Q3 2021 Supercom Ltd Earnings Call

November 11, 2021

[music].

Operator: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the SuperCom Q3 2021 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 star zero. After today's presentation, there will be an opportunity to ask questions. To ask the question, you may press star one on your telephone keypad. To withdraw your question, please press star 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. A webcast replay of the call will be available approximately one hour after the end of the call through 8 December 2021.

Ladies and gentlemen, thank you for standing by good morning, and welcome to the Supercomm Q3, 2021 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 star zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May press star one on your telephone keypad to withdraw your question. Please press star 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. A webcast replay of the call will be available approximately one hour. After the end of the call through December <unk> 2021 I would now like to turn the call over to Scott Gordon.

Operator: I would now like to turn the call over to Scott Gordon, President of Core IR, the company's investor relations firm. Sir, please go ahead.

President of core IR, the company's Investor Relations firm Sir. Please go ahead.

Scott Gordon: Thank you, Kelly. Good morning and thank you all for joining today's conference call. Joining me from SuperCom's leadership team is Ordan Trabelsi, Chief Executive Officer. During this call, management will be making forward-looking statements, including statements that address SuperCom's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in SuperCom's most recently filed periodic reports on Form 20-F and Form 6-K in SuperCom's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes EBITDA, a non-GAAP financial measure that SuperCom believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

Thank you Kelly and good morning, and thank you all for joining today.

<unk> call joining me from Super Tom's leadership team.

Jordan Trabelsi Chief Executive Officer. During this call management will be making forward looking statements, including statements that address supercomm to expectations for future performance or operational results forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

For more information about these risks please refer to the risk factors described in Super comps. Most recently filed periodic reports on form 20-F, and form 6K, Supercomm as press release that accompanies this call, particularly the cautionary statements in it.

This conference call concludes EBITDA, a non-GAAP financial measure, but supercomm 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.

Scott Gordon: For a reconciliation of this non-GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in SuperCom's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, 11 November 2021. 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 Ordan Trabelsi. Ordan, please go ahead.

For a reconciliation of this non-GAAP financial measure to net loss its most directly comparable GAAP financial measure. Please see the reconciliation table located in Supercomm earnings press release.

The content of this call contains time sensitive information that is accurate only as of today November 11th 2012.

Except as required by law Supercomm disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call and it's now my pleasure to turn the call over to Oregon Trabelsi Gordon. Please go ahead.

Ordan Trabelsi: Thank you, Scott. Good morning, everyone, and thank you for joining us today. Earlier, we issued a press release on our financial results for Q3 2021, a copy of which will be available in our investor relations section of our website. We are encouraged by our accomplishments in Q3, which further demonstrate our continued execution toward our goals for 2021 and years to come as we strengthen our foundation for future growth with an emphasis on our IoT business and electronic monitoring of offenders. Our recent announcement of new contracts within California are exciting examples of our continued execution within a vertical, which we have a strong presence and excellent reputation.

Thank you Scott.

Good morning, everyone and thank you for joining us today.

Earlier, we issued a press release and our financial results for the third quarter of 2021, a copy of which will be available in our <unk>.

Mr Relations section of our website.

We are encouraged.

Our accomplishments in the third quarter.

Which further demonstrate our continued execution toward our goals for 2021 and years to come as we strengthen our foundation for future growth with an emphasis on our Iot business electronic monitoring of offenders.

Our recent announcements of new contracts within California are exciting examples of our continued execution within a vertical which we have a strong presence and excellent reputation.

Ordan Trabelsi: We recently announced that our fully owned subsidiary, Leaders in Community Alternatives, or LCA, which we acquired in 2016, was awarded a new project with the probation department in Central Coast, California, to provide rehabilitative services. This project, which also has an emphasis on employment services for women, supports those reentering the community from periods of incarceration by providing evidence-based and individualized services that contribute to reduction in recidivism. This new project is valued at approximately $1 million over a term of 3 years, or approximately $340,000 per year, and is expected to launch and start generating recurring revenue before the end of 2021.

Recently announced that our fully owned subsidiary leaders and community alternatives or LCA, which we acquired in 2016 was awarded a new project with probation Department in Central Coast, California to provide rehabilitative services.

This project, which also has an emphasis unemployment services for women supports those re entering the community from periods of incarceration by providing evidence based and individualized services that contribute to reduction in usage of it.

This new project valued at approximately $1 million over a term of three years or approximately $340000 per year.

And is expected to launch and start generating recurring revenue before the end of 2021.

