SuperCom, Ltd 2026 Q2 Earnings Call

Hello, everyone. We're pleased to report another record quarter for SuperCom. In the second quarter of 2026, we achieved more than eight-year records for revenue, gross profit and EBITDA, marking our ninth record quarter of the last 10 since the company turnaround began in 2021. These results build on the progress we have delivered over the past several quarters and demonstrate the increasing scale and build an operating leverage of our business model. As we expand the delivery of our proprietary electronic monitoring and public safety technologies to local and national governments around the world, we are seeing continued improvement across our key financial and operational metrics. This performance is being driven by greater operational efficiency, continued investment in our technology, and our strategy of simultaneously expanding both into new markets and within the markets we already serve.

Combined with our significantly strengthened balance sheets, these advancements provide us with a strong foundation to continue scaling the business. I'll now turn to our financial results for the second quarter of 2026. Revenue increased 13.3% to $8.1 million compared with $7.1 million in the second quarter of 2025. Gross profit increased 16% to $4.9 million. Gross margin also expanded by approximately 90 basis points to 60%. Operating income was $900,000 compared to $1.1 million in the prior year period, and this was largely impacted by the Israeli foreign currency headwinds. During the second quarter, our Israel operations experienced foreign currency headwinds from approximately 17% year-over-year increases in the average Israeli currency to the U.S. currency exchange rate, the shekel to the dollar. Despite these pressures, we sustained GAAP net income levels at roughly $1.1 million for the quarter similar to the same quarter in the prior year period.

On a non-GAAP basis, net income increased to $2.9 million compared with $300,000 in the prior year period. EBITDA increased by 55.6% to $4 million this quarter compared to $2.5 million in the second quarter of 2025, representing our highest quarterly EBITDA in more than a decade. GAAP earnings per share were approximately $0.20, and non-GAAP earnings per share were $0.52. We've also made substantial progress in strengthening our balance sheet. Over the past several years, we've reduced our net debt from close to $35 million to under $10 million. Our outstanding long-term debt now carries a blended interest rate of approximately 6%, with no cash payments due until the end of 2028. This structure provides us with greater flexibility to invest in growth.

Cash and cash equivalents totaled approximately $7.4 million as of June 30th, 2026, compared to $9.8 million at the end of 2025. During the quarter, we strategically deployed capital to support working capital needs and accelerate customer onboarding, installations, and technology integration across new contracts in the United States and Europe. Subsequent to quarter end, in early July, we raised approximately $7.5 million in gross proceeds from a common shares only registered direct offering with a few institutional investors. This additional capital further strengthens our financial position and provides us with increased flexibility to support new deployments and continue executing against our growing pipeline. Finally, our book value of equity totaled approximately $48 million as of June 30th, an increase of 28% from approximately $37 million at June 30th, 2025.

Next, I would like to spend some time discussing the operating leverage in our business and the factors contributing to our profitability and margin expansion. The economics of our programs improve as they mature. At the outset of a new program, we incur upfront costs associated with onboarding, training, development, and deployment. As additional monitoring units are deployed, those initial costs are spread across a larger recurring revenue base. This increases the contribution from each incremental unit and creates meaningful operating leverage. As more of our customer relationships mature, we are seeing the benefits of this dynamic reflected in our gross margins. We've also taken several important steps to improve our operational efficiencies. In Europe, we have consolidated logistics, equipment handling, and shipments through a centralized hub in Romania. At the same time, we have brought more IT and customer support responsibilities in-house from our subcontractors.

This has reduced our reliance on local partners, and we have established our own 24-hour support capabilities across multiple projects. These initiatives give us greater control over the customer experience while also improving the efficiency of our operations and building our customer support network. We also continue to incorporate AI capabilities into our operational processes. AI has already helped accelerate development, introduce new automation, and improve efficiency across deployment and customer support activities. We believe these are still in the early ages of AI adoption. As we continue to introduce new products, technologies, and automation, we see the potential to further reduce the labor, support, and administrative requirements associated with operating and scaling of our programs. The centralized deployment model we have developed in the U.S. provides another important operational advantage and leverages economies of scale.

Our cloud-based platform, integrated inventory management, and 24-hour support capabilities allow us to serve programs throughout the country with a unified infrastructure, one shared language, and a common operating environment directly reducing project costs. European national programs often require country-specific infrastructure, local language customization, and more decentralized support. While our experience enables us to manage that complexity effectively, the more standardized U.S. model allows us to launch and support new country and state-level programs more efficiently and cost-effectively. As the U.S. presence expands, we believe this model can support faster deployments and attractive margin potential or even more attractive than it is today. Underlying all these efforts is the strength of our technology. Many European national programs are awarded through rigorous technology-based evaluation processes. In markets including Sweden, Germany, Israel, and Norway, we have displaced incumbent providers that have supported these programs for approximately 20-25 years.

Our win across all five Nordic countries, often against long-standing incumbents, provide compelling validation of the performance, reliability, and capabilities of our technology, as well as our ability to meet the demanding requirements of national electronic monitoring programs. I will now turn to our growth and diversification strategy, which remains focused on expanding both into new markets and within the markets where we are currently established. Over the four-year period until December 31, 2025, revenue from our electronic monitoring business grew at a compound annual rate of approximately 30% per year, while EBITDA grew at a compound annual rate of approximately 47%. This performance reflects the continued expansion of our recurring revenue base and the increase in operating leverage in our business.

In Europe, our results can fluctuate between periods because our revenue increase includes several large, multi-year national programs, with each customer's ordering cycle potentially affecting the timing of revenue recognition. Romania, for example, represented a significant portion of our European revenue in prior periods, but ordering activity temporarily moderated amid political uncertainty, and as our EMEA contract base has grown, Romania, as a single contract, represents less of our revenue blend. The Romanian program remains active, though, and important to note, the temporary decline in Romania masked strong growth across the rest of our electronic monitoring business. Excluding the impact of Romania's decline, our underlying revenue would have grown approximately 40% between 2024 and 2025. Until today, we have secured more than 20 wins across Europe national electronic monitoring programs and maintain a presence of all five Nordic countries.

These accomplishments give us a strong regional foundation, but we have continued to see meaningful opportunities to expand further within our existing markets and in new ones. Several significant European opportunities are expected to come to market over the next 18-24 months, including the opportunity in Italy, among others. We have also discussed the opportunity in England previously, which remains a substantial opportunity for SuperCom, valued at over 150 million British pounds. We competed for this England opportunity historically and came in second place when SuperCom had a less developed reference base and significantly more leveraged balance sheet. Since then, we have strengthened our financial position, expanded our European presence, and established a broader record of successfully executing national electronic monitoring programs and make us a more viable candidate to secure the England program win. There can be no assurance regarding the outcome of any individual procurement.

However, our success in markets that rely mostly on objective technology-based evaluation processes, for example, across the Nordic region, gives us confidence that with our technology, we are better positioned today to compete for this and other large national opportunities. The U.S. remains another important driver for our growth. Our strategy is not only to enter additional states, but also to expand into more counties, agencies, and programs within each state where we already have established presence. Since mid-2024, we have secured more than 45 new U.S. electronic monitoring contracts and entered 19 new states with access to additional markets through our 18 new regional service provider partnerships. We are also seeing the scale of our contracts increase over time, from smaller initial deployments to more recent awards involving approximately 100-250 simultaneous units.