SuperCom Ltd. (SPCB) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to SuperCom's Third Quarter 2024 Financial Results and Corporate Update Conference Call. [Operator Instructions] 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 Ordan 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 20-F and Form 6-K 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 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, 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, Ordan Trabelsi.

Thank you, operator. Good morning, everyone. Thank you for joining us today. Earlier this morning, we issued a press release of our financial results for the third quarter and 9 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 highlights, 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 9 months of 2024 reflect the successful execution of our strategic initiatives, which have been driving revenue growth, improving profitability and enhancing cash flows. Year-to-date, 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 free cash flow increased to positive $1.2 million from a negative number in Q3 of last year. We are pleased with our results and we look forward to the following quarters. This quarter was particularly exciting as we solidify our leadership position with key contract wins, including the prestigious National Israeli Electronic Monitoring Project, 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 reflects the exceptional value of our technology, but also help position us for sustained expansion in the years ahead. Our commitment to financial discipline, operational efficiencies and technology innovation has translated into tangible results. an improvement in net income to $2.52 million for the 9-month period compared to a net loss of $2.48 million in the prior year period. Free cash flow generation of $1.2 million this quarter and a cash balance of $6.23 million at 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 PureOne 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 have sustained profitability expansion. For those new to SuperCom, our mission is to revolutionize public safety sector worldwide with our proprietary electronic monitoring technology, data intelligence and suite of complementary services. With over 36 years of experience since our founding in 1988, we've been a trusted partner for dozens of national governments worldwide, providing cutting-edge, electronic and digital security solutions. Our strategic blueprint is straightforward, yet powerful. We lead with innovative technology. Our proprietary electronic monitoring technology, which just scores highly in 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 portfolio to include advanced AI-driven analytics, which are integration into our electronic monitoring system. This addition enhances our ability to provide predictive insights and improve outcomes for our clients. We developed superior solutions since 2018, we've secured over 50 new multiyear government projects with these solution. We expand our global presence and our strong growing reputation as a premium provider of electronic monitoring solutions and services, enhances our market position with each new customer win. And we deliver outstanding services and strategic. Our strategic focus on IoT tracking business in developed markets is where the opportunity is greatest with the electronic monitoring market projected to reach $2.3 billion by 2028, the U.S. and Europe constitute about 95% of this global market. We continue to amplify our technological leadership with significant R&D investments, leading to the launch of advanced solutions like PureProtect and PureOne. These offerings are already making headway in various markets including the U.S. and are pivotal in SuperCom expansion. PureProtect is a life-saving domestic violence monitoring solution, providing preventive measures to families suffering from domestic violence or stock, thereby increasing their safety. We offer a unique, lightly abrasive long-term battery life and solution architecture with no other to offer domestic violence protection in a unique way, which is spreading rapidly around the world with more wins in different regions. PureOne is an all-in-one GPS tracking and proprietary monitoring solution integrating comprehensive monitoring capabilities into a single device. Like many of our products that offers top-notch features placing it above the competitive competition in most metrics. And this product has been key for our expansion in the U.S., which is on its way. Our cloud-based software PureSecurity product line has been particularly effective in monitoring the offenders and managing real-time information. This real-time advantage is a game changer, empowering authorities with actionable insights and timely interventions to mitigate potential risk and enhance public safety. These products have significantly expanded the company's addressable market. We've been very pleased with the reception and traction and expect them to help facilitate accelerated expansion of SuperCom into the U.S. market and further European countries. We 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 5-year contract by the Israeli Prison Service Agency or IPS to deploy our pure security electronic monitoring. This nationwide program is expected to cover all electronic monitoring and center programs in the country with an estimated 1,500 enrollees simultaneously and potential for expansion. SuperCom will deploy cutting-edge EM solution including PureCom, PureTrack, PureTag and PureBeacon. The 5-year contract is already in effect and includes the option for a 1-year extension for a total of a 9-year potential contract term. The project is one through a highly competitive