Ordan Trabelsi: We also recently announced a new contract win in California to provide juvenile programming and rehabilitative services for out-of-custody juvenile programming, which is another example of our continuing execution in a vertical within which we have over a decade of expertise serving. This project similarly supports those reentering the community from periods of incarceration by providing evidence-based and individualized services that contribute to reduction in recidivism. As we announced in August, this new project is valued at up to $240,000 per year, starting with an initial evaluation term of 1 year. After the first year, the government agency will consider expanding the project with longer-term scope. The project has already launched and is currently servicing clients in this county.

We also recently announced a new contract win in California to provide you with our programming and rehabilitative services for out of custody juvenile programming, which did are example of our continuing execution and vertical within which we have over a decade of expertise survey.

This projects and royalties.

Ports those reenter the community for periods of incarceration, but providing evidence based and individualized services that contribute to reduction recidivism.

As we announced in August this new project is valued at up to $240000 per year, starting with their initial evaluation term of one year.

After the first year of the government agency will consider expanding the projects with longer term scope.

<unk> is already launched and is currently servicing clients in this county.

Ordan Trabelsi: On July 2021, we launched a new project in California, US, valued up to $4 million over up to 5 years to provide juvenile programming and rehabilitative services. This project win was announced via press release earlier this year. Our success in winning these new projects in California is a function of three factors. Firstly, our general strategic focus over the past years has been to move away from our legacy identification business with lumpy revenues in Africa and developing countries, and focus more on recurring revenues in developed countries with our IoT tracking business. Secondly, while since the start of the global pandemic in 2020, we've seen a slowdown in RFP and procurement activity from our potential government customers. In 2021, we have been seeing more and more of a return to normal activity.

On July 21, we launched a new project in California, USA valued up to $4 billion over up to five years provide juvenile programming and rehabilitative services. This project when it was announced by press release earlier this year.

Our success in winning these new projects, California is a function of three factors first.

Our general strategic focus over the past years has been to move away from our legacy identification business, but lumpy revenues in Africa.

And divestment countries and focus more on recurring revenues in developed countries are Iot tracker business secondly, well since the start of a global pandemic in 2020, we've seen a slowdown in RFP and procurement activity from our potential government customers and 2021, we have been seeing more and more of a return to normal activity.

Ordan Trabelsi: Thirdly, we acquired an electronic monitoring criminal justice business in 2016 named LCA, headquartered in Oakland, California, and with a strong presence in the state since 1991. The large reference base, relationships, and experience we inherited in California through this acquisition and integration over the years has allowed us to enter very effectively into the region with our new technologies and capabilities, unleash valuable synergies, and generate a continuous stream of new multi-year recurring revenue projects. In Europe, we have recently seen an uplift in RFP activity as well, and we've continued to score well on competitive tenders. In June 2021, we announced a win through a competitive RFP of a project in Finland, the National Electronic Monitoring Project there, valued at $3.6 million.

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We acquired electronic monitoring criminal Justice business in 2016 named LCA headquartered in Oakland, California, and with a strong presence in the state since 1991.

The large reference base relationships and experience we inherited in California through this acquisition integration over the years has allowed us to enter very effectively into the region with our new technologies and capabilities on these valuable synergies and generate a continuous stream of new multiyear recurring revenue projects.

In Europe, we have recently seen an uplift in RFP activity as well.

We continue to score well on competitive tenders in June 2021, we announced a win through a competitive RFP or a project in Finland, the national electronic monitoring project, they're valued at $3 6 million.

Ordan Trabelsi: The win comes after a consistent streak of wins in the European market, displacing incumbent vendors time after time, boasting an over 65% win rate in competitive RFPs in Europe. We've won the $7 million National Electronic Monitoring Project with the Ministry of Justice in Sweden, a $1 million project for domestic violence with the Swedish Police, the National Electronic Monitoring Projects in Denmark, Estonia, Finland, Bulgaria, and Latvia, just to name a few in Europe. We attribute our wins mainly to our proprietary technology, which scores very highly in the competitive RFPs and over time to our strong reputation and recognition as a premium provider of electronic monitoring technology and services. We operate in a small niche market where customers know one another, and having a strong reputation is an important factor in this business when selecting a vendor.

The wind comes after a consistent streak of wins in the European market displacing incumbent vendors time after time boasting an over 65% win rate in competitive Rfps in Europe.

We've won the $7 billion National Tronic monitoring projects with the Ministry of Justice in Sweden.

At $1 billion project for domestic violence with the Swedish voice the national electronic monitoring projects in Denmark, Australia, similar in Bulgaria and Latvia.

The name a few in Europe.

We attribute our wins, mainly to a proprietary technology with scores very highly and the competitive rfps and overtime to our strong reputation and recognition as a premium provider of those tronic monitoring technology and services.

We operate in a small niche market where customers.

