Bioqual Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, good morning, and welcome to Supercom's First Quarter 20 24 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. After today's presentation, there will be an opportunity to ask questions. 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. Joining me from Supercom's leadership team is Ordan Tribelsi, Supercom's President and Chief Executive Officer.

Operator

I'd like to remind you that during this call, Supercom management may be making forward looking statements, including statements that address Supercom's expectations for future performance or operational results. Forward looking statements 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 Supercom's most recently filed periodic reports on Form 20F and Form 6 ks 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.

Operator

For a reconciliation of this non GAAP financial measure to net loss, a comparable GAAP financial measure, please see the reconciliation table located in Supercom's 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, 2024. 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 floor over to Supercom's President and CEO, Ordan Tribelsi.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us today. Earlier this morning, we issued a press release with our financial results for the Q1 of 2024. You can find a copy of it in the Investor Relations section of our website at supercom.com. Today, I'll start my comments with a brief update on our recent business highlights, strategy and Q1 results, followed by a Q and A session.

Speaker 1

Supercom had a great start to the year with a strong Q1. We achieved an 8 year record quarterly net income of $800,000 representing $2,300,000 improvement year over year. We're thrilled with this outstanding performance and look forward to maintaining this momentum in the coming quarters. During the quarter, we executed an advance on various projects in our portfolio, such as a $33,000,000 national EM project in Romania. We utilized operating leverage and prior investments in our proprietary technology to achieve a significant EBITDA increase of 400% year over year to a level of $2,000,000 EBITDA this quarter.

Speaker 1

For those new to Supercom, our mission is to revolutionize the public safety sector worldwide with our proprietary electronic monitoring technology, data intelligence and suite of complementary services. With over 35 years of experience since our founding in 1988, we've been a trusted partner to dozens of national governments worldwide, providing cutting edge electronic and digital security solutions. Our CIGINT blueprint is straightforward yet powerful, lead with innovative technology, develop superior solutions, expand our global presence and deliver outstanding service. This strategy is backed by the following. Our proprietary electronic monitoring technology, which scores highly in competitive government tenders and supports various programs such as house arrest, GPS monitoring, rehabilitation services, domestic violence prevention and more.

Speaker 1

And since 2018, Supercom has secured over 50 new multi year government projects. Our strong growing reputation as a premium provider of electronic monitoring solutions and services enhances our market position with each new customer win and our strategic focus on the IoT tracking business in developed markets, where the opportunity is greatest. With the electronic and market projected to reach $2,300,000,000 by 2028, the electronic monitoring market, the U. S. And Europe constitute about 95% of these markets.

Speaker 1

Altogether, these successes and opportunities have resulted in a growing project pipeline and substantial recurring revenue. Last year, we continued to amplify our technological leadership with significant R and D investments leading to the launch of advanced solutions like Pure Protect and Pure1. These offerings are already making headway in various markets including the U. S. And are pivotal in Supercom's expansion.

Speaker 1

Pure Protect is a life saving domestic violence monitoring solution. This solution provides improved protection to families suffering from domestic violence. This innovative solution addresses domestic violence issues and further enhances the company's portfolio of products and services. Pier 1 is an all in one GPS tracking ankle bracelet monitoring solution that integrates comprehensive monitoring capabilities into a single device. Like many of our products, it offers top notch features, placing it above competition in most metrics such as battery life, weight, comfort and more.

Speaker 1

So these two products, Pure Protect and Pure One have been significant innovations, which have helped us redefine and upheaval competitors and segments in the industry. Our cloud based software enabled peer security product line has been particularly effective monitoring violence offenders and managing real time information as well. The real time advantage is a game changer to the industry because it empowers authorities with actionable insights and timely intervention to mitigate potential risks and enhance public safety. These products have also been well received and have significantly expanded the company's addressable market. We've been very pleased with the reception and traction of our newest solutions and expect them to help facilitate the accelerated expansion of Supercom into the U.

Speaker 1

S. Market and further European countries. We fortified our operational infrastructure to support our growth and have revamped our sales strategy with a proactive outreach approach. Our sales team with deep industry expertise has been instrumental in achieving new wins and driving growth. Over the past months, we announced many new project wins in the U.

Speaker 1

S. And Europe. Supercom has continued displacing incumbent vendors and achieved an over 65% win rate in Europe in competitive tenders over the recent years. Despite macroeconomic uncertainties and the ongoing Israel Gaza war, Supercom solution are being increasingly relevant. Factors like high recidivism rates and the escalating cost of incarceration make our solutions not only cost effective, but also essential for governments looking to enhance public safety and reduce costs.

