SuperCom, Ltd.

Ladies and gentlemen, good morning and welcome to the Supercom third quarter 2022 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. I'd now like to turn the call over to Stephanie Prince of PCG Advisory.

Thank you, Operator, and thank you to everyone joining us. With me on the call today is Ordon Trabelsi, Supercom's President and Chief Executive Officer. I'd like to remind that during this call, Supercom's management may be making forward-looking statements, including statements that address Supercom's expectations for future performance or operational results. Forward-looking statements involve risks, uncertainties, and other factors that Supercom's actual results to differ material from those statements. For more information about these risks, uncertainties, and factors, Please refer to the risk factors described in Supercom's most recent periodic reports on Form 20F, Form 6K, and Supercom's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes IPADA, a non-GAAP financial measure that Supercom is useful in evaluating its performance. You should not consider this additional information in isolation. or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, a comparable GAAP financial measure, see the reconciliation table located in Supercom's earnings press release that accompanies this call. Reconciliations for other non-GAAP financial measures and comparable GAAP financial measures are available there as well. The content of the call contains time-sensitive information that is accurate only as of today, October 26, 2022. Expect as required by law, Supercom disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Supercom's president and CEO, Erdan Trabelski.

Thank you. Good morning, everyone. Thank you for joining us today. Earlier this morning, we issued a press release of our financial results for the third quarter of 2022. You can find a copy in the investor relations section of our website at supercom.com. We continue to maintain our commitment to timely quarterly reporting. And for our quarterly review, I'll start with a brief update on our recent business highlights, strategy, and Q3 results, followed by a Q&A session. The third quarter was a great quarter for Supercom, with 102% revenue growth year over year, 6.3 million revenues in Q3. We won several important contracts in the U.S. and Europe, and we're excited at the reception and early traction of our newest product, the Pure One, a highly innovative and best-of-breed one-piece GPS tracking device. I'll go into more details in a few moments. For those new to Supercom, since our founding in 1988, 34 years ago, Supercom has been a trusted partner providing cutting-edge electronic and digital security solutions to dozens of governments worldwide. As part of our mission, We strive to revolutionize the public safety sector worldwide through proprietary electronic monitoring technology, data intelligence, and complementary services. We always lead with our technology and entering 2022, we continued to invest heavily in research and development to ensure our product remains the most competitive in the market. We're continuing to introduce new features and technologies through our proprietary platforms, such as unique biometric and communication capabilities and much longer battery life. In parallel, we launched an entirely new solution for domestic violence. In recent years, we've become more and more aware of the immense challenges that nations and governments worldwide face when dealing with their offender populations. First, many countries suffer from high recidivism rates, where people relapse to more criminal behavior after finishing their sentence, clogging the criminal justice system. Second, overcrowding is a key contributing factor to poor prison conditions worldwide, resulting in prisoners sleeping in shifts on top of each other or sharing beds. In 2022, about $80 billion was spent in the U.S. to keep roughly 2.3 million people incarcerated, nearly 1% of the entire U.S. population. Beyond that, the societal cost of incarceration, lost earnings, adverse health effects, and more are estimated at three times these arrest costs, at least. Unfortunately, these issues aren't unique to the U.S. and are prevailing globally. It is evident that prisons are far from a deal for solving many challenges in criminal justice. To help meet these challenges, we have leveraged our technology and services, expertise in government security, and experience to focus on the public safety sector. We're seeing much success. And in just the past few weeks, we announced that we won and launched a $33 million national electronic monitoring project in Romania. As part of the project, the Supercom domestic violence solution will enhance the security for those getting hit or hurt by their own family members. With an immediate notification of the police, and to the victim if the offender has come within close range, posing a threat to their safety. With up to 15,000 monitored offenders per month, this project will help protect so many people, and we feel honored to have the opportunity to do this. The project alone can change so many lives. We also recently announced that Supercom was awarded Croatia's first National Electronic Monitoring Project, which we have already launched. In addition, we secured a new contract for students, juveniles, and National Electronic Monitoring Project, the third and final remaining national EM contract in Sweden, all held by Supercom as of now. In parallel to our success in the EU in the past quarter, we continue to expand into the U.S., and we won three additional new contracts across three different U.S. states, Texas, Southern California, and Idaho. These wins are great for Supercom, and they further increase Supercom's footprint in the U.S., facilitating more growth in the future. Furthermore, the recent win in Idaho represents our third win, and third in customer in Idaho in less than a year, adding to our organically growing customer base and signaling just how rapidly our technology can spread to new adjacent customers. Our strategy has been to build amazing technology, expand our presence, and deliver outstanding services. We have successfully executed that strategy by focusing on the following key factors. Our proprietary electronic monitoring technology scores highly in competitive RFPs and supports various programs such as house arrest, GPS monitoring, rehabilitation services, and more. Supercom has won over 50 New multi-year government project since 2018. Our strong reputation and recognition as a premium provider of electronic monitoring technology and services also contributes to our win rate. With each customer win and