No one another and having a strong reputation is an important factor in this business when selecting a vendor.

Ordan Trabelsi: Our strategy in this has been to build amazing technology, expand our presence, and deliver outstanding services. Each customer won and project deployed further strengthens our reputation, making us even more competitive. In this quarter, we have further progressed on each of these elements and have achieved recognition for such awards from existing customers and new ones in existing regions as well as new regions. We're expanding into over 30 new government projects in the past few years alone. Our strategy has always been to lead with our technology. This quarter, we continued investing in research and development to ensure that our products continue to be the most competitive in the market. Our reputation in the industry with regards to our IoT solutions continue to be stellar as a result of these investments, and as evidenced, these efforts are paying off.

Our strategy and this has been to build amazing technology.

Spanned our present deliver outstanding services each.

Each customer.

And.

And projects deployed further strengthens our reputation.

Making us even more competitive.

And in this quarter, we have further progress on each of these elements and have achieved recognition for such awards from existing customers and new ones in existing regions as well as new regions, where it is.

Spanning into over 30, new government projects in the past few years as well.

Our strategy has always been to lead with our technology.

This quarter, we continued investing in research and development to ensure that our products continue to be the most competitive in the market.

Mutation the industry with regards to our Iot solutions continue to be stellar as a result of these investments and as evidenced in these efforts are paying off with.

Ordan Trabelsi: With these product investments, we continue to introduce new features and technologies into our proprietary platform, extending our lead in the market space. Whether it's new features in biometric capabilities, battery life, and communication, or entirely new solutions for domestic violence, alcohol monitoring, and smartphone electronic monitoring with dense, hard-to-monitor urban areas and subways, our R&D teams continue to innovate and disrupt the status quo. We've been fortunate to have been able to expand so quickly and aggressively into the government services space of electronic monitoring of offenders, which has very high barriers to entry. Importantly, we have done this without much investment in sales and marketing. Our focus, as of late, has been to capitalize on this success and build a global team to help us accelerate our growth and expand our footprint even faster.

With these product investments, we continue to introduce new features and technologies into our proprietary platform extending our lead in the market space.

Whether it's new features and biometric capabilities battery life and communication.

Or entirely new solutions for domestic violence alcohol monitoring and smartphone electronic monitoring with desk hard to monitor urban areas and subways.

Our R&D teams continue to innovate and disrupt the status quo.

We've been fortunate to have been able to expand so quickly and aggressively into the government services space of electronic monitoring of offenders, which has very high barriers to entry.

Importantly, we have done this without much investment in sales and marketing.

Our focus as of late has been to capitalize on this success and build a global team to help us accelerate our growth and expand our footprint even faster.

Ordan Trabelsi: During the Q3, we continued to invest in our sales and marketing teams in the USA and in Europe, with a focus on IoT solutions. While sales cycles in this market can be long, the duration of the relationships with these clients can last for years. The investments we have made thus far have been driving increased activity with existing customers, as well as numerous new demos and evaluations with potential new ones. We expect to see continued momentum, particularly as COVID-related restrictions release and improve. In addition, we are also focused on expanding our global footprint to deliver our technology to additional geographies. We believe there's opportunities to further enhance our growth through strategic acquisitions in the electronic monitoring market in the USA.

During the third quarter, we continued to invest in our sales and marketing teams in the USA and Europe with a focus on Iot solutions.

While sales cycles in this market can be long the duration of the relationships with these clients can last for years. The investments. We have made thus far have been driving increased activity with existing customers as well as numerous new demos and evaluations with potential new ones. We expect to see continued momentum, particularly as COVID-19 related restrictions.

Released an improve in addition, we are also focused on expanding our global footprint to deliver our technology to additional geographies.

We believe there's opportunities to further enhance our growth through strategic acquisitions in the electronic monitoring market in the USA.

Ordan Trabelsi: There are local service providers that have developed a strong reputation and customer base in their respective local communities, many of whom we know well through prior dealings. We are constantly monitoring this market for potential accretive acquisitions at a good price that could generate significant value through immediate expansion of market presence, and providing vertical integration synergies. An example of this strategy was our $3 million acquisition of LCA back in 2016. Taking a step back to reaffirm our positive view on the market. We are seeing various shifts in demographic trends benefiting our electronic monitoring business, which we believe will drive future growth in our IoT segment. First, many correctional institutions are facing budget constraints as the cost of housing inmates has increased dramatically with the increase of incarcerated population.

There are local service providers that have developed a strong reputation and customer base and their respective local community many of whom we know well through prior dealings with <unk>.

Currently monitoring this market potential.

Equity accretive acquisitions at a good price that could generate significant value through immediate expansion of market presence and providing vertical integration synergies and example of this strategy.