Speaker 1

The company's pure security technology solution have been designed to address this trend, offering an effective way for institutions to enforce home confinement, ease prison overcrowding and lower costs significantly. For example, the total daily cost for monitoring offender on home confinement or GPS monitoring is approximately $10 to $35 compared to the much higher cost of $100 to $140 at a correctional facility. Most importantly, home confinement has been shown to reduce recidivism, highlighting its effectiveness in helping offenders improve their lives and communities. On top of these growth drivers, we have witnessed a surge in the adoption of victim protection solutions worldwide, which aligns perfectly with our strategic plan and the launch of our new product, Pure Protect. In the European market, Supercom expanded its business in over 10 countries and secured significant new contracts, which are typically awarded to a competitive tender process.

Speaker 1

Besides winning new projects, we continue to execute and receive ongoing orders from our partners. Just about 3 weeks ago, we announced receipt of new orders valued at over $5,000,000 from European governments. Thanks to our optimized and efficient production processes, over 50% of these orders have already been delivered. Last year, we secured a new national program with the Finnish government to deploy our domestic violence monitoring solution. The deployment of our Pure Security Suite consisting of PureProtect, PureTrack, PureTag and PureMonitor demonstrates the versatility and effectiveness of our solutions and underscores our leadership in the electronic monitoring space.

Speaker 1

Our collaboration with Finland is a prime example of the confidence that clients have in Supercom, as those who experience our services often choose to broaden their engagement with our diverse array of solutions. Notably, at the end of 2022, the company won the largest industry award of the year for national electronic monitoring project in Romania, valued at $33,000,000 including up to 15,000 monitor offenders per month for up to 6 years. During 2023, we announced orders valued at over $10,000,000 from Romania's Ministry of Interior, further extending our engagement in the country's national EM project. This large scale project reinforces the strength of our peer security suite and cements our position as a trusted partner for governments worldwide. We also launched our domestic violent solutions in other European regions and recently launched them in the U.

Speaker 1

S. Although Supercom already does business in multiple U. S. States, we are actively focused on further expanding our presence in the U. S.

Speaker 1

Our wholly owned subsidiary LCA located in California is actively expanding the size and scope of existing programs, winning rebids with existing customers and winning new programs with new customers. The company strategically prioritizes Pier 1's expansion into new markets and geographies. It has received high praise during this introduction into various regions in the U. S. Where Pier 1 has been successfully deployed and is actively utilized to monitor live offenders.

Speaker 1

Moreover, sales activities for Pier 1 have commenced in promising new markets outside Europe and North America. Our new 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 within existing customers and multiple new demos, resulting in a significant increase in the company's pipeline, Launching our Pier 1 solution in late 2023 was a significant milestone in our U. S.

Speaker 1

Expansion strategy. At June 2024, we've already announced 3 new project wins in North America to provide the solution. The first through LCA, we won a new project in California valued up to $2,000,000 to provide comprehensive program focusing on reentry services for all adult inmates. The award is a result of winning the formal competitive bid process. Moreover, LCS appeared new electronic monitoring contract in California with an established California services provider in the judicial sector.

Speaker 1

This contract is particularly notable for Supercom's successful displacement of a long term incumbent vendor. Finally, Supercom won a new project in Canada with a renowned Canadian industry partner in the tracking solutions sector. This project expands existing collaboration with this long standing partner transitioning from providing RF based tracking technology to embracing new GPS technologies. As I mentioned earlier, introducing our Pier 1 solution was a game changer in securing these contracts and underscores our competitive edge and commitment to delivering innovative and superior technology solutions. By securing these contracts, we further reinforce our position as a market leader.

Speaker 1

We review our recent wins as indicators of our growing influence and expansion potential in North America and worldwide. As we mentioned in previous calls, we believe there's also an opportunity to enhance our U. S. Growth through strategic acquisitions of local electronic monitoring service providers with a strong reputation and customer base in their 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.

Speaker 1

Our acquisitions of LCA in 2016 for $3,000,000 is a great example. Successful acquisition has provided to be a great strategic value to the company through which we won over $35,000,000 in new project wins and it generated in California alone. I'll now turn to the financials. During our previous conference call, I mentioned that we anticipated contributing to our financial results in the subsequent quarters as our ongoing projects matured. I'm delighted to share we substantially improved our financial and operating results.

Speaker 1

We've seen a gross profit margin increase by 123% to 55% from 25%. Moreover, we've sustained positive EBITDA in each of the last 4 years 20 to 2023 and seen remarkable operating improvements as evidenced by a record net income of $800,000 this quarter along with $400,000 EBITDA growth year over year to $2,000,000 This is driven by the significant growth in our company's revenue in the past few years, targeted spending and operating leverage. This quarter's profitability metrics demonstrate how we can seize the high margin potential of our project portfolio through successful execution and progression in different stages of these projects. The following is a comparison between the financial results of Q1 of 2024 and the Q1 of 2023. Gross profit increased by 139 percent to $3,800,000 compared to $1,600,000 was direct outcome of the progress we made across our projects where margins typically enhance as projects mature.

