B.O.S. Better Online Solutions Ltd. (BOSC) Q4 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the BOS Fourth Quarter and Full Year 2018 Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded, and will be available on the BOS website as of tomorrow. I would now like to turn over the call to John Nesbett of IMS. Please go ahead.

Good morning and thank you for calling in to review our fourth quarter and year end 2018 results. Management will provide an overview of the results, followed by a question-and-answer session. On today's earnings call, we will be referencing a slide deck which you may view in the Investor Relations tab at our website that's www.bos.corporate.com. You can also access via a direct link from the earnings release. And I will take a brief moment to read the Safe Harbor statement. The forward-looking statements contained herein reflect management's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially from those in the forward-looking statements, all of which are difficult to predict and many of which are beyond the control of BOS. These risk factors and uncertainties include amongst others, the dependency of sales being generated from one or a few major customers, the uncertainty of BOS being able to maintain current gross profit margins, inability to keep up or ahead of technology and to succeed in a highly competitive industry; inability to maintain marketing and distribution arrangements and to expand our overseas markets, uncertainty with respect to the prospect of legal claims against BOS. The effect of exchange rate fluctuations, general worldwide economic conditions, and continued availability of financing for working capital purposes and to refinance outstanding indebtedness, and the additional risk and uncertainties detailed in BOS's periodic reports and registration statements filed with the U.S. Securities and Exchange Commission. BOS undertakes no obligation to publicly update or revise any such forward-looking statements to reflect any change in its expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Okay. On the call this morning, we have Yuval Viner, Co-CEO; and Eyal Cohen, Co-CEO and CFO. I will now turn the call over to Eyal. Please go ahead, Eyal.

Thank you, John. And thanks to those who have also joined the call today. And beginning on the slide 2, we are pleased to have delivered strong performance for both the fourth quarter and the full year 2018. Our full year 2018 performance showed significant improvement with revenues growth of 13% and record net income of $1 million which reflect growth of 28%. On this slide, we also showed the solid growth achieved in the fourth quarter of 2018 with revenues up 15% to $9 million and net income growth of 15% to $400,000. Following to slide 3, BOS management and Board of Directors remained focused on growing BOS's two division and both segments saw strong organic growth in 2018. Our Supply Chain Division saw revenue growth of 17% and RFID & Mobile Division had revenue growth of 7%. Moving to slide 5, we highlight the progress the company has made since 2010 when current management was appointed. In 2010, BOS was in a risky financial position with $40 million in debt and two consecutive years of net losses $6 million loss in 2008 followed by $9 million loss in 2009. Management first priority was to turn around the company's financial position and transform BOS into profitable company with positive cash flow. From 2010 to 2015, BOS demonstrated consistent improvement in net profit and our overall financial performance gained traction. During this period, BOS management maintains disciplined approach to reducing debt by using the majority of our cash flow to reduce bank loans. By 2015, our debt levels were significantly reduced to $2.2 million and BOS became profitable. With a stabilization of company by 2015, we began executing our growth strategy. We increased our international sales; expanded our product offering, added new customers and successfully consumed an acquisition. During the year 2016 to 2018, our annual revenue grew by 8.5% per year and our net profit grew by 49% per year, up to a record level of $1 million in year 2018. In addition, our debt reduced to the lowest level of $600,000 only. We are pleased with a solid platform we have built for the continued growth and success of BOS. Today, we are focusing on growth through acquisitions. Slide 6 shows you the blueprint for our acquisition strategy. Simply put, we target Israelis profitable companies with capabilities that will complement and expand our current portfolio of solutions. From financial perspective, we intend to finance our acquisition strategy through commercial bank loans, internal cash resources and equity. Turning to slide 7, we detailed our acquisition target. We are actively looking for opportunities to acquire complementary businesses to our RFID and Mobile and Supply Chain Divisions. By those acquisitions, we will expand our product portfolio and enable BOS to continue to increase its international footprint. We have robust acquisition opportunity pipeline for both division, and while this is exciting, we maintained disciplined approach as we evaluate potential targets. For the Supply Chain side, we look for businesses with valuable representative of electronic components that can integrate into our existing offered. On the RFID and Mobile side of the business, we are looking to expand our product offering in three segments. In production line, in logistics centers and solutions for retail stores. In production line, BOS provide system for truck-in inventory growth production lines and most of our solutions are based on RFID. An important element is our partners adopt smart factory and niche industry for all initiatives. Our strategy is to go deeper into production line, transition manual processes to robotic systems and we are exploring potential opportunities to require integrators with robotic system expertise to complement and enhance our capabilities. We expect to expand into this vertical in 2019. Logistics centers, BOS currently provides a wide variety of solution for the tracking and management of inventory comprised of mobile equipment, warehouse management software and integration. BOS is looking to expand via acquisition into automated warehousing which we believe is a growth segment of tracking and inventory management industry. Retail stores, BOS currently provide an inventory accounting service for hundreds of retail stores, which is based on proprietary software and implementation of skilled workforce. With this footprint, we plan to increase our retail store product offering and solution through new representative agreement with leading technology providers. Moving to slide 8, conclusion. BOS current management and Board of Directors have successfully executed turnaround in very challenging environment. We are transformed BOS, a company for money-losing enterprise to one that is profitable. We turn BOS into mode of consistent growth. We are now working extensively to execute our growth plan through complementary acquisition. We believe we possess the requisite experience, skills, motivation to grow BOS business both locally and internationally. We will now take questions.

