Q2 2023 SuperCom Ltd Earnings Call
[music].
Ladies and gentlemen, good morning, and welcome to stupid come in the second quarter of 2023 financial results and corporate update conference call.
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With me on the call today is old and Trabelsi C becomes president and Chief Executive Officer.
I'd like to remind you that during this call Super call management may be making forward looking statements, including statements that address supercomm as expectations for future performance or operational results forward looking statements involve risks uncertainties and other factors that may cause suite becomes 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 soup becomes most recently filed periodic reports on form 20-F, and form 20-F form 6K, and soup columns press release that accompanies this call, particularly the.
Cautionary statements and at today's conference call includes EBITDA and non got final financial measure that 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.
A reconciliation of this non-GAAP financial measure to net loss of comparable GAAP financial measure. Please see the reconciliation table located in Super comes 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.
I am sensitive information that is accurate only as of today July 31, 2023, 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. It is now my pleasure to turn the call over to Super.
Holmes, President and CEO orange of healthy.
Yeah.
Thank you operator, and good morning, everyone and thank you for joining us today.
Earlier. This morning, we issued a press release with our financial results for the second quarter.
2023.
You can find the copy in the Investor Relations section of our website at <unk> Dot com.
Today I'll start my comments with a brief update on our recent business highlights strategy and future results followed by a Q&A session.
The second quarter was an outstanding one for Supercomm, making our fourth consecutive quarter of remarkable year over year growth and positive EBITDA.
We're delighted to announce a staggering 141% year over year revenue increase.
Reaching a five year record quarterly revenue number of $7 $7 million and non-GAAP EPS of positive <unk>.
As we continue to execute our project pipeline and introduce new products and services to the market.
During the past year, we won several important contracts in the U S and Europe and we're excited about the opportunities. We see ahead I'll go more into details in a few moments.
But first for those new to Super Com.
So because mission, which revolutionize public safety worldwide to proprietary electronic monitoring technology data intelligence and complimentary services.
With over 30 years of experience since our founding in 1988, we've been a trusted partner to dozen national governments worldwide, providing cutting edge electronic and digital security solution.
Our strategy has been to lead with our technology developed solutions expand our presence and deliver outstanding services. This approach has proven successful driven by the following key factors.
One of our proprietary electronic monitoring technology scores highly competitive government tenders in support various programs such as house arrest GPS monitoring rehabilitation services domestic violence prevention and more.
2018, she becomes a secured over 50, new multiyear governmental project with projects valued at over $40 million in 2022 alone.
Second our strong reputation and recognition as a premium provider of electronic monitoring technology and services also contributes to our win rate.
New customer win.
And project appointment further strengthens our competitive position.
And third our managing strategic focus our attention on our Iot tracking business developed countries, where the opportunity is the greatest.
Electronic monitoring market is estimated to reach.
$2 $1 billion by 2026 up from $1 2 billion in 2021, the U S and Europe constitute about 95% of these markets in Europe , there's been an increase in government tender activity with over $200 million project.
Projects bid opportunities in the past 18 months.
These successes and opportunities that resulted in a growing business pipeline.
With over 70% recurring revenue per Supercomm.
2022.
In Q2, we continue to invest in R&D to ensure our products remain the most competitive in the market continuously introducing new features and technology a proprietary platforms.
That is the successful development and deployment of two brand new solution to protect and pier one.
Sure protect it's.
As a lifesaving domestic violence monitoring solution. This innovative solution addresses domestic violence issues and further enhances the company's portfolio of products and services.
Pure protect has undergone rigorous testing has been successfully implemented in multiple projects, including Romania is $33 million project.
The second is a pure one and all in one.
David the our GPS tracking ankle bracelet monitoring solution that integrates a comprehensive monitoring.
Abilities into a single device with its lightweight design longer battery life remote charging high precision and future proof features the pure one offers a more efficient and effective electronic monitoring solution.
Also expand the company's addressable market.
We've been very pleased with the early reception and traction.
All of our newest solution and expect them to help facilitate rapid expansion of Supercomm entered the U S market.
It was unfortunate because growth will not only maintain the technological advantage, but also invested in a healthy and its operational infrastructure. Furthermore, we bolstered the company's global sales efforts by recruiting a new sales team with industry experience shifting from passive bidding that active outreach strategy.
So the path throughout the past 12 months, we announced many new projects.
In the U S and Europe .
Comments continuously displaced.
Vendors within over 65% win rate in European competitor tenders.
