SuperCom, Ltd.

Ladies and gentlemen, good morning and welcome to Supercom's second quarter 2026 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 1 on your telephone keypad. To withdraw your question, please press star then 2. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet. Joining me from Supercom's leadership team is Ordan 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 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 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 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, August 13, 2026. 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, Ordan Trabelsi.

Hello, everyone. We're pleased to report another record quarter for Supercom. In the second quarter of 2026, we achieved more than eight-year records for revenue, gross profit, and EBITDA, marking our ninth record quarter of the last 10 since the company turnaround began in 2021. These results build on the progress we have delivered over the past several quarters and demonstrate the increasing scale and build on operating leverage of our business model. As we expand the delivery of our proprietary electronic monitoring and public safety technologies to local and national governments around the world, Thank you for joining us. Revenue increased 13.3% to $8.1 million compared with $7.1 million in the second quarter of 2025. Gross profit increased 16% to $4.9 million. Gross margin also expanded by approximately 90 basis points to 60%. Operating income was $900,000 compared to $1.1 million in the prior year period, and this was largely impacted by the Israeli foreign currency headwinds. During the second quarter, our Israel operations experienced foreign currency headwinds from approximately 17% year-over-year increases in the average Israeli currency to the U.S. currency exchange rate, the shekel to the dollar. Despite these pressures, we sustained GAAP net income levels at roughly $1.1 million for the quarter, similar to the same quarter in the prior year period. On a non-GAAP basis, net income increased to $2.9 million, compared with $300,000 in their prior year period. EBITDA increased by 55.6% to $4 million this quarter, compared to $2.5 million in the second quarter of 2025, representing our highest quarterly EBITDA in more than a decade. Gap earnings per share were approximately $0.20, and non-gap earnings per share were $0.52. We've also made substantial progress in strengthening our balance sheet. Over the past several years, we've reduced our net debt from close to $35 million to under $10 million. Our outstanding long-term debt now carries a blended interest rate of approximately 6%, with no cash payments due until the end of 2028. This structure provides us with greater flexibility to invest in growth. Cash and crash equivalents totaled approximately $7.4 million as of June 30, 2026, compared to $9.8 million at the end of June 30, 2021. During the quarter, we strategically deployed capital to support working capital needs and accelerated customer onboarding, installations, and technology integration across new contracts in the United States and Europe. Subsequent to quarter end, in early July, we raised approximately $7.5 million in gross proceeds from a common-shares-only registered direct offering with a few institutional investors. This additional capital further strengthens our financial position and provides us with increased flexibility to support new deployments and continue executing against our growing pipeline. Finally, our book value of equity totaled approximately $48 million as of June 30th, an increase of 28% from approximately $37 million at June 30th, 2025. Next, I would like to spend some time discussing the operating leverage in our business and the factors contributing to our profitability and margin expansion. The economics of our programs improve as they mature. At the outset of a new program, we incur upfront costs associated with onboarding, training, development, and deployment. As additional monitoring units are deployed, those initial costs are spread across a larger recurring revenue base. This increases the contribution from each incremental unit and creates meaningful operating leverage. As more of our customer relationships mature, we are seeing the benefits of this dynamic reflected in our gross margins. We've also taken several important steps to improve our operational efficiencies. In Europe, we have consolidated logistics, equipment handling, and shipments through a centralized hub in Romania. At the same time, we have brought more IT and customer support responsibilities in-house from our subcontractors. This has reduced our reliance on local partners, and we have established our own 24-hour support capabilities across multiple projects. These initiatives give us greater control over the customer experience while also improving the efficiency of our operations and building our customer support network. We also continue to incorporate AI capabilities into our operational processes. AI has already helped accelerate development, introduce new automation, and improve efficiency across deployment and customer support activities. We believe these are still in the early ages of AI adoption. As we continue to introduce new products, The centralized deployment model we have developed in the United States provides another important operational advantage and leverages economies of scale. Our cloud-based platform, integrated inventory management, and 24-hour support capabilities allow us to serve programs throughout the country with a unified infrastructure, one shared language, and a common operating environment directly reducing project costs. European national programs often require country-specific infrastructure, local language customization, and more decentralized support. And while our experience enables us to manage that complexity effectively, the more standardized U.S. model allows us to launch and support new country and state-level programs more efficiently and cost-effectively. As the U.S. presence expands, we believe this model can support faster deployments and attractive margin potential, or even more attractive than it is today. Underlying all these efforts is the strength of our technology. Many European national programs are awarded through rigorous technology-based evaluation processes. In markets including Sweden, Germany, Israel, and Norway, we have displaced incumbent providers that have supported these programs for approximately 20 to 25 years. Our win across all five Nordic countries, often against long-standing incumbents, provide compelling validation of the performance, reliability, and capabilities of our technology, as well as our ability to meet the demanding requirements of national electronic monitoring programs. I'll now turn to our growth and diversification strategy, which remains focused on expanding both into new markets and within the markets where we are currently established. Over the four-year period until December 31, 2025, revenue from our electronic monitoring business grew at a compound annual rate of approximately 30% per year, while EBITDA grew at a compound annual rate of approximately 47%. This performance reflects the continued expansion of our recurring revenue base and the increasing operating leverage in our business. In Europe, our results can fluctuate between periods. because our revenue increase includes several large multi-year national programs with each customer's ordering cycle potentially affecting the timing of revenue recognition. Romania, for example, represented a significant portion of our European revenue in prior periods, but ordering activity temporarily moderated amid political uncertainty, and as our EMEA contract base has grown, Romania, as a similar contract, represents less of our revenue blend. The Romanian program remains active though, and important to note, The temporary decline in Romania masked strong growth across the rest of our electronic monitoring business. Excluding the impact of Romania's decline, our underlying