SuperCom, Ltd.

Ladies and gentlemen, good morning and welcome to Supercom's third quarter 2024 financial results and corporate update conference call. At this time, all participants are on a listen-only mode. Should you need assistance, please signal a conference specialist by clicking 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, you may 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 on Supercom's leadership team is Ordon Trabelsi, Supercom's President and Chief Executive Officer. I'd like to remind you that during this call, Supercom management may make forward-looking statements, including statements that address Supercom's expectations for the 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 20F and Form 6K and Supercom's press release that 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 advance with GAAP. A reconciliation of this non-GAAP financial measure to net loss, a comparable GAAP financial measure, Please see the reconciliation table located on Supercom's earning 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 this call contains time-sensitive information that is accurate only as of today, November 14, 2024. Except 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, or Don Trabelsi.

Thank you, Operator.

Good morning, everyone. Thank you for joining us today. Earlier this morning, we issued a press release of financial results for the third quarter in nine months, ended September 30, 2024. You can find a copy in the investor relations section of our website at www.supercom.com. Today, I'll start my comments with a brief update on our recent business highlight strategy and future results, followed by a Q&A session. The third quarter was another quarter of significant achievements for Supercom, showcasing the continued strength and resilience in our business. Our financial results for the third quarter and first nine months of 2024 reflect the successful execution of our strategic initiatives, which have been driving revenue growth, improving profitability, and enhancing cash flows. Here today, revenue increased to $21.3 million. gross profit surged by 35% to $10.7 million, and our gross profit margin improved dramatically to 50.1% from 30.7% in the prior year period. Additionally, our pre-cash flows increased a positive $1.2 million from a negative number in Q3 of last year, and we are pleased with our results and look forward to the following quarters. This quarter was particularly exciting as we solidified our leadership position with key contract wins, including a prestigious national Israeli electronic monitoring projects. We also expanded into new regions, including New York, West Virginia, and Maryland, further strengthening our footprint in the U.S. market. These wins not only reflect the exceptional value of our technology, but also help position us for sustained expansion in the years ahead. Our commitment to financial development, operational efficiency, and technology innovation has translated into tangible results. An improvement in net income of $2.52 million in the nine-month period, compared to a net loss of $2.48 million in the prior year period. Free cash regeneration of $1.2 million this quarter, and a cash balance of $6.23 million at the end of it, underscore these tangible results along with an ability to support further potential growth opportunities. We are also particularly proud to have continued our successful integration of Pure One solution into multiple new markets during this period. reflecting our continued commitment to innovation and our ability to meet the evolving needs of our clients. This, along with other strategic initiatives, has positioned us to deliver sustained profitability and expansion. For those new to Supercom, our mission is to revolutionize the public safety sector worldwide with our proprietary electronic monitoring technology, our data intelligence, and suite of complementary services. With over 36 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 blueprint is straightforward, yet powerful. We live with innovative technology. Our proprietary electronic monitoring technology, which has scored highly competitive government tenders for various programs, such as house arrest, GPS monitoring, rehabilitation services, domestic violence prevention, and more, Moreover, we have recently brought in our portfolios to include advanced AI-driven analytics, which are an integration into our electronic monitoring system. This addition enhances our ability to provide predictive insights and improve outcomes for our clients. We've developed superior solutions, and since 2018, we've secured over 50 new multi-year government projects leading to solutions. We expand our global presence and our strong growing reputation as a premium provider of electronic monitoring solutions and services each new customer wins. And we deliver outdated services. A strategic focus on the IoT tracking business in the developed market is where the opportunity is greatest. With the electronic monitoring market projected to reach $2.3 billion by 2028, the US and Europe constitute about 95% of the global market. We continue to amplify our technological leadership with significant R&D investments. leading to the launch of advanced solutions like Pure Protect and Pure One. These offerings are already making headway in various markets, including the U.S., and are pivotal in Supercom's expansion. Pure Protect is a life-saving, domestic violence monitoring solution, providing preventive measures to families suffering from domestic violence or stalking, thereby increasing their safety. We offer our unique, lightly abrasive, long-term battery life and a solution architecture like no other to offer domestic violence protection in a unique way, which is spreading rapidly around the world with more wins in different regions. PeerOne is an all-in-one GPS tracking, angle-based monitoring solution integrating comprehensive monitoring capabilities into a single device. Like many of our products, it offers top-notch features, placing it above the competitive competition in most metrics. And this product has been key for our expansion in the US, which is on its way. Our cloud-based software peer security product line has been particularly effective in monitoring offenders and managing real-time information. This real-time advantage is a game-changer, empowering authorities with actionable insights and timely intervention to mitigate potential risks and enhance public safety. These products have significantly expanded the company's addressable market. We've been very pleased with their reception and traction and expect them to help facilitate accelerated expansion of Supercom into the U.S. market and further European countries. We've fortified our operational infrastructure to support our growth and have revamped our sales strategy with proactive outreach approach. Our sales team, with deep industry expertise, has been instrumental in achieving new wins and driving growth. Last month, we announced that, together with our prime partner, Electra in Israel, we have been awarded a five-year contract by the Israeli Prison Service Paid Agency, or IPS, to deploy our Pure Security