These achievements are particularly notable given the economic uncertainty and market volatility caused by the potential recession and unstable geopolitical.
However.
So program is a good candidate to be a recession resistant due to the factors such as high recidivism rates of roughly 75% prison overcrowding of over 100% and soaring incarceration costs.
Near the $80 billion in the U S alone.
In 2020, the U S alone.
But over 80 billion I, just mentioned to keep approximately $2 3 million people incarcerated, which equates to nearly.
5% of the entire U S population.
For these reasons.
Among others we.
See a growing global trend of government trying to innovative solutions and alternatives to incarceration to ensure public safety. The Companys securities due to technology suites have been designed to address this trend offering an effective way for institutions to enforce home confinement east prison overcrowding or lower cost significantly for example, it's all of the.
Total daily calls for monitoring and offender on home confinement. Our G. P. S. Monitoring is approximately 10 to $35 compared to a much higher cost of $140 at a correctional facility.
Importantly, publicly climate has been shown to reduce recidivism highlighted its effectiveness in helping the vendors improve their lives and communities.
On top of these growth drivers, we have witnessed a surge in adoption of victim protection solutions worldwide, which aligns perfectly with our strategic plan.
The launch of our new product solutions to protect.
Yeah.
Yeah.
And the European market.
<unk> expanded its business into over 10 countries and secure significant new contracts, which are typically awarded through competitive type of property.
So what kind of loss of $3 $6 billion national projects in Finland with the National government in Q1, 2023 and by May 2023 appear security. Obviously it was fully deployed in Finland, covering all offender program, Horserace, GPS and inmate monitoring, notably the company one largest industry award for the year of a national trauma.
Monitoring projects in Romania, the first electronic monitoring program in Romania valued at $33 million, which includes up to 15000.
Monitor defenders per month promptly.
For up to six years, we've also launched our domestic violence solution in the European region and are planning to launch them in the U S too.
Israel, there's a high potential for new domestic violence program as the government has just passed this week.
A lot of required domestic violence offenders to be monitored technological.
The benefits such as ours.
All of the Supercars already does business in multiple U S States.
We are actively focused on further expanding our presence in the U S. The company strategically prioritize the expansion of pier one is in new markets and geographies has already received high praise and its introduction in various regions in the U S. For Q1 has been successfully deployed and is actively utilize to monitor live with vendors today.
Moreover, sales activities for Q1.
Mens and promising new markets outside Europe , and North America, our strategic sales team and new wins have been the first step in executing the company's U S market expansion strategy and have already driven increased activity with existing customers and numerous stupid do demos and valuation attached to them.
And as we've talked about before we believe Theres also opportunities enhance our U S growth 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 expanded market presence and providing verdict.
Integration synergies our acquisition of LCA in 2016 for $3 million is a great example, the vessel acquisition has proven to be a great value.
Through the over $30 billion of new project wins that generated in California since acquisition alone and improvements to operational.
Margins are with operational efficiencies and an introduction of Arctic analogy until she is operations.
I'll now turn it over to the financials.
During our previous conference call I mentioned that we were anticipating a contribution to our financial results in next quarters from the projects. We discussed I'm delighted to share that our revenue has recorded a remarkable year over year growth of 141% and manage a five year record revenue of $7 $7 billion in the second quarter, marking the fourth consecutive quarter of how.
Year over year revenue growth. Moreover, our 12 trailing months year over year revenue.
It seems like under 6%.
A staggering $25 $5 million with our Iot division being the primary growth engine.
Put things into perspective.
While the global electronic monitoring market grows at approximately 11% per year.
Supercomm.
C revenues achieved over 100% growth in the past 12 months outpacing.
The global market growth by over a multiple of 10 X.
This growth is a testament.
The fact that the market prefers our solution over those of the alternatives.
Furthermore, we are proud to sustain positive EBITDA in each of the last three years 'twenty to 'twenty, two 2022 and achieve EBITDA of.
Zero point $9 million in the second quarter of 2023, and EBITDA of $2 $5 million and a trailing 12 month period, ending Q2, sorry, 'twenty, three which resulted from operating leverage targeted spending and high year over year increases in revenue.
The following is a comparison between the financial results for the second quarter of 2023 in the second quarter of 2022.
Gross profit increased by 77% to $2 $3 million compared to 1.3 billion driven by New project launches initial project stages incurred higher expenses than they.
Stages. It was at a higher gross margin as a project pipeline matures, we expect the upward trend in gross margin based on the evolving larger portfolio rich.
