SuperCom Ltd. ($SPCB)

Ladies and gentlemen, good morning, and welcome to SuperCom's First Quarter 2026 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 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 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 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 14, 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.

Thank you, operator, and thank you, everyone, for joining today. Since we just had an earnings conference call 2 weeks ago, we're going to keep today's call shorter with a brief overview of the business financials and then open it up for Q&A. For those of you who are new to SuperCom, we provide electronic monitoring and public safety technology to local and national governments around the world. For over 3 decades, we have partnered with national governments across the globe to deliver secure, scalable and innovative technology solutions. In recent years, our focus has shifted sharply towards criminal justice, where we leverage our proprietary PureSecurity product suite, where we invested over $45 million for offender electronic monitoring, including domestic violence prevention technology and alcohol detention through lightweight ankle braces with extraordinarily long battery life and other connected monitoring devices and capabilities. Two weeks ago, we reported our financials for fiscal year 2025, which reflected the completion of a very successful 4-year transformation, representing a compounded annual growth rate in revenues of approximately 30% in our electronic monitoring business and a CAGR of approximately 47% in company EBITDA, reaching an annual 2025 EBITDA level of $9.4 million from $2 million in 2021. We also reduced our debt in this period by approximately 45% and lowered our blended interest rate from double digits to slightly below 6% as well as increased our cash and short-term deposit balance to over $12 million. Entering 2026, we are pleased to begin with record gross profit, record operating income and record EBITDA of $3.3 million for the first quarter of the year, reflecting continued execution across our business and the scalability of our recurring revenue model. We continue expanding in Europe with 2 new national contracts, including a $17 million national contract for Sweden's Ministry of Justice. And at the same time, our U.S. electronic monitoring technology annualized recurring revenue or ARR run rate has expanded by over 180% year-over-year from May 2025, reflecting the accelerated impact of a rapid deployment and expanding customer footprint across the United States. Year-over-year financial highlights from our Q1 report compared to the same period last year are summarized as follows: Revenue increased 8% to $7.6 million from $7.05 million. Gross profit increased 8% to $4.8 million from $4.5 million, an over 10-year record. Gross margin remained robust at slightly above 63%. Operating income increased to $1.23 million from $1.21 million, another over 10-year record. Excluding the extraordinary financial gains of $4.1 million recorded in Q1 2025, our GAAP net income surged to $1.33 million in Q1 '26 from $0.1 million in Q1 2025. These gains are related to conversions of debt to equity and negotiated premium prices of up to $43 per share done in Q1 2025. Excluding the extraordinary financial gains of $4.1 million recorded in Q1 '25, again, non-GAAP net income surged 155% to $2.78 million in Q1 '26 from $1.1 million in Q1 '25. EBITDA increased 32% to $3.34 million from $2.53 million, another over 10-year record. GAAP EPS was roughly $0.24. Non-GAAP EPS was $0.61. Cash and cash equivalents increased to roughly $11 million and book value of equity increased to $45.6 million from $43.5 million at the end of 2025. As you've noticed, significant improvements in profitability. I want to give a brief -- some more color on the -- what's driving this profitability. Beyond the clear benefits from economies of scale and operating leverage, our improvements in profitability are being driven also by the following: Firstly, consolidation activities in Europe. As you know, our projects in Europe are in many different countries. And historically, we team up with a local partner who would handle the training, the language, the on-country presence, the deployment on on-premise services and others. And we continue to consolidate and centralize our operations in Europe. We established a central European hub in Romania for logistics, equipment handling, shipments and RMA. We're also expanding our scope by taking over more IT and more support responsibilities directly, reducing our reliance on local partners and improving our margins. We now provide also our own 24/7 multi-sphere technology support across projects, centralizing these functions is significantly improving margins across contracts. We're also leveraging AI to accelerate development, introduce new automations, improve operational efficiency and reduce costs across development and customer operations. Our new products and technology advances can reduce costs dramatically given improved architectures requiring less labor in replacement, support and other processes that overhead the cost for our business. And our expansion to the U.S. The expansion in the U.S. market is in itself an improvement to profitability because everything is centralized to the cloud in English and usually consisting of simple product mix as opposed to Europe, which has a lot of different products, project deployment and language complexities in the national projects. As we enter and grow U.S. electronic monitoring technology revenues, more profitability is expected to improve. Our U.S. growth and expansion was one of the central developments in recent years. Since mid-2024, we have signed more than 40 new electronic monitoring contracts, entered 16 new states and built 17 new service provider partnerships. There is an inherent lag between the contract signing and revenue recognition. In some of these contracts, it takes up to 6 months or more to fully deploy since they have to swap out their existing units and this could take time. Sometimes they just swap out organically to avoid the installer overhead such that every new offender is put on SuperCom technology and as existing offenders end their monitoring terms, the incumbent provider's tech is returned and replaced by SuperCom's technology for the next offender with the same unit. Hence, when we announced new projects in 2024, or 2025, there's a lag until you see it. And in 2026 in Q1, we've seen this nice growth in ARR, which continues to improve as the months go by in the year. We're experiencing acceleration in our expansion numbers here. Our SuperCom electronic monitoring technology quarterly recurring revenues for the first quarter in the U.S. increased approximately 88% for the whole first quarter, while as of May 2026, the annualized recurring revenue run rate grew by over 180% compared to May of 2025. As you may have noticed, the majority of our revenues are still coming from the EMEA region, Europe, Israel. And a lot of our projects there are from the over 15 national project wins that we have announced in recent years. They provide a strong base for continued growth. And with an active and growing pipeline of meaningful opportunities, customer relationships are very sticky. And our expansion, we displaced very long-term incumbents such as a 25-year incumbent in Sweden and over 20-year incumbents in Israel and Germany and also successfully entered brand-new EM countries like Romania, where we won the country's first electronic monitoring contract with an initial value of over $33 million in 2022. In Sweden, we recently won national project with initial value of over $17 million with substantial opportunity for expansion beyond that. This brings us over $25 million in aggregate initial value of contracts we won in Sweden in electronic monitoring. Several years back, we started off with projects of $100,000 in Lithuania and Latvia. And since then, we've been growing in scale to $3.6 million in Finland, another $7 million in Sweden, another $17 million in Sweden, $33 million in Romania. As we grow up the ladder, we hope to win larger and larger opportunities. And we know that in the market, there are many out there, including an opportunity that we're expecting to come up in Italy for expected over $20 million and opportunity over GBP 150 million expected to come out as the initial RFP sometime in 2027. With that, I'd like to turn the call over to operator for any questions from our participants at this time.

