SuperCom Ltd. Q1 2023 Earnings Call
Ladies and gentlemen, good morning and welcome to Supercom's first quarter 2023 financial results and corporate update conference call.
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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. I'd now like to turn the call over to Stephanie Prince of PCG Advisory.
With me on the call today is Ordann Tribelsi, Supercom's President and Chief Executive Officer.
Supercom management may be making forward-looking statements, including statements that address Supercom's expectations for future performance or operational results.
Forward-looking statements may 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 this video.
in Supercom's most recently filed periodic reports on Form 20F and Form 6K, and Supercom's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes EBITDA, 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. For reconciliation of this non-GAAP financial measure in a net loss, a comparable GAAP financial measure, please see the reconciliation table located in Supercomms.
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 15, 2023. 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 Tribelsi. Ordan? Thank you, Stephanie. Good morning, everyone. Thank you for joining us today. Earlier this morning, we issued a press release of our financial results for the first quarter of 2023. In the meantime, thanks for joining us.
Define a copy in the ventilation section of the website at triplecom.com.
Today I'll start my comment with a brief update on a recent business highlight, strategy, and Q1 results followed by a Q&A session.
Supercom had a great start to the year with a strong first quarter. It achieved record-breaking revenue of $6.4 million, representing a 109% year-over-year growth in quarterly revenue, marking three consecutive quarters of very high year-over-year revenue growth. It's the highest revenue figure we've achieved in a quarter.
since 2018. And we're thrilled with this outstanding performance and look forward to maintaining its momentum in coming quarters.
During the quarter, we executed and advanced on various projects in our portfolio, such as the $33 million national EM project in Romania, utilized operating leverage and prior investments in our proprietary technology to achieve positive EBITDA for the third consecutive quarter.
For those new to Supercom, our mission is to revolutionize the public safety sector worldwide through proprietary electronic monitoring technology, data intelligence, and complementary services. Over the past 35 years, since our founding in 1988, we have been a trusted partner to dozens of governments worldwide, providing them with cutting-edge electronic and digital security solutions.
Our strategy has been to live without technology, develop top-notch solutions, expand our presence, and deliver outstanding services.
We successfully executed that strategy by focusing on the following key factors.
Our proprietary electronic monitoring technology scores highly in competitive RFPs and supports various programs such as house rest, GPS monitoring, rehabilitation services, domestic violence prevention, and more. Supercom is one of our 50 new multi-year government projects since 2018. And just in the past year alone, we announced launches of new projects valued at over $40 million.
to our IoT tracking business in developed countries. The opportunity is the greatest. The electronics monitoring market is estimated to reach $2.1 billion in 2026, up to $1.2 billion in 2021. The US and Europe constitute about 95% of these markets.
In Europe , there has recently been an increase in RFP activity with numerous new projects and opportunities in the past 18 months.
Altogether, these success and opportunities have resulted in a growing pipeline of projects.
Thank you.
We continue to invest in R&D to ensure our products remain the most competitive in the market and continuously introduce new features and technologies through our proprietary platforms. As a result, we successfully finalized the development and deployment of two new products.
One is the life-saving Tear Protect.
is the life-saving peer protect for domestic violence monitoring.
which was successfully implemented in multiple projects, including a $33 million national E.M. project in Romania, with a focus on protection of domestic violence.
The other is an all-in-one ankle bracelet monitoring solution called Pure1.
Those products have been well received and significantly expanded the company's adjustable market. We are confident that those products will facilitate superconductive expansion into the U.S. market.
In recent quarters, we not only maintain our technological advantage but also invest in enhancing our operational infrastructure and expanding our workforce. Furthermore, we have also become these global sales efforts by recruiting new sales team members with industry expertise to drive our shift from passive bidding to an active outreach sales strategy. So please purchase our CV by following noniss policy curses.
We announced many new project wins in the US and Europe . ReciproCon has been continuously displacing incumbent vendors with an over 65% win rate in European competitive RFPs.
We're proud to have won so many new contracts in such a short period of time, especially during this time.
Ladies and gentlemen, if you wish to ask a question on today's call.
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Once again, ladies and gentlemen, thank you for your patience. Please stay on the line while we reconnect the speaker to the conference room.
When did that fall?
When did I fall? Your line is now reconnected.
All speaker lines are now reconnected. Hi everyone. Sorry, the technical error and call fell. It continues where I left off. Okay.
