BOS Better Online Solutions Ltd. Q1 FY2025 earnings call

• Two foundational growth pillars: deepening client relationships (e.g., launching a new cabling line leveraging existing client relationships) and international expansion (e.g., partnering with global subcontractors and Robotics division's European production line setup).
• Key strengths: strong position in the global defense industry during a period of accelerating market growth, consistent profitability with a 49% compounded annual growth rate in net income from 2021 to 2025, a flexible balance sheet with $23 million in equity, $0 bank debt, and $4 million in cash, and an attractive valuation with a 10x net income multiple and a 1.0 price book value ratio.

The Supply Chain division generated $4 million in overseas sales in 2024. The Robotics division will install its first European production line this year. No detailed revenue contribution percentages for segments were provided.

• Raised confidence in exceeding full-year 2025 targets of $44 million in revenues and $2.5 million in net income.
• Outlook is grounded in organic opportunities and a conservative approach.

• Forward-looking statements are subject to risks such as product demand, pricing, market acceptance, changing economic conditions, product and technology development, and the company's accounting policies.

Q: Congratulations on a great quarter. It was nice to see the margin improvement. Can you talk about margins moving forward as the company continues to grow and expand?

A: Yes. First, the gross margin represents the average margin that we have and we had, we don't see any change in the future. This is a market that we are in. But we're expanding our offering to our clients. And as our offering is wider, the prices that we can take are higher and the margin as well.

Q: And do you see the continued growth coming from the defense sector? I know you brought on the former procurement officer from the IDF, the Avi Dadon. Do you think you'll see some larger contracts come from defense? And do you see your future growth as being a mix of organic and inorganic as in M&A activity? Or do you just see organic growth?

A: I think in the current market, in the defense market, especially, our hands are full of work with organic growth. There are opportunities in the Israeli market and overseas as well, especially in India. And we have to put all our focus and effort to capitalize those opportunities. In parallel, we are checking opportunities for acquisition of companies that -- of company that have a synergy to our business, whether it's for the civil market, with RFID division, whether it's for the defense market with the Supply Chain division.

Q: Congrats on the great quarter. Could you address the backlog, please? The backlog dropped to $22 million.

A: Yes. Yes. We -- the backlog was in a record number in December last year. It was in the amount of $27 million. And this was part of the confidence that we had to provide a positive outlook for year '25 with a 10% growth. We are in a very, very hot market, and the demands are hot. And sometimes there are peaks like we had in this quarter.

Q: I have another question, Eyal. Are you guys going to be in the United States anytime soon to do investor relations conferences, anything like that?

A: Yes. First, we plan to participate in a virtual conference in the coming months. Matt, our IR firm person arranged it. And of course, we plan to visit in the U.S. this year.

Q: Okay. And your $4 million in cash, any plans for that?

A: Yes. First, for the transaction in the defense market are relatively big. And we need working capital to execute it. And we use this cash to do it. And we also will use it for M&A.

Q: I want to ask about the backlog. The backlog is for 9 months, 6 months, 12 months, for how long is the backlog [indiscernible] how do you see the second quarter, what you can say, which we are 2/3 with finished. So you have kind of the ability to replace some more than [indiscernible] because it seems like your prospect for the year is a bit conservative, and I want to raise some comments about that if thank you can. But first of all, the backlog.

A: Yes. The backlog is the backlog is for -- it will be spread along year '25 and the $22 million covers like 50% of our annual revenues so it's relatively high. And I remember our call last year when some of the deals moved to year '25, if you remember. And so you see the effect in this quarter. So it's a Supply Chain business and the timing of the purchase of the order effect on the time of the delivery and the billing and the revenue recognition. But we feel confident with this level of backlog that we will exceed our outlook for '25 of $44 million revenues and $2.5 million of net income that already reflects a 10% growth.

Q: Okay. But you said that it's too early to predict now. So you prefer to wait maybe 1 or 2 more quarters.

A: Yes, yes. I think that in the second quarter that will be released on August, we will have much more information to give more operating outlook.

Q: Okay. You can say any comment about the second quarter or you prefer just to talk after the results?

A: Yes, usually, we give an outlook for a year, not for a quarter. So -- but you can try. You try it every quarter. So try again next quarter to ask.