Prepared remarks
Ladies and gentlemen, welcome to B.O.S. Q2 Investor Summit. Thank you for joining us today. Before we begin, a brief reminder that this call contains forward-looking statements relating to B.O.S.' business, financial condition and results of operations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Such statements include, but are not limited to, matters relating to product demand, pricing, market acceptance, economic conditions and technology development as further detailed in the company's filings with the various securities authorities. Before I turn things over to management, I would like to give a brief recap of the results we just released. The growth momentum continued. Second quarter 2026 revenue grew 29% year-over-year, helping offset a softer first quarter of 2026 and bringing trailing 12-month revenue to the same level as our record 2025 revenue. We anticipate that full year 2026 revenue will exceed full year 2025 revenue. Our backlog remained at a record $31 million as of the end of the second quarter of 2026. Approximately $20 million of the backlog is scheduled for delivery by year-end. Together with first half revenue, this amount represents approximately 91% of our full year 2025 revenue. Despite the increase in our operating expenses due to the dollar's devaluation, we believe we will offset this through revenue growth and improved gross profit margins. As a result, we expect net income for full year 2026 to exceed the $3.6 million we achieved in year 2025. Our balance sheet is solid. Shareholders' equity stands at $30.9 million and cash stands at $10 million. That gives us the flexibility to capitalize on organic and M&A opportunities. B.O.S. 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, B.O.S. currently has a market capitalization of approximately $31 million and its enterprise value, market cap less cash, is approximately $21 million. For comparison, the Russell Microcap Index trades at approximately 2x book value versus B.O.S. at 1x book value. Russell Microcap Index price-to-earnings ratio is roughly 16x compared to ours of roughly 9x. Thank you for watching. Now I will turn the call over to Eyal Cohen, CEO.
Good morning. Great to see you again in our quarterly conference. Joining me today is Moshe, our Chief Financial Officer. I'm pleased to see strong participation today, including many new names following the recent virtual conferences we participated in during May, June and July. Let me start by sharing a few thoughts on how the business is progressing. I'm very pleased with our financial performance, financial position, management team, Board members and the growth opportunities in front of us. This has given us the confidence to grow year after year, and we remain focused on continuing that trend. I am pleased that the commercial market in Israel has recovered as reflected in a 17% growth in the RFID revenue in the first half of the year as compared to the comparable period. Demand in the Defense segment continues to be strong as reflected in our record backlog, most of which relates to our Supply Chain division. The penetration of our Robotics division into more factories in the Defense segment is going very well. We are successfully implementing AI tools in B.O.S. for internal use to improve our operational efficiency and in software development for commercial sale. I believe these steps will yield improved operational margins and support our revenue growth.
On the financial front, despite 30% growth in total revenue between Q1 2026 and Q2 2026, cash remained roughly unchanged at $10 million. We grew without needing to burn cash, which is a strong indication of highly efficient cash management with our vendors helping to finance our clients. We will deploy this cash to support our external growth through M&A. On the M&A front, we have several AI opportunities on the table that we have been evaluating carefully.
On the IR side, in May we presented at the MicroCapClub Virtual Summit. In June we participated in the iAccess Alpha Virtual Summit. In July we hosted our first investor webinar. We are going to participate in the Sidoti conference scheduled for the end of September. In September we will also join a Non-Deal Roadshow to ThinkEquity clients. During July and August, we released three announcements on a major contract. In recent process we became active online on Facebook, LinkedIn, X and via e-mail, and we plan to increase our investment in those channels. I will send you the link to our pages, and you are welcome to follow and share. We are hopeful those activities will help close the gap in our valuation. With that, I want to thank you again for your continued confidence and support in B.O.S. as we carry this momentum into the second half of the year. Thank you for listening. We will now be happy to open the call for questions.
Questions and answers
Congratulations on a fantastic quarter. Regarding one of your recent orders, it was in the semiconductor industry. Is that kind of a one-time order? Or do you see more orders occurring from that industry?
