Business Context and Reporting Period
B.O.S. Better Online Solutions Ltd. (BOS) reported financial results for the third quarter and first nine months ended September 30, 2008, in a Form 6-K filed on November 20, 2008. The company provides Mobile and RFID solutions and Supply Chain Solutions, primarily for the aerospace industry. During the period, BOS announced the resignation of CEO Shmuel Koren and the appointment of Shalom Daskal as his replacement.
Key Financial Metrics
Revenue (GAAP): Q3 2008 revenue was $13.4 million (up 144% year-over-year); nine-month revenue was $39.3 million (up 137% year-over-year).
Profitability (GAAP): Q3 operating loss was $409,000; nine-month operating loss was $576,000. Net loss for the nine months was $909,000, resulting in a diluted loss per share of $0.08.
Profitability (Non-GAAP Pro-forma): Nine-month EBITDA was $468,000 compared to $6,000 in the prior year. Non-GAAP EPS for the nine months was $0.01.
Liquidity and Debt: As of September 30, 2008, cash and cash equivalents were $1.6 million. Short-term bank loans totaled $10.2 million, and long-term bank loans were $2.6 million.
Backlog: Increased to $12.2 million as of September 30, 2008, from $7.9 million in the prior year.
Material Changes Versus Prior Period
- Revenue Growth: Driven by the acquisition of Summit (November 2007) and Dimex Systems (March 2008), alongside organic growth. International sales rose to 43% of revenue in Q3 2008 from 29% in Q3 2007.
- Gross Margins: Q3 2008 gross margin was 22%, a slight increase from 21% in Q3 2007.
- Operating Loss: Despite revenue growth, the company reported an operating loss of $409,000 in Q3 2008, slightly wider than the $390,000 loss in Q3 2007, due to increased operating expenses.
- Debt Levels: Short-term bank loans increased significantly from $5.0 million at year-end 2007 to $10.2 million in Q3 2008.
- Currency Impact: The devaluation of the US dollar against the Israeli New Shekel adversely affected operating results compared to 2007.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the launch of new software products, OptimizeIT and PointACT, and a $10 million increase to a framework agreement with an existing aerospace customer. The incoming CEO emphasized the company's positioning to help customers optimize operations during challenging economic times.
Capital Activity: BOS raised $2 million through equity during the third quarter.
Risks and Contingencies: The filing notes risks including dependency on a few major customers, uncertainty in maintaining gross margins, intense competition, and the impact of exchange rate fluctuations. The company also faces potential legal claims and general worldwide economic conditions.
Investor Verification Checklist
- Verify the sustainability of the 144% revenue growth rate post-acquisition integration.
- Confirm the company's ability to service $12.8 million in total bank debt with only $1.6 million in cash on hand.
- Assess the impact of the US dollar devaluation against the NIS on future margins.
- Review the integration progress of the Dimex Systems acquisition and its contribution to the backlog.
- Monitor the transition of leadership from Shmuel Koren to Shalom Daskal and its effect on strategic execution.