SuperCom - Earnings Call - Q1 2025

Transcript

Operator (participant)

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 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 and non-GAAP 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, Ordan Trabelsi.

Ordan Trabelsi (President and CEO)

Thank you, operator, and good morning, everyone. Thank you for joining us today. Earlier this morning, we released our financial results for the first quarter ended March 31, 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 a Q&A session. 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 country. 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 have 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 monitoring technology. Our strategic focus on the 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. 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. PureProtect, or PureShield, is a lifesaving domestic violence monitoring solution, providing preventive measures to families suffering from domestic violence or stalking, thereby increasing their safety.

Pure one 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 COB-based software-enabled Pure s 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 is actively redefining industry standards. We consistently displaced long-term incumbents, such as the 24-year incumbent EM provider in Sweden and the nearly 20-year incumbent EM provider in Israel, both of which we displaced. 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 PureProtect and PureOne has expanded our addressable market, supporting deeper penetration into existing geographies and entry into new ones, particularly in the U.S. 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 PureSecurity suite. The program encompasses all offender monitoring nationwide. This win 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 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 PureSecurity platform. Another great example of our 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. As governments increasingly adopt proactive monitoring policies, we believe our proven model positions us well for sustained success in the region.

While Europe 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 PureOne 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. 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 our 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-focused partnership and launched a GPS modernized initiative in Canada with a long-standing 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 in 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 U.S.

footprint throughout 2025 and beyond. One of our advantages in the U.S. 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 U.S. more quickly and more cost-effectively, whether at small scale or statewide, giving us greater flexibility and faster time and revenue, along with higher potential margins. Despite macroeconomic uncertainties and ongoing global challenges, including those in Israel, SuperCom 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 PureSecurity 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-$35 a day, which is 90% less than the $100-$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 EMAP. Gross 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 report a GAAP 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 strengthen our capital structure. On a non-GAAP basis, net 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 reverse split, and non-GAAP EPS was $1.5 compared to $1.4 in Q1 of 2024, again adjusted for 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 of 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 28, 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 from warrant exercises, leading to a solid cash position, with cash and cash equivalents increasing to $17.1 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.

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.

Operator (participant)

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 are 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. One moment, please, for the first question. Once again, that will be star one on your phone today if you wish to ask a question. The first question today is coming from Matthew Galinko from Maxim Group.Matthew, your line is live.

Matthew Galinko (Senior Equity Research Analyst)

Hi. Thanks for taking my questions. Ordan, congrats on the great results in the first quarter. Can you maybe touch on where your R&D focus is at this point?

I know you kind of led with your win rate and how your technology is just better than most of the competitors you go into tenders against, but how do you maintain that going forward, and what sorts of work do you do to make sure that you have an edge?

Ordan Trabelsi (President and CEO)

Okay. Great question. One of the things that we've been adding on recently is the integration of AI that we started describing, and we hope to improve on that. We're improving the quality of our GPS solutions in terms of reliability. Many of our competitors can't track effectively underground in subways or within cities because of interference. We use GNSS, and we integrate many other location protocols as well, and that helps us track within cities, within buildings, underground, and we continue to improve on that. We also improve the battery life of our solutions.

Our battery life for our bracelets can reach up to one year, whereas many of our competitors only have one or two days of battery life. We continue to add on to our existing solutions while adding additional features and also looking at new solutions which will help complement the needs of our customers. Reliability is also an important factor which we continue to improve on from every additional project that we deploy.

Matthew Galinko (Senior Equity Research Analyst)

Got it. I guess the follow-up, maybe can you give us a big picture view of how the U.S. opportunity is shaping up and how important is it that you're continuing to add new states and geographies within the U.S. market? Does the win in Utah sort of support additional wins in Utah, or how does that kind of expansion work?

Ordan Trabelsi (President and CEO)

Great question. It is important to understand the difference in the U.S.

market and Europe. In Europe, we entered through national projects, RFPs, which are sometimes more defined in size. It's much more competitive. There's a longer competitive process where they evaluate you more in depth on a national scale. And the size of the project is pretty much well-defined. In the beginning, they typically add, or many times we see them add additional projects because they like our relationship and what we're doing, as we've seen in Sweden or in Finland. The size is better defined. In the U.S., it's much more fragmented. We see county level, state level. There's through resellers and value-added providers. There's federal level projects. What we're doing in the U.S. at this point is mainly trying to plant seeds. We're trying to plant more seeds in more locations and more states and more providers.

