B.O.S. Better Online Solutions

Ladies and gentlemen, thank you for standing by. Welcome to the BOS second quarter 2022 results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference call is being recorded and will be available on the BOS website as of tomorrow. With us on the line today are Mr. Ziv Dekel, Chairman, Mr. Eyal Cohen, CEO, and Mr. Moshe Zelter, CFO. Before I turn the call over to Mr. Cohen, I would like to remind everyone that forward-looking statements for the respected company's business, financial condition, and results of its operations are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies, as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. I would now like to turn the call over to Mr. Eyal Cohen, Chairman. Mr. Cohen, please go ahead.

CEO, not Chairman, sorry. Thank you for joining our call today. We have progressed towards bosses' long-term growth during the year's first half, and our revenues grew by 28% compared to the comparable period last year. The RFID division revenues grew by 22%, in the year's first half compared to the comparable period last year. In addition, this division completed the integration of its earlier this year's acquisition. The supply chain division has leveraged the global shortage of electronic components and its revenue grew by 40% in the first half of the year compared to the comparable period last year. In addition, The supply chain division has established a new sales engineering department to increase the number of electronic manufacturers we represent, which is a substantial element for long-term growth. In the robotic division, we made some progress in increasing the portion of revenues from the sale of catalog machines versus custom-made machines, which we believe will improve the profitability of this division. You are invited to review our catalog machines on the BOSS Robotics website. In addition, the robotic division successfully developed and launched a new line of automatic sorter machines for logistics centers, which we believe has good sales potential. And we will distribute impressive videos soon. On the cost side, we are in a challenging period characterized by increased operational costs. Hence, recently, we purchased part of the facility's release. In addition, we plan to relocate the robotic factory by the end of this year. Furthermore, there are shortages in goods and employees. However, the BOSS approach sees it as a business opportunity rather than a business obstacle. That completes my review. Thank you.

Thank you. Ladies and gentlemen, At this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to decline from the polling process, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Todd Felton of Aegis Financial Services. Please go ahead.

Hey guys, congratulations on another strong quarter. I notice that you've done over $21 million in revenue for the first six months and your guidance is only for $35 million for the year and historically the fourth quarter has been your strongest quarter. Do you expect a downturn in business going forward? I'm just curious as to why you haven't raised your guidance levels.

Thank you, Todd. No, I think you're right. The second half of the year is much stronger than the first half of the year historically. But the projection we provided that we will exceed the $35 million, so I'm sure that we'll exceed this number.

Okay, that's great to hear. And moving on to the robotics, I see that you had the first gross profit for the robotics division in quite some time. and the overall operating loss has really improved. Do you expect the robotics division to become profitable within the next year?

Yeah, this is a plan, and we did a lot of restructuring on this division in addition to changing the business strategy. And as I mentioned, we also relocated the factory to a new place in order to save a significant cost. So we are reducing the burn rate of this division and changing the business model of this division, and I think we'll see the fruits in the next year.

Okay, and then my final question just refers to the market environment in Israel. I saw a report on Bloomberg where inflation is at a high for Israel in the last few years, and How does that affect your company, and are you able to pass on much of these price increases?

It's a big challenge in two aspects. First, on the financial expenses, although we don't have a huge amount of loans, but we have loans, and recently we acquired the facilities, part of the facilities that we are working in the region that's here in Israel, and we will consume, I think, in the coming day a loan of 4.5 million shekels. So the interest will have an impact, but it's better to have these assets on our hands rather to continue to lease it because the rent prices are going dramatically up. Regarding the inflation, There are two elements here. First, to build a mechanism that will be able to adjust the sales price to our client more frequently, not as we used in the past to do it once in two years, three years, or not at all. So we have to change, we are working to change our information system that will support it. And we complete, I think we complete, we are very close to complete this stage. And we're also doing a round of changing the sales price to our client, the client that we are in an annual contract with them. And we are doing well on that aspect. On the other end, the inflation has a very bad impact on the payroll. And we have to face with it. And in order to face with it, we have to increase the sales price. So it's a big headache, but this is part of the business. for the coming year or two.

Okay, and one last question. I noticed in the first half of the year you had a substantial amount of orders from the Israeli military, and I had read an article where Israeli military orders were up over 900% based on the fact that no one is ordering any Russian military equipment. Is the military division and your supplying of components, is that still a big factor in your business, and do you expect it to continue?

Absolutely. As you can see in the supply chain, the growth in revenues is about 40% in the first half of the year compared to the comparable period last year. So it's clearly the effect of the trend that you just mentioned. And our backlog also is in the record number, which is above $20 million, which is a record number compared to any period in the history of BOST. and its direct effect of the growth in the military segment in Israel.

Okay, that's great to hear. Congratulations on a great quarter, and I know most shareholders should be very happy with it. Thank you.

Thank you, too. Thank you.

If there are any additional questions, please press star 1. If you wish to decline from the polling process, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. There are no questions at this time. Before I ask Mr. Dekel 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.boscom.com by tomorrow. Mr. Dekel, would you like to make your concluding statement?

Thank you. Yes. So, hello everybody. What Eyal has just described is the picture as well as the key elements of both strategic plan manifestation which we already are implementing, of which The full fruition of that is yet to come. We don't see it. Significantly improvement has been made, and I can see the springs of it, partly also from Todd asked before. Me, working closely with the company, I trust Boss's management team, led by Eyal's vigorous leadership, investing in all aspects and levels of the system, an innovative, bold, and imaginary thinking. I'm highly impressed by the team's commitment to the company and to the target of improving sharesholder value. Thank you for being with us today. Looking forward to meet again on BOSS third quarter call. Thank you, everybody.

This concludes BOS second quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.