SuperCom Ltd. (SPCB) Earnings Call Transcript & Summary

I'd now like to turn the floor over to today's host, Ordan Trabelsi, Chief Executive Officer of SuperCom Inc. Please go ahead.

Thank you, and hello, everyone. Welcome to SuperCom's investor presentation, September 2026. I'm going to start along here, and at the end, we'll have some time for Q&A. General safe harbor statement and here, we have a bit of overview of SuperCom. So we've been around since 1988 since then we've been a global provider of electronic security solutions to governments around the world with our focus in recent years on a [indiscernible] of electronic monitoring services, potentially ankle bracelet and complementary services for house arrest, GPS monitoring, alcohol monitoring and so forth, which we'll go more into. Other than that its on the NASDAQ Capital Markets trading and Nasdaq SPCD. I, myself as the CEO and other senior management and other senior management transitioned in February 2021. And since then, we've been on a very nice run. We've had a CAGR over the last 4 years of roughly 30% for our electronic monitoring business. We've had an EBITDA CAGR of 47% over the last 4.5 years, leading to trailing 12 months EBITDA of $11.7 million. As of Q2 2026, we invested over $45 million into the R&D of this unique proprietary platform for electronic monitoring that we developed. And with this technology, we're able to expand very effectively in Europe with over 20 national electronic monitoring project wins and over 45 new contracts in the U.S. across across 20 new states since mid-2024. A lot of our technology is supported with a strong patent portfolio, and we have a track record of working with over 70 different government customers and over 100,000 individuals around the world. Our mission to revolutionize public safety worldwide with innovative electronic commodity technology and complementary services. And the reason why this mission is so important is because right now, there are some worldwide challenges with the criminal [indiscernible] systems. They come from many different directions, but essentially, this leads to [indiscernible] prisoner over crowding, excessive costs and ultimately [indiscernible] are behind bars today, and that number is not improving. You can see it's significantly higher than in some of the countries in Europe. But in those countries in Europe as well as in the U.S., we've seen prison over crowd and there's never room to keep people behind bars. And beyond the higher prisoner rates and the prisoner over crowd and there's excessive cost for this whole operation. There's over $80 billion annually, just running prisons in the U.S. And you could save over 90% of those costs like keeping people on house arrest, and with people in house arrest, now that the [indiscernible] only saving costs, but we're also allowing themselves to study to help the family and loved ones and proving itself over the last couple of decades. The market is expected to reach $2.3 billion in 2028. We're growing roughly at a 7.5% CAGR annually. And in Europe -- in Europe, the market size is [indiscernible], and in the U.S., roughly 6x out of $1.8 billion. And there are only 10 global players, which we see consistently in the competitive tenders. And you can't enter the market. It's very highly barrier to entry to show roughly 5 to 10 years of industry experience, even bid on a competitive RFP. And that creates a nice moat in the industry, and we're always seeing the same players consistently compete, and we're actually able to perform very well in those tenders and continue to expand within the market and to grow the market within the projects that we have. If we look at our technology, this is all developed in-house and SuperCom security suite and the touch of the pure monitor on the cloud or on-premise at various countries and essentially, it tracks where the offenders are any given moment, the 24/7 tracking and you could put exclusion zones, whether or not allowed basically to schools or various locations, inclusion zones where they're supposed to be in certain times of the day, if they're at work, they're at home, you see we have an array of different hardware technologies. We have a PureTag that works with the PureTrack, which has allowed mobile [indiscernible] tracking together with [Audio Gap], which is Tether. We have the PureOne, which is all-in-one solution, which has been very successful in the U.S. in our recent invention. The PureProtect gear, which is the domestic violence solution, and we're one of the the main players in domestic [indiscernible] market. We're across 9 nations already with our solution. And the [indiscernible] if somebody commits domestic violence, they receive a bracelet, then they can't come close to the victims, and if they do, the victim's phones alert through our technology. And it's a very effective solution, and it really helps [indiscernible] and paradigm and really creating headwinds -- really creating traction towards progressing on this [indiscernible] problem, and we're happy to be at the forefront of finding solutions for that. With our technology, we're able to support [indiscernible] programs, house arrest monitoring, GPS monitoring as well as domestic violence as just described, in the monitoring where we attract the people in the prison. [indiscernible] monitoring, we're actually tracking the alcohol levels through the sweat or through breathalyzer, and we provide complementary rehabilitation services and locational trading, anger management and what have you [indiscernible] the reenter society in an effective manner. And with our technology in the U.S. in the last 2 years, we have secured over 45 new projects, new contracts, which we're very excited about and the progress is in the U.S. and it's just starting to build -- there's