process, including several rounds of negotiations, demonstrations and system evaluations required and supervised by the IPS. We displayed Israeli incumbent that has held the contracts for many years, and this win exemplifies our commitment to excellence, technology leadership and strong partnerships. Our comprehensive set of offerings position us well to win multifaceted national projects such as this one, are set to encompass all electronic monitoring programs within the country. They have a broad array of solutions and with one contract and one provider ourselves, but we can support all the programs. Over the past month, we announced many new orders and new project wins in the U.S. and Europe. In recent years, SuperCom has continued to displace incumbent vendors and achieved an over 65% win rate in European competitive tenders. Looking to the EU market. SuperCom secured several new national tracking programs across Europe over the past few years with bids and contracts at various stages of execution. Notably, the company's large scale domestic violence offender 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 to anticipate a broader expansion of our solutions across continent. In the European market, SuperCom expanded its business over 10 countries that secured significant new contracts, which are typically awarded to a competitor tender process. Besides winning new projects, we continue to execute and receive ongoing orders from our existing partners, just about 4 weeks ago, we announced receiving new orders added over $2.9 million in European governments, totaling over [ $13.5 million ] new orders in the past period as described. Last year, we secured new national program with the Finnish government to deploy domestic violence monitoring solution. The deployment of our PureSecurity suite consisting a PureProtect, PureTrack, PureTag and PureMonitor 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 or service often choose to broaden engagement with our diverse array of solution. That means they start with one program like House Arrest, they expand to GPS for 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 electronic monitoring project in Romania valued at over $33 million, including up to 15,000 monitored offenders simultaneously per month for up to 6 years. The project has been progressing smoothly and demonstrating substantial advancements, further extending our engagement in the country's national EM project. The large scale projects reinforced the strength of our PureSecurity suite and cements our position as a trusted partner for government to worldwide. We've also launched domestic violence solutions all the European regions and have recently launched them as well in the U.S. Now look into the U.S. market. While the European market continues to grow, it's important to note that the U.S. market offers even larger opportunity brining approximately 3 to 5x the size of the European market for electronic monitoring. With the introduction of our PureOne electronic monitoring product, now available in the U.S. and 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 this in multiple U.S. states, we are actively focused on further expanding our presence in the U.S. Our wholly owned subsidiary, LCA, located in California is actively expanding the size and scope of existing programs, winning rebids with existing customers and winning new programs with brand-new customers. The company strategically prioritizes PureOne's expansion into new markets and geographies. The PureOne has already received high praise during the introduction of various features in USA, whereas it successfully deployed and it is actively utilized to monitor live offenders. Moreover, sales activities for PureOne have commenced in promising new markets outside Europe and North America. Despite our long-standing 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 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 PureOne in 2023 coupled with top positive feedback from initial deployments, positions us to accelerate market capture across the U.S., unlocking significant growth opportunities. Our strategic new sales team and new wins have been the first steps in executing the company's U.S. market expense strategy and already driven increased activity yields with existing customers and multiple new demos, resulting in a significant increase in companies in the pipeline. Launching our PureOne solution in the U.S. market late 2023 was a significant milestone in our expansion strategies. Since our last earnings call, we've announced multiple new projects in North America to provide the solutions. SuperCom has secured multiple new contracts with Sheriff agencies across West Virginia, these contracts leverages SuperCom's innovative Pier 1 suite with both cellular and WiFi communication facilities. And these contracts already generating recurring revenue, further solidifying our presence and footprint in the U.S. market. We've also secured new contracts with leading Baltimore-based service provider in Maryland and the contracts which we launched in June 2024, estimated to generate an annual recurring revenue of approximately $250,000. And we secured first new contract in the county in New York State recently. This win achieved through competitive selection process, further strengthens SuperCom's strategic expansion across the U.S. marks other milestone in our business plan. As I mentioned earlier, introducing our PureOne was a game changer in securing these contracts. It underscores our competitive edge and commitment to delivering an innovative and superior technology solutions. By securing these contracts to further reinforce our position as a market leader in various fields, and review