BOSC Q1 2026 Earnings Transcript

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Date

Thursday, May 28, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Eyal Cohen
• Chief Financial Officer — Moshe Zeltzer

Takeaways

• Total Revenue -- $51 million in 2025, up from $33.6 million in 2021, indicating sustained organic growth.
• Indian Market Orders -- $3.3 million received in orders from Indian customers in Q1, compared to $172,000 in the same period last year.
• Backlog -- $31 million as of March 31, 2026, reflecting a 29% sequential increase from $24 million at the prior quarter end.
• Shareholders' Equity -- $29 million reported, supporting acquisition capacity.
• Net Cash Position -- $9.5 million in cash net of loans, enabling financial flexibility.
• Gross Profit Margin -- 24.9% in Q1, up from 23.9% in the previous year’s Q1.
• Supply Chain Division -- Identified as the primary contributor to the backlog growth due to long-term orders.
• Acquisition Pipeline -- Management targets bolt-on acquisitions up to $20 million in value, requiring “financial strength, a proven track record of profitability and consistent growth,” and “strategic fit.”
• Acquisition Financing Structure -- “Approximately half of each acquisition will be funded through long-term bank loans with the remainder coming from our own resources.”
• Shareholder Dilution -- “No shareholder dilution is expected.”
• Annual Revenue Target -- Management now expects to “exceed our previously announced annual revenue target of $51 million.”
• Net Income Target -- Company maintains a target of $3.6 million for full year net income, with ongoing review based on currency headwinds.
• Currency Impact -- Depreciation of the U.S. dollar against the Israeli shekel is described by management as creating pressure on profitability.
• Price Multiples -- Management states, “Our price-to-earnings ratio stands at roughly 11x compared to 22x for the [Russell 2000] index” and “BOS is currently valued at book value” versus “approximately 2.6x book value” for the index.
• Hedging Strategy -- Balance-sheet hedging is being pursued, but management is prioritizing operational efficiency and margin improvement, as "any kind of hedging, has a limited period."
• RFID Division -- Q1 operations were “partially” affected in March, resulting in lower gross profit margin due to fixed costs and adverse currency impact on labor expenses.
• RFID Defense Sector Expansion -- Management formed a dedicated team and engaged an external company to accelerate sector entry.
• RFID Healthcare Expansion -- Team formation in progress, contract yet to be signed, with launch expected within the fiscal year.
• International Diversification -- Management is pursuing client duplication strategies in additional geographies, citing current contracts in the U.S. and tracking opportunities in the Far East.

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Risks

• Management explicitly cited “pressure on our profitability” from U.S. dollar depreciation versus the Israeli shekel.
• RFID division Q1 gross margin was hurt as “the division was -- it worked partially. So it's damaged the gross profit margin. We had a fixed cost with low revenues during March,” compounded by rising dollar-denominated labor costs.

Summary

B.O.S. Better Online Solutions (NASDAQ:BOSC) reported that Q1 2026 orders from India surged to $3.3 million, and in March 2026 the company appointed a local representative to further expand in the Indian defense market. Backlog expanded 29% sequentially to $31 million, overwhelmingly driven by the Supply Chain division. Gross profit margin increased by one percentage point to 24.9%, while management reiterated its $3.6 million net income target despite noting sustained currency headwinds. The company announced accelerated M&A ambitions, with acquisitions capped at $20 million, no expected shareholder dilution, and funding split between bank loans and available cash. Management indicated that they have already met 83% of their full-year sales target through Q1 revenue plus current backlog, and now anticipate exceeding their prior revenue guidance.

• Management emphasized that secular global defense spending, Israeli inventory replenishment, and expansion into India create a “significant long-term opportunity.”
• Hedging against currency risk is limited to the balance sheet, with operational efficiency and margin enhancement targeted as enduring solutions.
• RFID division margins are expected to recover as business normalizes and new verticals—especially defense and health care—are penetrated over the course of the year.
• Profitability remains subject to macroeconomic conditions, particularly further currency volatility and operational disruptions.
• Company valuation remains below sector peers, being priced at book value versus the Russell 2000’s 2.6x book value and at a price-to-earnings ratio roughly half that of the index.

Industry glossary

• RFID: Radio Frequency Identification—a method of tracking and identifying objects using electromagnetic fields and embedded tags, commonly utilized for supply chain and inventory automation.
• Backlog: The value of contracted orders scheduled for fulfillment in future periods, an indicator of revenue visibility.
• Gross Profit Margin: The ratio of gross profit to total revenue, representing profitability before operating expenses.

Full Conference Call Transcript

BOS is a company built around one idea: that supply chains can be smarter, faster and more efficient, and that the right technology makes that possible. We pursue that idea through 3 specialized divisions. Our Robotics division replaces manual labor with automated solutions, transforming how inventory is handled. Our RFID division brings precision to tracking and end-of-line automation, from sorting to packing across the supply chain. And our Supply Chain division works even closer to our clients, integrating our franchised electromechanical components directly into their products. Together, these 3 divisions give BOS a broad and complementary platform, one that allows us to serve clients across multiple touch points in their operations. How we grow.