still much more to go. With our technology, which we believe is industry leading, we've invested over $45 million into it in developing its R&D and continue to invest every year. We're able to achieve a win rate in Europe over 65% in the competitive RFPs, and there's [indiscernible] of players roughly. We've been able to win more than 55% of the bids and the rest, have won the remainder and a lot of this we attribute to our technology, which we believe is superior in many factors, including the long battery life where some tags run for day or 2 and our technology architecture allows you to run for up to a year or more. We have ultra light waist solution. The bracelet is ergonomic and ultra light weight and small, the next-gen location tag [indiscernible] biometrics, the video call that are capable to [indiscernible] communication and the domestic violence solution, which we do in [indiscernible] way, which is proven to be very effective. In Europe, which we started several years back. We had a very nice traction to serve small projects like Lithuania and Latvia, of $100,000 or $200,000 in size as close [indiscernible] ladder [indiscernible] larger references, more successful deployment like this one on [indiscernible] equipment. And then in Sweden with a $7 million project, and then just recently, earlier this year, we announced a new project [indiscernible] from $70 million to $75 million, which is the budget announced by a customer. And that shows the continued relief for customers in our solution. Romania was over $33 million, Norway, which we just announced earlier this year as well, which closes off all the Nordic countries. We essentially displaced incumbents in all the 5 Nordic countries and many of them displace incumbents, which are there for 20 or 25 years. And we believe that the stickiness of the solutions is a very interesting part of the industry. It's hard to displace someone. Once you do, you have a long-term customer for a very long period of time, just like we saw with Sweden, Norway or the project in Israel. There are many opportunities that are still out for bid in various stages. We spoke on the call about the projects coming out of the Italy or the projects coming out in England, which are very large, and we expect to continue to compete again in effective fashion in the European market. and continue to bid larger projects as well as projects of medium size. We continue to bring on our solution to more customers around the world. or at least in Europe. Furthermore we discussed the APAC region, South America and America, which we start focusing on other areas of the world, which we think our technology could be a great fit, and we've proven to be very successful on our deployments in the past, and we think that [indiscernible] looking at other regions as well. Beyond the international markets, in Europe here, some of the contracts we wanted to [indiscernible] once you enter into a geography, there are many other opportunities which you're accessible to, like in Finland, we started one project and we had another one. In Israel, we won a project which covers all the EM programs in the country. Romania, we started was the largest project in '22 of the 50 enrollees and domestic violence. And we're looking for -- with our customers, those were the first project that is done in EM space. So we're happy to get a trusted partner there as they explore more potential solutions. In Norway, we just won a project there. Sweden started like I said years ago, and so we've already done [indiscernible] different projects in that country. And the latest one is significantly larger than others. So once we get into a region, we start expanding. We offer market abilities, more programs, more enhancements, and we're a great partner, a trusted partner to our customers, hopefully, for many years in the future. In the U.S. and as I described early on, [ 6x ] the size of Europe and the market is very well organized into collusion on the cloud. The pricing is kind of standard price per unit per day. Everything is in English. We're able to support it in a much more seamless fashion. And we just expanded into these market in an effective manner 2 years ago, we've been expanding at rapid speed into 20 new states already signed, 18 new original service providers who have access to all the technology solutions. These are experts in the field, and they chose our technology, which is a great testament to the delivery [indiscernible] and our capabilities, together with counties in 20 different states and over 45 contracts in general here as well. Just taking Europe, which [indiscernible] small counties, small programs that were maybe 10 or 20 units and have grown to larger and larger. And over time, we expect to win larger countries in state and then someday state and federal -- federal projects. In most of these wins, we displaced an incumbent. Again, showing the customers who have chosen our technology over that of existing long-term players in the U.S. market and we displaced many different players on different contracts. We're very excited about our trajectory. Everything in the U.S. is per unit per day. It's a very standard structure of recurring revenue with higher margin. And we did announce on our latest quarterly call that the the technology ARR, the ARR for technology in the U.S., not services in California has grown roughly 290% from the summer of '25 to summer of 2026. So really accelerating very nicely there and the progress which we're excited about. A lot of these projects, important to know whether you look at the U.S. market or the European market. A lot of them are long-term government project, very sticky, hard to get in, but once you're in you are there for a long time, especially the large ones that are national, [indiscernible] in Europe. The