SuperCom, Ltd.

Ladies and gentlemen, good morning and welcome to Supercom's fourth quarter and year end 2023 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. Joining me from Supercom's leadership team is Ordhan Shrovelsi, Supercom's President and Chief Executive Officer. 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 may cause Supercom's actual results to differ materially from those statements. For more information about these risks, uncertainties and factors, please refer to the risk factors described in Supercom's most recently filed periodic reports on Form 20-F and Form 6-K. Supercom's press release accompanies this call, particularly the cautionary statements in it. Today's conference call includes EBITDA, a non-GAAP financial measure that Supercom believes can be 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 financial measure, please see the reconciliation table located in Supercom's earnings press release that accompanies this call. Reconciliations for non-GAAP financial measures and comparable GAAP financial measures are available there as well. The content of this call contains time-sensitive information that is accurate only as of today, April 22, 2024. Except as required by law, Supercom disclaims any obligations 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, Ordan Shorazzi.

Thank you, Operator. Good morning, everyone, and thank you for joining us today. Today, this morning, we should have press released our financial results for the first quarter of the full year of 2023. You can find them in the VETSR relations section of our website at .supercom.com. Today, I'll start with a comment with a brief update on the recent business highlights, strategy, Q4 and 2020 results, followed by Q&A sessions. I'm excited to share with you Supercom's outstanding performance in 2020, which reflects the tremendous strides we made in our operations as an edge position. 2020 was a landmark year for Supercom. Annual revenue increased by 51% to a five-year record level of $26.6 million. The company reached a five-year record positive EBITDA level of $4.8 million, working the sixth and second quarter of positive EBITDA after years of investing in our leading edge IoT technology. We also continue to improve operating cash flow significantly from operating cash flows in the 90.4 million in 2021, 4.7 million in 2022, and so only 2.4 million in 2023, increasing our cash flow by 75% in the past two years. We've had a positive cash generation from new and old projects. This reflects progress in the right direction towards self-sustainability and positive cash flows. This highlights not only the anchor line and strong execution, but also the increasing efficiency and scalability of our operations. In the past year, we've won several part contracts in the US and Europe, and we are excited about the opportunities we see ahead. I'll go into more detail in a few minutes' moments, and we're proud of these useful students. I'll take a moment here and thank our incredible team at Supercom for their hard work and dedication to making this all possible. Thank you. For those new to Supercom, our mission is to revolutionize the public safety sector across the globe with our proprietary electronic monitoring technology, data intelligence, and suite of complementary services. With over 35 years of experience since our founding in 1988, we've been a trusted partner to dozens of national governments worldwide, providing cutting-edge electronic and digital security solutions. Our strategic footprint is straightforward yet powerful. Lead with innovative technology, develop superior solutions, and expand our global presence and deliver outstanding service. The strategy is backed by proprietary and trans-model technology which scores highly competitive government standards and supports various programs such as FastRest, GPS monitoring, rehabilitation services, domestic violence prevention, and more. Since 2018, Supercom has continued over 50 new multi-year government projects. A strong growing reputation as a premium provider in the technology, solutions, and services, and market position with each new customer. Our strategic focus on ISD tracking business in both markets with opportunities is crazy. Although traffic monitoring market projected to reach 2.1 billion by 2026, the U.S. and Europe talked to about 95% of these markets. These successes and opportunities have resulted in growing business outcomes, drawing and turning revenues. In 2023, we continue to amplify the technology leadership, presenting the R&D investment, leading to launch and brand solutions like Peer Protect and Peer One. These offerings are already making way into various markets, including the U.S., and are pivotal to the Peer Protect's market