SuperCom 2026 Q3 Earnings Call

Thank you. We are pleased to report continued growth in the third quarter of 2026. Revenue increased approximately 21% and EBITDA increased approximately 17% compared with the third quarter of 2025. For the first nine months of the year, EBITDA increased approximately 37% to $9.9 million. Our results over the last several quarters demonstrate the operating leverage and scalability of our business model. We provide proprietary electronic monitoring and public safety technology to local and national governments worldwide, and our performance reflects operational efficiencies, expansion into new markets, and deeper penetration in the markets we already serve. In the U.S., we now secured more than 50 new electronic monitoring contracts and expanded into 21 new states since mid-2024. Our profitability and stronger balance sheet also allow us to continue investing in our technology.

I would also like to discuss SafeGenie, a cybersecurity product suite we introduced in October for the real-time monitoring and control of autonomous AI agents. I will now turn to our third quarter financial results. Revenue increased approximately 21% to $7.5 million, compared with $6.2 million in the third quarter of 2025. Gross profit was $2.7 million, compared with $3.8 million in the prior year end period, and gross margin was 49.8% or 50%, compared with 60.8%. Operating loss was $0.3 million, compared with operating income of $0.6 million in the third quarter of 2025, primarily due to a $1.3 million foreign exchange loss. Non-GAAP operating income was $2.2 million. Foreign currency loss reflected an approximately 10% year-over-year increase in the average value of the shekel and the US dollar. I remind you that most of our operational costs for SuperCom Ltd. are in shekel.

GAAP net income was $0.1 million, compared with $0.7 million in the prior year period. Non-GAAP net income was $1.9 million, in line with the third quarter of 2025. EBITDA increased approximately 17% to $2.6 million, compared with $2.2 million, and EBITDA margin was 34.4%, compared with 34.6%. GAAP earnings per share were $0.01, compared with $0.14, and non-GAAP earnings per share were $0.3, compared with $0.39. For the first nine months of 2026, revenue increased approximately 14% to $23.2 million, and EBITDA increased approximately 37% to $9.9 million, compared with $20.4 million and $7.2 million, respectively, in the first nine months of 2025. Gross margin for the period was 57.8%. Excluding the extraordinary financial gains of $4.1 million reported in the first half of 2025, non-GAAP net income increased approximately 45% to $7.5 million, compared with $5.2 million.

We've also contributed to strengthen our capital structure. Over the past few years, we have reduced our net debt from close to $35 million to approximately $7 million. Our outstanding long-term debt carries a blended interest rate of approximately 6%, with no cash payments due until the end of 2028, flexibility to invest in our growth. Cash and cash equivalents total approximately $12.9 million as of September 30, 2026, compared with $7.4 million as of June 30, 2026, and $9.8 million at the end of 2025. In July, we raised gross proceeds of approximately $7.5 million through a registered direct offering of ordinary shares, strengthening our financial flexibility to continue executing on our pipeline. During the third quarter, we continued to deploy capital strategically to support customer onboarding, installations, and technology integration across our new contracts in the U.S. and Europe.

Finally, our book value of equity totaled $55.6 million as of September 30, 2026, compared with $47.8 million as of June 30, 2026. Let's talk a little about SafeGenie and agentic AI. Before discussing our EM business more, I want to address SafeGenie, which we introduced in October. SafeGenie is a cybersecurity product suite for the real-time monitoring and control of autonomous AI agents. SafeGenie builds on technology and customer base of Safend, our wholly owned cybersecurity subsidiary. Electronic monitoring remains primary growth driver, while SafeGenie allows us to build on technology and customer relationships already within SuperCom. Safend's kernel-level endpoint security technology has been deployed across millions of endpoints for thousands of customers, including government agencies, defense organizations, and enterprises. AI agents are spreading rapidly across enterprises. They can research group data and complete multi-step tasks across business systems without constant human direction.