Speaker 1

Typically, the initial project stages incur high expenses, while advanced stages use higher gross margins causing fluctuations in our gross profit depending on project composition and deployment stages. As the project pipeline matures, we expect an upward trend in gross margins based on the evolving project portfolio. As we deploy additional bracelets in regions where we run existing projects on our infrastructure, the contribution margins for each additional bracelet can be high, even as high as 70% or more. We decreased our R and D expenses by $90,000 while we continue to develop and launch new features and improve existing products, keeping us at the edge of innovation and technology leadership in our space. In addition, our sales and marketing expenses decreased by $50,000 while we increased our revenues year over year.

Speaker 1

Moreover, our general and administrative expenses increased by $300,000 to accommodate our management team expansion also in the U. S. Which has already yielded results such as evidenced by 3 new contracts we have won in the past months. The company's operating income improved by $1,800,000 from $700,000 compared to an operating loss of $1,800,000 before. So we improved by $1,800,000 to $700,000 compared to an operating loss of $1,100,000 in the prior year resulting from significant increase in our gross profit.

Speaker 1

EPS improved to positive $0.04 compared to negative EPS of $0.32 in the prior year period. The company's EBITDA improved by 400 percent, dollars 2,000,000 compared to $400,000 reflecting benefits to operating leverage associated with high revenues deployed in new IoT projects and continued progress on the phases in our ongoing projects. This achievement underscores our focus on sustained growth and profitability. Our net income improved by $2,300,000 from a net loss of $1,500,000 last quarter to net profit of $800,000 this quarter. And our non GAAP net profit improved by $1,600,000 to $1,350,000 profit compared to $250,000 loss in the 4th year period.

Speaker 1

Positive non GAAP EPS improved to positive $0.07 compared to negative non GAAP EPS of $0.05 Our cash position is stable. We have a credit facility in place and we focus on reducing our need for external cash as we continue to win and execute more new projects. Also last month we completed a successful close of $2,900,000 public offering to support the company's continued innovation and growth initiatives, a testament to the investment community's trust in our vision and strategic trajectory. In addition, the company had one time expense of $280,000 mainly pertaining to the legacy business and allowance of doubtful debt. We continue to invest in our sales and marketing as well as R and D to drive revenue growth and expand our global footprint and execute our business plan.

Speaker 1

In closing, I'd like to thank the global team for the hard tireless work to achieve our company's record setting performance this quarter. We have developed the right technology and products to help criminal justice systems clients overcome challenges and make better use of the over $80,000,000,000 spent annually in the U. S. On operating rehabilitation centers and prisons. With research showing an approximate 75% of citizen rate in the U.

Speaker 1

S, there's significant room for improvement when effective programs and technology are deployed. We're excited about the growth we're experiencing and about the growing demand for our products. After several years through which we transition from our legacy business as IoT Tracking and Defender business, we're happy to show the shift to nice growth in revenue and profit. We believe that we're well positioned to continue to growth and continued expansion by capitalizing on the many new opportunities before us. These are being driven by multiple factors, including our strong presence, reputation in the U.

Speaker 1

S. And European markets, the countercyclical nature of electronic monitoring industry, the growing public policy shift to monitoring the set of incarceration and the growing adoption of domestic violence prevention solutions. We anticipate sustained growth by further expanding our market share in the U. S. And Europe, our commitment to preserving our technological advancement as a robust growth foundation remains steadfast as we continue to invest in this area.

Speaker 1

With that, I'll turn the call over to operator for questions. Operator?

Operator

Thank Your first question for today is from Matthew Galinko with Maxim Group.

Speaker 2

Can you maybe start, I know you touched on it in the prepared remarks, but your gross margin was I think one of the stronger quarters in recent history. So can you touch a little bit more on why this quarter in particular was able to get to that mid-fifty percent range if I'm that correct? And how sustainable is that given where you are in your current, I guess, growth cycle?

Speaker 1

Thanks. Great question. As you can see, there's a general trend of increasing our gross margins as we're reaching later stages in our current projects. There are some fluctuations because some of our projects with the Romania project consists of a big part of our revenues. And as the mix changes between the quarters of the various parts of the projects, they drive within the gross margin, which is affiliated with it.