They see our technology, they like it, and they choose to add it to their portfolio or to select us. That could start with 100 units and grow to 500 units, 1,000 units, and more. It depends which opportunity and which geography you're at. For us to grow over the long term, it's important for us to plant our seed and our presence into as many places as possible. Together, over time, as we've seen, they use our technology, they like it more and more, and they expand and expand and expand. Our goal over the long term is to have larger projects and more numerous projects in many regions throughout the world. That's by expanding our presence and by deploying our technologies and our capabilities into every region we've expanded in. By deploying effectively, that's how you grow the programs.

Matthew Galinko (Senior Equity Research Analyst)

Thank you.

Ordan Trabelsi (President and CEO)

Plus, in the states, to add on to that, in the states and the counties, it's a small niche industry. Everyone talks to one another. At the beginning in Europe, it was harder for us. We had projects that were Lithuania and Latvia, which were hundreds of thousands of dollars. Then we grew to projects of $7 million in Sweden or over $33 million in Romania. Similarly, in the U.S., we're still on a smaller size. As they get to see us and understand how well we perform, we get into larger projects, and it expands from word of mouth, and the organic expa nsion becomes much more significant as we continue to deliver good results and good technology.

Matthew Galinko (Senior Equity Research Analyst)

Okay.

Operator (participant)

Thank you. Once again, if you do wish to ask a question on today's call, that will be star one on your phone at this time.

Once again, that's star one if you wish to ask a question on today's call. We will hold for more questions. Once again, that is star one on your phone at this time if you wish to ask a question. Once again, it's star one if you wish to ask a question on today's call. We did have a follow-up coming from Matthew. Matthew Galinko, your line is live.

Matthew Galinko (Senior Equity Research Analyst)

Thanks for taking my follow-up question. I know we're, I think, watching the follow-on election in Romania to see sort of what the outcome is there. I'm curious how you're looking at that. Is there a risk if it goes in one direction or the other, or would you say the program is fairly popular across the political spectrum in that country?

Ordan Trabelsi (President and CEO)

Can you repeat the last part? I just had a hard time hearing.

You were asking about Romania and the political atmosphere there, but what was the second part of the question?

Matthew Galinko (Senior Equity Research Analyst)

Yeah. I guess, is your sense that there's support for the program regardless of the outcome of the election, and is it a fairly popular program in the country?

Ordan Trabelsi (President and CEO)

Yes. The program has actually been going very well, and the deployment has even been faster than even expected. It's supported by the major parties. It's mandated by the EU. There's an EU directive to implement domestic violence there. They pretty much have to do it. The situation with the elections could impact various additional programs, but the existing program is going very well and is very much needed. We see that from the responses from the customer.

Matthew Galinko (Senior Equity Research Analyst)

Got it. Thank you.

Operator (participant)

Thank you.

Once again, if there were any other questions at this time, please press star one on your phone. That's star one if you wish to ask a question at this time. The next question is coming from Dan Shates is a private investor. Dan, your line is live. Please go ahead with your question.

Hey, can you guys hear me now? Sorry. I think I was on mute.

Yes, go ahead.

Okay. Great. Hey, Ordan, wonderful quarter. Wonderful to see the gross profit and the margins increase and trending up. A couple of questions for you. One more strategically with the U.S. market. What percentage of opportunities do you see SuperCom working through a reseller or service provider versus doing direct? Is it almost all through another agency, a service provider, or a reseller?

Ordan Trabelsi (President and CEO)

It's a great question.

In the U.S., it's different from Europe because in Europe, there's different languages, different laws, and you have to adapt to each location. We typically have a local provider that helps us, a partnership, to handle all these different projects with the different environments. In the U.S., we're very familiar with the environment there. It's all in English, and the programs run pretty similar, and they all run on the same cloud software. We typically bring in the value-added resellers when the customer is looking for also services, like human services, not just technology services, like someone to meet the offender, to put the bracelet on the offender, to check up on them. What we see in the U.S.