expansion. Peer Protect is a life-saving domestic violence management solution. The solution provides important protection to the innovative solution that addresses domestic violence issues and further enhances the company's portfolio of products and services. Peer One is a model one GPS tracking case of cases, monitoring solution, and integrating comprehensively on-swing capabilities into a single device. It's many of our products that offer top-notch features, placing them above the competition in most metrics. These products also expand the company's dresser market. We've been very pleased with the reception and traction of the new solution, but expected to help facilitate the expansion of Supercom into the U.S. market and further European countries. We fortified operational restrictions to support the growth of our free-fab sales strategy and practice outreach approach. Our sales team, with deep interest and expertise, has been instrumental in achieving new ways and turning green. We've now seen countless ways in the U.S. and Europe for a million past months. Supercom has continued to displace incumbent vendors and cheated over 60% of the European customers and vendors. Despite natural economic and changes and ongoing Israel-Gaza war, Supercom solutions are becoming increasingly important. Placards that cover sales and raising inflating costs are very connected to the U.S. and make our solutions not only cost-effective, but also essential for governments looking to enhance public safety and reduce costs. The company's three-stage technology solutions have been designed to address this trend, often effectively for institutions to enforce home confinement, ease prison overpriced, and lower costs significantly. For example, the total daily cost for monitoring a site on home confinement or GPS monitoring is approximately $10 to $35, compared to a much higher cost of $100 to $140 a day at a correctional facility. Most importantly, home confinement has been shown to reduce recidivism, highlighting effectiveness and helping offenders improve lives in communities. On top of these field genres, we have witnessed the surge in adoption of the Interprotection Solutions World Mark, which runs perfectly well with a series of clients and the launch of a new product, PeerProtect. In the European market, Supercom has created businesses that are in the process of pursuing a new contract, which is typically important to a competitive debtor process. Supercom launched a $3.6 million national EM project in Finland with the national government in Q1, Q2, and Q3. In May 2023, the Peer Security Institute was fully deployed in Finland, covering all the EM Procurement programs, House Trust, GPS, and Indian Monitoring. In Q3, 2020, the security and international program was finished and our domestic talent and monitoring was deployed. The deployment of our Peer Security Suite for teaching Peer Protect, Peer Track, Peer Tide, and Peer Monitoring demonstrated the versatility and effectiveness of our solution, managed for leadership, and the time and space. Collaboration with Finland is a fine example of confidence and talent in Supercom. Those who experience a service-often choose to go out and engage in the various solutions. So, to start with one solution, there's ample opportunity to deploy developers as seen here. Notably, the company is one of the largest industry award of the year for national track monitoring practices in the United States, including up to $15,000 monitor the image per month for up to six years. In 2023, we announced orders valued at over $10 million for the American Ministry of Interior, further extending our engagement in the country's national EM project. This is our skillful product and it reinforces the strength of the Peer Security Suite and it's a massive position as a trusted partner for governments worldwide. We've also launched a domestic talent solution all the year to the Indian, and we've recently launched them in the USA. In the inter-other, there's had potential for new domestic talent solutions, and we've been working with the company to develop new technology for the project that the government has passed, and it's all requiring domestic talent defenders to be monitoring technology to such an extent. All this Supercom already does business in multiple U.S. states, with our active focus on further expanding its presence in the U.S. The company's industry prioritizes Peer-Long expansion into new markets and challenges. The dark energy received high-phase drainage and detection into various regions of the U.S. for Peer-1, and then successfully deployed as a class of utilize to monitor live standards. Moreover, we've set up activities for Peer-1 and committed to promising new markets outside Europe and