<unk> $350000 victories and total operating expenses through operational optimization efforts, including one time and other expenses would increase our R&D expenses by $80000. While we continued to develop and launch new products and improving existing ones keeping us at the edge of innovation of technology leadership in our space.
Addition, our sales and marketing expenses decreased by $200000 and general and administrative expenses decreased by $55000. The company had an operating loss of $63000 versus an operating loss of 175 billion.
The previous year period.
It resulted in some significant increases in our gross profit and a slight decrease in operating expenses. The company's EBITDA improved by $1 $6 million with Europe 199, compared to <unk> 7 million loss in the previous period, reflecting the benefits of operating leverage associated with higher revenues deploying Iot projects and a continued shift away from the legacy business.
Achievement underscores our focus on.
On sustained growth and profitability.
Our net income grew by 63%.
$1 million loss compared to $2.8 million loss of the former year period.
non-GAAP net income improved by $2 $2 million.
Two 0.3 million profit.
It's a $1 9 billion loss.
In the previous period.
Positive non-GAAP EPS improved to a positive.
Dan.
Compared to a negative.
50 cents.
In the form of year period, our cash position and stable we have credit facilities in place to reduce our need for cash as we continue to win and execute projects.
And as these big projects start on there was a cash use for manufacturing equipment, which later turns into high cash flow generation and the later.
Pages of the project deployment.
The company has had one time expenses down to 37 230.
It mainly pertaining to the legacy business allowance of doubtful debt.
In closing we're excited about the growth we're experiencing the growing demand for our product after five years of which we transition from our legacy business to the Iot tracking all the vendors business finally seen a shift to rapid growth in revenue.
Acquisition for continued growth by capitalizing on the many new opportunity for us.
These are being driven by multiple factors, including our strong presence and reputation in the U S and European markets. The pallor cyclical nature of electronic monitoring industry, the growing public policy shifts and monitored.
Instead of incarceration and the return to close Cobo postcode level the business Division.
Dissipate sustained growth by further expanding our market share in the U S and Europe academic at preserving our technological advantage and robust growth Foundation remains steadfast as we continue to invest in these areas with that I'll turn the call over the operator to open the call for question.
Operator.
Thank you Gordon.
Ladies and gentlemen, if you wish to ask a question on today's call you will need to press Star then number one on your telephone if you are using a speakerphone. Please pick up your handset before answering your question speaking on the call. If your question has been outside and you went to a Chilean request ebay do say by pressing the pound key one moment. Please for the first question.
Thank you. Your first question is coming from Matthew <unk> of Maxim Great. Matthew Your line is life.
Terrific.
Thanks for taking my questions.
Can you start with pier one.
When did that become available in the U S and I guess.
Did you mentioned that it's already deployed it in places or when can we expect to see it begin to be deployed.
Great Great question, and let me preface that with a little bit of explanation I'm sure one so.
We started our main focus and technological advances in the European market, where we had to procure com solution and the pure truck solution, which works in smartphone.
The U S market historically, a lot of the judges like all in one solution.
We created a brand new tier one solution, where it's all in one but it has the longest battery life has a mobile charger lightweight has the best we believe the best tracking and that has accuracy.
In buildings and underground and things that you know we've never seen in the market before so far we've given it to some of our potential retail partners, including S. T. A.
And I've seen very very good responses and feedback that it's actually running a lot of the vendors are in various places in the U S. We haven't done a massive launch yet it's still in small launches in various locations in the U S.
And so far it's working great. The feedback is great and we expect that this will be.
Very strong market driver for growth in the U S and other regions in the world, where they're looking for all in one solution.
Got it.
For context.
Can you help us understand maybe the structure.
Okay.
Maybe the how you think about the pipeline with pier, one and and now being I guess, a more appealing to the U S market with that product versus some of the larger.
Pipeline activity that that we know of in Europe . How do you think about those two buckets of classical revenue opportunity over the next year or two years.
Good question. So we've had a we had a in Europe over $200 million pipeline opportunities in the European market.
Some of the large opportunities in the U S market, we have not bid on some of them.
The restraining factors such as the requirement of a lumpy solution as well.
Now our suite, our peer security suite has the.
Pure track, which is a <unk> solution with a smartphone with a bracelet has domestic violence and.
Alcohol monitoring and now finally, the latest this last piece that we were missing for a lot of potential opportunity. The all in one solution.
Ken right now meets with our tier one so that essentially opens up our market opportunity by multiples.