Sorry about that. Throughout the year, we're down to any new project in the US and Europe where Supercom has been continuously displacing incumbent vendors with over 65% win rate.
European competitive R.P. For power to have won so many new contracts in particular for years, especially during the amount of uncertainty and market volatility to a living threat of recession on pay-will-geal-pollot.
Our business is recession resilient in nature, and as the possibility of potential recession increases we have multiple tailwinds to pull growth. As many of you have heard, we described before, these global factors include high recidivism rates of roughly 35%, prison overcrowding of over 100%, and high incarceration costs.
In 2020, the US.
alone spent over $80 billion to keep approximately 2.3 million people incarcerated, which equates to nearly 1% of the US population.
It is recent among others. You see it glowing.
among others, you see a growing and growing global trend of government turn into innovation.
solutions, alternatives to incarceration to ensure public safety, and our peer-security technology solutions have been designed to address those trends.
Peer security provides an effective way for institutions to enforce home confinement or ease in prison overcrowding and significantly lower costs. For example.
The total daily cost for monitoring the fender and home confinement or GPS monitoring is approximately $10.35 compared to the much higher cost of $100 to $140 at a correctional facility.
Most importantly, home confinement has been shown through this recidivism.
highlighting its effectiveness in helping offenders improve their lives and communities. On top of these ghost drivers, we have witnessed a surge in adoption of victim protection solutions worldwide, which aligns perfectly with our strategic plan and the launch of our new product, TrueProtect. In the past year, we extended our business from...
across Europe by winning a new contract.
which, as I mentioned, are typically awarded to a competitive RFP process. As a result, it has become now does business in over 10 countries across Europe and we look forward to increasing that number in the years ahead. Last year, it won the largest industry award of the year for National Electronic Monitoring Project in Romania. That I did, $33 million.
which includes up to 15,000 monitor offenders per month. Our domestic violence solution with Pure Protect is expected to enhance security of families and is part of the project.
Just a few weeks ago we announced that we received a 7.1 million follow on order for this project. The second order under we received a 7.1 million follow on order for this project.
This is a distant contract which follows the initial order of over $8.1 billion. We've also launched our domestic mine revolution in other European regions and are planning to launch them in the US soon.
In Israel, there's potential for a new domestic violence project.
The government is trying to pass a law requiring domestic violence offenders to be monitored with technology like ours.
Finland
For the most recent project which was launched in the first quarter of last year, the 3.6 million national project was launched in the first quarter of last year.
electronic monitoring projects was awarded by national government to deploy supercom for security of Chronic Suite. So often we're working to increase our UX.
We're proud to have made good progress towards goals, multiple projects in California, Idaho, where I have made a difference in Year 1 since 2019 to state HERE in 2014.
A whole young subsidiary in California called Leaders of Community Alternatives won a new project at $4.25 million.
LTS provided services coming from many years including adult reporting services and electronic monitoring. There are still some opportunities put in place for you to join this entire program.
It also focuses on the financial services including case manager, substance abuse education, opportunist and chemoogenic risk reduction.
The program was launched in Q1 of 2023. Our new strategic sales team wins have been the first steps in executing the company's US market expansion strategy and have already driven increased activity with existing customers to numerous new demos and evaluations with potential new ones.
And as we talked about it before, we believe there is also an opportunity to enhance your business inn compared to who you are being informed to.
to strategic acquisitions of local electronic monitoring service providers with a strong reputation and customer base in their respective local markets. We constantly monitor the market for potential acquisitions that could generate significant value by immediately expanding market presence and providing vertical integration synergies.
acquisition of LCA in 2016 for $3 million. That's a one times revenue, as you'll get a sample.
The CEPFAR position has proven to be a great strategic value for us with over $39 million in new cottage wins which has been generated in California since.
I'll now turn the scenario.
I'll now turn this on. There's our previous conference call.
I mentioned that we anticipated a contribution to our financial results in Q1 from projects we discussed. I'm delighted to share that our revenue has recorded a remarkable year-over-year growth of 109%, amounting to $6.4 million in first quarter. This follows 102% and 69% year-over-year revenue growth from two previous quarters.
Q3 and Q4 of 2022. The global electronic monitoring market grew.