What's our $3 million acquisition of LCA back in 2016.

Taking a step back to reaffirm our positive view on the market.

We're seeing various shifts and demographic trends benefiting our electronic monitoring business, which we believe will drive future growth in our Iot segment.

First many correctional institutions are faced and budget constraints as the cost of housing inmates has increased dramatically.

With the increase of the incarcerated population our pure security solutions provide.

Ordan Trabelsi: Our pure security solutions provide an effective way for institutions to manage their populations of offenders while significantly reducing the associated cost of housing an inmate. The cost savings associated with our solutions are substantial. The total cost for monitoring an offender on home confinement or GPS electronic monitoring for both technology, services, and manpower are approximately $10 to 35 a day in the US, substantially lower than the $100 to 140 daily cost for each inmate at a correctional facility in the US. Most importantly, home confinement has been shown to reduce recidivism, highlighting its effectiveness in helping offenders improve their lives and promote public safety in our communities. Secondly, as correctional agencies have been dealing with overcrowded prisons, there has been a trend towards alternative options to incarceration.

Give way for institutions to manage our populations of offenders, while significantly reducing the associated cost of housing in mid may the cost savings associated with our solutions are substantial.

Total cost for monitoring and offender on home confinement or GPS electronic monitoring for both technology services and manpower.

Approximately 10% to $35 a day in the U S substantially lower than the 100 to $140 daily cost for each inmate a correctional facility in the U S. Most importantly home confinement has been shown.

To reduce recidivism highlighting its effectiveness in helping offenders improve their lives.

And promote public safety in our communities.

Secondly, as.

Thats correctional agencies have been dealing with overcrowded prisons.

There has been a trend towards alternative options to incarceration.

Ordan Trabelsi: Our PureSecurity electronic monitoring suite of products provide an efficient and effective way to enforce home confinement while easing overcrowded prisons. We are seeing institutions increasingly evaluating home confinement alternatives as a way to address these issues. With the outbreak of COVID and the need for social distancing, the problems of overpopulated prisons was amplified, causing more agencies to look for alternative long-term solutions. Thirdly, the COVID pandemic has created a new potential revenue stream in our IoT segment with our PureCare solution, which provides governments the ability to effectively manage travel into their country while minimizing the risk of the spread of contagious diseases. These solutions can be effective at minimizing the spread of COVID while being less invasive in nature, enabling people traveling into the country to quarantine while being monitored to ensure compliance. Moving on to the financial discussion.

Our pure security electronic monitoring suite of products provided an efficient and effective way to enforce home confinement, while easing overcrowded prisons.

Institutions increasingly evaporating home confinement alternatives as a way to address issues with the outbreak of Covid.

The need for social distancing the problems of overpopulated prisons.

Amplifier, causing more agencies look for alternative long term solution.

Certainly if the Covid pandemic has created a new potential revenue stream of the Iot segment with our pure care solution, which provides governments ability to effectively manage travel until the country, while minimizing the risk of the spread of contagious diseases. These solutions can be effective in minimizing the spread of COVID-19, while being less invasive in nature, enabling people traveling into country to quarantine lobbying manav.

<unk> ensure compliance.

Is it also financial discussion.

Ordan Trabelsi: For purposes of comparison, SuperCom was not required to and did not report its Q3 2020 financial results. Accordingly, comparable Q3 2020 financial results are not available without unreasonable effort and expense. In order to provide a reasonable comparison, an average of the company's financial quarterly results for its Q3 and Q4 of 2020 is presented in the press release, which I will denote as Q3 2020 average for comparison purposes. As mentioned in previous earnings calls, and as apparent now, the company has invested in its financial reporting resources and has returned this year to quarterly and timely reporting. During Q3 2021, our revenues were 25% higher than the Q3 2020 average, representing growth from new projects and some bounce back from COVID on existing project numbers.

For purposes of comparison Supercomm was not required to and did not report. Its Q3 2020 financial results. Accordingly, comparable Q3 2020 financial results are not available without unreasonable effort and expense in order to provide a reasonable comparison on average on the Companys financial quarterly results for its third.

Fourth quarters of 2020 as presented.

In the press release, which I will denote as Q3 2012 average for comparison purposes.

As mentioned in previous earnings call and as apparent now the company has invested in its financial reporting resources and has returned this year to quarterly and timely reporting.

During the third quarter of 2021, our revenues were 25% higher.

And then the Q3 2020 average representing growth from new projects and some bounce back from Covid on existing projects numbers.