revenue would have grown approximately 40% between 2024 and 2025. Until today, we have secured more than 20 wins across Europe national electronic monitoring programs and maintain a presence of all five Nordic countries. These accomplishments give us a strong regional foundation, but we have continued to see meaningful opportunities to expand further within our existing markets and in new ones. Several significant European opportunities are expected to come to market over the next 18 to 24 months, including the opportunity in Italy, among others. We have also discussed the opportunity in England previously, which remains a substantial opportunity for Supercom, valued at over 150 million British pounds. We competed for this England opportunity historically and came in second place when Supercom had a less developed reference base and significantly more leveraged balance sheet. Since then, we have strengthened our financial position, expanded our European presence, and established a broader record of successfully executing national electronic monitoring programs and make us a more viable candidate to secure the England program win. There can be no assurance regarding the outcome of any individual procurement. However, Our success in markets that rely mostly on objective, technology-based evaluation processes, for example, across the Nordic region, gives us confidence that with our technology, we're in a better position today to compete for this and other large national opportunities. The United States remains another important driver for our growth. Our strategy is not only to enter additional states, but also to expand into more counties, agencies, and programs within each state where we already have established presence. Since mid-2024, We have secured more than 45 new U.S. electronic monitoring contracts and entered 19 new states with access to additional markets through our 18 new regional service provider partnerships. We're also seeing the scale of our contracts increase over time, from smaller initial deployments to more recent awards involving approximately 100 to 250 simultaneous units. We are building our references and moving up in project sizes similar to the pattern we experienced when we started our European expansion. Only this time, it's faster. Many of these wins have involved agencies and service providers transitioning from incumbent vendors and legacy systems to our peer security platform. We have seen this pattern in markets including Alabama, Utah, and Virginia, where customers have selected our technology to modernize their electronic monitoring programs. These wins demonstrate the reliability, flexibility, and scalability of our platform. They also highlight the versatility of our operating model. which enables us to serve government agencies directly while also supporting regional service providers across a variety of program structures. We currently operate in 22 states, and in 12 of those, we've already expanded into multiple counties. As we build our reputation and establish successful reference programs in each state, we believe there is significant opportunity to deepen our presence in those markets. Our U.S. platform is also supported by Leaders in Community Alternatives, our wholly owned subsidiary in California. LCA provides reentry and rehabilitation services that complement our core electronic monitoring technology and broaden the range of outcomes we can support for our customers. LCA recently secured a five-year reentry services contract valued up to $2.5 million. And since we acquired LCA, Supercom has secured more than $35 million in new contracts in California alone. Together, Our electronic monitoring technology and complementary service capabilities allow us to support customers across a broader range of monitoring, compliance, and rehabilitation needs. Turning now to our pipeline. We continue to see a robust and growing range of opportunities across key markets. One of the most significant developments during the quarter was our expansion in Sweden. In June, we announced that we have signed and launched a new national electronic monitoring project with the Swedish Prison and Probation Service. The total estimated project value ranges from $17 million, reflecting the previously announced base case scenario, to the $75 million budget published by the customer. That published budget reflects the potential for expansion through a higher number of active offenders and the addition of capabilities such as alcohol monitoring, our Pure One GPS solution, and the Pure Officer mobile device solution. The program is expected to expand to as many as 6,000 active offenders, representing approximately six times the number from the program we first launched with this customer in 2019, where we displaced the incumbent of 25 years, with more capabilities and more features this time around. Revenue recognized under the contract will ultimately depend on actual usage levels and the scope of the capabilities deployed. We're also continuing to build momentum in the United States. Recent contract wins in Michigan, Georgia, Ohio, New York, and Kansas demonstrate the increased demand for our technology and the continued expansion of our national footprint. It's important to remember that there's an inherent lag between the signing of a contract and recognizing the associated revenue, especially in the U.S. where everything is usually charged on a recurring per unit per day model. In some cases, full deployment can take six months or longer, particularly when a customer wants to transition from an incumbent provider and replaced existing monitoring units with our technology. In both Europe and the United States, deployment schedules and customer ordering patterns can affect the timing of revenue recognition from period to period. Despite this timing dynamic, the recurring revenue base associated with our U.S. electronic monitoring technology continues to grow. Our U.S. EM technology annualized recurring revenues has been accelerating, reflecting growth of approximately 290% from July 2025 to July 2026. This progression provides an encouraging indication of how our recent contract wins are beginning to translate into recurring revenue. We continue to see substantial room for expansion. There are many markets, both United States and Europe, that we have not entered yet. And as we increase our scale, strengthen our financial position, and build a broader record of successful deployments, we believe we will be qualified to pursue an expanding range In summary, I am extremely pleased with the progress we delivered during the second quarter and with the consistent growth and profitability we have sustained over the past several quarters, as well as securing highly valuable new contracts such as the national projects announced in Sweden and Norway. We achieved record revenue, gross profit, and EBITDA while continuing to invest in new deployments. Advancing our technology and expanding our presence across the United States and Europe. We're also seeing increasing operating leverage as our programs mature and our recurring revenue base grows. We believe Supercom is stronger today than at any point in its history. We have an exceptional global team, a significantly improved balance sheet, proven and differentiated technology, and a growing range of opportunities to expand both into new markets and within the markets we already serve and the record revenue and EBITDA numbers to this point. As we look ahead, we remain focused on executing our pipeline, supporting our customers, and building on our position as a global leader in electronic monitoring and public safety technology market. This concludes our prepared remarks, and I'll turn the call back to the operator for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star, then 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 star, then two. One moment, please, for the first question. And our first question today is coming from Matthew Galinko with Maxim Group. Matthew, your line is live. Please go ahead.