.
Speaker #5: queue.
Speaker #6: Good morning, Thank you. Yal Moshe. Congratulations on another great quarter. I see that you have a 7.3 million in cash, and I assume that amount is rising.
Speaker #6: In the current quarter, you've talked about M&A possibilities. Will you have to use raise equity, or will you be able to use cash for any M&A activity?
Speaker #3: Right. So nice to meet you again. Yes, our current position was strong at the end of the third quarter, with over $7 million and zero bank debt.
Speaker #3: And that's continued to Q4. So for M&A, we are targeting profitable Israeli defense sector companies with complementary products, serving our major clients and their subcontractors.
Speaker #3: So with acquisition targets of up to 10 million dollars and bank financing typically available for approximately 50%, because it's profitable companies, 50% of the purchase price, we can execute this transaction using our existing cash on hand without raising.
Speaker #3: While maintaining sufficient working capital for operation and organic requiring equity growth.
Speaker #6: That's great. Also, can you kind of give us some clarity on the amount of the percentage of your defense business, which is in Israel, and the amount that's in internationally, and how that how you expect that to change?
Speaker #6: I've seen a lot of contracts from India and Europe, and I was hoping you could quantify that for us.
Speaker #3: Yeah. As we saw in the chart, like in the nine months, the out of the 38 million dollars, 3.6 million dollars were sales overseas related to the supply chain.
Speaker #3: Related to defense, we are taking measures and allocating resources to increase this number by being active and with an active approach.
Speaker #3: Especially in India, and maybe even to change our approach in how to operate sales in India. We see a lot of potential in this market.
Speaker #3: So I believe that this number of $3.6 million, which reflects a 24% increase in sales overseas, will continue. We will see this trend continue in the fourth quarter and in.
Speaker #6: Okay. I know you had talked about opening
Speaker #6: office in India. I assume that's where a lot of the expansion is going to be. And is there any update to that office you're going to open over
Speaker #3: We are
Speaker #3: options on how to make it in the most efficient way. We are taking very conservative measures how to allocate our financial resources year 26 as well.
Speaker #6: Thank you Yeah.
Speaker #3: Any follow-up? too.
Speaker #5: Hello. Good afternoon. Question. Hello, my name is Igor. This is my second call with you, and congratulations on a strong quarter. So my question is, Israel is expensive.
Speaker #5: Everything in Israel is expensive. Any operations? And now it's getting even more expensive with stronger shackles. Now that you're becoming more and more of an international company with international sales, any thoughts of spreading the cost and moving some of your operations outside of Israel, given that it's so expensive to do anything in Israel?
Speaker #3: It's a good idea, but maybe it's a good idea. We need to think about it. Actually, we don't. I don't see any kind of unit we can operate overseas.
Speaker #3: But one of the options, as I mentioned to Todd, is to, instead of doing the sales to India from Israel, do the sales to India from India.
Speaker #3: So this is the first example of how we can reduce our costs, but the main approach to do sales in India was not to save costs, but to increase sales.
Speaker #3: But we can get both of the things together. But it's a good idea. I need to be honest; I need to think about it.
Speaker #3: And I will keep you updated in the next
Speaker #3: call. My
Speaker #5: My other question is, I know that last year was sort of overshadowed by the Gaza war and how people referred to this.
Speaker #5: Historically, if you take many, many years, your company is a bit of a cyclical company. So, some periods of time there's more demand, and some periods a little bit less demand.
Speaker #5: How do you intend to make your company a little bit less cyclical and more like sustainable growth? What is your strategy like?
Speaker #5: What do you see the company like five years down the road?
Speaker #3: by going I think overseas to increase our sales overseas, as you saw in the number, like out of the 38 million dollars, just 3.6 million increase it, we can reduce the dollars international sales.
Speaker #3: Cycling and growing by acquisition and adding more to our portfolio. So if you’re offering, by that we can eliminate the exposure that you mentioned.
Speaker #3: But the structure of B.O.S. is that we have the supply chain in defense, we have the RFID in civil, and we have the robotics in between.
Speaker #3: So, we already spread, but I have to be honest with you. We have been in defense for many years, more than 10 years, and it's always growing.