Was it three or four places you couldn't bid before so right now we're evaluating these opportunities whether it's a the government tenders or resellers I want to try the technology. That's in the U S and all the other areas around the world.
With our pipeline of opportunities can grow significantly and we just right now just in July started actually deploying it into the U S. It's brand new it's working great, but we'll see in the during the quarters and years ahead. How this really starts to propel our business going forward and complement that we've been doing already with all their technology solutions, mainly in Europe .
Yes.
Yes.
Got it okay that sounds good and maybe last question from me just I know you touched on you know, adding outbound sales and in the last year year and a half I think can you can you maybe touch on how you structure incentives for sales, particularly maybe in the U S, where it's a little bit more fragmented.
And their commission structure or how do you incentivize people to go out and sell the pier one or are the different products.
Good question.
Split so our team we.
It's very common for them, we have commissions than we have on target on target there.
The salespeople honestly surpass that goal does it get acceleration if they don't meet dakota's, there's the exploration on their commission, but beyond that we also.
Work with resellers will do the selling for us because for example, L. C. A delta many counties are in California, and it aggregates all of them together into one there's many other providers like that around the U S to do the same thing and they.
No of course.
Care or care about about stability and good products and they also care about technological advantage advances and they have the ability to switch over.
A thousand clients that they're monitoring loveseat, yes, they have the ability to switching over almost immediately into new technology and are continuously evaluating the best technology out there and they loved the value of our technology, we've and various iterations, providing the technology and then now that it was a pure one we received very good feedback on that allow them to quickly move over.
And as you deploy 10 5100 units and if you had it works great then they could deploy.
A larger scale.
Two more units.
Alright, so what I'm sorry, one more time trying to understand what was the second part of it what was the second part of the question if I missed it.
It was really about the condition.
Kind of how your sales.
But I guess just just the final question is on.
Now that you have.
Have resellers evaluating pier one.
Hum when do you expect them to how long do you expect it to go from evaluating those 5000 units as a trial to.
You know starting to swap or make a primary decision to deploy pier one.
Going forward.
Yeah. It's a good question I don't have exactly the crystal ball for that one.
It depends on so so far they're seeing tracking points of higher accuracy, they've never seen anything like the mobile charter that like the design ergonomics, but we're very very excited about it still as public states. These are still there's some caution that people want to make sure that the things are working and they're stable. They don't overnight put them a thousand new offenders, but just like in the European market, we started with last year.
I'm going to do any of those $100000 project and now we're closing projects of $33 million.
Hum and step by step when they see more and more.
Counties and states, taking all the same technology and they all talk to each other.
How does it work how you like it and it worked well.
So the C a R.
Huge increase and so we still have our pipelines in Europe , and we're still you know.
The growth that we see today.
141% growth quarter over quarter that mainly from Europe , we're still seeing that.
And on top of that we still have a growth in California from the because we have a good presence in California.
With our services and our abilities there, but now we have a whole brand new growth driver into you know growth throughout many counties and states in the U S and a lot of that was propelled by the technology just like in Europe . We grew with our technology, we didn't have strong relationships in Sweden, or Denmark, or you know, Bulgaria or Latvia, Lithuania is all based on tech before the attack.
Out there to put it in their hands they liked it they loved it they bought it and displace other vendors that have been there for 2025 years, sometimes so we're doing the same thing just in the U S. It could move faster because instead of waiting for the national tender.
Tender reduce hours given opportunity to move faster than a formal government and national tender. So we expect the growth in U S move faster because of that and also because we're already accepted vendor and well known in the world.
Whereas before.
In Europe , they were kind of brand new to the industry. This is five six years ago. So we expect this to go fast or whether it's in a quarter or four quarters, we don't know yet what they see.
I think.
The results would be nice.
Okay. Thanks, I'll jump back in the queue.
Okay.
Thank you very much.
Just as a reminder, that if anyone does have any questions. Please press star one on your keypad.
Okay. It would appear to have any further questions in the key I'm now going to hand back over to Owen for any closing remarks.
Okay.
Okay.
Yeah.
Yeah.
Hello, Dan.
Oh and if anyone does have any questions at all please press star one on your phone keypad.
Okay.
Okay.
Yeah.
Okay Mcdaniels had have anybody in the queue at the moment.
Yeah.
I can pass now back over to <unk> for his.
Okay I want to thank you all for participating in today's call and for your interest in Super car. Please contact US directly if you have any additional questions. We look forward to sharing our progress with you on our next conference calls filings and press releases.
Thank you very much and have a good day.
Thank you everybody. 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.