Speaker 1

Generally speaking, at the initial stages of projects, you have a lot of hardware installations and training, a lot of hours from our teams and hardware purchases, which are lower margin in nature. At later stages of projects, we're just kind of manufacturing more bracelets and providing maintenance and support for our software. So the more we can be in the later stages of the project, the higher our margins will be. So as the new projects come upon, smaller projects will make a much of an impact, but the larger ones will and they will also drive margins through these little stages where initially they're a little lower and later they're

Speaker 2

higher. Got it. Thank you. And it sounds like your focus is on the North American market today, maybe because you have those products now available. But can you talk a little bit about kind of North America versus Europe for 2024, I guess, is there just more to be had in the U.

Speaker 2

S. Market today?

Speaker 1

The U. S. Market is roughly 3 or 4 times based on market research, 3 to 4 times the size of the European market. Been doing very well in Europe. We had over 65% win rate over recent years.

Speaker 1

And it's national projects with a bid on 1 by 1. And even without a large sales team, we're able to win consistently because of our high scoring technology. The U. S. Market is a little more fragmented, requires a little more boots on the ground and we're actually scaling up and growing our team accordingly to address that.

Speaker 1

We developed the Pure One product, which is a 1 piece solution, which meets a lot of the requirements and behaviors that are more comfortable to the U. S. Market. We developed in a way that has the most, let's say, optimized features in terms of battery life and lightweight and remote charging and others that helps us come in with a flash when we compete against incumbent vendors. But the U.

Speaker 1

S. Market we think for us is a nice and interesting opportunity because we haven't taken advantage of it yet and all the potential there. We're just in early stages. Our pipeline is growing. We're doing we're in the middle of active live demos right now and we hope to continue growing that more and more.

Speaker 1

And at some point that could be the size of Europe and even larger.

Speaker 2

Thanks. And one last question for me before I jump back in the queue. You seem to have I think you mentioned a greater than 65% win rate in Europe and you're starting to gain some traction in the U. S, North America with the new products. What is the competitive response to your successes to date with the strategy?

Speaker 2

Is there are there any companies that are seeing an impetus to try to catch you on the product side? Or do you think that you're still kind of a uniquely focused player in the market that you could say and continue to have an edge?

Speaker 1

You say response on the product side, so a lot of our competitors, the market is roughly 10 international players and it's a very highly barriered market. So Google or Apple are not going to be coming in any day without an acquisition. You have to show that you've been doing this for 5, 10 years to even compete. So we know the players, a lot of them haven't updated their technology so much over the last recent years. They use their relationships to try to hold on existing contracts.

Speaker 1

The market average growth rate is anywhere between let's say 7% 13% every year and we've been growing at I think a CAGR of 70%. So we're growing significantly faster than average market and the average companies on the market. Some of them try to respond to improving technology, but we haven't seen any threats there with anyone that's competing with the level of progress and advancement that we're showing. We're not just showing technology which is more advanced and has more features. We're also expanding our technological capabilities and adding new features at a very high rate.

Speaker 1

So we continue every project we do and we're doing a whole lot of projects. We add more features and more capabilities that we develop for ex customer, we bring it to customer Y, bring it to customer Z. And then you saw like in Finland, for example, we started with one type of program, then we had domestic violence and we saw the same thing in Sweden, we started with 1 and then we added other programs. And we started to do the same. And what's great about this technology that a lot of it is software on the cloud and you can apply it to the new bracelets we have as well because these bracelets are leased is that once we have a new capability, we can share it to customers existing and new alike.

Speaker 2

Got it. That makes sense. Thanks. I'll jump back in the queue.

Speaker 1

Thank you.

Operator

Your next question for today is from Dan Schatz, a Private Investor.

Speaker 3

Hi, everyone. First of all, it was great to see a positive net income and some the gross margin expansion was fantastic. My question really is concerning the repeated capital raises over the last couple of years that have diluted existing shareholders. I'm a long time shareholder, been a big fan of the company. But I'm hopeful that we've turned the corner now with some net profitability.

Speaker 3

And I know we recently raised some money at a price that was higher than the stock was trading at. But I guess my question is, are you planning on any additional capital raises? And I'm hoping that we can leave that to a minimum if you are.

Speaker 1

Thank you for your continued support in Supercom and great questions. We I came I was the CEO and remember, I was the CEO in the U. S. For the years before and into 2021, I moved to Israel for the Global CEO role and we changed some of our strategy in auto that was focused on growth because we had declines in revenues for 5 years or so and we shifted to growth. So from 2021, revenues went from $11,700,000 to $12,500,000 to $17,000,000 plus and now last year we closed over $25,000,000 And in order to achieve that growth in a short period of time, we had to also expand our focus on growth and that cost money and it brought us into needs of cash.

