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Edited Transcript of BOSC earnings conference call or presentation 27-Aug-19 2:30pm GMT

Q2 2019 BOS Better Online Solutions Ltd Earnings Call

Teradyon Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of BOS Better Online Solutions Ltd earnings conference call or presentation Tuesday, August 27, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eyal Cohen

B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO

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Conference Call Participants

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* John Nesbett

Institutional Marketing Services, Inc. - Founder and President

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the BOS Second Quarter 2019 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.

I would now like to turn over the call to Mr. John Nesbett of IMS. Please go ahead call.

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John Nesbett, Institutional Marketing Services, Inc. - Founder and President [2]

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Good morning, and thank you for calling in to review BOS' Second 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, among others, the dependency of sales being generated from one or few major customers, uncertainties of BOS being able to maintain current gross profit margin, inability to keep up or ahead of technology and to succeed in a highly competitive industry, inability to maintain marketing and distribution arrangements, to expand in oversea markets, uncertainty with respect to the prospect of legal claims against BOS, the effect of exchange rate fluctuation, general worldwide economic conditions and continued availability of financing for working capital purposes and to refinance outstanding indebtedness; and additional risks and 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 in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results may differ from those set forth in the forward-looking statements.

On the call this morning, we have Eyal Cohen, Co-Chief Executive Officer. I'll now turn the call over to Eyal. Please go ahead, Eyal.

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [3]

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Thank you, and thank you all for joining us today. Our second quarter included intensive activity around the completion of our acquisition of Imdecol's robotics business and our integration of those operations within BOS existing structure.

With the Imdecol purchase, we bought a privately held company with the state-of-the-art high technology, which adds value to our portfolio of solutions. However, it also presents some challenges with a weak operational structure and ineffective sales structure.

As we move through the balance of the year, our priority is to enhance the robotics business operational and international sales platform to take advantage of the tremendous long-term opportunity in the global industrial robotics market. According to industry reports, the global industrial robotics market is expected to grow at an annual rate of 11% and exceed $98 billion by year '24.

We have begun to enhance our robotics operations and strengthen its competitive advantage by improving its production efficiency and capacity as well as expanding its technological capabilities and customer service. Our goal is to demonstrate significantly improved operation efficiency in our robotics operation by the end of this year.

On the sales side, we are focused on building an international sales platform with straightforward guidelines as follows: focus on industrial robots for in-mode labeling for the plastic industry, which is an area of strength for us; target the U.S. market as a major territory for expansion, open a sales and tech office in the U.S. by the first quarter of year '20; and maintain the existing sales work in other regions.

We are starting the implementation right away and plan to make progress in measured cadence to ensure that we are efficient and accurate in driving business through investments. There are many challenges ahead, and we look forward to making progress as we execute our growth strategy.

To conclude, the press release that we released this morning along with our comments from this call provide a clear view in our current position and our future growth plan. That completes my review. And now I will be happy to take your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from [Jennifer Wolfertz] of [Comstock Partners].

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Unidentified Analyst, [2]

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Could you give us some more detail around your decision to focus on the U.S. market?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [3]

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Oh, yes. Thank you. Firstly, U.S. market is huge. There are thousands of target customers, which are the plastic manufacturer. U.S. market is friendly to Israeli technology, and the U.S. plastic manufacturers are lagging behind the European and Chinese manufacturers in adopting in-mode label production. So the in-mode label potential in the U.S. market is big, and this is the reason why we are focusing on the U.S. market.

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Unidentified Analyst, [4]

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And if I could just have a quick follow-up to that, do you have any concerns around the trade war? Do you think that, that will threaten any of your sales plans in the U.S.?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [5]

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In the aspect of the robotics business, the robotics business, we think that the trade war is actually an excellent accelerator for the sales in the U.S. market because the U.S. government encourages and supports U.S. manufacturers to invest in robotic machines to improve their production efficiency. And the trade war puts a barrier for the competition from China. And also, U.S. plastic consumers such as Kimberly-Clark look for stable and high capability in production flow. So we believe that the trade war will push those consumers to U.S.-based plastic manufacturers, which are actually our potential clients.

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Operator [6]

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The next question is from [Mike Hussey of Catamount Capital].

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Unidentified Analyst, [7]

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Which additional territories do you have sales operations in?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [8]

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We have sales in -- sales reps in Brazil, Mexico, Australia and New Zealand, and we will maintain these reps -- sales reps, but our main near-term focus on resources will be in the U.S. market development.

