Edited Transcript of BOSC earnings conference call or presentation 31-Mar-20 2:00pm GMT

Things that didn’t work well in year ’19: first, following the acquisition of the Robotics business in June ’19, 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 our legacy RFID business.

So our plan for the year ’20. We have implemented cost reductions and organizational changes in the company that are expected to yield estimated annual saving of $600,000. Also, in the year ’19, we incurred $1.3 million of additional expenses, which we don’t expect to recur in year ’20. 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 CEO — Co-CEO. This saving will offset the expected cost of $400,000 related to our efforts to increase our presence in the U.S. market during the year ’20.

In December ’19, we established a sales office in Dallas, Texas, and we are steadily and carefully allocating resources to ensure our long-term success in the U.S. market. It is important to note that the robotics orders are typically large with a longer sales cycle and the average product delivery timing is 6 months. Hence, we expect to begin receiving orders from the U.S. market this year, year ’20, and anticipate that we’ll start to recognize revenue from the U.S. market in the first half of year ’21. So assuming that overall revenues will remain generally consistent with the year ’19, we believe we will return to sustained profitability during year ’20.

Now let’s take a minute to update you on the impact of the coronavirus on our business. From operations 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 operation, we are working very closely to ensure we continue to service their needs. One of the sectors that have been hit hard is the retail sector. We have a unit that focus exclusively on inventory counting services, mainly for nonfood 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 year ’20.

Finally, our sales and marketing efforts, particularly in the U.S. market, continued 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Todd Felte of RHK Capital.

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Todd Felte, RHK Capital, LLC – VP of Investments [2]

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Yes. First of all, congratulation on a 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 we are, hopefully, through with those?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. – CEO [3]

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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. We have to build from the beginning the strategy of the business. We got technology, but we have 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 in related with the acquisition. And the current goodwill that we have in the balance sheet does not require very high level of revenues in the future in order to justify these numbers. So I believe we will reach our target in year ’20 and ’21. And we — I don’t anticipate additional write-offs 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 cap. There is a pressure from the accountants to do amortization or write-off. It’s happened in a lot of companies, not in our case. But I am sure that gradually over year ’20 and following the measures that we took, especially the cost reductions, and especially considering the — all the, from our perspective, nonrecurring expenses that we had in year ’19, 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 matter.

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Todd Felte, RHK Capital, LLC – VP of Investments [4]

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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 provide 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?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. – CEO [5]

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Yes. So we have to split the answer to 2. From the — from our client that are not from the food segment, they put all the investment in hold — on hold, including investment in automation at this stage. I am sure that following the corona crisis, they will reconsider it in a positive way to invest in automation, especially because of the corona. The other segment, which is the — our client from the food industry, especially in the U.S. market, we see a growing demand for adding line of production because of the growing demand for food on their side. And we are optimistic that it — the coronavirus in that aspect gave us a very good push to the U.S. market.

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Todd Felte, RHK Capital, LLC – VP of Investments [6]

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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 inability to provide a consistent supply chain during the crisis?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. – CEO [7]

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We see that, but not because of that reason. On the electronic components, we are working hand by hand with the Israeli defense industry. And the Israeli defense industry 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 ’19 and year ’20 we will see in our Supply Chain division, the portion of revenues in the U.S. market will grow on account of decrease in the revenues on sales to the Far East.

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Todd Felte, RHK Capital, LLC – VP of Investments [8]

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I look forward to witnessing the success of the company.

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Operator [9]

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The next question is from [Jennifer Wolfertz of Comstock Partners].

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Unidentified Analyst, [10]

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Could you talk for just a minute about your liquidity? It looks like it’s a relatively low cash balance at the end of the year. So I’m just curious if you can give us some detail on the plans for 2020?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. – CEO [11]

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Yes. From a liquidity standpoint, we strength our liquidity in the first quarter of this year through credit lines in order to prevent 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.

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Operator [12]

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(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?

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Eyal Cohen, B.O.S. Better Online Solutions Ltd. – CEO [13]

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Yes. Thank you. I would like to thanks our dedicated employees and their families, our loyal customers and our supported vendors. I would like also to thank our major shareholders for their continued support in such a challenging period. I am confident that we’ll pass this challenging times successfully and that BOS will emerge well positioned 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.

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Operator [14]

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