Speaker 1

But what's nice to see is while we focus on growth and we did have needs cash, our cash usage has declined over the years. So from 3 years ago, it was roughly $9,000,000 operating cash and then $4,500,000 and last year was just somewhere in the mid-two between $2,000,000 $3,000,000 And as projects reach later stages, like the Romania project, then they become more cash flow positive and then we could use that to stabilize our cash needs. And we did this capital raise just now to give us more support and to have a cushion for fluctuation. But currently, we're actually doing pretty good from an operating cash perspective. Sometimes we're even breakeven or cash flow positive and sometimes we're a little bit cash flow negative and we need to manufacture things ahead of time.

Speaker 1

Like for some projects that are leased, we need to manufacture a lot of bracelets ahead of time and that brings us into temporary cash flow negativity on that project and then afterwards. But these things balance out and with the large amount of projects that we're doing, they start to kind of stabilize one another. And we hope that over the years, our cash needs will decline. That being said, when there are big projects out there that require massive expansion and units, We think it's okay to take on those projects because they grow the company significantly. Those will require some cash upfront sometimes then we would accordingly look for capital raises.

Speaker 1

We try to keep them to a minimum and as you can see our uses have been decreasing over time. And now in the state we're at after these 3 years of growth, we're happy to see that our cash used for operations have declined and we're able to depend more over operating cash production rather than external cash. So we're cognizant of that. We're trying to reduce the capital raises to minimum, but also aware that there's many opportunities out there. And if there's opportunities that could provide a great return to our investors, we will try to capitalize on them.

Speaker 3

Thank you. Appreciate that commentary and the feedback. I just caution you to keep in mind the existing shareholders when that capital raise happens because we've suffered a significant amount of dilution over the last couple of years.

Speaker 1

Yes. I think we are okay, good. Yes, we're very aware and hopefully over time the valuation will justify all the activities that we've been doing to grow the company over the years.

Operator

Your next question for today is from Mike Walters, a Private Investor.

Speaker 4

Good morning, Mr. Tribalsi. Thanks for taking your time to provide us with another good morning great quarterly. Thank you for taking your time to provide us with another one. I appreciate always appreciate your quarterly earnings and conference calls.

Speaker 4

Congratulations to you guys on another quarter of growth, record growth. As a long term investor 4 years now, I've been pleased by your methodical progress over time. It's been I appreciate the questions also that were also asked. It's been up and down with the growth thing. And I appreciate your answer.

Speaker 4

You also answered one of my questions was that whenever you have to dip into the capital, you're using it on possibly projects that could be positive to us as shareholders in the future, correct?

Speaker 1

Can you repeat the last sentence? You broke out for a second.

Speaker 4

Whenever your use of capital is directed towards possible shareholder value growing in the future?

Speaker 1

Yes, of course. And we're also you may sell some other management. We also own shares and we're very inclined and interested to increase the value of the shares also our main focus. It's just that sometimes short term we need to raise capital to manifest our long term goals. Our current stock price we believe does not represent the intrinsic value of the company at all.

Speaker 1

We're trading at fractions of multiples that we're seeing in the industry And we're growing at 10 times faster than the average industry, as I said earlier. So we think over time, the market value will align with intrinsic value and then investors will be able to appreciate the valuations for the company.

Speaker 4

I appreciate that answer. It seems that to me that you guys have a good and growing pulse on your fundamentals. Would you say fundamentally speaking, would you say that's probably correct?

Speaker 1

We have a growing pulse, sorry? Yes,

Speaker 4

a great pulse on your fundamentals and that they are growing in the right direction.

Speaker 1

Yes. So we're as you can see from some of the improvements in profitability, we try to focus on fundamentals and also the underlying technology and the health of our projects. We're able to rebid these projects to win the rebids as we said because we have a great relationship with our customers and maintaining a great reputation that helps us to win more projects in other places around the world.

Speaker 4

That kind of leads into my next question is, on June 29 last year, you guys issued a press release that you incorporated advanced AI capabilities to enhance your monitoring solutions?

Speaker 1

Yes.

Speaker 4

Yes. And integrated cutting edge models to empower your EM offerings by unlocking new real time data insights and enhanced decision making processes. So I was wondering about that because you guys are obviously bidding on or you are announcing contracts over the course of last couple of years pretty frequently. So my question is, does the AI the advancement in your AI capabilities get stronger every contract? Like is it does it make it more efficient your next onboarding?

Speaker 4

Because I noticed that you guys like part of your business model is to onboard your customers, which I like. I like that a lot that you onboard your customers before actually coming to terms on the contracts. And I was wondering if the AI, the advanced investments to the AI is paying off possibly by maybe making each onboarding more efficient than the last?