project deployment, we further strengthen our reputation, making us even more competitive. Lastly, our strategic focus and management attention have shifted to our IoT tracking business with recurring revenues in developed countries. The electronic monitoring market was valued around $1.1 billion in 2020 and estimated to reach $1.6 billion by 2025. The U.S. and Europe constitute about 95% of this market. In Europe, we have recently seen an uplift in RFC activity with an expected over 200 million in upcoming bid opportunities in the next 18 months. Altogether, these successes and opportunities have resulted in a growing pipeline of business and a recurring revenue rate of above 80%. More broadly, we see a global trend of government turning to innovative solutions and alternatives to incarceration to ensure public safety. And our peer security technology solutions address these trends by providing solutions an effective way to institutions to enforce home confinement while easing prison overcrowding. In addition, it allows them to significantly reduce the associated costs of housing and inmates. For example, the total daily cost for monitoring an offender on home confinement or GPS monitoring is approximately $10 to $35, substantially lower than $100 to $140 cost a day at a correctional facility. More importantly, home confinement has been shown to reduce recidivism highlighting its effectiveness in helping offenders improve their lives and making communities safer. Throughout the year, we've announced many new project wins, some in the U.S., some in Europe, where we have been continuously displacing incumbent vendors with an over 65% win rate in the European competitive RFPs. We are proud to have won so many new contracts in such a short period, especially in times of uncertainty and volatility in the markets due to the living threat of recession and unstable geopolitics. Our business is recession-resistant in nature, and the possibility of potential With such increases, we have multiple tailwinds to support resilience and growth in our business. In 2022, we strengthen the operational infrastructure of our workforce and maintain our technology leadership. For example, amidst the ongoing instability in the global economy in the past few months, we successfully finalized the development of a new product, PeerOne, as mentioned earlier. In addition, we have further owned our business plan, secured new contracts, and raised the needed financial resources to support our company during a time of volatility and uncertainty in the capital markets. We have also strengthened the company's global sales division, recruiting a new sales team with industry expertise as we continue shifting from passive bidding to an active outreach sales strategy. The new wins and our improved sales teams are the first steps in executing the company's U.S. market expansion strategy and have already driven increased activity with existing customers and numerous new demos and evaluations of potential new ones. As part of our growth plan, we believe there's an opportunity to enhance our growth in the U.S. through strategic acquisition of local electronic monitoring service providers, who have developed a strong reputation and customer base in their respective local communities. We constantly monitor the market for potential acquisitions that could generate significant value by immediately expanding market presence and providing vertical integration synergies. An example of this strategy is reflected through our $3 million acquisition of LCA back in 2016 and the immense strategic value and new projects win it has provided us. We have won over $25 million in new projects in California since that acquisition in 2016 alone. Turning to our financials, in our last conference call, I know that we expect revenue from the project mentioned above to continue to our financial results, to contribute to our results in Q3 and Q4 financials. As mentioned before, I'm happy to share that we recorded 102% year-over-year revenue growth, $6.3 million in the third quarter, with our IoT division as the main growth engine, achieving 150% growth in the third quarter compared to the third quarter of last year. Revenue from developed countries continues to increase, reflecting the completion of our five-year business plan to transform our business from unstable emerging countries to developed countries. As a reminder, the legacy business comprised of one-time project revenues in Africa and South America, which is a sharp contrast to our IT tracking business in developed countries, which generates recurring revenue of about 80%. Gross profit nearly doubled as well, increased by 96% to $2.1 million compared to $1.1 million in the third quarter of last year. due to high growth of project volume. Compared to the corresponding quarter last year, we increased our research and development investments by $332,000, while we continued to develop new products and improve existing ones, keeping us at the edge of innovation and technology leadership in our space. Our sales and marketing expenses increased by $195,000 to support the company's new proactive growth strategy, and general administrative expenses increased by $262,000 as we continued to expand our management team. had a positive EBITDA of $413,000 compared to a $53,000 loss in the corresponding period last year, reflecting the benefits of economies of scale associated with deploying new IoT projects and the continued shift away from legacy business. We ended the third quarter with $3.1 million in cash and cash equivalent average to cash, which includes cash from approximately $1.74 million in gross proceeds we raised in July through the exercise of warrants by a single-credit institutional investor. This task provides us with the liquidity we need to continue investing in sales, marketing, and R&D to drive revenue growth and expand our global footprint. In closing, as reflected in our financials, we are starting to recognize a significant return on our years in the variety sector. We believe that we are well positioned to continue growth and capitalizing on new opportunities fueled by these multiple drivers, including a strong presence and reputation in the U.S. and European markets. The counter-cyclical nature of our industry, public policy shifts to monitoring instead of incarceration, and returning to post-COVID levels of business activity. Our recent announcement of new contracts in Europe and the U.S. are compelling examples of a successful business plan execution within a vertical that was super common, a strong presence, and an excellent reputation. With that, I'll turn the call over to Operator. It's open for questions. Operator?