Electronic Monitoring System. This nationwide program is expected to cover all electronic monitoring offender programs in the country, with an estimated 1,500 enrollees simultaneously and potential for expansion. Supercom will deploy its cutting-edge EM solutions, including PureCom, PureTrac, PureTag, and PureBeacon. The five-year contract is already in effect and includes the option for up to four one-year extensions for a total of a nine-year potential contract term. The project was won through a highly competitive bid process, including several rounds of negotiations, demonstrations, and system evaluations required and supervised by the ITS. We displaced an Israeli incumbent that had held the contract for many years, and this one exemplifies our commitment to excellence, technology leadership, and strong partnerships. Our comprehensive set of offerings position us well to a multi-faceted national project, such as this one, that are set to encompass all electronic monitoring programs within the country. We have a broad array of solutions, and with one contract and one provider ourselves, we can support all the programs. Over the past month, we announced many new orders and new projects went into the US and Europe. In recent years, SuperCommerce continues to displace incumbent vendors and achieve an over 65% win rate in European competitive tenders. Look into the EU market. SuperCam secured several new national tracking programs across Europe over the past two years, with bids and contracts at various stages of execution. Notably, the company's large scales of method pilots and vendor tracking programs, like the one launched in Romania, have the potential to catalyze further uptake from existing European customers. As more European countries adopt these technologies, we anticipate a broader expansion of our solution across the continent. In the European market, SuperCam expanded its business into over 10 countries and secured significant new contracts, which is typically awarded through a competitor tender process. Besides winning new projects, we continue to execute and receive ongoing orders from our existing partners. Just about four weeks ago, we announced we were receiving new orders that are over $2.9 million from the European government, totaling over 13.5 million new orders in the past period as described. Last year, we secured national New national program with the Finnish government to deploy our domestic pilot sponsor solution. The deployment of our peer security suite consisting of peer protect, peer track, peer tag, and peer monitor demonstrates the versatility and effectiveness of our solutions and underscores our leadership in electronic monitoring space. Our collaboration with Finland is a prime example of the confidence that clients have in Supercom and those experience our services often choose to broaden their engagement with our diverse rate of solution. That means they start with one program like House REST, they expand to GPS, or domestic violence or alcohol monitoring. And that gives us, of course, opportunities for growth and margin improvement with the same customer. Notably, at the end of 2022, the company won the largest industry award of the year for national chronic monitoring project in Romania, valued at Over $33 million, including up to 15,000 monitored offenders simultaneously per month for up to six years. The project has been progressing smoothly and demonstrating substantial advancement, further extending our engagement in the country's national EM project. The large-scale project reinforces the strength of our secure security suite and cements our position as a trusted partner for government worldwide. We've also launched our domestic bio-solutions in other European regions, and have recently launched them as well in the U.S. Look into the U.S. market. While the European market continues to grow, it's important to note that the U.S. market offers a new and larger opportunity, being approximately three to five times the size of the European market for electronic monitoring. With the introduction of our Pure One electronic monitoring product, now available in the U.S., and the expansion of our domestic violence tracking solution, we believe Supercom is well positioned to unlock substantial growth potential in this untapped market. Although Supercom already does business in multiple U.S. states, we are actively focused on further expanding our presence in the U.S. Our wholly-owned subsidiary, LTA, located in California, is actively expanding the size of its existing programs, winning rebids with existing customers and winning new programs with brand-new customers. The company's decisions need to prioritize Pier 1's expansion into new markets and geographies. The Pier 1 has already received high praise during its introduction to various regions of the U.S.A., where it has been successfully deployed and is actively utilized to monitor live offenders. Moreover, sales activities from year one have commenced in a promising new market outside Europe and North America. Despite our longstanding presence in parts of California, the U.S. market remains largely untapped for us. Since we began investing in outbound sales efforts in 2022 for the U.S., we've secured wins in California, Idaho, Texas, Kentucky, and Wyoming, to name a few. This quarter, we just announced a few more, which we'll reiterate. And the launch of Pure One in 2023, Google, with top positive feedback from initial deployment, positions us to accelerate market capture across the U.S., unlocking significant growth opportunities. Our prestigious new sales team and new wins have been the first step towards using the company's U.S. market expansion strategy, and have already driven increased activity with existing customers and multiple new demos, resulting in a significant increase in the company's pipeline. Launching our Pure One solution in the U.S. market in late 2023 was a significant milestone, expansion strategies since our last earnings call alone we've announced multiple new projects in north america to provide a solution supercon secured new multiple new contracts with a share of agencies across west virginia these contracts leverage super comms innovative 301 suite with both seller and wi-fi communication ability and these contracts are already generating recurring revenue further solidifying our presence and footprint in the u.s market We've also secured new contracts with a leading Baltimore-based service provider in Maryland. And the contract, which was launched in June 2024, estimated to generate an annual recurring revenue of approximately $250,000. And we secured a first new contract in a county in New York State. This win achieved through a competitive selection process, further strengthened through a common strategic expansion across the U.S. that marks another milestone in our business plan, as I mentioned earlier. Introduced in 2001 was a game-changer in securities contracts. It underscores our competitive edge and commitment to delivering innovative and superior technology solutions. Our securities contracts further reinforce our position as a market leader in various fields, and we reviewed these recent ones as