Speaker 1

So, as you're going to be familiar with AI in general, the more data you have, the more helpful it is. For us, it's still we started designing the implementation for a lot of these constructs and modules and we have a lot of data, not just new, but over the years with onboarding of tens of thousands of customers, different regions around the world. That could be used to help at first the officer, they're tracking all these offenders because one officer could be tracking 50 to 100 offenders at the same time. It's hard to keep track of everything and when there's behaviors that create trends, it's easy for us to know that something's going to happen before the officer even sees it. And those are the kind of it's an example of kind of AI insight that we use learning and to improve.

Speaker 1

But these are still a lot of them are still in various design and implementation stages and there's a big opportunity there for more value creation for our customers as these start to roll out in a more efficient and comprehensive fashion. Also a lot of the labor intensive tasks of monitor, you have to do a lot of clicks, a lot of shifts from 1 to 1 that will help with that and that will make the efficiency for the programs to save effectively more cost and also save more officer time.

Speaker 4

That's what I was thinking. Okay. What I was thinking. Your employees, you guys employee over 100 people and it's and you said that in the one answer, you said that you implemented a new or an addition to a new sales team?

Speaker 1

What did you say about the employees, sorry?

Speaker 4

Employees, I think you're over 100. Is that true? Yes.

Speaker 1

Globally, we're over 100, yes. 1 120. You're probably

Speaker 4

pretty proud of 120. Awesome. You're probably pretty proud of them and

Speaker 1

the progress. Yes. I'm mostly proud of that. We've had a great run-in the last quarter as we're doing very well with the growth and profitability and winning new projects. And there's a lot of work for relatively small team, a lot of work and we're doing a lot of these things at the same time.

Speaker 1

So yes, we're very happy with our teams.

Speaker 4

I'm happy with your progress as well. Yes, I was a little bit I was surprised by the $5,700,000 I actually thought that that was that might have been a challenge a little bit as an estimate because I know in the past your estimates haven't I felt like reflected your actual progress, but this one I felt like challenged you a little bit with the $5,700,000 revenue and I was happy to see it was $6,900,000 So I'm really proud of you guys' continued growth and I look forward to continuing to invest with you guys long term.

Speaker 1

Good. Thank you for your support and for your questions.

Speaker 4

With that, I'll let you go. Thanks. Thanks, we're done. Thank you.

Operator

Your next question is a follow-up question from Matthew Galinko.

Speaker 2

Hey, hello again. Two quick follow ups for you. First, I get the balance sheet question. I noticed your receivables were up in the Q1 compared to the end of 2023. Just wanted to see, I guess, is there a meaningful difference in payment terms between U.

Speaker 2

S. And European EM clients and I guess what moves the payment terms around?

Speaker 1

Just sometimes it's just how it falls at the end of the quarter, because you can receive an order just like we receive 5,000,000 orders. You can receive orders and you start to manufacture them and deliver them, you recognize revenues, you haven't received the cash yet. On the other hand, you can receive the cash right before the end of the quarter and then it brings down the AR nicely for the report, so to speak. But we're not some of these are paid by delivery and some of these are consistently monthly payments based on lease. So we had a whole mix of projects.

Speaker 1

The more lease like project, which is more what's happened in the U. S, it's more of a monthly base, which is a little bit more consistent than the delivery, which is sometimes the national projects in Europe, which are more they buy the units and they manufacture them.

Speaker 2

Got it. Thanks. And then just given how strong Romania has been for you over the last few quarters, I guess I'm curious how you look at the kind of business excluding Romania. Obviously, you have a lot of wins, but how do you balance the risk a little bit or like how do you kind of fill in that bucket when Romania slows down, can you kind of fill in the gap with the rest of your pipeline is the question?

Speaker 1

So first of all, Romania is still running well and they're ordering more and more and we'll see if a customer continues to maintain its positivity and its satisfaction as you see with other customers in the world. There's always opportunities for growth programs and additional programs. Meanwhile, we're not just relying on Romania, of course, we're bidding on other projects and in Europe and in the U. S, we have active demos and a lot of those will come to add on to Romania and also add on to the base of other projects that we have there. Romania is certainly a nice win and rather than just being a nice win, which gives us nice revenues to profitability, there's also a good reference.

Speaker 1

Because as you may remember in the past, there are some projects we can bid on because we didn't have references of certain size. You're looking at 15,000 units, simultaneous 15,000 simultaneous units per project with domestic violence. There are many of these in the world and we have and we've been implementing it successfully. And when the other projects of large size come out, we could bid and show that we've been doing this very nicely. And so that puts us in a new area where we weren't if you look 3 or 4 years ago.