first stage was to collect some information, understanding what the customer wants with existing projects looks like, teaming up with the right subcontractors and then putting out bid going through valuations and then winning and signing the contract, deployment could be between 3 and 12 months, sometimes a deployment even faster. We've won as quick as 3 weeks or less, if the customer we're very polished with our deployment. We've done so many projects in the last years, and our operations are quite smooth in that, on that section of deploying the project as well as serving our customers into the recurring part of the project, which is just provide more equipment, more services, add-on and capabilities. And the average that we see in the market for the technology and the services is roughly $2,900 per offender per year, and that runs for many years going forward, 5, 15 and more. So we've had this very nice growth over the last 4 years of CAGR from '21 to '25 was roughly 30% of the Electronic Monitoring Business. We continue to invest in growth, of course, in R&D. And lately, we've been developing our sales team. Our strategy is on multiple fronts. Firstly, we're continuously bidding and hope to win more national projects in Europe, where we have a great reputation, great [indiscernible], great references our technologies is a very good for the needs of the European market. We started expanding into the U.S. very effectively 2 years ago, and we're answering directly and through partnerships with our service provider partners across 20 states so far, and we expect that number to continue to expand. We're considering acquiring service providers to strengthen our presence. We did that in California years back, that helped us win many new contracts in California over $35 million of new contracts, and the presence is very valuable to us to consider for other areas in the U.S. We are enhancing our [indiscernible] sales efforts in the U.S. in Europe, in other markets such as LatAm, as I described, and we're innovating with our technology to unlock new opportunities with new submarkets such as that of domestic violence solution. So on multiple fronts, we hope to execute on our growth strategy. Our shift in the industry for those who look back at the company has been around since 1988. In 2015, the company was mainly doing identification. Now we're almost entirely doing public safety, which is electronic monitoring. We have a small section that builds fiber security software, but the majority is public safety and we see the transition from identification moved down at the same time. There has been a consistent growth in public safety with a CAGR of 48% over these years. Look a little deeper into the recent years. The market has grown roughly 7.8% and at the same time, we've grown roughly 30%. And roughly 4x faster than the industry. And that's, of course, because we're taking a lot of contracts away from our competition and displacing them. And together, we've been able to show operating leverage and efficiency and optimization of operations, such that our EBITDA has actually grown faster than our revenue and our 47% CAGR over the last 4.5 years or so, as we see here, consistent upward movement and growth in our annual EBITDA. Some investment highlights. We're looking at a $2.3 billion market and the annual revenues of close to $30 million. We're still [indiscernible] for us going forward. We've had nice growth, and we [indiscernible] the user technology to expand many more opportunities and geographies around the world. In the U.S., we've had rapid expansion, 45 new contracts in 20 states. And I think that -- that's not been seen yet in our industry. In Europe we've got good scale with over 20 national project wins, and we continue to bid and win more projects in Europe, large scale as well. The 30% CAGR for electronic monitoring business has reflected a roughly 4x growth of that of the industry, and our financial performance continues to improve with 11.7 -- trailing 12 month EBITDA as of Q2 2026, record Q2 2026 revenue of $8.1 million and EBITDA of $4 million. High recurring revenues, whether they're in Europe or in the U.S. long-term government projects, a very strong technology-based competitive edge. We put over $45 million, and we have a strong client portfolio as well. Look just at a high level to our financials in the first half of the year. So we look at H1 first, roughly $7.5 million of cash since then we've secured another financing of $7.5 million to grow our cash balance, the higher level support our potential growth opportunities. And as we bid on different projects that could show a strong balance sheet to help get customers comfort. Our revenues in the first half of the year, roughly $15.7 million, into [indiscernible] $7.3 million. And nice margins, gross profit margin of 61%, net profit margins of 36% an [indiscernible] margins of 46%. Our stock has been moving around a little on the amount of outstanding shares, roughly 6.3% as of the last offering that we shared, which is in July. And Q2, which we just reported recently, you can see here revenues -- record revenues of $8.1 million, representing a gross profit margin of 60% and net profit margin of 35% and EBITDA margin of 48.8%. When you look year-over-year, we had [indiscernible] growth in revenues of 13%, roughly. Gross profit grew by 15% year-over-year and EBITDA grew by over 55% year-over-year, as well as non-GAAP net income. So across the board, good improvement, good progress to support continued expansion and operating leverage and the optimization we're doing in our business such as various processes and optimizing and then in our European projects that we discussed on the call as well. Great. At this point, open the call up for Q&A. Thanks for all those who [indiscernible] for listening.