At approximately 10% in 2022, Supercom IOT revenues achieved a staggering 76% growth during the same period in 2022. This growth is a testament to the fact that our market prefers our solution over alternatives.
Furthermore, in 2022 we successfully returned to positive EBITDA and our prowess had maintained its achievement. For the third consecutive quarter we achieved positive EBITDA and more specifically we achieved an EBITDA of $0.4 million for Q1 2020, which resulted from targeted spending, operating leverage and significant year-over-year increase in revenue.
Gross profit increased by 19% to $1.6 million compared to $1.3 million. This increase was currently an increase in the cost of goods, which resulted in supporting the launch phase of invention new projects. Typically
The initial project stages usually incur higher expenses, while advanced stages yield higher gross margins. Causing fluctuations in our gross profit depended on project composition and deployment stages. The short term decrease in gross profit was an income increase to indicate long term growth potential depending on project portfolio changes.
Despite significant increases in revenue from Q1 2022 to Q1 2023 by $3.3 billion, we managed to maintain our operating expenses.
at roughly $2.6 million per quarter. So while our revenues grew at $3.3 million, our operating expenses stayed roughly the same. Protecting once again the strong operating leverage opportunities inherent in our business, as we deploy additional bracelets and regions where we run existing projects on our existing infrastructure, the contribution margins for each additional bracelet can be as high as 70% or more.
Our net income in Q1 of 2023 improved to a $1.5 million loss compared to a $2.3 million loss in Q1 of 2022. Our cash, cash equivalent, energy to cash balance at the end of Q1 of 2023 was $3.9 million. So credit facilities in place will reduce our need for cash as we continue to launch new projects and progress on existing ones. We will continue to invest in our sales and marketing as well as our R&D to drive revenue growth.
Explain our global footprint and execute our business plan. And closing,
We're excited about the growth we're experiencing and about the growing demand for our product.
We are seeing very high year over year growth in revenues for the third consecutive quarter and believe that we are well positioned for continued growth by capitalizing on the many opportunities before us. These are being driven by multiple factors including our strong presence and reputation in the US and European markets, the counter cyclical nature of electronic monitoring in the US, the growing public policy shift in monitoring and set of incarceration.
We anticipate sustained growth by further expanding our market share in the US and Europe . Our commitment to preserving our technological advantage and our both robust growth foundation remains tech-fied as we continue to invest in these areas.
sustained growth by further expanding our market share in the US and Europe . Our commitment to preserving our technological advantage and our both robust growth foundation remains set aside as we continue to invest in these areas.
I'll turn the call over to the operator and talk to the question. Operator?
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One moment please while we, for our first question. Your first question is coming from Matthew Galinko from Maxim Group. Your line is live.
This is Alan Clay from Matthew Galenko.
The first question I had was, can you talk about your strategy towards expanding the domestic violence solutions into the US market and the timing? And then also potential opportunity in the US with Homeland Security. Thank you. Thanks for the questions.
We started with the European market in recent years also because of proximity to Israel and a lot of our experience, but also because we developed very sophisticated products which had a good reception in the European market. As we developed additional products such as...
The domestic violence solution, which is new in the industry and other players cannot offer anything similar, we're able to expand into new projects in Sweden, in other countries in Europe and also in Romania, which is just one of the largest projects in the field of 33 million dollars last year. In the US we've had a lot of demands.
from various retailers and counties and states for similar solutions. And using our domestic buy-in solution at Pure Protect, we think we can get great traction in the US. We're currently in both the Pure Protect and the Pure One learn stages in the US where various potential customers, retailers are trying out the solution as we...
get closer to full deployment, we expect to have potential expansion. Of course, into California we have a strong presence, but also into many other states which we've been working before, and new ones as well. We think there will be a good reception into the product, and as we make the full adoption to the US market-believe product, we expect good traction and good progress. That was the first question. In terms of homeland security, if you're talking about identification and...
and you know, biometrics that we've done in the past, our traditional business, legacy business identification, we've done projects for passports, drivers' IPCs, visas, and others. And in the US also, the company has won a project back in early 2000 around passport creation. But currently our focus is on electronic monitoring.
There are federal projects in electronic monitoring as well, such as ICE, when you look at the border with Mexico, and there's also very large state projects in the US. And you see the numbers of the amount of offenders being tracked either at home or GPS monitoring or domestic violence grow every year. So we do expect many opportunities in the US to market there as much as there has been in Europe and as we expand from small counties.
to a larger state and then potential federal projects, we believe our technology will be a key factor in this expansion.
