Supercom Ltd (SPCB) 2024 Q3 法說會逐字稿

Ladies and gentlemen, good morning and welcome to Supercom's third quarter, 2024 financial results and corporate update conference call.

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Joining me on Supercom's leadership team is Oran Telsy Supercom's President and Chief Executive Officer.

I'd like to remind you that during this call, Supercom management may make forward-looking statements including statements that address Supercom's expectations for the 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 20 F and form six K and Supercom's press release that accompanies this call, particularly the cautionary statements in it.

Today's conference call includes ebida a Nongaap 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 advance with GAAP a reconciliation of this non-GAAP financial measure to net loss.

A comparable GAAP financial measure.

Please see the reconciliation table located on 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, November 14th 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 call over to Supercom's President and CEO or Don Telsy.

Operator.

Good morning, everyone.

Thank you for joining us today.

Earlier this morning, we issued a press release of financial results for the third quarter and nine months ended September 30th 2024.

You can find a copy in the industrial relations section of our website at www dot supercom dotcom.

Today, I'll start my comments with a brief update on our recent business highlight strategy and future results followed by a Q&A session.

The third quarter was another quarter of significant achievements for Supercom showcasing the continued strength and resilience in our business.

Our financial results for the third quarter and first nine months of 2024 reflect the successful execution of our strategic initiatives which have been driving revenue growth, improving profitability and enhancing cash flows.

Here.

Today, revenue increased to $21.3 million gross profits by 35% to $10.7 million.

And our gross profit margin improved dramatically to 50.1% from 30.7% in the prior year period.

Additionally, our free cash flows increased to positive $1.2 million from a negative number in Q3 of last year, we are pleased with our results.

Look forward to the following quarters.

This quarter is particularly exciting to be so about our leadership position with key contract win including the prestigious National Israeli Electronic Monitoring Project.

We also expanded into new regions including New York, West Virginia and Maryland.

Further strengthening our footprint in the US market.

These ones not only reflect the exceptional value of our technology but also help position us for sustained expansion in the years ahead.

Our commitment to financial operational efficiency and technology innovation has translated into tangible results and improvement in net income to $2.52 million for the nine month period compared to a net loss of 2.48 million in the prior year period.

Free cash generation of 1.2 million this quarter and a cash balance of 6.23 million at the end of it underscore these tangible results along with the ability to support further potential growth opportunities.

We're also particularly proud to have continued our successful integration with P One solution to multiple new markets during the industry affecting our continued commitment to innovation, our ability to meet the evolving needs of our client.

This along with other strategic initiatives has positioned us still over sustained possibilities and extension for those new to Supercom.

Our mission, it's revolutionized public safety sector worldwide with our proprietary electronic monitoring technology, our data intelligence and suite of complementary services with over 36 years of experience since our founding in 1,988 we've been a trusted partner to dozens of national governments worldwide providing cutting edge electronic and digital security solutions.

Our strategic blue is straightforward yet powerful.

We did with innovative technology, our proprietary electronic monitoring technology which have scored highly competitive government tenders for various programs.

It just helps us GPS monitoring rehabilitation services, domestic violence prevention.

And more moreover, we have recently broadened our portfolio to include advanced A I driven analytics, which are an integration into our electronic monitoring system.

This edition enhances our ability to provide predictive insights and improve outcomes.

For our company.

We developed superior solutions.

Since 2018, we've secured over 50 new multi year government projects with the solution.

We expand our global presence and our strong growing reputation as a premium provider of electronic monitoring solutions and services enhance our market position with each new customer win and we deliver out services.

Strategic focus on it, tracking business and develop market is where the opportunity is greatest develop monitoring market projected to reach $2.3 billion by 2028 the US and Europe to about 95%.

We continue to amplify our technological leadership with significant R&D investment leading to the launch of Dam solutions like Pure Protect and Pure one.

These offerings are already making headway in various markets including the US and our pivotal and Supercom expansion.