Ordan Trabelsi: While growth compared to the recent quarter, Q2 2021, was minimal, we had a maintenance contract with one of our clients in Africa come to completion at the end of Q2 2021, which accounted for around $300,000 in revenues per month, negatively impacting revenue growth in Q3. This, however, was offset by new projects won in the US and Europe, enabling us to report an increase in revenues compared to last year's Q3 average and Q2 2021. Gross profit increased to 34.9% in Q3 2021 compared to Q3 2020 average, which was 27.3%. Gross margins were also negatively impacted by the rolling off of the maintenance contract in Africa.

Our growth compared to the recent quarter Q2, 2021 was minimal we had a maintenance contract with one of our clients in Africa come to completion at the end of Q2, 2021, which accounted for around $300000 in revenues per months negatively impacting revenue growth in the third quarter. This however was offset by new projects one in the U S and Europe.

The reported increase in revenues compared to last year Q3 average in the previous quarter of 2021.

Gross profit increased 2% to 34, 9% in third quarter of 2021 compared to Q3, 2020 average, which was 27, 3% gross margins were also negatively impacted by the rolling off of the maintenance contract in Africa being maintenance related revenues. This is high margin business, which a place which is replaced with projects that have lower margin.

Ordan Trabelsi: Maintenance-related revenues, this is high margin business which is replaced with projects that have lower margins, at least in their earlier stages, which include a lot of startup and deployment costs. R&D was $625,000 in Q3 2021 versus $700,000 in Q3 2020. Selling and marketing expenses were $457,000 in Q3 2021 versus $374,000 in Q3 2020. General administrative expenses were $1.1 million in Q3 2021 compared to $1.3 million in Q3 2020. Compared to Q2 2021, operating expenses increased in Q3 as a result of the benefit from the Paycheck Protection Program, which benefited the prior period, and these benefits were not available in Q3 2021.

At least in their earlier stages, which include a lot of startup and deployment cost.

R&D was $625000 in third quarter.

Of 2021 versus 700000 and the <unk>.

Q3, 2020 average selling and marketing expenses were 437000 in Q3 2021 versus 374 in Q3, 2020 average general and administrative expenses were $1 1 million.

Q3.

2021, compared to $1 $3 million in Q3 2020 average.

Compared to Q2 2021 operating expenses increased in the third quarter as a result of the benefits from the Paycheck protection protection program, which benefited the prior period and these benefits were not available in Q3 2021. In addition, the company had a one time charge of 690 <unk> 89.

Ordan Trabelsi: In addition, the company had a one-time charge of $689 thousand that was from a settlement related to old disputes that happened several years ago. The company had an operating loss of $1.9 million versus an operating loss of $2.2 million in Q3 2020 quarter average. Net income for the quarter was a loss of $2.5 million versus a loss of $3.7 million in the Q3 2020 average. These are GAAP numbers, and we've also shared the non-GAAP numbers on our press release for EBITDA. As of 30 September 2021, we had a total cash and cash equivalent of $6.3 million, of which $1 million was restricted cash.

That was from a settlement with.

All disputes that happened several years ago.

The company had an operating loss of $1 $9 million.

Versus an operating loss of $2 2 million in Q3 2020 quarter average net income for the quarter was a loss of $2 $5 million versus a loss of $3 7 million. In Q3 2020 average these are GAAP numbers and we've also.

Sure the non-GAAP numbers on our press release.

For EBITDA.

As of September.

32021, we had total cash and cash equivalents of $6 3 million of.

Of which 1 million was restricted cash this was down from total cash equivalents.

Ordan Trabelsi: This was down from total cash equivalent at the end of Q2, and the decline of cash was due to operating loss with working capital increase, including an increase of $400,000 in inventory, as well as one-time usage of cash in the quarter for settlement of old liabilities, reducing accrued expenses by $1.1 million and a one-time settlement expense of nearly $700,000, which we just discussed. With that, I'll turn the call over to the operator to open the call for questions. Operator?

Then in the second quarter and decline of cash was due to the operating loss with working capital increase.

Including an increase of $400000 in inventory as well as onetime uses of cash in the quarter for settlements of old liabilities, reducing accrued expenses by $1 1 million and a onetime settlement expense of nearly $700000, which we've just discussed.

And with that I'll turn the call over operator to open the call for questions.

Operator: Certainly. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star one on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star two. If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment, please, for the first question. Your first question is coming from Kevin Dede. Please pose your affiliation and your question.

Operator.

Ladies and gentlemen, if you wish to ask a question on today's call you will need to press star one on your telephone.

Question has been answered and you wish to withdraw your question you may do so by pressing star two.

You are using a speakerphone please pick up your handset before entering your request and speaking on the call. One moment. Please for the first question.

Okay.

And your first question is coming from Kevin Dede. Please pose your affiliation and your question.

