SuperCom, Ltd.

Ladies and gentlemen, good morning and welcome to Supercom's first quarter 2025 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 Orlan Trabelsi, Supercom's President and Chief Executive Officer. I'd like to remind you that during this call, Supercom 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 20S and Form 6K, and Supercom's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes EBITDA and NOMGAT financial measures 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 GAAP financial measure, please 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 this call contains time-sensitive information that is accurate only as of today, May 14th, 2025. 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, Ordon Trebelsi.

Thank you, Operator, and good morning, everyone. And thank you for joining us today. Earlier this morning, we released our financial results. The first quarter ended March 31st, 2025. You can find a copy of the press release in the investor relations section of our website at supercom.com. Today, I'll provide an overview of our first quarter performance, including financial highlights followed by the Q&A session. But first, I'll provide a high-level overview of our business and strategy. We're pleased to report a strong start to 2025, building on our record-breaking success in 2024, with even more milestone achievements this quarter. However, we are working with numerous governments around the world on making big changes to the way they help protect their communities. This takes time, and thus our outlook is long-term. With many multi-year government contracts running in unison, reviewing one specific quarter or a small few, may not suffice to understand the long-term progress of our business. I'll try to give a high-level view for you to understand our goals, our progress, and what levers to track to understand that progress going forward. At Supercom, our mission is to revolutionize public safety through cutting-edge electronic monitoring technology and data-driven solutions. For over three decades, we have partnered with dozens of national governments across the globe to deliver secure, scalable, and innovative platforms that enhance security for their countries. Our focus in recent years has shifted more and more towards solutions in criminal justice and offender electronic monitoring technology with ankle bracelets. Our strategy is centered around three pillars. One, innovative technology. We've invested over $40 million in our technology platforms, and our proprietary solutions consistently outperform in competitive tenders, particularly in Europe, where we've had a win rate of approximately 65%. Our platform supports critical programs such as GPS tracking, house arrest, and domestic violence protection. Recently, we've also integrated AI driven analytics to enhance predictive insights and client outcomes in our system. The second pillar is expanding our global presence. Our global presence is significant and expanding rapidly with more and more geographies adopting our electronic models and technology. Our strategic focus an electronic monitoring market where we see growing demand and where the market is projected to reach around $2.3 billion by 2028. Estimates show that the U.S. and Europe account for roughly 95% of this market. And our third pillar is delivering outstanding service. Our reputation as a trusted partner grows with each new deployment. Some of our government customers have been with us for more than 20 years, often starting with a single program and expanding into multiple solutions over time. Since 2018, we've secured over 70 multi-year government projects across multiple regions. In the past year, we've experienced accelerated expansion, whereby we added more than 20 new contracts across North America, alongside five strategic partnerships with leading regional service providers. We continue to amplify our technological leadership with significant R&D investments, leading to the launch of advanced solutions like PureProtect, also branded as PureShield, and PureOne, These offerings are already making headway in various markets, including the U.S., and are pivotal in Supercom's expansion. PeerProtect, or PureShield, is a life-saving domestic violence monitoring solution, providing preventive measures to families suffering from domestic violence or stalking, thereby increasing their safety. PureOne is an all-in-one GPS tracking ankle bracelet monitoring solution, integrating comprehensive monitoring capabilities into a single device. Like many of our products, it offers top-notch features, placing it above the competition in most metrics, such as battery life, weight, and other tracking and security features. Our tethered ankle bracelet technology, together with our cloud-based software-enabled peer security product line, has been particularly effective in continuously monitoring offenders and managing real-time information. The real-time advantage is a game-changer, empowering authorities with actionable insights and timely interventions to mitigate potential risks and enhance public safety. Our technology is not just enabling better outcomes. It's actively redefining industry standards. We consistently displaced long-term incumbents, such as a 24-year incumbent EM provider in Sweden and the nearly 20-year incumbent EM provider in Israel, both which we displaced. And in both cases, our technology edge, agility, and innovation proved decisive in the competitive tenders. We've also helped governments establish their first-ever national electronic monitoring programs, as seen in countries such as Romania, where we're supporting a program for up to 15,000 simultaneously monitored individuals, and Croatia, where we were selected to lead the country's first step into