Okay. So I have a variety of questions here, and I'll read the questions and answer. Okay. So first question here by Chris, with so many wins, it seems like revenue growth should be much higher. A lot of these deferred revenues are in the backlog he's asking. So a lot of these wins take time to see into the financials, to convert into the financials, especially in the U.S., we announced continuously, and it could take 6 months or more until the deployment is actually effectuated. These are existing programs that are running on existing offenders with other company technology and need to bring all the offenders back and replace it so they don't necessarily do that in organic fashion. They wait for the offenders turn to end. And when the new offender comes on, they'll put our technology just a little bit of a process. And in Europe as well, we just announced a project in Sweden that could be between $70 million to $75 million. That's over the next years. So we're just at the beginning of these wins, and those would fall into our backlog. And next question. What is a [indiscernible] on SuperCom that have held contracts for so many years. So to the point, as we mentioned, we displaced incumbents for 20 years, 25 years in Israel, in Norway in Sweden and many of these opportunities around the world. And I think at -- we believe a lot of it is in our technology, and the more deployment that we do, the more strong references we get for more customers, that we were able to deploy effectively successfully with good service, with good support as the technology keeps getting stellar reviews, and that's what helps us essentially win. The question here is what is driving the increase in units deployed within existing U.S. contracts? So this follows up to the previous question. Let say a county has 300 units and they want to replace them with our technology for the incumbent technology. Some of these offenders are running programs they're on the program for 2 months, 3 months, 4 months, they'll wait for the offender to finish his term and then before they put the next offender on because they have to come back and bring technology, then they'll put our technology and swap it out. So it's a process of swapping it out. It doesn't happen overnight. It does take a period of time. And then you'll see the annual recurring revenue or the monthly recurring revenue start to build up and that's what drives the 290% change in ARR from year-over-year that we described earlier in the presentation when we look at the summer of 2025, 2026 for technology in the U.S. outside California. There are for a few more questions. It's a long question. Essentially, if SuperCom closed deals over $100 million of expected value accelerated U.S. ARR year-over-year and generated a record of cash flow he's saying here, despite that the stock is down, and we're trading at -- the stock is trading at less than 4x EBITDA. And the U.K. contract, if we win, it would have a significant impact. [indiscernible] technologies as a competitor of ours trading on the London Exchange, who is losing shares in Europe, trades at 150% premium to SuperCom. And a lot of these other players are getting higher multiples. Then we have -- the story is still new. We believe more investors are catching on to the story, and valuation is still undervalued. And as I said in the past, the companies have reached out to us on various occasions and the Board assesses it. And when it's an appropriate value that we think reflects the right returns for our investors. We will consider those further. But we think that the market cap has grown significantly and more market players are catching on the SuperCom story and what we're doing there. And sooner or later, I would think the multiples will align more with industry standards. Just one last question because we have to wrap up. So I want to ask you how sustainable is the current pace of U.S. electronic monitoring growth? We're just starting in the -- we're still early stages were smaller counties that are growing. There's much larger counties and they're state projects. And so there's a very big opportunity in U.S and the growth could still be very substantial. And the U.S. margin -- revenues are at higher margin than Europe when you're talking about cloud, running a recurring revenue. So we're very excited about the opportunities in the U.S market. We grew our sales teams there. We have veterans from the industry and technology is just doing great. So we're very excited about the next steps, and we'll keep you guys posted. And with that, I think we're running out of time here, so I'll have to say thank you to everyone. Thanks again for joining our presentation. Follow us for more updates through our press releases, our quarterly calls, and our website at supercom.com. Thanks again, and good luck at the rest of the conference.

Thank you. That concludes SuperCom Inc.'s presentation. You may now disconnect.