B.O.S. Better Online Solutions Ltd. (BOSC) Earnings

Management highlights

### Core Growth Strategy - BOS pursues growth through a combination of sustained organic growth and targeted strategic acquisitions, with organic growth as the primary driver over the past four years. Total company revenue grew from $33.6 million in 2021 to $51 million in 2025, reflecting consistent, demand-backed expansion. - The company targets acquisition candidates up to a valuation equal to 20% of BOS's current market value, with two core criteria: proven financial strength and consistent profitability, and strong strategic fit that expands existing client offerings. Approximately 50% of each acquisition will be funded via long-term bank loans, with the remainder from BOS's internal cash; no shareholder dilution is expected. ### Key Structural Growth Tailwinds - Global defense budgets are undergoing a long-term structural increase, creating sustained demand for BOS's products and solutions. - Ongoing replenishment and expansion of the Israeli Defense Forces' inventory, following the October 2023 conflict, is driving significant immediate demand for BOS offerings. - India is emerging as a high-growth market for BOS: Q1 2026 Indian orders reached $3.3 million, up from just $172,000 in the year-ago quarter. BOS appointed a dedicated local Indian representative in March 2026 to scale market penetration. ### Financial Position & Operational Updates - BOS maintains a solid balance sheet, with $29 million in shareholders' equity and $9.5 million in net cash (cash outstanding after loans). - Gross profit margin improved 100 basis points year-over-year to 24.9% in Q1 2026. As of the end of Q1, the combination of $31 million backlog and Q1 revenue put BOS at 83% of its full-year 2026 revenue target. - BOS is actively working to expand its RFID segment into the healthcare sector: an external advisory firm has been hired to streamline market penetration, and the company is building out a dedicated team for this expansion, which management expects to launch in 2026. - Management notes BOS trades at a significant valuation discount to the Russell 2000 index: it trades at book value, compared to 2.6x book value for the index, and has a P/E ratio of 11x versus 22x for the index. The company is working to improve investor awareness to close this gap.

Guidance

- BOS has already reached 83% of its previously announced full-year 2026 revenue target after just the first quarter, so management now expects to exceed the original full-year revenue target. - The U.S. dollar depreciation against the Israeli new shekel is creating downward pressure on profitability, so management is maintaining the original full-year 2026 net income target of $3.6 million at this time. - Management is implementing two initiatives to offset currency headwinds: accelerating revenue growth and improving gross profit margins. Management will reassess the full-year net income outlook later in 2026 and update guidance once more data is available. - Management expects the RFID division's profitability to improve in Q2 2026, as the segment resolves temporary operational disruptions from Q1 and implements margin improvement measures to offset currency impacts.

Segment performance

BOS operates three product segments: Robotics (automated inventory handling solutions), RFID (supply chain tracking and end-of-line automation), and Supply Chain (integrated franchised electromechanical components for client products). The full Q1 2026 financial results for individual segments were not disclosed in the transcript. Total company backlog grew 29% sequentially from $24 million to $31 million as of March 31, 2026. Management confirmed that the vast majority of this backlog growth came from the Supply Chain division, which typically holds longer-term client orders. The RFID segment reported low profitability in Q1 2026, impacted by reduced operating capacity during the quarter and unfavorable currency exchange rate movements. No separate revenue or profitability figures were provided for the Robotics segment.

Risks & headwinds

- Ongoing U.S. dollar depreciation against the Israeli new shekel increases BOS's local currency-denominated operating costs, putting downward pressure on overall profitability and segment margins. - Geopolitical conflict in Israel (including the October 2023 conflict and tensions with Hezbollah) disrupted RFID division operations in Q1 2026, as the segment operated at partial capacity during March, dragging down profitability. Continued conflict could create further operational disruptions. - Low investor awareness of BOS's business model and growth trajectory has led to a significant valuation discount relative to peer small-cap companies, limiting the company's market valuation. - Expansion into new markets (such as India) and new sectors (such as healthcare for RFID) is in early stages, and there is no guarantee that these initiatives will deliver the expected growth or profitability.

Analyst Q&A

• Q: How is BOS addressing the profitability pressure from U.S. dollar depreciation against the Israeli shekel, including any hedging strategies?

  A: BOS currently hedges balance sheet exposures, but hedging only provides short-term protection. For long-term mitigation, the company is focused on two core initiatives: raising selling prices for dollar-denominated contracts to improve gross margins and offset shekel-denominated operating costs, and accelerating business growth to scale efficiencies. Acquisitions of profitable, synergistic targets are also framed as a long-term solution to this currency pressure.

• Q: What is driving BOS's early order growth in India, and can this success be replicated in other international markets?

  A: Q1 2026 Indian order growth is the initial result of development work completed by BOS's Israeli team. Management expects growth to accelerate after the new local Indian representative establishes an on-the-ground presence and pursues more bids and clients. BOS already has ongoing contracts and growing revenue with two U.S. defense subcontractors, and is pursuing expansion into additional Far East markets alongside Israeli defense prime contractors, with potential to replicate the India growth model in these new territories.

• Q: Why is the RFID segment still reporting low profitability, and when can performance be expected to improve?

  A: Q1 2026 RFID profitability was hurt by two temporary factors: the segment operated at partial capacity in March amid regional conflict, creating fixed cost absorption pressure with lower revenue, and dollar devaluation raised the dollar-equivalent cost of local labor and operations. Management expects margin improvements from pricing actions to show results starting in Q2, and with no resumption of open conflict as of mid-year, the RFID segment should deliver improved results in Q2.

• Q: Is BOS planning to rebrand the company to fix investor confusion around its current name?

  A: Management acknowledges the current name confuses investors, who often misidentify BOS as an internet or technology firm unrelated to defense supply chain solutions. While a name change requires significant operational work, management expects that after completing several planned acquisitions, the company will need to rebrand its overall business, so a name change will be implemented at that time.