modern electronic supervision. These wins underscore the adaptability of our platform and the growing demand for comprehensive EM solutions around the world. Our continued investment in product innovation is driving measurable market expansion. The successful adoption of Pure Protect and Pure One has expanded our addressable market, supporting deeper penetration into existing geographies and entry into new ones, particularly in the US and Europe. We've also reinforced the operational infrastructure and enhanced our go-to market approach. Our sales team with industry veterans has played a key role in securing wins and building our pipeline. In the fourth quarter, Together with Electra Security, our partner, we secured a multi-year national contract with the Israel Prison Service to deploy our peer security suite. The program encompasses all offender monitoring nationwide. This one follows a rigorous competitive process and replaced a provider that's held the contract for nearly two decades, underscoring our technological advantage and proven execution capability. As of today, over 1,200 individuals are actively monitored under this program. with that number continuing to grow as the rollout progresses. More broadly, we continue to gain momentum in competitive tenders across Europe and the U.S., often displacing incumbents. Our strong track record and reliable delivery remain core to our growth. We view every new deployment as the start of a long-term relationship by planting seeds in multiple regions and consistently delivering value, We've seen customers expand their engagement with us over time, often growing into multiple growing projects that span over years. In Europe, our strategic execution continues to drive long-term growth. Over the past few years, we've secured over 15 national electronic monitoring programs in Europe through competitive tenders, including large-scale domestic violence initiatives aligned with regional public safety priorities. Notably, in Romania, we were awarded the largest industry award of 2022, an over $33 million program covering up to 15,000 individuals simultaneously. This project remains active and demonstrates the scalability of our pure security platform. Another great example of a long-term expansion strategy which reflects the strength of our reputation is Sweden. Since our initial award from the Ministry of Justice in 2019, we've been selected again and again by Swedish government agencies. including the Swedish police authority and juvenile justice system. This ongoing trust reflects our consistent delivery and the high level of satisfaction with our technology and support. We also expanded in Finland with a national deployment of our domestic violence solution and recently launched our third national project in Latvia, awarded via a formal tender to support the state police with offender compliance and victim protection. In parallel, We continue to actively run programs in other European countries, such as Denmark and Bulgaria, and continue to receive follow-on orders from existing European partners. These follow-ons highlight the reliability of our technology and the strength of our relationships. And as governments increasingly adopt proactive monitoring policies, we believe our proven model positions us well for sustained success in the region. While Europe maintains an important remains an important growth driver. The U.S. market presents an even greater long-term opportunity, projected to grow to six times the size of the European market in coming years. With the launch of Pure One and our domestic violence solutions, we believe Supercom is well-positioned to unlock substantial growth potential in this untapped market. From the research that shows 2.3 billion total market size expected in 2028, the U.S. market is six times that of Europe in estimates. And also, although Supercom already does business in multiple U.S. states, we're actively focused on further expanding our presence in the U.S. market. Our subsidiary, LCA, continues to grow in California through new contracts and rebids, while our nationwide expansion strategy has gained significant traction. Since mid-2024, we've secured over 20 new electronic monitoring contracts, entered eight new U.S. states, and formed five new strategic partnerships with regional service providers to accelerate market access. Through a mix of direct government contracts and partner-led deployments, we've established a presence in key new states, including Utah, Kentucky, Alabama, South Dakota, Arizona, Ohio, and others. We are also expanding into Wisconsin, Minnesota, and Michigan through the Midwest Focus Partnership and launched a GPS modernized initiative in Canada with a longstanding provider. These wins demonstrate our growing ability to displace legacy vendors and deliver recurring revenue from both urban and rural jurisdictions. Our strong technology capabilities, coupled with our proactive go-to-market approach, continue to differentiate Supercom and competitive bins. Our expanded sales organization has driven a sharp increase in demos, pilot programs, and qualified opportunities, resulting in the growing U.S. pipeline of recurring revenue opportunities. With sustained demand and good execution, we believe we are well positioned to further scale our US footprint throughout 2025 and beyond. One of our advantages in the US is a centralized system on the cloud, centralized inventory management, and a 24-7 service and support center, which supports active projects nationwide. This structure significantly improves operational efficiency and lowers costs compared to Europe, where projects typically require country-specific servers, local language adaptations, and decentralized support. As a result, we're able to launch programs in the US more