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Unidentified Analyst, [9]

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Okay. And just one more question around that. Then when do you think your international sales plan will yield significant level of global revenues?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [10]

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We're trying to complete the first ever setting up the U.S. sales and tech office by the first quarter of year '20, as I mentioned before. And we accept that it will gradually and consistently increase our robotic backlog in year '20, and the increase in revenues will follow we believe in year '22 -- in year '21, sorry, the year after.

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Operator [11]

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Our next question is from [Itama Chiyomi of Chiyomi Portfolio Management].

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Unidentified Analyst, [12]

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I wanted to ask, can you tell us how thick your pipeline is?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [13]

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The [secure] pipeline -- usually, we don't announce on the pipeline. But I can give you the guideline that we have 2 business divisions, the Supply Chain that traditionally has a long-term pipeline because of the type of the business, long-term order from aircraft manufacturers. So the pipeline of this division is over $10 million. And the pipeline for the Robotics and the RFID division usually is lower, but they are -- we're picking order from customer that we can say that let's say 50% of the business is repeating orders. Still, we have to negotiate, but it's repeating orders. So we can say that we have assurance for more than 50% of the revenues of the year when we start the year.

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Unidentified Analyst, [14]

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So is the pipeline thicker now than it was, let's say, 3 or 6 months ago?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [15]

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Sorry, again?

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Unidentified Analyst, [16]

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Do you have more prospects or [warmer] prospects or prospects that are closer to closing a contract than you had 3 or 6 months ago?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [17]

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Yes. The pipeline of the group is much more higher than it was in December, much more higher, especially in the Supply Chain division. In the intelligent robotics and RFID, so we just acquired the robotics business, and we are starting to build the pipeline. We started to accumulate it just in June. And the -- one of the decision to invest in the -- a lot of resources in the U.S. market is to significantly increase the backlog of the robotics business.

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Unidentified Analyst, [18]

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And the increase in pipeline is coming from new customers, from existing customers or how does it look?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [19]

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The pipeline, most of it from existing customers.

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Unidentified Analyst, [20]

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So existing customers are giving bigger orders?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [21]

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Yes. In both divisions.

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Unidentified Analyst, [22]

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That's good. Now as far as profitability, I'm sure you'd like to see the numbers higher. When do you think -- what's your profitability target? When do you think you might be able to reach that?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [23]

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As we mentioned in the PR, we provided outlook for the year '19, for this year, that we'll reach to $1.3 million net income among the profit. And for the next year, we will provide outlook later this year. And for the next year, the outlook will be on a GAAP basis, not on a non-GAAP basis. We provide a non-GAAP basis this year because of the acquisition. And I'm sure that the next year, year '20, outlook will be -- as traditionally we are providing will be higher and we will have higher profit net income than in year '19.

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Unidentified Analyst, [24]

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But you're optimistic about '20?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [25]

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Absolutely. And I'm optimistic, especially in regard with the sales to international market and in the robotics business.

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Unidentified Analyst, [26]

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And you think the optimism will carry down to the bottom line?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [27]

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Absolutely. Yes.

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Unidentified Analyst, [28]

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Last question for me, please. I see a jump in intangible assets from the first quarter. Is that because of the acquisition?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [29]

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Absolutely. Yes.

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Operator [30]

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(Operator Instructions) The next question is from [Bob Jensen].

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Unidentified Analyst, [31]

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Could you call out on your need for capital -- additional capital going forward?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [32]

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As we mentioned before, 3 months ago, we don't plan to raise additional equity, and we are -- all the resources for the acquisition and for working capital came from the equity that we raised at the beginning of year '19, at the beginning of this year. And we are increasing the credit line from the banks in order to finance working capital and in order to finance the investment that we made, that we plan to do in the international market.

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Operator [33]

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There are no further questions at this time. 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's website, www.boscorporate.com, by tomorrow. Mr. Cohen, would you like to make your concluding statement?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. - Co-CEO & CFO [34]

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Yes. Thank you. Thank you for joining the call today and for your questions. This is an exciting time for our company, and we are focused on making the long-term investment that we believe will gradually yield consistent and sustained growth in BOS' revenues. We look forward to your long-term support. Thank you.

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Operator [35]

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This concludes BOS Second Quarter 2019 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.