Pure Protect is a life saving domestic violence monitoring solution providing preventive measures to families suffering from domestic violence or stock thereby increasing their safety.

We offer a unique lightly abrasive long term battery life and a solution architecture like no other to offer domestic violence protection in a unique way which is spreading rapidly around the world with more wins in different regions.

Tier one is an on all in one gps tracking angle braive monitoring solution, integrating comprehensive monitoring capabilities into a single device like many of our products, it offers top notch features, placing it above competition in most metrics.

And this product is a key for expansion in the US which is on its way.

Our cloud based software, pure security product line has been particularly effective in monitoring the venders and managing real time information.

It real time advantage is a game changer empowering authorities with actionable insight and timely intervention to mitigate potential risk and enhance public safety.

These products have significantly expanded the company's address of the market.

We've been very pleased with the reception and traction and expect them to help facilitate the accelerated expansion of Supercom into the US market.

And for the European countries, we've fortified operational infrastructure to support our growth and have revamped our sales strategy with proactive outreach approach.

Our sales team with deep industry expertise has been instrumental in achieving new wins that are driving growth.

Last month, we announced that together with our prime partner Electra in Israel, we have been awarded a five year contract by the Israeli Prison Service State Agency or IP to deploy our pure security electronic monitoring system.

This nationwide program is expected to cover all electronic monitoring, offender programs in the country with an estimated 1,500 enrollees simultaneously and potential for expansion.

Supercom will deploy its cutting edge em solutions including pure, pure, pure tag and pure BK.

The five year contract is already in effect and includes the option for up to 41 year extension for a total of a nine year potential contract term.

The project is one through a highly competitive process including several rounds of negotiations, demonstrations and system evaluations required and supervised by the IP S.

We displaced an Israeli incumbent that has held the contracts for many years.

And this one exemplifies our commitment to excellence, technology, leadership and strong partnerships, a comprehensive set of offering position us well to a multi faceted national projects such as this one that are set to encompass all electronic monitoring programs within the country.

We have a broad array of solutions and with one contract and one provider ourselves that we can support all the programs.

Over the past month, we announced many new orders and new projects in the US and Europe.

In recent years, Supercom has continued to displace incumbent vendors and achieved an over 65% win rate in European competitive tenders.

Look into the EU market.

Supercom secured several new national tracking programs cost you over the past two years with bids and contracts at various stages of execution.

Notably, the company's large scale method pilots of funded tracking programs like the one launched in Romania has the potential to catalyze further uptake from existing European customers.

As more European countries adopt these technologies which made a broader expansion of our solution in the continent.

In the European market super account expanded its business into over 10 countries that secure significant new contracts which are typically awarded through a competitive tender process.

Besides winning new projects, we continue to execute and receive ongoing orders from our existing partners.

Just about four weeks ago, we announced to receive new orders that at over $2.9 million in European government totaling over 13.5 million orders in the, in the, in the past period that described last year, we secured national new National program with the Finnish government to deploy our domestic violence sponsoring solution.

The deployment of our pro security suite consisting of pure protect, pure track, pure tag and pure monitor demonstrates the versatility and effectiveness of our solutions and underscores our leadership on TriC Moic Space.

Our collaboration with Finland is a prime example of the confidence that clients have in Supercom and those experiences.

Our services often choose to broaden their engagement with our diverse rate of solution.

That means they start with one program like house rep, they expand the GPS domestic violence or alcohol monitoring and that gives us of course opportunities for growth and margin improvement with the same customer.

Notably at the end of 2022 the company won the largest industry award of the year for national electronic monitoring projects in Romania, valued at over $33 million including up to 15,000 monitored offenders simultaneously per month.

For up to six years.

The project has been progressed, excluding and demonstrating substantial advancements.

Further extending our engagement in the country's national em project.

The large scale projects reinforce the strength of our security suite and cement our position as a trusted partner for government worldwide.

We've also launched a file which is other European regions and I recently launched them as well in the US look into the US market while the European market continues to grow.