Speaker 2

I guess as a follow-up to that, does your success at something Romania scale in Europe help as a reference for doing state level projects in the U. S. Or North America?

Speaker 1

Yes. Of course, the closer you are, it's easier to win Texas after you've done California. The closer you are, since it's in the same country, then there is more similarity there. But a $33,000,000 project of 50,000 units is it's substantial anywhere in the world. And it's our biggest one and we grew up a ladder.

Speaker 1

We started our projects in Lithuania of 100,000, 200,000 in Lithuania and Latvia. We went off to Canada of $1,800,000 and we had Finland and Denmark and some of these are $3,000,000 $4,000,000 and Sweden was $7,000,000 that was $33,000,000 So this certainly does help us. And in the U. S, the more we win we're still doing counties in the U. S, we're also looking at states.

Speaker 1

And we also considered maybe going to federal level in the U. S. As well. It's all a matter of where do we have the highest return on investment on our dollar spent. Some of these projects could have a very nice return, but the expected return is low because we don't know the probabilities there because these are large projects that we haven't yet worked on as much.

Speaker 1

Whereas in Europe, we can bid on with more confidence as we know it's we know pretty much how things are going to fall out and how the competitors align and score in these projects. We've done many of them. In the U. S, we're trying to develop that capability and the same knowledge and we're going to be able to use that more effectively. So we're still in the early stages in the U.

Speaker 1

S. And that's what's exciting about this. There's a big opportunity there and we're very well positioned for it.

Speaker 2

Great. I appreciate the color.

Operator

Your next question is from Eric Hamilton, a private investor.

Speaker 5

I know you're concentrating on the prison market, but what about the migrant market? Are there any opportunities for you to solicit your products to countries that have migration problems?

Speaker 1

Can you repeat that? Migration problems with over the borders?

Speaker 5

Yes. Yes.

Speaker 1

Sorry, go

Speaker 5

ahead. Are the countries that have these issues interested in getting the bracelets or monitors from you to monitor the migrants coming into their countries? We'll not have any military authority.

Speaker 1

Good question. It's something that we're looking into and considering further. We know that in the U. S, there's the ICE program and they use similar technology to track people coming over the border there. They call them detainees.

Speaker 1

They come to the border from Mexico and they're being tracked for a period of time until they decide the status and if they're approved to enter fully. They have big programs with, I think, over 100,000 units. Other countries are considering and have considered not just now, but also over the recent years various programs like that and we've been looking into it, but we have not yet made that our biggest focus. Our biggest focus has been on the programs in the country for the offender monitoring. That's where the complexity is the greatest.

Speaker 1

And since we have technological prowess and we're able to score higher, we can go straight to the largest projects with the highest complexities. But these are other ones that are complementary and that could be added and it's something that over time we'll probably look into further even though we've already started looking.

Speaker 5

Well, the technology you have did that you've done for the prison systems, was the same technology be used for a migrant monitoring system?

Speaker 1

The technology, I mean the government would use the technology in whichever way they would like, but the technology is same, different policies, you have different rules and different procedures, but the technological capabilities are the same. You have a bracelet, you monitor someone's location, there's anti tampering and they can't take it off, they can't remove it. There's all these processes on the back end, the data intelligence aspect of what people are doing and how they're doing. And we provide so much flexibility and so much customization to our customers. We have so many customers that each want something a little bit different.

Speaker 1

This is a let's call it a simple adjustment if someone wanted to change from this to that, the technology is there.

Speaker 5

Well, I know you have a limited staff and workforce, but I have to think that this is an area that you should be investing in and trying to get some of these substantial contracts if the technology is the same for a migrant as it would be for a inmate. It just makes sense that you would be taking some personnel and trying to get yourself involved in this migrant problem because it's huge, and I think it would be a good way of the government's monitoring these people that come into the countries.

Speaker 1

So first of all, you're right. Certainly, it's a good idea to look at complementary markets with similar technology and that's what we've been doing consistently. That's how we entered domestic violence tracking and also the inmate tracking over the years. And I appreciate the thought and the focusing on this. The question for us when it comes to new projects and new types of programs is how ready the customers are to actually deploy these programs.

Speaker 1

A lot of times, especially in other countries outside the U. S. And Europe, we see them trying to enter the normal electronic monitoring market within South America. And they seem very excited and you spend a lot of time and effort and then at the end they're not ready for one reason or another to actually deploy something like this. So with Migrin like the other ones, we need to understand how likely the programs are to actually deployed before we invest significant amount of time and adjustments for them.