Thank you. Can you comment on the pipeline of large opportunities in Europe and potential timing?
Okay. You're protected. Can we wait here? Sorry. Okay.
Pipeline of large opportunities in Europe and potential timing for them.
So Europe , as you mentioned, there has been increased activity recently and we have been in on various opportunities. There are some very large ones that are still out.
It could be any week, it could be in the coming months. Sometimes these are out of our control and they're basing time on the government. Last year in the third quarter we were awarded the 33 million dollar national project in Romania.
has done an alternative monitoring, the largest one in the industry awarded in Europe . It also has a first priority for Croatia that you're awarded and there's some other ones that you're up to date and excited about as well.
largest one in the industry awarded in Europe . We also had the first project for Croatia that you awarded and there's some other ones in Europe you're waiting to hear from and we're excited about as well.
Can you help us understand the revenue recognition of the follow-on order from Romania? You grew up in Romania and the don't let go of your work, right?
Yes, so the initial order was over $8.1 million and that was last year and we deployed it already and it was received in P1, followed on order 7.1 million and that is expected to be delivered within the first two quarters of 2023 and a quarter meter of revenue recognition as well for that order.
in our timeline.
So, I'm sorry, was the revenue recognized already or it gets recognized in the first two quarters of 20? How does that work again? Yes. So, I'm sorry, was the revenue recognized already or it gets recognized in the first
The first $8.1 million were recognized and now the additional order of $7.1 million additional, which we received in Q1, is to be delivered within the first half of 2023 and accordingly the revenue recognition.
be tied to the same timeline if the deployment is not expected.
Thank you. What is your recurring revenue level?
Good question. In the past it has been
Some of the recent quarters have been closer to 70% because of the Romanian project which has some large deployment components. But that's a fluctuate 70%, depends on the project mix and revenue mix that you're incurring at the exact moment. You have a?let's talk more about
Thank you. You made a comment of... in... I'll read...
Thank you. You made a comment of your expenses have been...
much slower growing than revenues. Is that something that you think you can continue as hopefully revenue continues?
Yes, certainly. We are operating structure here in Israel and in the U.S. is pretty stable. We can – with the same structure we can support more projects and we can certainly support more units per project. Once we deploy a project that's a three-day ender.
in Denmark and Romania, the amount of additional units is very little additional work for us because it all runs in the same infrastructure. And we have the ability to to manufacture thousands of units really quickly and that runs on a different cost structure.
continue to grow as we hope they will, our operating structure will grow much slower. Our operating costs will go much slower than the potential revenues. And the gross margins could expand accordingly, especially when we add additional units in existing locations where we have deployments..
Thank you. Last question, you mentioned that you've been displacing incumbents in contracts. What is the reason why you've been winning from incumbents?
Great question. And in Europe we've had over a 55% win rate in much of recent years. Nearly these projects are scored on various factors, one being the technology score.
Not just how good the technology is, but innovation, or you bring something new to the table versus others. And we've done that consistently. We usually scroll very highly on technology and innovation. Furthermore, they want to see a track record and we have a very large portfolio of experience and deployment over 50 projects in the last years. And a lot of them are recent projects which are very relevant and that gives us a very good score. And of course there's pricing.
and other things which we're on par with other vendors. So we're on par in many of that requested items and technology score innovation.
we do much better. So I have a smartphone model.
We also have the smartphone solution because our bracelet has the longest battery life. We also have the smartphone solution because our bracelet has the longest battery life.
in the industry. It seamlessly works with the smart phone as well. We're able to offer features through the smart phone, video calls, and authentication, and tracking under the ground, and a variety of things that others cannot before. All that also we do are domestic violence.
where the offender is wearing a rental bracelet and the victim through the smartphone knows when they're coming closer.
So that's how we win most of the time, and we continue to enhance our solution and our proprietary offering. With every new project we add more capabilities, and then we offer that going forward to new projects and new opportunities so that we maintain advantage one step ahead of the rest in terms of our competitive position.
Thank you very much.
Thank you very much. Thank you.
Thank you. At this time, we will pass the call back to Ordan for closing remarks. I want to thank all of you for participating in today's call and for your interest in SuperTOC. Please contact us directly if you have any additional questions.