B.O.S. Better Online Solutions Ltd. (BOSC) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the BOS Fourth Quarter and Full Year 2019 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. [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 Mr. John Nesbett of IMS. Please go ahead.

Good morning and thank you for calling in to review BOS’ fourth quarter 2019 results. Management will provide an overview of the results followed by a question-and-answer session. I’ll now 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 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 prospects 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, additional recent uncertainties detailed in BOS’ 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 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.On the call this morning, we have Eyal Cohen, Chief Executive Officer. I will now turn the call over to Eyal. Please go ahead Eyal.

Thank you, John, and thank you all for joining us today. The press release that we have just released described in detail what worked well and what didn’t in year 2019. And to summarize, worked well in year 2019 first, the Supply Chain Division had a tremendous year with a growth in revenues and backlog.Second, by the acquisition of robotic business remain significant progress in positioning our company for long-term sustainable growth in revenues and profit based on advanced technology and footprint in the international markets. Things that didn't work well in year 2019: First, following the acquisition of the robotic business in June 2019, we encountered unforeseen challenges within the acquired business, which adversely impacted our financial results for the year.Second, there was a decrease in the revenues of over legacy RFID business. So, our plan for the year 2020, we have implemented cost reductions and organizational changes in the companies that are expected to yield estimated annual yields saving of $600,000. Also, in the year 2019 we incurred $1.3 million of additional expenses, which we don't expect to occur in year 2020.These expenses are attributed to the robotics business acquisition, the handling of attempt for hostile takeover and cost related to the retirement arrangement with our prior [indiscernible]. This saving will offset the accepted cost of $400,000 related to our effort to increase our presence in the U.S. market during the year 2020.In December 2019, we established a sales office in Dallas, Texas and we are steadily and carefully allocating resources to insure our long-term success in the U.S. market. It is important to know that the robotics orders are typically large with a longer sales cycle and the average product delivery timing is six months.Hence, we expect to begin receiving orders from the U.S. market this year, in year 2020, and anticipate that we will start to recognize revenue from the U.S. market in the first half of year 2021. So assuming that overall revenues will remain generally consistent with the year 2019, we believe we will retain to sustained profitability during year 2020.Now, let’s take a minute to update you on the impact of the coronavirus and our business. From an operation standpoint, we are running our business effectively and focusing on keeping our expenses low and payment tight. Our business divisions are considered essential for our customers, most of which are from the defense and food industry.Given the critical role we play in their operations, we are working very closely to ensure we continue to service their needs. One of the sectors that has been hit hard is the retail sector. We have a unit that focuses exclusively on inventory counting services, mainly for no food retail and last year it accounted for approximately $3.5 million in revenue.We choose to temporarily put the employees in that unit on unpaid leave until the retail sector open up again. This is a very seasonal business with a strong fourth quarter, which is behind us. So, I don't expect this downturn to have a significant impact on our overall net profit in your 2020.Finally, our sales and marketing efforts, particularly in the U.S. market continues to be a key focus. Unlike most of us, we are simply using virtual meeting rather than face-to-face meetings for the time being.So, thank you all for taking the time to join us today. This completes my review and now I would be happy to take your questions.

Thank you, sir. [Operator Instructions] The first question is from Todd Felte of RHK Capital. Please go ahead.

Yes. First of all congratulations on another year of record revenues. I was wondering if you foresee any more anticipated write-downs for goodwill or intangible assets in the year to come or if you are hopefully through with this?

Thank you, Todd. Thank you for joining us today. It’s a very good question and I think we had a very tough year especially with the robotic business. We had to build the business and we had to build from the beginning the strategy of the business. We got technology, but we had to rebuild the business again from the aspect of the strategy, the target markets, and because of that we had to write-off the goodwill and relate it with acquisition, and the current goodwill that we have in the balance sheet does not require a very high level of revenues in the future in order to justify these numbers.So, I believe we will reach our target in your 2020 and 2021, and I don't anticipate additional write-off of goodwill, but we have to know something that I saw that in other companies as well that at the moment that there is a huge gap between the book value. And the market, there is a pressure from the accountants to do amortization on write-off.It happened in a lot of companies, not in our case, but I am sure that gradually over year 2020, and following the measures that we took, especially the cost reductions, and especially considering all the – from our respective non-recurrent expenses that we had in your 2019, I am sure that the share price will go gradually up, and it will at least reach to the level of the equity of the company and then we won't have any issue on that measure.

Sure. And finally I was hoping maybe you could add a little color to the situation around the COVID-19 virus. I know you mentioned in your press release that your robotics kind of provided a safe work environment, have you seen any renewed interest or increased interest in your robotics as people want a more reliable and stable workforce that can come to work and not have to worry about a virus?

Yes. So, we have to split the answer to two. From our client, that are not from the food segment, they put all the investment on hold, including investment in automation at this stage. I'm sure that following the corona crisis they will reconsider in a positive way to invest in automation, especially because of the corona. The other segment, which is our clients from the food industry, especially in the U.S. market we see a great demand for adding line of production because of the growing demand for food on their side and we are optimistic that the coronavirus in that aspect give us very good push to the U.S. market.

Okay. And finally on your electronic component business are you seeing any increased orders as people have kind of leaned towards outsourcing away from China, based on China's ability to provide consistent supply chain during the crisis?

We see that, but not because of that reason. On the electronic components we are working hand by hand with the user and the defense industry and these are the defense industry we had a very good year, mainly in the Far East, mainly in India, and we see that gradually the focus is going to the U.S. market and we see a growing demand from the partner of the Israeli defense industry for components, and we believe that in year 2019 and year 2020 we will see in our Supply Chain Division that the portion of revenue in the U.S. market will grow on account of the decrease in the revenues on the sales to the Far East.

Thank you. I look forward to witnessing the success of the company. Thank you.

Thank you, Todd.

The next question is from Jennifer Wilford of [indiscernible] Partners. Please go ahead.

Good morning. Could you talk for just a minute about your liquidity? It looks like it is a relatively low cash balance at the end of the year, so I'm just curious if you could give us some detail on the plans for 2020?

Yes. From a liquidity standpoint, we [strengthened] our liquidity in the first quarter of this year through credit lines in order to prevent the dilution, especially with the current share price. So, this improved liquidity. In addition to our cost reduction, it should help us to go through this challenging period.

Okay, thank you.

[Operator Instructions] There are no further questions. Before I ask Mr. Cohen 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 website www.boscorporate.com by tomorrow. Mr. Cohen, would you like to make your concluding statement?

Yes. Thank you. I would like to thank our dedicated employees and their families, our loyal customers and our supportive vendors. I would like also to thank our major shareholders for their continued support in such a challenging period. I’m confident that we’ll pass this challenging time successfully, and that BOS will emerge will position towards sustainable growth and profit. Thank you for joining us today, and I look forward to the rapid and effective conclusion of this health crisis. Thank you.

This concludes the BOS fourth quarter and full-year 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.