We have to understand that once we announce a contract that relates to the Supply Chain division, on the back of it there is design work embedding our components into the client's product that is in development. Actually, we started work on that order a year ago. When the product starts mass production, then we start to get the orders. So we expect as long as the product is alive, the orders will follow.
Okay. And can you give an update on your progress in India? I know that's becoming a large part of your revenues. Where do you see that progressing over the next year?
Yes. We are very pleased with the progress of our team in India. They are doing a very good job. They are reaching clients that we have never been in contact with before. I am sure that it will yield additional business and will support the growth of B.O.S. in India in 2027.
Okay. And my final question is referring to M&A: you still plan to make any M&A activity non-dilutive to shareholders and finance that with existing cash and bank loans. Is that correct?
That's correct. Actually, we are planning to do an M&A. But as you know, in the recent two or three years we did not succeed in closing a deal because it didn't match our criteria, especially the first criterion: that it should be a company with a solid history of profit and a positive outlook. We have several opportunities on the table. We are checking them and we are in negotiations with several companies. Hopefully one of them will be closed. Of course, we have a financial policy for how to finance those deals, as I mentioned before. We have about $10 million in cash on hand. If we are buying a profitable company, there is no reason why the bank won't participate at 50% of the financing. We actually can reach a maximum acquisition value of $20 million. So we are set.
It's Scott Weis. Nice quarter. My question is on the RFID division. It was up a nice 17.5% year-over-year. It bounced back. Was that a function of the easy comp year-over-year? Or are you seeing some kind of a positive change there?
Yes. We see a positive change. Actually, we expected that, and it happened a little bit quietly here in Israel: there is a rebound in the market. The demand started very strong. We see a recovery. Hopefully it will continue for a long time after three years of being in a hold position. For 2026, it looks very good — I'm bullish on 2026 for the RFID division.
And the same question for the Supply Chain segment. Revenues were down about 6% or so. Is there any insight you can give us as to why it was down?
No. As you saw, the fluctuations in this division are significantly high. As you remember, in the first quarter we were below the comparable quarter last year by about 17%, and then here in the second quarter we succeeded to close the gap. We know that our clients in the defense segment will buy our components, but we are not controlling the rate of consumption. There can be fluctuation because of that. I'm not assigning importance to the 5% decrease. More than this, we have a very strong backlog of $31 million, which is a record backlog. By the way, despite 30% growth in revenues from Q1 to Q2, the backlog still remains at the same level of $31 million as it was at the end of the first quarter.
Consolidated.
Yes, consolidated. Out of the $31 million, we have $20 million for delivery by year-end. We did the calculation. Based on that, we provided a positive outlook that we will exceed $51 million in 2026.
This is Kevin from Alliance Global Partners. As a follow-up on M&A, could you speak to what are kind of the gating factors in it? Would it be finding targets, price expectations or the financing capacities?
I'm not sure I got your question. Can you repeat because the line is not so clear? Can you repeat, please?
Yes, sure. As a follow-up to the earlier M&A question, could you speak to what are some of the gating factors on closing a deal? Would that be finding targets, price expectations or financing capacity?
Yes. The criteria are, as I mentioned, that the cap of acquisition or investment will be $20 million. The criteria are that there should be a synergy with our core business. You know the synergy could be a range of synergy — 50% synergy, 100% full synergy. We have flexibility on that issue. Regarding the financial position and performance of the company, we are checking that in the recent three to five years the company presented consecutive profits and that there is a positive outlook going forward. Regarding the multiple, the valuations we have on the table are an EBITDA multiple between 5 and 6. This is the range of valuation we are talking about.
Got it. And then as a follow-up, you've announced about $4.7 million in new orders since late July on top of the $7.1 million from India and the U.S. through May. And your guidance has stayed pinned around that $3.6 million range, which is flat to last year. Could you walk me through that bridge? Is incremental revenue being absorbed by the shekel and the mix? Specifically, what has to change — would that be FX, pricing or mix — for this momentum to break through to the bottom line in 2027?