indicators of our growing influence and expansion potentially in North America and the world wide. In conclusion, despite macroeconomic uncertainties and ongoing global challenges, including those in Israel. Supercom solutions are being increasingly relevant. We continue to see growth driven by high recidivism rates, escalating costs of incarceration, and the surge in adoption of victim protection solutions worldwide. The company's peer-secured technology is designed to address these trends, offer an impressive way for institutions to enforce home confinement, ease prison overcrowding, and lower cost significantly. For example, monitoring confinement, offender at home, or GPS, costs about $10 to $35 a day, which is 90% less than the $100 to $40 daily cost at a corrections facility. Moreover, home confinement helps to reduce repeat offenses, highlight its effectiveness, and help offenders improve their lives and communities. As we mentioned in previous calls, we believe there's also an opportunity to enhance U.S. growth through strategic acquisition of local electronic monitoring service providers with a strong reputation and customer base in the local markets. We constantly monitor the market potential acquisition that could generate significant value at a good price by immediately expanding market presence and providing vertical integration synergies. Our acquisition of LCA in 2016, which is the last of this sort, for $3 million is a great example. The successful acquisition has been great strategic value to the company and allowed us to win over $35 million, a new price to win in California alone since acquisition. I'll now turn briefly to the financials. during this quarter Q3 in the first nine months of 2024, in comparison to the same period of last year. Note that our multi-year projects are not run on a quarterly scale and can have fluctuating effects when analyzed quarterly. We'll start with a nine-month performance, which helps neutralize some of these fluctuations, and ends up for three months. So for nine months, revenue for the first nine months increased to $21.3 million, up from $20.9 million in the same period last year. Gross profit surged. 35%, $10.7 million, with an improved gross margin, 51%, up from 37.7 last year. Net income improved significantly to $2.52 million, compared to a net loss of 2.48 million in the prior year. Non-GAAP net income grew to $4.88 million, diminishing the trends of our corporations, and EPS reached $1.6, and non-GAAP EPS reached 3.1. The difference may be attributed to amortization of past acquired assets of this Quarterly performance, Q3, revenue increased to $6.91 million, up from $6.78 million in Q3 of last year, driven by the new project wins and expansions of the business contract. Gross profit per quarter was $3.2 million, affecting a margin of 46%, compared to $4 million and a margin of 59% in Q3. This margin decrease was primarily due to project fix and timing. EBITDA doubled in total to $1.1 million, compared to $2.5 million in Q3 of last year, also mainly due to project fix and timing. Positive free cash flow of $1.2 million in two periods this year, further underscored a strong financial discipline comparison to negative free cash flows for the same period last year. Note, this is very interesting. The cash flow for operations the first nine months of the year were positive. This is a big improvement from recent years if we look at it and keep track. In 2021, we had negative $9.7 million in operating cash flows. In 2022, we had negative $4.7 million in operating cash flows. And in 2023, we had negative $2.4 million in operating cash flows. And again, for the first nine months of 2024, we have positive operating cash flows. These are great results and a great trend that we'd like to see, and this supports our strategic plan and a testament to the success we are achieving in it. The quarters results highlight our ability to seize the high margin potential of a project portfolio through successful execution and progression at different stages of these projects, showcasing our focus on sustained growth and profitability. Typically, initial project stages incur higher expenses, while advanced stages yield higher gross margins, causing fluctuations in our gross profit, depending on project composition and deployment stages. We are running multiple projects at different stages throughout the world, and that's how you can see these fluctuations in the quarters. depending on how each one falls in that specific quarter. As the project pipeline matures, we expect an upward trend in gross margins based on the evolving project portfolio. As we deploy additional graces in regions where we run existing projects on our existing infrastructure, the contribution margin for each additional gracing can be as high as 70% or more. Operating expenses in the quarter stayed in line in the first half of the year as we continue with our existing strategy. And also interesting to note, we've made considerable strides in reducing our long-term liability for up to $4.5 million year-over-year, which includes exchanges with our creditors of debt to equity and negotiated premiums of up to 100% premium to market price. Our operating cash flows improved to $1.2 million year-over-year, and our cash position grew to $6.2 million at the end of the quarter. This marks our highest reported cash position in recent years, and we remain focused on reducing our cash need for external funding as we continue to win and execute projects. These improvements further strengthen our financial foundation to support our ongoing growth initiatives and strategic investments. In closing, I'd like to thank our global team for the hard, tireless work to achieve our company's record-setting performance. We have developed the right technology and products to help criminal justice system clients overcome challenges and make better use of the over $80 billion spent annually in the U.S.A. on operating rehabilitation centers and prisons. With research showing that approximately 75% of the citizens are raised in the U.S., there is significant room for improvement when effective program technology are adopted. We're excited about the growth we are experiencing and about the growing demand of our product. After several years through which we transitioned from our legacy business to the IoT tracking and vendors business, we're happy to show a shift in NICE growth in revenue and profit. We believe that we're well-positioned to continue to expand the chain by capitalizing on many opportunities for us. These are being driven by multiple factors, including our strong presence and reputation in the U.S. and European markets, the counter-psychical nature of electronic monitoring industry, the growing public policy shifts in monitoring instead of incarceration, and the growing adaption of domestic violence prevention solutions. We anticipate continued expansion in the U.S. and Europe and potential other regions. Our commitment to preserving our technological advantage and our robust growth foundation remains steadfast as we continue to invest in these areas. With that, I'll turn the call over to operator to open for questions. Operator?

Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star then the 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, for the first question. Thank you. Your first question is coming from Matthew Galenko from Maxim Group. Your line is live.

Hey, thanks for taking my questions. And congrats on the strong year to date. Can you maybe start off by just touching on what the pipeline looks like for Europe in 2025? Are there any large national projects that are you know, up for bid or that you're pursuing now that you think could close in 2025? Or what does Europe look like as you look out over the next year?

Thanks, Matthew. Good question. As you may recall, we entered the market several years ago. We had several small projects in Europe, like Lafayette in between the end, which were $100,000. We grew to a larger one. like Denmark, and then Sweden was 7 million, and now with Romania, 32 million. Those all act as references and track record that helps us basically compete on any RP in Europe at this stage. So we're basically waiting for the ones to come out, and then we compete and usually leverage our strong win rate to help win this project. In Europe, there's so many countries, even though we had a 2% win rate and we won many countries, There's so many countries that we haven't yet entered, and we are continuously monitoring and bidding and progressing and being evaluated for various projects across Europe. Almost every Western European country has national EM projects, and there's many that haven't entered yet, like England, France, Germany, and Norway, Spain. And so there are certainly opportunities of various sizes, and there are many that are out there that are bigger than Romania projects. Europe, while being smaller than the U.S., is still a great market for us. We have a very good position, very good reputation there. And we continue to bid there while in parallel we enter the U.S. market.