Speaker #3: And I don't remember a cycle of slowdowns. In this segment, I'm sure that in three or four years, the demand will come back to normal after the situation in the Middle East and in Europe.
Speaker #3: But I believe it's the best segment to attach.
Speaker #3: to. Okay.
Speaker #5: And my last question about the potential for M&A. So obviously, you put four and a half million at the market option. Now, and you have plenty of cash, you don't lack for any cash.
Speaker #5: So, do you have any specific opportunities right now, or are you just putting this out there just in case? What are your thoughts about M&A for the next year or two?
Speaker #3: I hope that in the next year we will close this. This is the working plan. My plan is to close one, and I hope that every two years we will be able to close an M&A.
Speaker #3: And by that, with the organic growth to reach $100 million, this is a target. But those are plans, and we are working according to those plans.
Speaker #5: Just curious, I understand it might be opportunistic. But why don't you look to borrow to do an M&A and potentially look at the equity component, given that your stock is not particularly high?
Speaker #5: So that would be maybe a little bit suboptimal versus borrowing from a bank, given that you're a pretty solid company with good cash flow and.
Speaker #5: earnings. I didn't
Speaker #3: understand your idea.
Speaker #5: So it looks like you put a potential for M&A. You have an option of $4.5 million equity. So obviously, I don't know what the opportunity M&A opportunity is going to look like.
Speaker #5: But I would hope that your first intention would be to borrow money from the bank to do an M&A versus issuing equity, given that your equity is relatively low, considering your valuation.
Speaker #3: As I mentioned to Todd, in case of doing an acquisition, even of $10 million, which is a frame of targeting investment, we are assuming 50% by bank loans, because it will be a profitable target company. So for the rest, the $5 million absolutely we can do; we don't need to issue more stock.
Speaker #3: We have it on hand.
Speaker #3: All right. Okay.
Speaker #5: Thank you. So, yeah, we have $7.5 million.
Speaker #5: much.
Speaker #3: Dollars as of the end of September, and the cash continued to grow. I don't see any need to raise my equity to consume.
Speaker #3: M&A. So you just
Speaker #5: have a just in case in case a big opportunity comes up that you have a four and a half million dollar offering at the
Speaker #5: market? We see
Speaker #3: We have tools like every public company should have, such as the shelf prospectus that we have not used for four years, and the ATM that we have not used since the day it was filed.
Speaker #5: It was
Speaker #5: filed? And
Speaker #3: And the credit credit line that we have in the bank are not used. So we have all the lines. That annual facilities. We should have.
Speaker #3: And but actually, in order to consume 10 million dollars M&A, we don't need to raise to use any of those tools except for the unused credit line.
Speaker #3: Bank credit lines.
Speaker #5: How much do you have in available credit as of now, approximately? How much credit do you...
Speaker #3: Sorry?
Speaker #5: have unused as of now?
Speaker #3: Roughly $1 million for the real estate. No, unused. Unused we have unused for ongoing use, not for the acquisition. We have.
Speaker #5: Oh, I see. Okay. Yeah. So that's a
Speaker #5: capital I understand.
Speaker #3: Yeah. It's
Speaker #3: Half to two million dollars in unused credit line, something like one and a half for evolving credit for organic growth. But we already checked with the banks in case of a model of acquisition for a profitable company.
Speaker #3: And I believe we can get 50% financing from the bank for the acquisition.
Speaker #5: Okay. Thank you.
Speaker #3: Thank
Speaker #3: you. By Yale from an
Speaker #1: investors? the US to meet
Speaker #3: It will be April next year. In between, I will participate in a virtual investor relations perspective. I believe we will announce it at the summit.
Speaker #3: And I will continue to do ongoing one-on-one weekly meetings with the potential investors.
Speaker #3: Scott? Yeah.
Speaker #1: I got it. Thank you very much.
Speaker #3: You're welcome. Any further questions?
Speaker #1: No. No follow-up. I'm good. Although I'd like to meet you when you come to the US for.
Speaker #1: sure. Yeah.
Speaker #3: We will meet in April. Thank you again for your participation. If you need more details or would like to follow up, please feel free to reach out to us.
Speaker #3: Thank you.