Yes. In this year we announced that we will exceed the $3.6 million. Usually we don't provide exact percentage of growth; we say that we will exceed, as we did for revenue when we said we will exceed $51 million and we will exceed $3.6 million. But still, there is a challenge we are facing with the devaluation of the U.S. dollar. As you saw in the first half of the year, it increased our operational expenses by about $600,000. Yes, it increased operational expenses by $600,000; on an annual basis that's about $1.2 million. We have to find a way to compensate that in order to generate profit higher than the $3.6 million of 2025. We can work on internal efficiency, and we are doing it mainly with the assistance of AI tools to improve our operational efficiency. But to improve operational efficiency by $1.2 million a year will be very tough. We are working on internal efficiency, increasing the gross profit margin of our products in order to compensate. We are increasing our revenues. If you increase revenues and work on all those points together, this is the assumption for our outlook for exceeding the $3.6 million.
James Chan here. In a previous conference call, you suggested that you were open to the possibility of a new name for your company because 'Better Online Solutions' is awkward at best and a little inaccurate and a little bit silly. So I have been working on this and giving it some thought and consulting people. I believe the best solution is an organic one, something that you're already known by. So I suggest BOSC, your symbol, as the name for the company.
I totally agree with you. I think you know why? BOSC — because it's also BOScoin. So it's — okay. It's great. Yes, I agree. All the investors know the name BOSC, they know the ticker. If I don't get any other recommendations from our shareholders — you can send me e-mails and other suggestions — I think we will go for it.
This is Igor Nagorski and nice talking to you again, especially after a strong quarter. I want to touch upon gross margins. The gross margins seem to be kind of flat while your revenue is growing. Is gross margin affected by RFID versus supply chain mix? Maybe you can walk us a little through that? Or are they affected by FX? Do you think your gross margins can improve while your revenue is growing?
I think the gross margin will improve because, as I mentioned before, we have to compensate the effect of the devaluation of the U.S. dollar. We are working extensively with our clients to increase the sales price. I have to tell you that since the beginning of the year all the sales team are increasing prices to compensate. I'm following month by month. Our expectations are that our gross profit margin will increase. But in certain cases there could be a huge transaction, especially in the Supply Chain, where the gross profit margin could be lower. It's a matter of negotiation with the client. I hope it won't lower the average gross profit margin that we're expecting. In general, we are expecting higher gross profit margins.
Does that apply just to Supply Chain or does it equally apply to RFID?
I mentioned Supply Chain because in Supply Chain there are huge transactions. There could be a transaction of $2 million or $1.5 million that can significantly affect a specific quarter. In RFID, the transactions are much lower: they could be $250,000, $100,000, $500,000 maximum. Because of that, I mentioned just the effect of certain large transactions in Supply Chain.
For the RFID division, apart from the issues that Israel has been in various stages of for the last few years, you had a specific company issue. I remember that last year you were restructuring part of your RFID division. Is this restructuring over or should we expect significant further improvements? How much did it change from last year?
Yes, it was improved. It's not a separate company under RFID; it's a unit under RFID. We have been doing great work there and made great progress. The performance now is much better than in the comparable period last year. Still, we have work to do, but this unit will be profitable in 2026 as opposed to 2025. The RFID division in general is profitable. The specific unit that caused us some losses and decreased net income in the RFID division is much, much better now.
Is RFID performance more or less a function of whether Israel is at war or at relative quiet? Obviously, RFID did much better in Q2 than in Q1 — are there other significant factors?
I think RFID is 100% affected by the Israeli commercial market. As I mentioned before, we are in the process of penetrating RFID into the defense segment, and we hired a consulting company specifically for that mission. We're also working to penetrate hospitals, which is a growing and very stable segment in Israel and around the world. We are searching for acquisitions in that field; it's very tough and we are not finding opportunities on the table. The other option is to set a team to build it from zero. By that, you reduce the exposure of the RFID division to geopolitical events that put the commercial segment in Israel on hold. Any further questions? Okay. Thank you for your time and attention. Feel free to reach out if you would like to schedule a one-on-one session. Thank you very much. It was a pleasure to see you again today.
Thank you. Have a good day.