Got it. Thanks. And when you bid on new projects in Europe, is it usually displacing or to displace or replace legacy, you know, kind of old assets? ankle bracelets, or what's the, are they looking for additional functionality generally in one go, such as domestic violence stuff, or what are the new bids generally looking for?

The national programs many times encompass all the electronic monitoring programs, like house rats, GPS monitoring, domestic violence, alcohol. In Sweden, we also do inmate monitoring in the prisons themselves. Usually there is an incumbent because those trunk monitors have been around for a long time. In some countries like Romania, which is the first program, they didn't have those trunk monitors. So similarly in Croatia, we did the first. But almost every other one, we're displacing an incumbent. Sweden had an incumbent for 24 years. We displaced them. In Israel, they had an incumbent for a very long time as well, and we displaced them. So it does require capital and work and investment for a country to switch over to a new vendor. Usually they do that when they see a value proposition which is significant to what they are experiencing today. So we don't just have to marginally improve what they have, but to give them a big step of improvement, because they have to now retrain all their staff and change their systems and integrate and go through the whole process. We're able to do that by firstly offering significant improvements to existing programs they have, whether it's house arrest or GPS monitoring, because our technology and our architecture is completely different and offers much longer battery life than very other and a whole scale of other capabilities and features that are important to them. And we're able to offer brand new solutions that they haven't had before, like domestic violence, with our Peer Protect program. So it's a mix. They get a better version of their existing program, and now have opportunities to go to new programs. And they find a team, which is all together usually with a local partner, which provides them top-notch support, great execution, effective timelines, good communication, and all the things that they're looking to see from a government contractor. that we bring with over 36 years of experience as a government contractor here at Supercom.

Got it. Thank you. And then last question for me, and then I'll jump back in the queue. I guess with respect to the U.S. market, it seems like you're expanding your footprint into new states within the U.S. and North America. What do you expect Do you need to add resources to that effort to accelerate North America, or do you expect to add more boots on the ground to try to push that faster? I'm just curious how you think about going after that bigger opportunity in the U.S.

Just to clarify, you're asking if we're putting more boots on the ground to accelerate it, or if we're doing other strategic moves? Yeah, yeah, exactly. Okay, good. Good question. So it's a trade-off. In the U.S., marketing is much faster than Europe because you're looking at counties sometimes and resellers. Resellers, not government agencies, have to go through an RFP process. They can decide on their own. You know, resellers that have 10 counties that they're controlling and they are running all those electronic monitoring programs for those counties, if they want to switch to technology, it is their responsibility. so they could find a new technology, new company. Like ours, it switched, and it happens quickly. So within two months, three months, sometimes we see them switching over. They could start small, move over, they don't have to do everything at once. So it gives them a lot of flexibility, and it allows us to move faster. That does require, though, on the other hand, more feet on the ground, because the market's fragmented, and instead of just looking at one national project, you have dozens and even hundreds of projects spread across the U.S. throughout different counties. And sometimes in Kim County, we'll have multiple projects because they'll have the sheriff program, they'll have probation, they'll have early intervention courts, they'll have alcohol monitoring. It's very fragmented and requires more relationships. But the resellers do aggregate some of these and with resellers, we have quicker expansion. And we try, as you can see, we try to keep an eye also on our cash use and our profitability. We were looking to to grow faster. We could have raised, if we were, let's say, a venture capital backed fund company, we could have raised more money and tried to put many, many feet on the ground to expand faster and faster. We, at the same time, though, are trying to maintain our profitability. We're trying to optimize our cash use, which you may have heard on the script from three years ago, where you had a negative $9.7 million in cash burn. This year, we're at a cash flow positive so far. while trying to manage everything at the same time, we are cognizant of how many salespeople we put on the ground, and we have seen great growth already, even as we work very efficiently with our capital and try to optimize and utilize our salespeople and our sales expenses as optimally as we can.

Great. Well, I appreciate all the answers, and I'll be back if there's no other questions in the queue, but thanks.

Thank you. Your next question is coming from Dan Shates.

Your line is live.