these recent wins as indicators. We're growing influence and expansion potentially in North America and worldwide. In conclusion, despite macroeconomic uncertainties and ongoing global challenges, including those in Israel, SuperCom solutions are being increasing relevance. We continue to see growth driven by high recidivism rates, escalating cost of incarceration and the surge in adoption of victim protection solutions worldwide. The company's PureSecurity Technology have been designed to address these trends, offering effective ways for institutions to enforce home confinement, ease prison overcrowding and lower costs significantly. For example, monitoring confinement offender at home or GPS cost about $10 to $35 a day, which is 90% less than $100, $140 daily costs at a correction facility. Moreover, a home confinement helps to reduce repeat offenses, highlighting its effectiveness in helping offenders to improve their lives and communities. As we've mentioned in previous calls, we believe there is also an opportunity to enhance U.S. growth through strategic acquisition of local electronic monitoring service providers with a strong reputation of customer base in the local markets. We constantly monitor the market potential acquisitions 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 the store for $3 million of great example. The successful acquisition has been great strategic value for the company and allowed us to win over $35 million of new project wins in California alone through its acquisition. I'll now turn briefly to the financials. During this quarter of Q3 and the first 9 months of 2024 in comparison to the same period of last year, note that our multiyear projects should not run under quarterly scale and cannot fluctuate in effect NOI quarterly. We'll start with the 9-month performance which helps to drive some of these fluctuations end of 3 months. So for 9 months, revenue for the first 9 months increased $21.3 million, up from $20.9 million in the same period last year. Gross profit surged 35% at $10.7 million and 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 included $4.88 million, demonstrating the strength of our core operations and EPS reached $1.6 and non-GAAP EPS reached $3.1. The difference mainly attributed to amortization of class acquired asset business. The quarterly performance in Q3, revenue increased to $6.91 million, up from $6.78 million in Q2 of last year, driven by new price wins and expansions of existing contracts. Gross profit this quarter was $3.2 million, reflecting a margin of 46% compared to $4 million and margin of 59% in Q3. This margin decrease was primarily due to project mix and timing. EBITDA totaled $1.1 million compared to $2.5 million in Q3 of last year, also mainly due to project mix and timing. Positive free cash flow of $1.2 million in Q3 of this year, further underscore the strong financial discipline in comparison to negative free cash flows for the same period last year. Note, this is very interesting. On our cash flow from operations for the first 9 months of the year were positive. This is a big improvement from recent years. If we look at 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 9 months of 2024, we have positive operating cash flows. These are great results and great trend that we'd like to see and this supports our strategic plan and a tap them into the success we are achieving in it. Third quarter's results highlight our ability to seize the high-margin potential of our 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 competition and deployment stages. We are running multiple projects in different stages throughout the world, and that's how you can see the 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 margin based on the evolving project portfolio. As we deploy additional braces in regions where we run existing projects on our existing structure, the contribution margin for each additional braces can be as high as 70% or more. Our operating expenses in the quarter stayed in line with those 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 liabilities by roughly $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 at $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 in the external funding as we continue to win and execute projects. These improvements further strengthened 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 company's record-setting performance. We have developed the right technology and products to help criminal justice system clients overcome challenges that make better use of over $80 billion spent annually in the U.S.A. on operating rehabilitation centers [ in prison ]. With research showing that approximately 75% of citizen rate in the U.S. There's significant room for improvement when effective programs technology adopters. We're excited about the growth we are experiencing and about the growing demand of our products. After several years through which we transition from our legacy business to the IoT tracking number of offenders business, we're happy to show a shift, did nice growth in revenue and profit. We believe that we're well positioned to continue to expand by capitalizing on many opportunities for us. These are being driven by multiple factors, including our strong presence reputation in the U.S. and European markets. The countercyclical nature of electronic monitoring industry, the growing public policy shift to monitor the setup incarceration and the growing adoption of domestic violence prevention solutions. We anticipate continued expansion in the U.S. and Europe and potential other regions. Our commitment to conserving our technological advantage and a robust growth brought 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?