[Operator Instructions] The first question today will be from Matthew Galinko from Maxim Group.

Maybe firstly, can you expand a little bit on what the competitive environment looks like today and winning clearly a lot in the U.S. and Europe. So are you seeing anybody new? Or can you go over what's supporting your ability to win these greenfield opportunities and displace the incumbents?

Matthew, great question. We just announced 4 new county wins, contracts in New York. We displaced 3 incumbents. These are established industry veterans. There's still roughly 10 players in the industry globally. There's high barriers to entry. You can't enter if you haven't shown experience and references for 5, 10 years in the industry. So that keeps the industry kind of barrier even though it continues to grow. We displaced 3 different incumbents. And usually, we score much higher in technology. In Europe, we were doing this on a national level with long-term evaluation processes, which took months and months. And in the U.S., a lot of it is through live demos and trials. They take our equipment, they run it, they compare it to what they have. And as you saw, we had 100% conversion in these 4 opportunities that we faced in New York and many others around the U.S., we have very high conversion rates. And we believe it's because of our technology and our good track record. In New York, for example, we had an initial county give very strong references to these 4 new counties. So we're doing good work, good deployments. Those references are coming to new customers, and that together with the trial demos and the technology capabilities are helping us to win new projects in the U.S. and in Europe. And I remind you that in Europe, we had over 65% win rate in RFPs. In the U.S., in a lot of these direct counties, we're even seeing higher numbers than that. And it's still early on. We'll see how this rolls out for the rest of our expansion into the U.S. market.

And then I think you shared a 180% growth rate in ARR for the U.S. market. Can you just mention whether that includes or excludes services delivered by LCA? Or is that purely from the new initiative in the U.S.

So it's a great question. And in the U.S., as you might remember, we have a lot of our revenues coming from California from our LCA business. What's new in the recent year, 1.5 years is us providing our PureSecurity technology to customers in the U.S. and these increases in ARR numbers are of that technology. So SuperCom's ARR technology and SuperCom's electronic monitoring technology, they are not the recurring revenues at LCA, which have been running for many years, which include a lot of services as well. This is only for EM technology.

Okay. I appreciate that. That's helpful. And then maybe one last question for me, and then I'll jump back in the queue. You highlighted a couple of the large European national programs that are coming up for bid. Can you talk about how SuperCom is maybe positioned differently from the last time these programs were up for bid? And do you think you have a stronger chance of winning them this time around?