It's important to note that the US market offers a new larger opportunity being approximately 3 to 5 times the size of the European markets, electronic monitor.

With the introduction of our pure one electronic monitored product now available in the US and the expansion of our domestic violence tracking solution.

We believe Supercom is oppositioned to unlock substantial growth potential in this untap market.

Our Supercom already does this in multiple US states.

We're actively focused on further expanding our presence in the USA wholly owned subsidiary LT A located in California is actively expanding the size of existing programs, winning rebates with existing customers and winning new programs with brand new customers.

The company decision prioritizes Pier One expansion into new markets and geographies.

The pure one has already received high praise during its introduction to various features of USA where it's been successfully deployed and it's actively utilized to monitor live effects.

Moreover sales activities for Pier One have commenced and promises the market outside Europe and this and that.

We set our long standing presence in parts of California.

The US market remains largely untapped for us since we began investing in outbound sales efforts in 2022 for the US for secure wins in California, Idaho, Texas, Kentucky and Wyoming to name a few this quarter, we just announced a few more which we reiterate and the launch of the pure one in 2023 people with top positive feedback from initial deployment positions us to accelerate market capture across the us, unlocking significant growth opportunities.

Our teachers, new sales team, the new ones have been the first effort that using the company's US market expansion strategy and an order driven increase activity with existing customers and multiple new demos resulting in a significant increase in the company's pipeline.

Launching our pre own solution in the US market.

Late 23 of a significant milestone of expansion strategy.

Since our last earnings call alone, we've announced multiple new projects in North America to provide a solution.

Supercom secured new multiple new contracts with the sheriff agencies across West Virginia.

These contracts leverage Supercom's innovated through one suite with both seller and wifi communication ability and these countries already generating recurring revenue for those clients are present and filter in the US market.

We've also secured new contracts with leading Baltimore based service provider in Maryland and the contract which was launched in June 2024 estimate generate an annual recurring revenue of $250,000.

And we secured a first new contract in a county in New York state.

This one achieved through competitive selection process for strategy for account strategic expansion across the US that mark on the milestone in our business plan, as I mentioned earlier, just to P one with a game change, securing these contracts, it underscores our competitive edge and commitment to delivering innovative and superior technology solution, these contracts to further reinforce our position as a market leader in various fields.

And we review review these recent ones as indicators are growing influence and expansion potential in North America and the world.

In conclusion, despite macroeconomic uncertainties and ongoing global challenges including those in Israel Supercom Solutions are being increasingly relevant.

We continue to see growth driven by high recidivism rates, escalating costs of incarceration and the surge in the adoption of different protection solutions worldwide.

The company's pre security technology, it is not designed to address these trends offer an effective way for institutions to enforce home confinement.

Each prison overcrowding and lowers cost of, for example, monitoring confinement fer at home or GPS costs about 10 to $35 a day which is 90% less.

Then 100 times $40 did cost at a correction.

Moreover, home confinement helps to disrepute offensive pilot effectiveness, helping offenders improve their lives and communities.

As we mentioned in previous calls, we believe there's also an opportunity to enhance us growth through strategic acquisition of local electronic monitoring service providers.

With a strong imputation of customer customer base in the local market.

We constantly monitor the market potential acquisitions that could generate significant value at a good price and by immediately expanding market presence and providing vertical integration synergies.

Our acquisition of LC A in 2016, which is the last of this sort for $3 million is a great example.

The T acquisition has been great strategic value to the company and allow us to win over $35 million in new projects in California loans to acquisition.

I'll now turn briefly to the financials during this quarter.

Q3 in the first nine months of 2024.

In comparison to the same period of last year, note that our multi year projects are not run on a quarterly scale that can fluctuate in effect and analyze quarterly.

We'll start with the nine month performance which helps to try some of these fluctuations and ends up three months.

So for nine months revenue for the first nine months increased $21.3 million up to 20.9 million.