North America. Our new strategic sales team and new ones have been the first to actually institute a company's U.S. market-spanning strategy, and have already driving increased activity, visiting customers in numerous new demos and valuations of potential new ones. Our expansion in the U.S. market has been marked by another significant milestone when we're securing a new contract with California through our subsidiary, LCA. Since the launch of our Peer-1 solution in late 2023, we've already secured two new contracts in California and another contract in Canada to provide the solution, introducing the Peer-1 solution with a game changer in securing these contracts. The other scores are commitment to delivering innovative and secure technology solutions. By securing these contracts, we further reinforce the position of our market leader with U.R. facilities that indicate a growing influence and expansion potential for North America and the U.S. market. Our gross profit increased by 60% in 10.2 million dollars compared to 6.4 million, which is the direct outcome of revenue growth and the progress we've made across our projects, where marginally significantly enhanced, is projects in the short. We achieved a $485,000 decrease in total operating expenses, including other one-time expenses, through an operational acquisition plan that has been put in place gradually throughout 2023. Our R&D expenses amounted to $31 million, a decrease of $70,000 compared to the previous year, which indicates a maturity of a new technology launch and being able to get a better optimization of the power structure. In addition, the sales market expenses amounted to $2.2 million, a decrease of $4.6 million compared to the previous year. Moreover, the general average sales increased by $275,000, accommodating a managing team expansion in the U.S., also increasing focus in our region. The company had an operating loss of $3.3 million, which was an operating loss of $6.9 million, resulting in a significant increase in our gross profit and increased our revenue expenses. The company's EMA improved by .50% of 2020% to $4.8 million compared to the year of 2020, reflecting the benefits of operating average expenses, which have reduced the point of new projects, and continued progress on the stages of our ongoing projects. This achievement underscores our focus on state growth and profitability. Our capital loss improved to $4 million, and our loss of $27.2 million loss of a non-deficient profit improved by $5.5 million to $2.2 million compared to a $2.3 million loss in the previous year. Positive non-deficient profit improved to positive $0.47 million compared to negative non-deficient profit of $0.61 million in the previous year. Cash and cash flow increased from $5.6 million to $4.5 million compared to the year of 2022. As noted, we continue to improve our operating cash flow significantly from an operating cash flow of $4.7 million in the previous year, to $4.7 million in the previous year, and to only $2.4 million in the previous year. We have increased our cash needs by 75% in the past two years alone, reflecting positive cash generation from new and old projects. New projects sometimes require cash upfront for manufacturing and equipment, but they shifted to cash flow profitability throughout the last few years. Also, we have successfully closed the $2.9 million profit offering to support companies' continued innovation and growth initiatives. Our customers and investment communities trusted our vision and strategic strategy. In addition to the company at one time, it has spent $2 million, mainly pertaining to the legacy business and allowing to invest in the technical assistance. And closing, we're excited about the growth we're experiencing and not the great demand for our products. After several years through which we transition from our legacy business to the IT tracking of the vendors' business, we're happy to show the shift of rapid growth in revenue and profit. We believe that we're well positioned for continued growth by capitalizing many opportunities in the forex. These are being determined by multiple factors, including our sharp revenue transmissions in the US, European markets, the counter-psychological nature of electronic monitoring industry, the long public policy shift to monitoring instead of incarceration, and the growing adaptation of domestic items from messaging solutions. We anticipate this take place by further expanding market share in the US and Europe. Our commitment to determining technological advantage and our bus growth for this remain set fast to continue to invest in these areas and help to continue to grow accordingly. With that, I'll turn the call over to the operator to open up for questions. Operator?