Now when we talk about growth at BOS, we think about it in 2 ways: organic growth, building on what we have and strategic acquisitions that expand our reach. Over the past 4 years, the story has been primarily organic and the numbers speak for themselves. Revenue grew from $33.6 million in 2021 to $51 million in 2025. That is meaningful, sustained growth built on real demand from real clients. And we believe that demand is only accelerating. Three tailwinds, in particular, give us confidence. The first is the global increase in defense budgets. This is not a short-term cycle. It is a structural long-term shift in how governments around the world are prioritizing security.

BOS is well positioned to benefit from this trend for years to come. The second is closer to home. The replenishment and expansion of the Israeli Defense Forces inventory, driven by the conflict that began in October 2023, has created significant and ongoing demand that directly supports our business. The third is newer and very promising. India is rapidly emerging as a major subcontracting hub for global defense programs, and the numbers are already telling that story. In the first quarter of 2026 alone, we received $3.3 million in orders from Indian customers compared to just $172,000 in the same quarter last year.

To capture this momentum and build on it, we appointed an Indian representative company in March 2026 to establish a dedicated presence in that market. We are only at the beginning of what we believe is a significant long-term opportunity. Alongside organic growth, we are actively building our acquisition pipeline, and we have the financial strength to act on it. Our balance sheet is solid. Shareholders' equity stands at $29 million, and we hold $9.5 million in cash net of loans. That gives us real flexibility. We are targeting companies valued at up to $20 million with 2 nonnegotiable criteria.

First, financial strength, a proven track record of profitability and consistent growth; second, strategic fit, companies that deepen and expand what we can offer to our existing clients. On the financing side, approximately half of each acquisition will be funded through long-term bank loans with the remainder coming from our own resources. I want to be clear on one point. No shareholder dilution is expected. Let me now turn to where we stand heading into the rest of 2026, and the picture is an encouraging one. When you combine our backlog of $31 million as of March 31, 2026, with Q1 revenues, we are already at $42.4 million, 83% of our full year target after just 1 quarter.

As a result, we now expect to exceed our previously announced annual revenue target of $51 million. The depreciation of the U.S. dollar against the new Israeli shekel is creating pressure on our profitability. And as a result, we are maintaining our net income target of $3.6 million for the full year at this stage. We are responding on 2 fronts: accelerating revenue growth and actively working to improve our gross profit margins. Both of these efforts are already showing up in our Q1 results. Our gross profit margin reached 24.9%, up from 23.9% in the same quarter last year, and our backlog grew 29% during the first quarter from $24 million to $31 million.

As we monitor the progress of these initiatives, we will reassess our net income outlook for the full year and update accordingly. I want to close with something that we believe deserves your attention. BOS is a company with a growing backlog, accelerating revenues, a clean balance sheet and exposure to some of the strongest structural trends in the global economy, defense spending, automation and supply chain modernization. And yet, BOS currently trades at book value. The Russell 2000, the index of small-cap companies we are measured against, trades at approximately 2.6x book value. Our price-to-earnings ratio stands at roughly 11x compared to 22x for the index.

We believe this gap exists primarily because not enough investors know our story yet. That is what we are working to change and calls like this one are part of that effort. Ladies and gentlemen, that concludes the prepared remarks. We will now open the floor for questions. Eyal Cohen and Moshe Zeltzer are ready to take your questions. [Operator Instructions]

Eyal Cohen: Okay. I hope you enjoyed our new presentation format. My only concern is that his English and his voice much better than my voice and English. And yours as well. So let's open the floor for discussion. Ready to take your questions.

Todd Felte: This is Todd Felte. Just wanted to ask on the devaluation of the dollar with the NIS. Are you doing anything to hedge or compensate on that aspect?

Eyal Cohen: Yes. We are -- I think the most efficient way to handle this long-term trend, I believe, of strong shekel is to increase the efficiency of the business. Because any hedging, any kind of hedging, has a limited period. Although we are doing hedging on the balance sheet, not on the P&L because we are doing hedging on the balance sheet, we see the fluctuation in the currency differences in the financial expenses or income. But for the long term, we have to increase the efficiency of the business. And we are doing it based on 2 pillars.

The first one is to increase the sales price, even though it's quoted in dollar, but to increase the gross profit margin to compensate our operational expenses, which are quoted in NIS. So this is in the first one. Second one is to grow our business. And as you saw, our backlog is in this trend, we saw a 30% growth in the first quarter in the backlog and also saw a growth in the gross profit margin by 1 point from 33.9% (sic) [ 23.9% ] to 24.9%. So we are in the right direction. On top of that, we plan to -- we are working on acquisitions on good acquisition or as Trump says, beautiful acquisitions.

So beautiful acquisition based on the criteria we just illustrated in the video, history of -- solid history of profit and high synergy. And this is the long-term solution for the devaluation of the dollar.

Todd Felte: Okay. That's helpful. I know your components are used a lot in the aero and Iron Dome systems as well as missiles and fighter jets. Are any of your components used in drones, which seem to be kind of the weapon or defense tool of choice these days?