Hi, Ordon. First of all, sounds like another great quarter of execution. We really appreciate that. I have, I guess, a couple questions. First one would be, in the debt-to-equity conversion, how many new shares were issued and at what price?

We don't have one conversion. So over the course of the year, we've done several conversions. And usually at a premium, sometimes up to 100%. And that would be, as you saw in the numbers, that helped to reduce our long-term liability by $4.5 million. We think it's a benefit to shareholders, of course, because we're getting forgiveness together with that. We reduced the debt while using a significant premium to the stock price.

So, well, how many, I'm more concerned about this particular quarter. How many new shares were, as part of that conversion, were issued?

This quarter, nothing. Nothing was done this quarter.

Zero in the third quarter?

Yeah.

Okay, great.

Third quarter, nothing. It's just an update. We just gave annual updates and compared to the last year. You'd see the long-term liabilities are reduced because of conversions done to previous quarters. Previous, okay. Small. small amounts, not just one conversion, multiple conversions with optimal terms that we try to achieve with our initiatives.

Okay, wonderful. That's excellent to hear. Can you give me an account of how many shares are outstanding at the end of the third quarter?

We did report...

We did report, we had a semi-annual report that we recently, but roughly 2 million outstanding shares. Okay, great. A little bit more than 2 million outstanding shares.

Okay, wonderful. I'm thrilled to hear that there wasn't any additional dilution. You've been a long-term shareholder, and I believe in your product and your mission, but it's been a little disheartening to see the continual dilutions over the last couple of years. I hope that's that's behind us and just one final comment the market will once you once that is common knowledge and it's out there your stock performance will change because right now that's what's been holding you back and that's all I got to say I understand yeah I understand thank you for that and so I want to know that we have we have been working to grow our infrastructure expand and we've been

reducing our use of cash, and over time, as I said, we went from negative 9.7 million to negative 4.7 to 2.4, now positive to the cash flow. We don't control exactly the project stages and how things roll out, and we hope to win more projects. Sometimes we need to use cash to support this growth, but we are trying to be cognizant, and that's why these conversions that we described, the debt, we've done them at a premium up to 100% that provided great value to shareholders. We're trying to be cognizant and delaying extended and pushing maturity of our debt. And we've worked closely with various partners and parties to help get to best terms and to be able to execute and grow and implement our business plan while trying to optimize shareholder value.

And I appreciate your support over the years. Thank you.

Your next question is coming from Matthew Galenko from Maxim Group. Your line is live.

Hey, thanks for taking another couple questions from me. Can we expand a little bit more on the deal you have now in Israel, particularly maybe a little bit more about the structure? Is it more of a purchase or kind of a recurring structure? What are the opportunities for expanding that project over time?

Good question. And just make sure I have some information organized for you.

So let's start with the high level. The project was through an incumbent. There was an incumbent for many years in Israel, a partnership that was holding the project. and we came with a different partnership, us together with Electra, and we won a bid. The first period is five years. There's four one-year extensions. That's nine years. If we do well, that could be extended for another nine years, as we see in many regions in the world. Initially, it starts with House Rest, which is RF-based, and that is the initial program. It's expected to have 1,500 vendors, and it's not a purchase. It's a lease. model that we see many times in the U.S. market and some parts of Europe. There are other types of programs that, as we discussed on the call, like domestic violence and others that we believe that Israeli prison IPS, is what they're called, they plan to use more of these programs to help with criminal justice in Israel. There's been a law passed last year around domestic violence. which allows and complements the use of electronic monitoring for domestic violence. And there's other things that are in process. This project gives us the right for all the electronic monitoring projects in the country over these years. So as the government decides to deploy more projects, we will be the vendor deploying them. And we have experience, as noted, in many of these programs in many countries around the world of various sizes, We've seen even in house arrest increases to the quantities every year, and we expect those numbers to grow. That's just for the initial program. But beyond the initial program, which grows, we're expecting potential additional programs to be added on to the projects, which would be very valuable.

Got it. And as we think about additional units on the house arrest or additional programs, Under that, that win, so if you add incremental units, what does the margin look like if you go beyond 1,500, I guess?

I guess is there a benefit to that?

