Business Context and Reporting Period
B.O.S. Better Online Solutions Ltd. (Nasdaq: BOSC), an Israeli provider of RFID and supply chain solutions, reported financial results for the second quarter of 2011 ended June 30, 2011. The filing was submitted on August 29, 2011. The company operates two primary divisions: RFID and Mobile Solutions, and Supply Chain Solutions.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 | YTD 2011 | YTD 2010 |
|---|---|---|---|---|
| Revenues | $8.4 million | $7.8 million | $17.5 million | $15.2 million |
| Gross Profit | $1.7 million | $2.0 million | $3.9 million | $3.7 million |
| Operating Profit (Loss) | ($0.1 million) | $0.4 million | $0.3 million | $0.5 million |
| EBITDA | $0.1 million | $0.6 million | $0.7 million | $0.9 million |
| Net Loss (GAAP) | ($0.3 million) | ($0.04 million) | ($0.3 million) | $0.02 million |
| Net Loss (Non-GAAP) | ($0.02 million) | $0.2 million | $0.3 million | $0.6 million |
| Cash and Equivalents | $0.98 million | N/A | $0.98 million | $0.70 million |
| Convertible Notes | $2.7 million | N/A | $2.7 million | $2.5 million |
Material Changes
- Revenue Growth: Q2 revenues increased 7.6% year-over-year to $8.4 million, driven by growth in both the RFID and Supply Chain divisions.
- Profitability Decline: The company shifted from an operating income of $376,000 in Q2 2010 to an operating loss of $89,000 in Q2 2011. This was primarily due to increased investment in the BOS ID software platform and higher operating expenses.
- EBITDA Reduction: EBITDA dropped significantly to $139,000 from $588,000 in the prior year quarter.
- Backlog Expansion: Backlog and deferred revenues grew 14% to $10.3 million, with the majority attributed to the Supply Chain division.
- Cash Flow: Operating activities provided $1.0 million in cash during the quarter, increasing total cash on hand to $983,000 from $185,000 at the end of Q1.
Guidance, Outlook, and Risks
- Updated 2011 Forecast:
- Revenue: Remains unchanged; expected to exceed $33 million (vs. $30.2 million in 2010).
- EBITDA: Reduced to $1.4 million from the initial forecast of $2.3 million.
- Net Profit: Management expects to be profitable on a non-GAAP basis but not on a GAAP basis.
- Management Commentary: CEO Yuval Viner attributed the non-GAAP net loss to extensive investment in the BOS ID software platform, which is viewed as the strategic growth engine. The company recently won its first RFID pilot project in Spain and hired an international sales manager.
- Debt and Liquidity: CFO Eyal Cohen noted initial negotiations to extend or convert $2.7 million in convertible notes due in July 2012. The company also secured a new five-year loan from Bank HaPoalim, increasing aggregate credit lines by $0.5 million to improve working capital and reduce financial costs.
- Risks: Forward-looking statements are subject to risks including dependency on major customers, margin maintenance, technology competition, legal claims, exchange rate fluctuations, and the availability of financing.
Investor Verification Checklist
- Verify the status of negotiations regarding the $2.7 million convertible notes due in July 2012.
- Monitor the execution of the new Bank HaPoalim loan and its impact on financial costs.
- Assess the timeline for the BOS ID software platform to generate revenue and improve margins.
- Track the conversion of the $10.3 million backlog into recognized revenue.
- Review the progress of international expansion, specifically the Spain RFID pilot project.