The same period last year, gross profits, 35% $10.7 million and through growth margin, 51% up from 37.7.

Last year.

Net income improved significantly to 2.52 million compared to a net loss of 2.48 million in the previous in the prior year.

Non-GAAP net income grew to $4.88 million.

Demonstrates the trends of operations and EPS reached $1.6 and non-GAAP EPS reached 3.1 difference between attributed demort organization of classified assets.

Quarterly performance.

Q3 revenue increased to $6.91 million up from 6.78 in Q3 of last year during the new project wins and expansions of the contract gross profit for the quarter of 3.2 million affecting the margin of 46% compared to 4 million and margin of 59% in Q3.

This margin increase was primarily due to project mix and timing even out the total $1.1 million compared to 2.5 million in Q3 of last year.

Also mainly due to project mix and time positive free cash flow of $1.2 million in 23 of this year.

Further underscore the strong financial discipline compares it to negative free cash flows for the same period last year.

Note, this is very interesting that the cash flow for operations the first nine months of the year were positive.

This is a big improvement from recent years.

If we look at it and keep track.

In 2021 we had negative $9.7 million in operating cash flow.

In 2022 we had negative $4.7 million in operating cash flows.

And in 2023 we had negative $2.4 million in operating cash flows.

And again for the first nine months of 2024 we have positive operating cash flow.

These are, these are great results and a great trend that we like to see and this supports our strategic plan and a testament to the success we are achieving in it.

The portage is all tied to our ability to seize the high margin potential of a project portfolio through successful execution and progression.

At different stages of these projects showcasing our focus on the same growth go the initial project stages incur higher expenses while advanced stages yield higher growth.

March causing fluctuations in our gross profit depending on project composition and deployment stages.

We are running multiple projects in different stages throughout the world and that's how you can see the fluctuations in the quarters depending on how each one falls in that specific quarter.

As the project pipeline matures, we expect an upward trend in gross margin based on the evolving project portfolio as deploy additional braces and lesions where we run existing projects on our existing infrastructure, the contribution margin for each additional braces could be as high as 70% operating expenses in the quarter state in line of the first half of the year to continue with our existing strategy.

And also interesting to know we make considerable strides in reducing our long term liability for up to $4.5 million a year on year, which includes exchanges with our creditors of debt to equity and negotiated premiums of up to 100% premium to market price.

Our operating cash flows improved to 1.2 million year over year and our cash position grew to 6.2 million at the end of the quarter.

This marks our highest reported cash position in recent years and we remain focused on reducing our cash need for external funding as we continue to win and execute projects.

These improvements further strengthen our financial foundation to support our ongoing growth initiatives and strategic investments.

In closing, I have to thank our global team for the hard, tireless work to achieve our company's record setting performance.

We have developed the right technology and product to help criminal justice system, clients overcome challenges and make better use of the over $80 billion spent annually in the USA on operating rehabilitation centers in prison.

These are showing at approximately 75% considered at the rate in the US.

There's significant room for improvement when effective programs, technology are adopted, we're excited about the growth we are experiencing and about the growing demand of our product.

After several years through which we transition from our legacy business to the IOC tracking them spenders' business.

We're happy to show a shift in nice growth in revenue and profit.

We believe that we're well positioned to continue to expand this by capitalizing on many opportunities for us.

These are being driven by multiple factors including our pre strong presence, repetition in the US and European markets.

The countercyclical nature of electronic monitoring industry, the growing public policy shifts to monitoring instead of incarceration and the growing adoption of the method file prevention solution.

We anticipate continued expansion in the US and Europe and potential other regions our commitment to preserving our technological advantage and our robust growth growth Foundation remains steadfast as we continue to invest in these areas with that alternative operator open for questions, operator.

Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star.

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For the first question.

Thank you.

Your first question is coming from Matthew Galinko from Maxim Group.

Your line is live.

Hey, thanks for taking my questions and congrats on the strong year-to-date.