Yes. Oh, yeah, yeah. Yes, yes, yes. So there's a lot of costs with deploying a new system that includes installations and hardware and teaching and setting up support, such as manuals and setting up software that includes development of the software and adaptation for specific programs that the customer wants. We'll do that with not every customer, but every large customer that has specifications. We have to put our effort in that, and that lowers our margins. But, as you noted, every additional brace that we put on has very high margins, much higher than the original ones. because you don't have to do any additional customization. Whether you're doing 1,500 or 10,000 units, it's mainly the same. You can add more units, and the margin on each additional unit is very high, sometimes 70% or higher. It depends on the specific pricing of the specific program. Sometimes you have one bracelet and one phone. Sometimes you have one bracelet and two phones. Sometimes you don't have a phone at all. You just have a bracelet. Sometimes you have a house unit. Each one has different costs and different cellular costs, and the margins can change, but they are much higher when you add additional units to each existing contract. And what's nice about, besides Israel, which is going to put more programs, and it's going to be interesting, good margin, in the U.S., almost all the programs run on the cloud, and they run with the same language and out of the same infrastructure and the same protocol. So it's very nice that the market there, which is already three to five times the size of Europe, will utilize the same systems, allowing us to reach higher margins, versus in Europe, where each nation had A lot of it was purchasing, and a lot of it had different languages, different protocols, different laws, and it made it a little bit more complex there from nation to nation. Here in the U.S., we're actually seeing more consolidation and more similarities between programs, and that's going to be a benefit for us going forward in the future.

Got it. Thank you. And then final question on that. I don't know if you can answer this, but is there a number of, track defenders you think the Israel deal can reach over the initial five-year period? So we started at 1,500, and maybe that ends at like 3,000, or is it impossible to answer that at this point?

I'll try to do it without time.

So the population in Israel... as of end of 23 it was close to 10 million in romania you're looking at 19 million population without getting into the specifics of different laws and processes uh different programs you can see that if romania started with 15 000 and uh they're still talking considering growing there's certainly room for much more than 1 500 in israel um there's there's a lot of potential to be done but it's not just the population of the country it also depends on the processes and the government's propensity to move quickly. Our experience in Israel, and our headquarters are here, is a lot of the different programs in Israel and the government, like technology, they're comfortable with technology. We had a program in Israel for the COVID even tracking, and we have good aspirations to work closely together with them and with Electra to deploy effective solutions, and as these numbers As the decisions work well, they grow the numbers. And it's a lease project, so they continue to grow it as they see it working effectively and improving the numbers.

Thanks. And sorry, one last follow-up. For the initial $1,500, do they turn on, you know, as soon as you're implemented? Or is there kind of a ramp-up period to that initial number where you need to go in and swap projects? you know, the old for the new, or what's the process towards, you know, go live and reaching that point?

We already started with a project deployment. It takes time. Right now, the processes, the definitions, the planning, it should take six months or so. for some of the initial deployment steps. The beginning number is expected to be a little less than 1,500, and then it can grow. Maybe somewhere between 1,000 to 1,500 at the beginning, and then it grows 1,500 quickly. But it does happen through swaps. In Israel, it's a smaller region. It's easier than when you expand to across larger regions like California or so. You have an easier touchpoint and access to the... So the offenders are able to do the swap from one vendor to another relatively quickly. It can be done in a month, for example, that number. But first you have to set up the infrastructure, run the test, train everyone, get everyone ready, and that's what we're looking to do in the six months while the program is running right now with different vendors. So it's a swatch, a swap, a handover process, which we're very familiar with and we've done dozens of times around the world successfully. And, of course, that's what gives our customers confidence when they choose us in the first place. So we're doing that here in Israel, just a little closer to some of our staff, which will make it actually easier than normal.

Great.

Thanks again. And I mentioned we have a local partner, Electra, which is a large corporation here in Israel, and they're spread out throughout the country. And they're going to be doing and handling a lot of the services and swapping and so forth. And it's going to... while it's an interesting endeavor for anyone, we feel confident, the government as well, that this process should be smooth like many others that we've seen in the past through our partnerships.

Congrats. Sounds like a great win, and thanks again. Thank you.

Thank you. At this time, we'll pass the call back to Ordon for closing remarks.

And I want to thank you all for participating in today's call and for your interest in Supercom.

Please contact us directly if you have an additional question. We look forward to sharing our progress with you in our next conference called Filings and Pressure Leases. Thank you and have a good day.