[Operator Instructions] Your questions first question is from Jen Logan of North Grove Asset Management. Please go ahead.

Good morning. Congratulations on the quarter. Could you give us a little color and outlook on what you're thinking you're going to see in 2019?

Thank you. It's Yuval Viner. And as we always being the case our plan is to continue to grow every year. We have relatively good visibility which is based on backlog and revenues. Over the past three months, we announced $5 million order for our supply chain division, which increase the backlog of this division to a record amount. In addition about 50% of our RFID and mobile business which is roughly $7 million is based on recurring revenues from customers such as inventory counting services, service contract and consumable. We'll provide more specific guidance during March consistent with year's task.

Okay, thanks very much. Speaking of RFID and mobile, it looks like the gross profit margin in that division came down to about 23% in 2018 as compared to 26% 2017. Could you --what were the reasons for that? For the decline there.

As a matter fact, the decrease in gross margin in the results of competition. We believe that we will continue to see this margin level in 2019 as well. We believe the margin will increase with expansion of our product offering likely through acquisition.

Okay and then just another follow-up to that if I may. I understand that the major focus in 2019 looks to be on M&A. And you have laid out a very clear particularly in the presentation very clear roadmap to that. How close are you to an acquisition?

Hi, it's Eyal. Yes, we have a little time, we target a timeline operation on our financial platform, managerial skill and high motivation to execute our growth strategy through M&A. We believe will consume an acquisition during the first half of this year 2019.

The next question is from Bill Macki. Please go ahead.

Good morning and again congrats on the quarter. I just have two questions. How do you see BOS in coming years in terms of revenue?

Hey, we provide projection year by year but our target is to reach the $50 million annual revenues in the coming years with a significant portion of it outside of Israel. But I have to say this is not guidance, but it is a reasonable target for us.

Okay, got it. And how does Pure Capital's demand to replace the BOS Board of Directors affect your future plans?

Actually our strategy is not changing as I described in the presentation. And we continue to execute our plans for 2019 and beyond 100% focused on driving long-term and sustainable shareholder returns. I have to say that we have always been aligned with our shareholders; have welcomed an open dialogue and we will continue to do so. But in the case of Pure Capital, they are not communicated any alternative plan and unfortunately they started the dialogue with us with a legal letters instead of constructive business meetings.

There are no further questions at this time. Before I ask Mr. Viner to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available on the Company's website at www.boscorporate.com by tomorrow. Mr. Viner would you like to make your concluding statements.

This is Eyal. I will make the concluding statement. This is an exciting time for us. For the BOS management and for Board of Directors. We have made great deal of progress and success during the past few years. And we believe we have the opportunity for significant growth in 2019. As you likely are aware, earlier this month Pure Capital requested that we convene a special meeting of shareholders seeking to--seeking the removal of the company's current directors and the election of Pure Capital directors' nominees in their stead. We are surprised by this demand and believe it is unwarranted given the conclusive achievement of BOS management and its Board of Directors. BOS management and Board of Directors thank you for your support to date and hope you continue to support BOS management and our existing Board of Directors in the coming shareholders meeting. Thank you for joining us today. And we are looking forward for our next call.

This concludes the BOS's fourth quarter 2018 results conference all. Thank you for your participation. You may go ahead and disconnect.