Kevin Dede: It's Kevin Dede at H.C. Wainwright. Hi, Ordan. How are you?

It's Kevin <unk> at H C Wainwright, Hi, Dan how are you.

Ordan Trabelsi: Hey, Kevin. Thank you. I'm good.

Hey, Kevin Thank you I am good.

Kevin Dede: Can we start with maybe the share count? Because that didn't show up in your press. Share count average for September. Do you have that somewhere?

So can we start with maybe the share count because that didn't show up in your press share count average for September do you have that somewhere.

Kevin Dede: Can we start with maybe the share count? Because that didn't show up in your press. Share count average for September. Do you have that somewhere?

Ordan Trabelsi: Yes, it's in the press in the non-GAAP section, and the share count is 26,234,102.

Yes, it's in the press and the non-GAAP section and the share count is.

$26 million 234000 and 102.

Kevin Dede: Apologies for missing it. Thank you.

Apologies for missing it thank you.

Ordan Trabelsi: No.

Kevin Dede: Can we talk a little bit about the covenants associated with the long-term bank loan and how you executed that conversion from the agreement you had with Fortress?

Can we talk a little bit about the covenants associated with our long term bank loan and how you executed that conversion.

From the agreement you had with fortress.

Ordan Trabelsi: We actually have not converted any of the debt we have with Fortress. It's still on our balance sheet. We have sub-debt that we've been putting on and through the quarter, sometimes have the option to convert it or pay it down with equity.

We actually have not converted any of the debt we have a fortress it's still.

On our balance sheet.

We have some.

Sub debt that we have been putting on and through the quarter, sometimes have the option to convert it.

<unk> paid down with equity.

Kevin Dede: Okay. The line that's $29.5 million, that's with Fortress?

Okay. So the line Thats $29 five mill, that's with fortress.

Ordan Trabelsi: That's a mix. That's roughly $16 million with Fortress and the rest sub-debt. Also straight debt, but we, the company, has an option to pay it down with issuance of equity, which we do sometimes.

That's a mix, that's roughly $6 $16 million of fortress and the rest sub debt.

Also straight debt, but we the company has an option to pay it down with issuance of equity, which we do some time.

Kevin Dede: Okay. Thank you for that clarification. Just to make sure that I have the new deals announced right, there have been four since the end of the Q2. Is that right? Four new deals since

Okay. Thank you for that clarification.

So just to make sure that I have the new deals announced right. There had been for since the end of the June quarter is that right.

For new deals and there have been amplified.

Ordan Trabelsi: Finland was announced right at the end of Q2, $3.6 million in value. We launched at the beginning of July, a $4 million project in California. We announced two new ones in California throughout the quarter. One of those two new ones is already launched. Another one is expected to launch before the end of 2021.

So send them was announced right at the end of the June quarter, $3 6 million in value and we launched at the beginning of July 4 million dollar.

Projects in California.

And we announced two new ones in California.

Throughout the quarter and some of those two new ones that are already launched and the other one is expected to launch before the end of 2021.

Kevin Dede: The Finnish one too, correct? That's new.

And then the finish one to correct that's new.

Ordan Trabelsi: The Finland one was announced, yeah. Right at the beginning of the quarter, I think 29 June or early July was the Finland $3.6 million project announcement.

And then one was announced.

Is that related to.

The beginning of the quarter than the June 2009 through early July.

<unk> $3 $6 million project announcements.

Kevin Dede: Okay. Can you compare the number of wins there versus the number of wins in the H1 of the year?

Okay. So.

Can you compare the number of wins there versus the number of wins in the first half of the year.

Ordan Trabelsi: I don't have that readily available right now. All the wins in front of me, just the ones in the recent quarter or so. What we're seeing, as described on the prepared remarks, is uplift in activity for RFPs in Europe and the US. There was a slowdown throughout the pandemic, and lately there's been more of a release. We're seeing a lot of RFPs in Europe. As you might remember, our win rate in Europe has been over 65% for most of the RFPs that we've been bidding on, thanks to our high scoring on the technology. Now we've been bidding effectively in Europe, and we've also developed a new sales team in the US that are supporting our existing, which was one sales person.

I don't have that readily available right now.

The ones in front of me.

Just the ones in the recent quarter or so.

But what we're seeing.

Described on the prepared remarks.

<unk> lift in activity.

For Rfps in Europe, and the U S.

And so there was a slowdown.

Route.

And lately there has been more of a release, we're seeing a lot of rfps in Europe.

As you might remember our win rate in Europe has been over 65% for most of the Rfps that we've been bidding on thanks to our high scoring on the technology. So now we've been bidding effectively in Europe and we've also developed.

