B.O.S. Better Online Solutions Ltd. Q2 FY2026 earnings call

• Overall Financial Performance & Balance Sheet • Q2 2026 year-over-year revenue growth of 29% offset a soft Q1 2026, bringing trailing 12-month revenue in line with 2025's record full-year result • Total backlog remained at a record $31 million as of Q2 2026 end, with $20 million of the backlog scheduled for delivery by end-2026 • Cash balance held steady at $10 million despite 30% sequential quarterly revenue growth, demonstrating strong efficient cash management with vendor financing supporting client growth • Shareholders' equity totals $30.9 million, providing flexibility for organic growth and M&A opportunities

• Strategic Market Positioning • B.O.S. is positioned to benefit from three large structural growth trends: global defense spending increase, industrial automation adoption, and global supply chain modernization • Management believes the company is currently undervalued, trading at 1x book value (vs 2x for the Russell Microcap Index) and 9x P/E (vs ~16x for the Russell Microcap Index) • The supply chain division has doubled its engineering team and tripled the number of represented manufacturers over the past two years, and serves leading global defense clients including Israel Aerospace Industries, Elbit Systems, and Rafael with a network of subcontractors across the U.S., India, and Europe that enables low-cost global expansion • The robotics division is focused on the underpenetrated defense sector, which remains labor-intensive while facing growing pressure for improved speed and quality • The RFID division has rebounded following a three-year market slowdown, with management noting broad commercial market recovery in Israel, and is expanding into new stable segments including hospitals and defense to reduce geopolitical exposure

• Operational & Investor Relations Initiatives • The company is implementing internal AI tools to improve operational efficiency and is developing commercial AI software for sale, which management expects will improve margins and support revenue growth • The company has expanded its investor outreach: participated in multiple virtual industry conferences in May-July 2026, hosted its first investor webinar, will participate in the September 2026 CIDOTI conference and a non-deal roadshow for institutional equity clients, and has expanded social media presence to improve valuation visibility • M&A activity is a key priority: the company is actively evaluating multiple acquisition targets aligned with its core business, with clear financing plans in place

B.O.S. operates three core business segments: 1) Robotics Division: Designs and deploys custom automation solutions for labor-intensive processes, with a recent strategic focus on the defense sector. The division has seen strong progress penetrating defense manufacturing factories, with a flagship completed robotic production line installation for Elbit Systems. No absolute quarterly revenue figures are provided for the segment. 2) RFID Division: Delivers end-to-end supply chain automation and inventory tracking solutions for commercial clients in Israel. The segment achieved 17% year-over-year revenue growth in the first half of 2026, rebounding from a multi-year slowdown in the Israeli commercial market. A previously underperforming sub-unit within the division is expected to return to profitability in full-year 2026, after restructuring completed in the prior year. The division overall is consistently profitable. 3) Supply Chain Division: Integrates franchised electromechanical components into client products for defense and high-tech OEM clients, and generates recurring revenue from embedded components as products enter mass production. The division holds the majority of B.O.S.'s record $31 million total backlog, with Q2 2026 seeing a 6% year-over-year revenue decline. Management notes this is normal quarterly fluctuation driven by variable client consumption rates that do not reflect long-term segment strength. Year-to-date, the segment has closed most of the gap opened by a 17% year-over-year revenue decline in Q1 2026. In aggregate, consolidated total revenue grew 29% year-over-year in Q2 2026, and 30% sequentially from Q1 2026 to Q2 2026.

• Full-year 2026 total revenue is expected to exceed 2025's record full-year revenue of $51 million
• Full-year 2026 net income is expected to exceed 2025's net income of $3.6 million
• Management expects gross profit margins will improve in coming periods, as the company raises prices across all segments to offset currency headwinds
• The robotics division expects continued strong penetration growth in the defense sector through 2027
• The Indian market operation is expected to deliver additional revenue growth for B.O.S. in 2027

• U.S. dollar devaluation has increased annual operating expenses by approximately $1.2 million, creating headwind to hitting 2026 net income targets that must be offset through revenue growth, higher margins, and operational efficiency gains
• The RFID division is currently heavily exposed to Israeli commercial market conditions, which can be disrupted by geopolitical instability and conflict, creating revenue volatility
• Quarterly revenue in the supply chain division can fluctuate significantly, as B.O.S. does not control the timing of client component consumption
• The company has not closed any M&A deals over the past two to three years, as targets have not met the company's strict acquisition criteria
• Gross margin can be impacted by large low-margin transactions in the supply chain division that pull down average quarterly margins

Q: A recent semiconductor industry supply chain order is a one-off opportunity, or are more orders expected from this sector? / A: All new supply chain contracts follow a long design-in process, where B.O.S. embeds its components into the client's new product under development. Once the product enters mass production, recurring orders will follow for the entire lifespan of the product. This semiconductor order was over a year in development, so steady follow-on orders are expected.

Q: What is the current progress of B.O.S.'s expansion into India, and what is the growth outlook over the next year? / A: Management reports very positive progress from the local Indian team, which has successfully built connections with many new prospective clients that B.O.S. had never previously reached. This progress is expected to drive meaningful B.O.S. growth in India in 2027.

Q: What are the main gating factors to closing an M&A deal, and what are the core acquisition criteria? / A: B.O.S. targets acquisitions that have synergy with its existing core business, have a multi-year history of consistent consecutive profits and positive forward outlooks, and are valued at 5-6x EBITDA. The maximum acquisition size is $20 million, which will be funded 50% with the company's $10 million in existing cash and 50% with bank debt, on a non-dilutive basis for shareholders. Multiple targets meeting these criteria are currently under negotiation.

Q: Why is gross margin staying flat as revenue grows, and can margins improve going forward? / A: Margins are being pressured by U.S. dollar devaluation, so B.O.S. has been raising prices across all segments to offset this impact, and expects gross margins to increase. Large low-margin bulk transactions in the supply chain division can occasionally pull down average quarterly margins, while the smaller transaction sizes of the RFID division make it less prone to this type of volatility. Management is working to hit enough offsetting gains to exceed 2025 net income targets despite the currency headwind.