Scott Weiss

Scott Weiss at Semco Capital inquired about B.O.S.'s expanding opportunities with new and existing customers, specifically asking for highlights regarding new customer acquisitions and when revenues from new Indian customers would impact the P&L. He also sought clarification on the loss in the RFID Division, the meaning of 'logistics center slowdown in Israel,' and the quantification of currency impact on the P&L, including hedging strategies. Furthermore, Weiss raised concerns about the potential impact of the end of the war in Gaza on B.O.S.'s P&L and continued growth, asking about historical defense sector growth in war versus peace and the company's strategy to reduce cyclicality and achieve sustainable growth over the next five years. Finally, he questioned B.O.S.'s M&A strategy, asking about specific opportunities, the timeline for closing deals, and the approach to financing acquisitions, particularly why equity issuance might be considered over bank borrowing given the strong cash position and low stock valuation, and inquired about available unused credit lines.

Answer

CEO Eyal Cohen stated that new customers are primarily overseas clients from India, with revenues already impacting the P&L in the first nine months, contributing to a 24% year-over-year growth in international revenues. He explained that the RFID Division, focused on the civil market, faced challenges due to the Middle East conflict and the US dollar's 11% devaluation against the Israeli shekel, which created approximately $500,000 in additional cost pressure on operating income over six months (Q2 and Q3). B.O.S. hedges balance sheet exposure but views the exchange rate as a long-term issue, addressing it through sales price adjustments and operational efficiency improvements, expecting the RFID Division to return to profit in Q4. Cohen clarified that the defense-focused Supply Chain Division benefits from the conflict, while the civil RFID Division is adversely affected. He noted that the defense segment has consistently grown, even before the war, with an average annual growth rate of about 7%, sometimes sharply increasing (e.g., 17% in recent years). To reduce cyclicality and ensure sustainable growth, B.O.S. plans to increase international sales, grow through acquisitions, and diversify its portfolio across defense, civil (RFID), and robotic divisions. Regarding M&A, Cohen aims to close one deal next year and one every two years, targeting $100 million in revenue. He clarified that for a $10 million acquisition, with 50% bank financing for a profitable target, the remaining $5 million would be covered by existing cash on hand ($7.5 million at Q3 end, growing), eliminating the need to issue new stock. He confirmed the company has various financial tools like a shelf prospectus and ATM facility but does not anticipate needing them for current M&A targets, relying instead on cash and unused bank credit lines for organic growth (approx. $1.5-$2 million).

Scott Weiss at Semco Capital inquired about B.O.S.'s expanding opportunities with new and existing customers, specifically asking for details on new customer relationships and the expected timeline for revenue impact from new Indian clients. He also sought clarification on the RFID Division's loss, the impact of a logistics center slowdown in Israel, and the quantification of currency effects on the P&L, including hedging strategies. Finally, he asked about the potential impact of the end of the Gaza war on the company's growth and historical defense sector performance during times of conflict versus peace.

Answer

CEO Eyal Cohen explained that new customer growth is primarily from overseas clients, particularly in India, with revenues already impacting the P&L, contributing to a 24% increase in international sales over the past nine months. He attributed the RFID Division's loss to challenges in the civil market due to the Middle East conflict and the devaluation of the US dollar against the Israeli shekel, quantifying the currency impact at approximately $500,000 in additional cost pressure over six months. B.O.S. is addressing this with sales price adjustments and operational efficiencies, hedging balance sheet exposure but seeking long-term solutions for exchange rates. Regarding the Gaza war, Mr. Cohen noted a dual impact: the defense-focused Supply Chain Division benefits from increased tension, while the civil RFID Division is adversely affected. He clarified that the defense segment has historically shown consistent growth, even in peacetime, due to major clients being large exporters and a steadily increasing Israeli defense budget.

Scott Weiss inquired about Koil Energy's order book visibility, the possibility of providing a Q1 2025 outlook, and any future plans to uplist to the NASDAQ exchange.

Answer

Erik Wiik, an executive at Koil Energy, explained that the company does not report backlog as it is not a meaningful indicator for forecasting, given the short-term nature of many contracts. He stated he could not comment on Q1 performance. Regarding a NASDAQ uplisting, Wiik confirmed it is a good idea for the future when the company is larger but considers it too early at present.