It's a great question. So in England, the project is very large. As I said before, we're expecting it to come out next year, a very large budget. In the past, we competed for this, and we didn't win first place, even though we did do well on a lot of the scoring. Some of the things that we dealt with was our weak balance sheet and financial position and low references. So back then, we had less references and also other vendors tried to point to the fact that the company had maybe only a few million dollars of cash, a market cap of $4 million, a lot of debt, high interest rates and the stability of the company was that question. Today, our balance sheet is much stronger. We have a much larger reference base. The company is much more stable. We have a lot of cash on hand. I think they'll make it much easier this time around with that England opportunity. And there's many other ones, like we said, Italy and other countries we haven't entered yet. But as we continue to deploy more projects in Europe, we not only continue to deploy more projects in those regions like we saw in Sweden, it's the first contract already, but we also increase our opportunity and our capability to win other projects in other regions in Europe, similarly, as we're going to be seeing in the U.S. as well.

[Operator Instructions] And the next question is coming from Greg Mesniaeff from Kingswood Capital.

Two quick questions. Can you share with us the percentage of your revenues in the first quarter that came from the U.S. and how that has trended versus last year?

I don't have the exact percentages, but it's been similar to what you see on the annual report. The U.S. is still much smaller than Europe because of the project size, but the numbers coming from the SuperCom technology are growing very fast, and that -- if that growth continues, of course, the U.S. will be much more substantial. And we expect over time, the U.S. to actually grow past Europe because the market in the U.S. is $1.8 billion by 2028 compared to $300 million in Europe.

Great. And can you give us an update on the Romania situation?

Can you elaborate when you say on the Romania situation?

Well, you had quite a bit of business there. And is that still continuing at the same run rate? Or has it slowed down temporarily? Or like what's the...

Okay. Great. Great. So we won the Romania project in 2022 over $33 million. And like in many projects, when we do good work, the deployment is faster than originally expected, and they deployed relatively fast and ordered a lot of units. Last year, there was a decline from that specific customer, and we described that without that decline, the growth last year would have been approximately 40% for the business because of everything else that was happening. Romania this year continues to work. We're getting new orders right now, and we'll see what size those orders will come out for the year. But it's still active customers of ours and satisfied customer. The ordering levels can move around based on their own needs. But like we've seen with any other customers that we -- either we displaced or that we have for many years, once you have a customer, they stay if you're doing a good job, they stay with you for a very long time and continue to order more units and add more programs and more capabilities. So right now, we have been receiving orders from Romania, and we're supplying them as we speak. We're working on supplying those orders.

And Ordan, when you get follow-on orders, I'm assuming the margin profile is better. Is that right?

Yes, it's a great point. As we progress -- within any project, as we progress further and further, the margins are better. And a lot of the projects we have today are later stage, and that's why you're seeing improved profitability in general. But at the beginning, you have a lot of training and installations and development and adjustments and slowly in the server farms and then afterwards, just additional units with high contribution margins. And that's why it's so interesting in the U.S. market because in a way, it's one deployment on the cloud in English. And even those different counties and different regions, it's all on the same platform and has a higher gross margin, and it's all charged per unit per day. And in essence, it's easier to track in a consistent manner. It's much more diversified. And so we're very excited about the expansion to the U.S.

And that does conclude our Q&A session today. At this time, I will pass the call back to Ordan for closing remarks. Okay. Please pause. We just got a couple of more questions in. The next question is coming from Song Lim from Sapience Investments.

Given the AI, how AI has been impacting the tech industry, could you give us more color on how that impacted your company and your industry?

Right. So we did -- I did share on the prepared remarks that we're using AI also in our ongoing operations and development, logistics and our processes to help improve profitability. But also, we've been integrating AI into our technology offerings, and that's at various stages in its life cycle. We gave one update a couple of years back, and we plan to give another update on this. But that's also something that through our offerings, we plan to also leverage the power of AI for some meaningful things, and we'll give future updates on that.

And I noticed that I only have annual figures for your free cash flow or your cash flow numbers. Could you -- but not on a quarterly basis. And I've realized that in the past couple of financial years, free cash flow has been negative, and I think operating cash flow as well. Could you give us more color on that with cash flows going forward?

Yes. Regarding cash flows, we -- it depends on the mix of projects. You see, when we have projects like Romania producing the majority of the revenues because of the nature of purchase there, higher cash flows, but margins are lower than other projects like in the U.S. where it's recurring revenue and you're manufacturing more and receiving cash over time. So there's a mix. And based on the revenue mix, you'll see a shift in cash use and profitability margins.

[Operator Instructions] And there are no other questions at this time. At this time, I'll hand the call back to Ordan for closing remarks.

Thank you, operator. I want to thank all of you also for participating in today's call and for your interest in SuperCom. We look forward to sharing our progress on our next conference call, filings and press releases. Thank you very much, and have a good day.

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