quickly and more cost-effectively, whether at small scale or statewide, giving us greater flexibility and faster time to revenue, along with higher potential margins. Despite macroeconomic uncertainties and ongoing global challenges, including those in Israel, Supercon solutions are becoming increasingly relevant. We continue to see growth driven by high recidivism rates, the escalating cost of incarceration, and a surge in the adoption of victim protection solutions worldwide. The company's pure security technology solutions have been designed to address these trends, offering an effective way for institutions to enforce home confinement, ease prison overcrowding, and lower costs significantly. For example, monitoring an offender on home confinement, or GPS, costs about $10 to $35 a day, which is 90% less than the $100 to $140 a day cost at a correctional facility in the U.S. Moreover, home confinement helps reduce repeat offenses, highlighting its effectiveness in helping offenders improve their lives and communities. In parallel, we continue to evaluate strategic acquisition opportunities in the U.S. market. Acquiring established local service providers can expand our footprint, unleash synergies, and enhance vertical integration. A proven example is our 2016 acquisition of LCA in California, which has since generated over $35 million in project wins in California alone. I'll now turn to the financials, considering this quarter Q1 in comparison to the same period last year. I'm pleased to report another strong quarter of financial performance, reflecting the maturing of our project portfolio, discipline execution, and operating leverage across geographies. Note that since our projects are mostly multi-year contracts, this can create variability on a quarterly basis, so trends are best understood in the context of a broader multi-year period. Let's look at the quarterly performance of Q1 2025. Revenue increased to $7.05 million, up from $6.85 million, driven by new contract wins and continued expansion across both U.S. and European programs, as well as EMEA. Growth profit increased to $4.46 million, a 17.8% increase from $3.79 million in the same period last year. Gross margin improved significantly to 63.6% compared to 55.3%. This significant margin expansion of nearly 8% reflects improved scale and favorable revenue mix from projects. Operating income doubled year over year to $1.22 million, up from $0.72 million, with operating margin improving to 17.3% compared to 10.5% last year. We also reported gap net income of $4.23 million, a substantial improvement from $0.8 million last year. This growth was driven by contributions from new projects and improved revenue mix, ongoing operational efficiencies, and the positive impact of strategic deals with our debt holders, which together further strengthened our capital structure. On a non-GAAP basis, that income totaled $5.24 million, up from $1.35 million last year. EBITDA for the quarter reached $2.5 million, compared with $2 million last year, representing a 25% year-over-year increase and marking our 11th consecutive quarter of positive EBITDA and further demonstrating the strength and consistency of our core operations. GAAP earnings per share was $1.2 compared to $0.8 in Q1 of 2024, adjusted for a reverse split, and non-GAAP EPS was $1.5 compared to $1.4 in Q1 of 24, again adjusted for a reverse split. From the balance sheet perspective, we ended the quarter with a stronger position. Long-term loans were reduced to $24.2 million, down from $29.7 million at the year end, and from $34.3 million in Q1 last year, reflecting a total reduction over $10 million year-over-year. This was achieved through debt-to-equity exchanges at premiums of up to over 100% above market price and an amendment to our senior debt agreement, which extended maturity to December 2028 and lowered our interest rate. Following the reduction of debt, we raised over $16 million in gross proceeds, including $6 million through a registered direct offering and $10.2 million for warrant exercises, leading to a solid cash position, with cash and cash equivalents increasing to $17.2 $1 million up from $3.2 million at year end 2024. Working capital increased to $38.9 million compared to $22.6 million at year end as well. In closing, I want to thank our global team for their continued commitment and execution. We've entered 2025 with strong momentum, delivering record financial results, accelerating expansion in key markets, and further validating the effectiveness of our solutions. As governments seek smarter, more humane, and more cost-effective alternatives to incarceration, Supercom is uniquely positioned to lead. Our proven technology, growing contract base, and scalable infrastructure provide us a strong foundation to continue our growth across the U.S., Europe, and beyond. And to better understand our progress, we encourage stakeholders to track several key indicators, our win rate in competitive tenders, expansion into new geographies, and new projects from existing customers. Another important thing to remember is project mix. This quarter, gross margin reached 63.3%, reflecting the increasing contribution of high margin programs. While not yet our steady state, it offers a glimpse into our long-term profitability potential, where projects tend to achieve higher margins over time as they mature and grow. We remain focused on advancing public safety, creating long-term value, and building on the consistent progress we've achieved in recent years. With that, I'll turn the call over to the operator to open 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, then the number one on your telephone. If you were 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 question, you may do so by pressing star, then two.