Our new sales team in the U S are supporting our existing.

Which was one salesperson we've been enhancing it until full sales team with new offices that are Kentucky, and they are currently doing 20% to 30, new evaluations with potential customers in different counties around the U S.

Ordan Trabelsi: We've been enhancing it into a full sales team with new offices out of Kentucky. They are currently doing 20 to 30 new evaluations with potential customers in different counties around the US, which we hope will turn into new projects as well, beyond the things that we've announced in California and in Europe.

Which we hope will turn into projects as well.

Beyond the things that we've announced within California and in Europe.

Kevin Dede: Okay. You mentioned M&A opportunity. Could you characterize the US market? I think you've talked to it before. You see it fragmented. Is that essentially the way it is?

Okay.

Mentioned M&A opportunity could you characterize the U S market I think you've talked to it before.

And you see it fragmented is that.

Essentially the way it is.

Ordan Trabelsi: Let me explain, which is interesting. The market itself, a few billion dollars is high barrier. You can't bid on projects for tracking of offenders around the world if you don't have experience doing such and references to such experience. The manufacturers of technology, such as SuperCom, are a handful, maybe 8 to 10 players around the world. Those are the ones that we see consistently when we're bidding on larger national projects or something that size of a state, California State or Florida or Texas. When you look at the more county-level projects, the smaller ones, they're very fragmented. You have, you know, dozens, if not over 100, small providers, local service providers, which serve the counties in a region spread out throughout the US.

Let me explain which is interesting.

The market itself.

<unk> is the <unk>.

Highly barriers you can bid on projects for tracking number of centers around the world. If you don't have experience doing such and referenced the search experience. So the manufacturers of technology, such as Supercomm ours, a handful maybe eight to 10 players around the world and those are the ones that we see consistently when we're bidding on larger Nassau project.

Or something that plasma state, California State of Florida, Texas.

But when you look at the county level projects of smaller one they're very fragmented you have.

Dozens.

Not over 100 small providers local service providers, which serve the counties in the region spread out throughout the U S. These local service providers are typically our customers in a way that they need.

Ordan Trabelsi: These local service providers are typically our customers, in a way. They provide the counties with full services. They provide the technology, but they also provide the manpower to put the bracelets on the personnel to write the reports and so forth. While we sell to these service providers sometimes, there are interesting opportunities to acquire them just like we did in 2016. If we can get it at the right multiples and the right price, we can essentially expand our footprint immediately into new locations, additional reference base, and also unleash significant vertical synergies by deploying our technology into their ongoing operation.

Lease outs equipment from us or the other.

Players in the market and they provide the counties with full services, but the broader technology, but they also provide the manpower to put the braces on personnel to work the reports.

And so forth so while we sell to these.

Service provider, sometimes there are interesting opportunities to acquire them just like we did in 2016.

<unk>.

If we can get it at the right multiples and the right price, we can essentially expand our footprint immediately into more into new locations additional reference based and also unleash significant vertical synergies by deploying our technology into.

With our ongoing operations.

Ordan Trabelsi: The example was done in 2016 with LCA, and we're keeping our eye out for more opportunities like that, in the coming future throughout the US.

The example is done in 2016 of the FCA and we're keeping our eye out for opportunities like that.

Coming future throughout the U S.

Kevin Dede: Okay, can you talk a little bit about E-gov and your software, your Safend development? How are you balancing investments in that versus the tech, given tough resources?

Can you talk a little bit about E Gov and your software.

Youre safe in.

Development.

How are you balancing investments in that versus the attack given tough manage resources.

Ordan Trabelsi: We're trying to manage our cash allocation strategies effectively. We continue to assess and optimize them every quarter. In the past, let's say 2015, a majority of revenues in the company were from electronic ID or E-gov. Nearly $30 million of annual revenues were from that space in Africa and South America. We made a strategic decision to shift away from that region of the world and focus on recurring revenues from developed countries in the US, Canada, and Europe. A lot of that is through our IoT tracking business and our cybersecurity business. One project just rolled off in Africa, generating $300 million a quarter, with high margins.

So we're trying to manage our cash allocation strategies effectively.

We continue to.

To assess and optimize them every quarter.

The path in 2015, a majority of the revenues of the company were from electronic or E. Gov, nearly $30 million of annual revenues were from that space in Africa, and South America, We made a strategic decision to shift away from that region in the world and focus more on recurring revenues.

Developed countries and the U S, Canada, and Europe, and all of that is through our Iot tracking business in our cyber security business.

So one project just rolled off in Africa.

Generating $300 million a quarter.

With high margins and instead of reinvesting our cash to focus.

