SuperCom Ltd. Q4 FY2024 earnings call

• 2024 saw revenue of $27.6 million, a 134% increase from 2020, and gross profit rose 31% to $13.4 million. GAAP net income was positive for the first time since 2015. • Secured several important contracts in the U.S. and Europe, including the National Israeli Electronic Monitoring project and multiple contracts in the U.S. across various states. • Introduced innovative products like PureOne (GPS tracking ankle bracelet), PureProtect (Domestic Violence Monitoring Solution), and AI-driven analytics integrated into electronic monitoring solutions. • Expanded global presence, with significant growth in Europe and accelerated expansion in the U.S. market, securing over 20 new contracts since mid-2024. • Strengthened financial position by reducing total outstanding debt by 32% from over $34 million to approximately $23 million since the end of 2023.

In 2024, SuperCom achieved revenue of $27.6 million, a record over the past seven years. Gross profit increased 31% year-over-year to $13.4 million, with gross margin expanding to 48.4%. GAAP net income was $661,000, marking the first full year of GAAP profitability since 2015. Non-GAAP net income rose to $6.33 million. IoT revenues grew to 91% of total revenues in 2024, up from a small percentage in previous years. Revenue contribution from developed countries was over 97% in 2024, contrasting with a significant portion from Africa in prior years.

• Anticipate continued expansion in the U.S. and Europe, leveraging the momentum from 2024. • Focus on building on the 2024 performance into 2025 and beyond, capitalizing on opportunities in developed markets. • Expect further growth in IoT revenues and margin improvement as unit numbers increase in regions with centralized platforms.

• Macro-economic uncertainties and global challenges, including those in Israel, could impact business. • Volatility in gross margin due to fluctuating project mix and regional variations. • Tariffs and supply chain issues, particularly regarding manufacturing and product distribution between Israel and the U.S.

Q: Maybe my first one is, it seems like I think it's six consecutive quarters above 40% gross margin now. Would you be comfortable calling 40% the floor at this point just relative to where we were a couple of years ago or do you think there's room for more volatility in the gross margin line ahead?

A: Great question. As you know, our gross margin comes with a factor of numerous projects at the same time from different regions. And we have shared and we continue to experience and we add more and more bracelets. After monitoring into the same region, margins improve significantly because you have a fixed cost per project of the inventory management, of the deployment, of the support, of the training and the technology know-how, the servers. So all that is fixed and you add more and more bracelets to higher margins. We have some very nice projects with the growing numbers currently, and they're contributing to this higher gross margin. And as we plan into the U.S. market, since a lot of it is on the same platform, centralized through the cloud, we hope to see improved margins as numbers grow there. But currently, it's still hard to say, how things will unfold as there's a lot of volatility depending on what happens with different projects. So it's hard for us to know how things will move. They can trend up and down. But over time, as our business plan unfolds, we believe that we'll have larger and larger unit numbers per customer and per region, and that will drive higher gross margins actually than even what we have today.

Q: Can we maybe focus a little bit more on U.S. market? You've obviously had some pretty good success in that evolving strategy. So maybe give us an idea of what's next? Is it kind of more quota carrying sales reps and acceleration in new customers and larger customers in the U.S. market or do you start competing for kind of bigger contracts with bigger governments? Or just kind of what you expect to what should we expect to see from the U.S. market in 2025?

A: Okay. So the U.S. market, which we started expanding significantly into as of last year since the mid of last year until now, we've already had over 20 new contracts. We're continuously signing more contracts and more partnerships to help us expand together with a local partner, which is also a very good thing. These partnerships and so far, the deployments are going well. We're getting good feedback and technology is a great fit. We didn't expand as much early in previous years because our technology is more focused on the European market and now we adapted some of it like the PureOne to the U.S. market. So all of that is going well. As we continue to expand into more locations and bring on more partners, we're going to grow also the size of the projects. As you remember, probably in Europe, we started with small projects over $100,000, $200,000, $400,000, and then we grew to $2 million, $4 million. And now one of our latest ones was over $33 million. So the same thing in the U.S., we're starting with small and going out to mediocre and then over time to larger and larger. So we'll see that -- continue to progress over the coming years. We had a passive bidding strategy in Europe. We didn't have as much of a big sales team. In the U.S., it's more fragmented. So we actually have more people that are quota carrying, as you mentioned before, together with sales support. So we're actively in pilots and demos and the pipeline continues to evolve as we do that in the U.S. market.

Q: On your entry into the U.S. market. Obviously, that's a key cornerstone of your strategy now. And I'm wondering how you're addressing the recent tariff situation as far as supply chain, product mix, hardware versus software?

A: Great. It's a great question to say that our manufacturing for our products is done currently and the production is done in Israel. We supply from various regions, and we have actual production here. We changed that throughout COVID. We know how to produce in other places as well. But throughout COVID, when we're requested to create a lot of bracelets also for COVID confinement, we developed that ability here in Israel. So we're doing from Israel. Israel and the U.S., it's still to be seen what the tariffs will be like. And we also have abilities to do some of the manufacturing in the U.S. But as things evolve in the coming, let's say, weeks and months, we'll have more updates as we see how things resolve on tariffs between Israel and the U.S. and our strategies around that. But currently, a big portion of our operations in the U.S. and the rest will be from Israel in that regard. So we don't expect something very high, but we'll see how that falls out. Also to remind – also on that, to remind you, a big part of our service is Software as a Service. We have the monitoring software, and that’s what they’re paying for, and there is a lot on release bracelets rather than just selling hardware components. So that will help as well.