Some of the larger counties and agencies and states, they have their own officers who run these programs, but the smaller ones, it's hard for them to understand the different technologies, to stay up to date. They outsource everything, also the services, the human services, and also technology services. You see these value-added resellers aggregate them. That's what we saw in LCA. We did that acquisition in 2016. We got very close, understood the market from a very detailed manner on the different counties and the needs. That's how we adopted our solution for the U.S., and we've been expanding also directly with many of our contracts. We're now starting to expand also through value-added resellers.

It is valuable to be able to offer so many different solutions, whether it is GPS or alcohol monitoring or house arrest or domestic violence and services if needed and so forth. That is how we open up the market, and we are able to access a much bigger opportunity.

Great. If I can infer from your comments on this call and from a previous call that you guys are looking at possibly strategic acquisitions of additional service providers or some potential partnerships with other service providers that exist here in the U.S.

Yes. Yes. We have done the deal in 2016. It worked very well for us, and we know the industry well. We worked with just recently, in the last year, we signed up five new service providers.

As we work with them and we see their operations, sometimes it's a great opportunity for acquisition because then they give you physical presence of personnel in that location. Nothing like having persons there that are close to the government customers that know of the RFPs coming out, that have good relationships, and are able to offer more comprehensive solutions. Also, the synergies are almost immediate because all these companies, they procure their hardware and software technologies from vendors in the field. There's roughly 10 players in the field, and we would, upon acquisition, be able to replace to put our technology. Very nice synergies there off the bat.

Also on top line, now that they have our technology, which usually scores very well in the competitive tenders, as you see, they're able to go to existing customers, offer more capabilities, better technology, and also grow their top line. If the price is right, let's say, then there's some interesting opportunities there. We look at that closely, and over time, we'll see if it makes sense to do that again like we did in 2016.

Great. I guess extending on that a little bit, it sounds like you recently did, "We raised some additional capital. We're sitting on a significant amount of cash on the books now, and we've reduced our long-term debt, but that's now they're actually not too far apart from each other." If you looked at the long-term debt versus the cash on the books, we're only slightly negative.

Where previously, we had significant net debt. Do you have specific plans? We're also receiving—sorry, I just wanted to say we're also receiving interest on the cash, which is close to the level of interest that we're paying on the loans, which is also interesting.

Yeah. Kind of cost-setting each other. Yes. Yes. Close. Do you have specific plans with that cash for use? I'm assuming you do. Otherwise, you wouldn't have done that.

Yeah. Our plans with the cash balance is to allow for increases of working capital when we need them. Projects like Romania and others that we're looking to and hopefully will win over time. Once you win it, you have a very short period of time to deploy tons and tons of units. And so it's hard in that process to go secure a loan or some other type of financing.

You do not know exactly where the stock is going to be there at the time and where the market is going to be. It is good to have that as we continue to see more and more demand from customers around the world. The potential acquisitions is also something that we would be able to implement more effectively with this cash balance. It is both. In general, for strategic growth of the business and to be able to respond to various needs and changes as our relationships in the market evolve.

Okay. Makes perfect sense. One last thing. If we are fully diluted, what is the fully diluted share count as of the end of the first quarter? I do not have the exact number at the end of the first quarter, but we filed recently filing to register older warrants that we issued, and that had the count roughly 4.5. 4.5 million? Okay.

Yeah. At the dat e of the filing. Yeah. Just recently. Okay. I'll check that out. That's all I have. Okay. Thank you.

Operator (participant)

Thank you. If there were any other questions on today's call, please press star one on your phone at this time. That's star one if there were any other questions at this time. There were no other questions from the lines at this time. At this time, we'll pass the call back to Ordan for closing remarks.

Ordan Trabelsi (President and CEO)

Just want to update one thing on the last question you asked about the fully diluted. The 4.5 that we filed is more or less outstanding. The exact numbers on filing. On top of that, there's additional 700,000, a little bit over 700,000 of warrants, and they're at $1.35 exercise price. The diluted would be the combination of both. Thank you.

Thank you.There were no other questions at this time, Ordan.

Operator (participant)

Ordan, any further closing comments?

Ordan Trabelsi (President and CEO)

Yeah. That is it. I want to thank all of you for participating in today's call and for your interest in SuperCom. Please contact us directly if you have any additional questions. We look forward to sharing our progress with you on our next conference calls, filings, and press releases. Thank you, and have a good day.

Operator (participant)

Thank you. This does conclude today's conference. You may disconnect at this time and have a wonderful day. Thank you for your participation.