Ordan Trabelsi: Instead of reinvesting our cash to focus more on extending that project, but we prefer to use our cash for projects in IoT tracking. Where, as you said, the niche market, we have a very strong position with our technology, and we can leverage the cash to capitalize and grow our presence and continue to generate recurring revenues in developed countries. EID to begin this year was, or last year, was close to $2 million annual revenue. It's down from $32 to $2. Now that's been declining further. We've been countering that and also growing as a total revenue with the new wins in the IoT space. In terms of cybersecurity, we have a few million in revenues annually with very high gross margins. We're selling software.

More exciting in that project, but we prefer to use our cash for projects in Iot tracking where as we said the niche market. We have a very strong position with our technology and we can leverage the cash to capitalize and grow our presence and continuing to generate recurring revenues in developed countries. So.

To begin this year.

Last year, it was close to $2 million annual revenue, it's down from 30 to two.

And now that's been declining further and we've been countering that and also growing.

Total revenue.

With the new wins in the Iot space.

In terms of cyber security we have seen.

Few million revenues annually with very high gross margins were selling software.

Ordan Trabelsi: We continue to maintain that with some investment in cyber, but not to the same level and focus, cash investment as we have in IoT. For example, in this quarter, we invested a lot in purchasing more equipment to manufacture more bracelets so that we're ready for larger projects, whether in Israel or other places around the world.

We continue to maintain that with some investment in fiber, but not to the same level and focus.

Our cash investment as we have in Iot.

For example in this quarter, we invested a lot in purchasing more.

Equipment to manufacture more basis, so that we're ready for larger projects, whether they are in Israel other places around the world.

Kevin Dede: Okay. Just to make sure I have that clear, you're actually manufacturing, not outsourcing.

Okay.

Just to make sure I have that clear you're actually manufacturing not outsourcing.

Ordan Trabelsi: We manufacture the whole chain of manufacturing. It's a process. Some of it is outsourced, like the chip manufacturing. We design it here, but we send it out. Other parts are done in-house. At the end, we have a full supply chain, which involves third-party providers, manufacturers, and our in-house teams.

We manufacture.

The whole chain, how they factor into the process some of it is outsourced.

The chip manufacturer and we designed it here, but we send it out.

Other parts are done in house and then.

At the end, we have a full <unk>.

Supply chain, which involves third party providers.

<unk> and our in house teams.

Kevin Dede: Okay. Last question from me. What sort of progress are you making on finding a CFO?

Okay last question for me, how what sort of progress you're making on finding a CFO.

Ordan Trabelsi: Good question. We've actually invested more resources in our financial teams. As you can see, we're back to reporting quarterly numbers as well as timely reports. We continue to search for a CFO and, you know, hope to have one in the coming future to finalize our investment on the financial department, which we believe is important.

It's a good question, we've actually invested more resources in our.

Financial teams and as you can see we're back to reporting quarterly numbers as well as <unk>.

Timely.

Reports.

We continue to search for a CFO.

Hope to have one in the coming future to finalize our investment on the financial Department.

Which we believe is important.

Kevin Dede: Okay. Which auditors did you settle on, Ordan? I lost track of that too. Apologies.

Okay, and then with your auditors did you settle on or Don I lost track of that apologies.

Ordan Trabelsi: We're the same auditors for the last two years with an Israeli firm named Halperin, and they've developed familiarity with the company, and that helps us, you know, with our reporting and our annual audit to be done in a more streamlined fashion given their understanding of our business very well and experience in recent years.

We're on the same the same auditors for the last few years with Israeli firm and <unk> and.

They've developed familiarity with the company and that helps us.

With our reporting and our annual audit to be done in a more streamlined fashion.

Our understanding of our business very well and experienced in recent years.

Kevin Dede: Great. Thanks so much for taking my questions, Ordan. Appreciate it.

Great. Thanks, so much.

We are taking my questions I.

I appreciate it thank you Kevin.

Ordan Trabelsi: Thank you, Kevin. Thanks.

Thanks.

Operator: Once again, if there are any remaining questions or comments, please press star one on your phone at this time. There are no additional questions in queue at this time. I would now like to turn the floor over to Ordan for any closing remarks.

Once again, if there are any remaining questions or comments. Please press star one on your phone at this time.

Yeah.

There are no additional questions in queue at this time I would now like to turn the floor back over to <unk> for any closing remarks.

Ordan Trabelsi: I wanna thank all of you for participating on today's call and for your interest in SuperCom. We look forward to sharing our progress on our next conference call. Thank you, and have a good day.

I want to thank all of you for participating on today's call and for your interest in Supercuts, we look forward to sharing our progress on our next conference call. Thank you and have a great day.

Operator: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Q3 2021 Supercom Ltd Earnings Call

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