Speaker 1

But we do interact with local partners in any country where we work on these projects and they give us continuous updates also for stuff like this. So that's something that we're crossing off or not emphasizing and it's something that we continuously look at, but we assess it versus the likelihood of other projects. Like in Romania, they did a new project for electronic monitoring, brand new projects for them. They were very serious about it and you see it also by how quickly they deployed it with us and also continue to grow the project. And if we can find customers like that that are willing to do this on the migrant issue and they're able to adjust their laws and regulations accordingly, then that would be great.

Speaker 1

In Israel, there's issue with domestic violence and they've been trying to pass a law for over 10 years and just last year, they were able to pass it and then that became a big focus now. And now they're having the RFP processes around it, which are guided by the government. So we're in touch with all the different players where needed, but the governments are the ones that have to push these laws and regulations for new projects to start.

Speaker 5

Okay. Well, let's hope that you can develop more products so you can enhance the value of the company because the issue of just diluting the value of the shareholders by writing more shares or doing more outstanding shares is not a winning formula. You need

Speaker 1

to

Speaker 5

either bid higher on the projects to cover your overhead and to have money for R and D. It's great to get projects, but if you are losing money on contracts, that's no win for anybody.

Speaker 1

Course, and we're certainly not losing money on contracts. We're making money on these contracts and we're actually winning with our technology, not with a low price approach, which some companies are pulling in some industries. The thing is these projects are sometimes large and they require capital and sometimes we need to raise capital accordingly. And the stock price, our stock price was much higher in the recent past and the valuations are not always reflective of intrinsic value of the company as the intrinsic value is more apparent. It also makes it much easier to raise capital with minimal dilution.

Speaker 1

We don't show control the market, but the market has been sometimes challenging to deal with in terms of valuations over the past 2 or 3 years, but we continue to grow and to form projects and deploy new products. And we're happy with the progress we've achieved even though we're aware of the dilution and we're trying to keep that to minimum as much as possible.

Speaker 5

Can you get your clients that are interested in giving you an order to upfront you with some of the initial capital cost to process their order? Can they do some upfront loading of giving you some money when they give you a PO?

Speaker 1

That's a great question. The government is usually the ones that decide the structure and the payments. I mean, these are competitive processes. So there's 5, 6, 7 players competing on and the government says these are the payment terms that I want. And it's hard to come and say, no, with us you're going to pay upfront and with everyone else they're going to pay over time.

Speaker 1

So sometimes we have the ability to do that, especially when it's existing customer that's been working with us for many years because they already have our system and deployed, they already know us, then we have more flexibility. But also sometimes we don't have that flexibility and we have to conform to the structure that the customer demands. I understand. We've been doing this for 35 years. I understand

Speaker 5

all your responses. I understand that completely. It's just a way of having relationships with a client that makes them understand, listen, we have the best technology, we have the best product and you want to come on board with us. Well, we need you to help us and assure us that or help us to get you the product, so we aren't going into hawk to supply you with the product you need.

Speaker 1

Yes. And we have those conversations when they allow us to once the relationship has developed and evolved over the years. It's ongoing sensitivity and approach with these government customers that we've been working with them for 35 years because even before the offender monitoring, we've been doing passports and ID cards and driver's licenses. And it's always been that it's always, escorted with the payment terms. It's a big one part of these government contracts.

Speaker 1

At the beginning you have less say, over time you have more say, when your technology becomes more unique and more prevalent as an industry leader and that's what we're working on all the time. That's why you keep seeing continued investment in R and D. You have more abilities and we expect and hope over time as we become larger, our expansion potential is there. And once you manifest it, we'll also be able to improve our terms with payments to the customers. But our shift from South America and Africa to the U.

Speaker 1

S. And Europe has already done a huge amount of benefit improvement for us in terms of collections, in terms of payment structures. So that's already been a big help for us over the past 5 to 7 years. And now even with these regions, there is always room for improvement as we discussed.

Speaker 5

Well, thank you very much for putting up with me and taking my questions. And I certainly The question. I have great potential. There seems to be some disconnect with the value of the shares and your potential. And now you have shown that you can do a net profit, which is the critical thing.

Speaker 5

If it can be consistent with net profits, it's got to improve the value of the shares.

Speaker 1

Yes. Over time, that's what we hope to happen. And thank you very much for your questions and for your support in Supercom.

Speaker 5

Thank you.

Operator

At this time, I will pass the call back to Ardan for closing remarks.

Speaker 1

I want to thank all of you for participating in today's call and for your interest in Supercom. Please contact us directly if you have any additional questions. We look forward to sharing our progress with you on the next conference calls, filings and press releases. Thank you and have a great day.

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Earnings Conference Call
Bioqual Q1 2024
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