The independence could also make an agent a potential insider threat, operating with employees' access at machine speed and around the clock. Traditional security is built around people, devices, and approved applications, not autonomous software capable of choosing its next action in a statistical fashion. Current forecasts spending on securing AI will grow from approximately $2.8 billion in 2026 to almost $7.9 billion by 2028, averaging growth of approximately 55% a year. SafeGenie evaluates each action an AI agent attempts and either allows, flags, or blocks in real time. This can help prevent unauthorized actions and sensitive data leakage before they occur. Because enforcement occurs at the kernel-level on the device, SafeGenie can protect supported endpoints online or offline, including when AI agents run locally. Each decision follows the organization's own policy rather than AI model judgment. It should also secure conventional generative AI use, including prompt protection.

Our cybersecurity engineers develop patent-pending methods to address security challenges specific to agentic AI. Safend's current level of technology and longstanding relationships with government, defense, and enterprise customers provide an established foundation for SafeGenie. The initial rollout will focus on integrating SafeGenie with Safend infrastructure and operating at Safend's existing customers directly and through Safend distribution channels across the U.S., Europe, and Asia. We then plan to offer SafeGenie to our government customers and additional enterprises. SafeGenie will be offered as a separate subscription alongside existing Safend licenses and maintenance agreements. This structure provides a potential new recurring revenue stream from Safend's established customer base. Since introducing SafeGenie, we have received requests for demos from channel partners and customers. We are preparing initial versions for deployment with several existing customers. Margin performance. Next, I want to discuss the operating leverage in our model and the factors that affect our margins.

Many of our recent wins have displaced providers that have had these programs for decades. In Slovenia, Germany, Israel, and Norway, the prior providers have supported the programs for approximately 20 to 25 years. Winning against such established incumbents demonstrates the strength of our technology and our ability to meet the requirements of national electronic monitoring programs. At the outset of a new program, we incur upfront costs associated with onboarding, training, development, and deployment. As the program matures and additional monitoring units are deployed, those initial costs are spread across a larger recurring revenue base, increasing the contribution from each additional unit and creating operating leverage. For larger European programs, device revenue may be recognized upfront and recorded as a receivable, which is collected over the life of the program.

As those receivables are collected, cash flow improves even though the related revenue was recognized earlier. Over the life of the program, the recurring revenue base expands while initial deployment costs subside, improving the program's margin profile. To support further margin expansion, we have taken several operational steps. First, we have consolidated and centralized operations in Europe, including logistics, equipment handling, and shipments out of one hub in Romania. We are also taking on more IT and support responsibilities directly, reducing our reliance on local partners and improving our margins. We have established our own 24/7 support capabilities across multiple projects. We are also using AI. Everybody hears me, yeah? I have a comment here.

Yeah. Okay, great. I had a comment here internally that they couldn't hear. We're also using AI in development, deployment of projects, and customer support. It's already automated certain tasks, accelerated development, reduced costs in deployments and customer operations, and on all departments of our business. Technology is a key factor in European national tenders, which often use rigorous technology-based evaluations. Our wins across all five Nordic countries, operating against long-serving incumbents, demonstrate how our platform performs in competitive evaluations and provide relevant references for future tenders. I'll now turn to our margin expansion strategy, which focuses on entering new markets and expanding within the markets we already serve. Our electronic monitoring business grew at a compound annual rate of approximately 30% over the four-year period ended in 2025, while our EBITDA grew at a compound annual rate of approximately 47% over the same period.

The higher EBITDA growth rate reflects the operational efficiencies we have built into the business and the leverage in our model as we scale. As a reminder, our European revenue includes some larger multi-year national contracts where revenue recognition can fluctuate meaningfully based on program-specific ordering cycles. In these programs, when a customer places a significant device order, the device value is typically recognized upfront and recorded as a receivable that is collected over the life of the program. As a result, quarters with large orders can show a step-up in revenue, while the related cash comes in steadily over time. Romania represented a significant portion of our European revenue in prior periods, but ordering activity temporarily moderated amid political uncertainty. As our European contract base has grown, Romania now presents a smaller share of our revenue.