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?