Thank you. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star, vendor number one on your telephone. If you're using a speakerphone, please pick up your handset before entering your request and speaking on the call. If your question has been answered and you wish to withdraw your request, you may do so by pressing the pound key. One moment please while we poll for questions. Thank you. We have a question from Matthew with Maxim Group. Your line is live.

Hey, thanks for taking my question and congrats on a strong 2023. I guess my first question is, entering, you know, how does the pipeline look to you entering 2024 versus the pipeline entering 2023?

The pipeline still looks strong in the past year and this year. We have some projects we've already been on and some that were in late stages like presentation stages or kind of negotiation stages. We have other projects that are in the pipeline as opportunities that we expect to bid on or potentially win throughout the coming year too. Things still look strong and we've been executing well on opportunities we haven't done yet.

Got it. Okay. And I guess with the launch of the, you know, single piece products in the U.S. and I think that was second half of the 2023. How has the pipeline evolved in terms of geography? Is it kind of a stronger U.S. pipeline now than, you know, obviously I think than a year ago, but how meaningfully has that changed the composition of the pipeline?

So in Europe,

as you mentioned in the past, we continuously have been on national projects and that would depend on the timelines of the different nations around Europe and the projects they had. So we were dependent in a way on their timelines and we were continuously bidding. We had a very high win rate of over 65%. This year, as we expanded more into the U.S., we're also looking at opportunities that are not necessarily at a large national level. We're also looking at counties and states. We're also looking at counties and states and resellers throughout the U.S. So the pipeline in the U.S. is growing. We still have much work to do to grow the pipeline in the U.S. The actual market in the U.S. is three times that of Europe according to market estimates. We're starting off with the smaller projects just like we did in Europe. We started off with Latvia and Lithuania with $100,000 projects. So they produced projects like Finland and Denmark, which is $3 to $4 million, and tweeting of $7 million, and then Romania for the $200,000. It's kind of like a ladder. You start smaller, you go to the extractor, you go to larger projects. In the U.S., we're still at the earlier stages, but the pipeline in the U.S. is turning and growing since we started expanding our focus on the U.S. market together with the PureOne product, which has already started to be rolled out, and it's receiving very good feedback from customers.

Got it. Thanks. And last question from me, and I'll jump back in the queue. You mentioned the declining use of cash from operations over the last three years. I guess... The decline in the decline in use of cash. Yes. Do you expect or can you point to a number on EBITDA maybe that you think gets you to break even? Like if 2023 was around $5 million EBITDA, is it kind of linear and you just expect to need to be maybe closer to $7 million EBITDA to be at a break even cash from operations level, or is it a little harder to pin down based on where you are in a project cycle? Yeah, it's

a good question, but actually the EBITDA over time should reflect our cash use. So for $9 million EBITDA, that should certainly reflect the cash flow positivity. The reason why you see the gap between cash flows, operational cash flows, and EBITDA is also mainly because the timelines and the cash needs of projects. So some of these projects probably have to cash a lot of equipment and then the cash comes in over the years. So that movement throughout the project is what creates this gap. But over time, things need to stabilize. And if we didn't have continuously newer and larger projects added on to our recurring revenue base, we wouldn't see this gap. So if things kind of stabilized on the same project for a while, you would see the cash flow so closer and closer to EBITDA. So it's hard to give you a specific number because it depends on where. But it is good to know that it does reflect, in a way, the proxy for the past potential creation of the company. Got it.

Thank you.

Thank you. Once again, if you have any remaining questions or comments, please press the star key followed by one on your phone at this time. Okay. We currently have no further questions on the line at this time. So I will pass the call back to Mr. Trebelci for any closing remarks. Oh, sorry. We have that. Oh, no. Do apologize, sir. Continue.

If we have any more questions, we can take them. Okay.

Yeah, we do have a question, sir, from Jay Giotoshi, who is an investor. Your line is life.

Yeah. Hi. Congratulations again on a great quarter and a great year. Question around your intellectual property. I see that you're using AI. Is that something you could patent in order to prevent other competitors from entering your market?

Uh-huh. Thanks, Jay. So we do have a company over 100 different patents, and we've spent an investment of a lot of research in the past on writing these patents. Lately, we've been so busy on our growth and our expansion that we haven't stopped as much to start writing new patents. Our AI capabilities do have unique applications to our specific market. And after we deploy them, we see their effectiveness. It's something that we can consider if we want to utilize that we've done in the past of patents.

Okay.

Thank you. Thank you. Once again, if we have any final questions, please indicate so now by pressing star one on your phone. Okay. I believe we have a question from Matthew Gillingco. Again, Matthew, sir, your line is life.

Oh, sorry. I didn't have any follow-up questions.

Oh, apologies, sir. It was still under me. Thank you. Okay, sir. We currently have no further questions at this time.

All right. I'd like to thank all of you for participating in today's call. If you're interested in Supercom, we wish you a happy Passover. Please contact us directly if you have additional questions. We look forward to sharing our progress with you on our next conference calls, filings, and press releases. Thank you very much, and have a good day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.