[Operator Instructions]. Your first question is coming from Matthew Galinko from Maxim Group.

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

Thanks, Matthew. Good question. Our -- as you may recall, when we entered the market several years ago, we had several small projects in Europe, like Lithuania, which are $100,000. We grew to larger ones like Denmark and then Sweden of $7 million and now with the [ Romania ] of $33 million. Those are all acts as references and a track record that helps us basically compete an ERP at this stage. So basically waiting for the one to come out and then we compete and use our -- usually leverage our strong win rate to help win those projects. In Europe, there's still many countries even though we have a 65% win rate we won many countries, there's still many countries out that we have yet to enter. And we are continuously monitoring and bidding and progressing and being evaluated for various projects across Europe. Almost every Western European country has national EM projects, and there's many we haven't entered yet like England, France, Germany and Norway and Spain. And so there are certainly opportunities of various sizes, and there are many that are out there that are bigger than Romania projects. And Europe, while being smaller than the U.S., still a great market for us. We have a very good position, very good reputation there, and we continue to bid there while in parallel, we enter the U.S. market.

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

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

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

Just to clarify, you're asking for putting more boots on the ground to accelerate it or for doing other strategic moves?

" Yes, yes, exactly.

Okay. Good question. So it's a trade-off with -- in the U.S. market, things move much faster than Europe because you're looking at counties sometimes and resellers -- resellers, now government agencies have to go through an RFP process. They could decide on their own. Resellers have 10 counties that they're controlling and they are running all the electronic monitoring programs for those counties. If they want to switch the technology, it is their product to do so. So they could find a new technology, a new company like ours and switch and it happens quickly. So within 2 months, 3 months, sometimes we see them switching over, they could start small, move over. They don't do everything at once. So it gives them a lot of flexibility and it allows us to move faster. That does require though, on the other hand, more feet on the ground because market is fragmented. And instead of just looking at one national project, you have dozens and even hundreds of projects spread across the U.S. throughout different counties and sometimes the same county have multiple projects because they'll have the sheriff program, reputation, they'll have the early intervention course, alcohol monitoring. It's very fragmented and requires more relationships. But the resellers do aggregate some of these and work with resellers, they have a quicker expansion. And we try -- as you can see, we try to keep an eye also on our cash use and our profitability. We were looking to grow faster. We could have raised if we were, let's say, a venture capital backed fund company. We could have raised more money and tried to put many, many feet on the ground to expand faster and faster. We, at the same time, though, are trying to maintain our profitability. We're trying to optimize our cash use, which you may have heard on the script from 3 years ago, where we had a negative [ $9.7 million ] in cash burn this year, we're cash flow positive so far. So we're trying to manage everything at the same time. We are cognizant of how many salespeople we put on the ground, and we have seen great growth already even as we work very efficiently with our capital and try to optimize and utilize our salespeople, and our sales expenses as optimally as we can.

Great. Well, I appreciate all the answers, and I'll be back if there are no other questions in the queue. Thank you.

Your next question is coming from Dan Shades.

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

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

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

This quarter, nothing in this quarter.

Zero in the third quarter?

Yes. Third quarter, nothing. It's just an update, we just gave annual updates and compared to the last year, you see the long-term liabilities are reduced because of conversions done through previous quarters, small amount, not just one conversion, smaller conversions with optimal terms that we try to achieve with our initiatives.

Okay. Wonderful. That's excellent to hear. How many -- can you give me an account of how many shares are outstanding at the end of the third quarter?

We did report, we had a semiannual report that we had recently, but roughly 2 million outstanding shares. A little bit more than 2 million outstanding shares.

Okay. Wonderful. I'm thrilled to hear that there wasn't any additional dilution than a long-term shareholder. And I believe in your product and your mission, but it's been a little disheartening to see the continual dilutions over the last couple of years. I hope that's behind us. And just one final comment. The market will -- once you -- once that is common knowledge and is out there, your stock performance will change because right now, that's what's been holding you back. And that's all I got to say.

I understand, yes. Thank you for that. I know that we have been working to grow our infrastructure and expand and we've been reducing our use of cash. And over time, as I said, we went from negative $9.7 million to negative $4.7 million to $2.4 million and now positive free cash flow. We don't control exactly the project stages and how things will roll out, and we hope to win more projects. And sometimes we need to use cash to support this growth. But we are trying to be cognizant and that's why these conversions that we've described the debt we've done at a premium up to 100% and that provided great value to shareholders. We're trying to be cognizant and delaying extended and pushed the maturity of our debt, and we've worked closely with various partners and creditors and parties to help get the best terms and to be able to execute and grow and implement our business plan while trying to optimize shareholder value. I appreciate your support over the years.

Your next question is coming from Matthew Galinko from Maxim Group.