Eyal Cohen: Not yet. We are on it. Hopefully, we will find the right manufacturers to represent his product to embed in our clients' product. Hopefully, it will come.

Todd Felte: And my final question. In the past, you had spoke about the expansion of RFID to different sectors and that you were excited about the expansion of RFID to the health care sector. How is that progressing?

Eyal Cohen: So first, we put a team in place with the defense to extend the RFID business to the defense. As we announced, we hired a company, external company to escort us through this very complicated process and to short the time line of the success. So we have team in place to penetrate to the defense -- to expand the business of the RFID to the defense. In the hospitals, we are part of the team in place, not -- we have not signed yet. I have to gather together all the ingredients of the team. And once it will be ready, I will sign the contract and start the penetration.

I know exactly what kind of person -- what -- how the team should look like, what is his experience. And once I will have it, we'll start the expansion. I believe it will be this year.

Kevin Pimental: This is Kevin from AGP. So backlog increased 29% sequentially to $31 million. Can you break down which of these divisions -- which of your divisions contributed most to that growth?

Eyal Cohen: The -- most of the backlog related to the Supply Chain division because it has a long-term orders. So this is a primarily a portion.

Kevin Pimental: Okay. And then what do you attribute some of the early success in the Indian market to?

Eyal Cohen: The success that we saw in the first quarter in regarding with the amount of orders?

Kevin Pimental: Yes.

Eyal Cohen: I think it's -- this is an initial yield of the work on the field of the work we did in the field, we have done in the field in India made by our Israeli team. And I believe once we have a local team in place in India, it will urge the process of participating in more bids with more clients to expand our client base there. So the result you saw in the first quarter was made by our local team in Israel.

Unknown Analyst: This is [ Igor Nagorski ]. I would like to ask you questions now. So first, a comment. I think it's actually a very good quarter given all the circumstances. I think there was a lot of investor caution and you could see it in your stock price, given your prior comments. So I think everybody feels that this was a positive result. My question is this, I'm looking at your RFID results, and I see that the profitability is still relatively low. Was it, first of all, impacted by the war and the situation business [indiscernible] Persian Gulf and so on in this quarter? Or was it something else?

And how do you expect the RFID division to perform, hopefully, assuming that the situation remained relatively quiet for the remainder of the year? Or how do you model it?

Eyal Cohen: Thank you for the question. Regarding the RFID, in the first quarter, during the month of March, the division was -- it worked partially. So it's damaged the gross profit margin. We had a fixed cost with low revenues during March. Another effect on the gross profit margin was the devaluation of the dollar because our cost of goods includes a lot of workforce, all the lab team, all the warehouse team. So it increased the labor cost in dollar. But we are working -- as I mentioned before, we are working to increase the gross profit margin of the product we are selling.

And I believe we will start to see this result in the second quarter of the year. So it will compensate on the devaluation of the dollar. And in the second quarter of the year, hopefully, until now, there is no resumption of the conflict of the war. So we are in -- it looks like we will be in a good shape in the second quarter related to the RFID division, and it will represent improved results.

Unknown Analyst: My other question is, first of all, obviously, you have tremendous expansion in India and now it's a very meaningful revenue from there. Do you think you can repeat it in any other countries because obviously, Israeli defense sector now is highly valued and has customers in many other countries. And do you think you can have meaningful revenues abroad from other countries than India?

Eyal Cohen: Yes. We have a connection with the 2 subcontractors in the U.S. and we got revenues from them during this year. I assume we announced during this year on 2 major contracts, and I believe that the revenue will continue to grow over there. And we are checking now additional area in the East where the local defense client here in Israel does business over there, not just in India. There are many places in the Far East that, for example, IAI and Elbit has business over there. So we are tracking -- we are following their tracks there. And hopefully, we can duplicate the business model that we have in India to other territories.

So there is a potential, yes.

Unknown Analyst: And my last sort of question or comment. Any thoughts of renaming your company? Because I think your name is rather now silly given what you do has nothing to do -- Better Online Solutions just really confuses a lot of people.

Eyal Cohen: Yes, it's a good question. Do you think -- do you have a better name?

Unknown Analyst: I can come up with a few. I'm sure ChatGPT can, but it's just -- it sounds like a late '90s Internet company.

Eyal Cohen: Okay. I know we talked about it many times, but it's a lot of headache to change a name for a company. But I believe after several acquisitions that we'll do, we'll have to rebrand our business. So it will come.

Unknown Analyst: Right. I think it would help to during the -- especially if you go to conference and doing presentations because I think a lot of people are dismiss of your business, they have no idea that you have anything to do with defense industry and looking at your name. So it might be a great idea.

Eyal Cohen: Okay. Okay. But if you have a good recommendation, send me.

Unknown Analyst: I'll set this up.

Eyal Cohen: I think Scott is missing today. Any further questions? Okay. So on behalf of the Board of Directors and management team, thank you for participation in our Q1 2026 conference call in the new format. I hope you liked it. And if you need more details or would like to follow up, please feel free to reach out. Thank you. Have a great day.

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