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

Good question. And just make sure I have some information organized for you. So we'll start with a high level. The project was through an incumbent. There's an incumbent for many years in Israel, partnership that was holding the project. And we came with a different partnership together with Electra and we won bid. The first period is 5 years. There's four 1-year extensions, that's 9 years. If we do well, that could be extended for another 9 years as we see in many regions in the world. Initially, it starts with House Arrest which is RF based, and that is an initial program is expected to have 1,500 offenders and not a purchase to lease model that we see many times in the U.S. market and in some parts of Europe. There are other types of programs that, as we discussed on the call, like domestic violence and others that we believe the Israeli prison IPS is what they're called, they plan to use more of these programs to help with the criminal justice in Israel. There's been a law passed last year around domestic violence, which allows and complement the use of electronic monitoring for domestic violence and there's other things that are in process. This project gives us the right for all the electronic monitoring projects in the country over these years. So as the government decides to deploy more projects, we will be the vendor deploying them. And we have experience, as noted in many of these programs in many countries around the world of various sizes, including the 15,000 unit project in Romania, which is mainly domestic violence. We've seen even in house arrest increases to the quantities every year, and we expect those numbers to grow. That's just for the initial program. But beyond the initial program, which grows, we're expecting potential additional programs to be added on to the projects, which will be very valuable.

Got it. And as we think about additional units on the house arrest or additional programs under that win. So if you add incremental units, what does the margin look like if you go beyond the 1,500, I guess? But I guess is there a benefit to add...

Yes, Yes, yes. So there's a lot of cost with deploying a new system, that includes installation and hardware and teaching and setting up support and [indiscernible] manuals and setting up the software that includes development of the software and adaptation and specific programs that the customer wants. We do that with every -- not every customer, but every large customer that has specifications we have to put our effort in that and that lowers our margins. But as you noted, every additional brace that we put on has very high margins, much higher than the original ones, because you don't have to do any additional customization. Whether you're doing 1,500 or 10,000 units, it's mainly the same. You have to add more units and the margin on each additional unit is very high, sometimes 70% higher. It depends on the specific pricing of the specific program. So sometimes you have one brace in one phone, maybe 1 brace in 2 phones. Sometimes you don't have a phone at all you have braces, you have a house unit, each one has different cost and different cellular costs and the margins could change, but they are much higher when you add additional units to each existing contract. And what's nice about besides Israel, which is going to put more programs and it's going to be interesting and a good margin. In the U.S., almost all the programs run on the cloud and they run with the same language and out of the same infrastructure and the same protocol. So it's very nice that the market there, which is already 3 to 5x the size of Europe, will utilize the same systems allowing us to reach higher margins versus in Europe, where each nation had -- a lot of it was purchasing and a different languages and different protocols and different laws, and it made a little bit more complex there from nation to nation. Here in the U.S., we're actually seeing more consolidation and more similarities between programs. That's going to be a benefit for us looking forward in the future.

Got it. And then final question on that. I don't know if you can answer this, but is there a number of tracked offenders. Do you think the Israel deal can reach over the initial 5-year period. So we started at 1,500 and maybe that ends at like 3,000? Or is it impossible to answer that at this point?

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

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

We already started with the project deployment. It takes time right now, the processes of definition and planning, and it should take 6 months or so for the -- some of the initial deployment steps. The beginning number is expected to be a little less than 1,500 and then it can grow, maybe somewhere between 1,000 to 1,500 at the beginning and then it grows 1,500 quickly. But it does happen through swaps. And Israel is a smaller region. It's easier than when you expand to, let's say, across large regions like California. So you have easier touch points and access to the offenders, you're able to do the swap from one vendor to another relatively quickly. It can be done in a month, for example, that number [indiscernible]. But first, you have to set up the infrastructure, run the test, train everyone, everyone's ready, and that's what we're looking to do in the 6 months, while the program is running right now with different vendors. So it's a swatch, swap handover process, which we're very familiar with and we've done dozens of times around the world successfully. And of course, that's what gives our customers confidence when they choose us in the first place. So we're doing that here in Israel, just a little closer to some of our staff, which will make it actually easier than normal. And I mentioned we have a local partner, Electra, which is a large corporation here in Israel, and they're spread out throughout the country, and they're going to be doing and handling a lot of services and swapping and so forth. And it's going to -- while it's an interesting endeavor for anyone, we feel confident in government as well that this process should be smooth like many others that we've seen in the past through our partnerships.

At this time, I will pass the call back to Ordan for closing remarks.

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