Can you maybe start off by just touching on what the pipeline looks for it looks like for Europe in 2025?

Are there any large national projects that are, you know up for bid or that you're pursuing now that you think could close in 2025 or what does Europe look like?

As you look out over the next year.

Thanks, Matthew.

Good question.

Our, as you may recall, we entered the market several years ago, we had to start with small projects in Europe like LAA between India, which are $100,000.

We grew to larger ones like Denmark and Sweden of 7 million and that was the remaining 33 million.

Those are all access references and track record that helps us basically compete on any any RP here at this stage.

So basically waiting for the one to come out and then we compete and use our usually leverage our strong win rate to help win this project.

In Europe, there's so many countries, even though we had at one rate and we won many countries.

There's so many countries that we haven't yet to enter.

And we are continuously monitoring and bidding and progressing and being evaluated for various projects across Europe.

Almost every Western European country has national em projects.

And there's many you haven't entered yet like England, France and Germany and Norway in Spain.

And so there are certainly opportunities of various sizes and there are many that are out there that are bigger than Romania project.

And Europe while being small in the US is still a great market for us.

We have a very good position, very good position there and we continue to be there while, because while in parallel, we actually.

Got it.

Thanks.

And when you've been on new projects in Europe, is it usually displacing or to displace or replace legacy you know, kind of old ankle bracelets or what, what's the, are they looking for additional functionality generally in one go such as, you know, the domestic violence stuff or you know what, what are the new bids generally looking for?

The national programs many times, encompass all the, all the electronic monitoring programs like the house arrest GPS, monitoring, domestic violence, alcohol.

In Sweden, we also do inmate monitoring in the prison itself.

Usually there's an incumbent because those TriC monitors around in some countries like Romania, which is the first program.

They didn't have the Trump generally in Croatia we did the first but almost every other one was displacing in a company, Weeden they had in company for 24 years.

We displaced that Israel had a company for a very long time as well.

We displaced that.

So it, it does require capital and work and investment for a country to switch over to a new vendor.

Usually they do that when they see a value proposition which is significant to what they are experiencing today.

So we don't just have to marginally improve what they're, what they, what they have, but to give them a big step of improvement because they have to now retrain all their staff and change their systems and integrate and look at the whole process.

We're able to do that by firstly offering significant improvements to existing programs they have whether it's house arrest or GPS monitoring because our technology and architecture is completely different offers, you know, much, much longer battery life and very other on the whole scale of other capabilities and features that are important to them and we're able to offer brand new solutions that they haven't had before.

Like domestic violence with our, you know, pure Protect program.

So it's a, it's a mix of they, they, they get a better version of the existing programs and the opportunities to go to new programs and they find a team which is all together, usually local partner which provides them top notch support Grae effective timelines, the communication and all the things that they're looking to see from a government contractor that we bring with over 36 years of experience as a government contractor here in Supercom.

Got it.

Thank you.

And then last question for me and then I'll jump back in the queue.

I guess with respect to the US market, you know, it seems like you're expanding your footprint into new new States within the US and North America.

What do you expect to do?

You need to add resources to that effort to accelerate North America or do you expect to add like more boots on the ground to, to try to push that faster or just curious how you think about, you know, going after that bigger opportunity in the US.

And you're in just to clarify, you're asking if we're putting more, more boots on the ground to accelerate it or if we're doing other.

So we.

Okay.

Good, good question.

So it's a trade off with, with sale in the US market things is much faster than Europe because you're looking at county sometimes and resellers, resellers, not government agencies have to go through an RP process.

They could decide on their own, you know, resellers to have 10 counties that they're controlling and they are running all the electronic monitoring program for those counties.

If they want to switch to technology, it is their product to do so.

So they could find a new technology, new company like ours that switch and happens quickly.

So within two months, three months, sometimes we see them switching over, they could start small, move over, then don't do everything at once.

So it gives them a lot of flexibility and it allows us to move faster.

That does require though the other half more feet on the ground because markets fragmented and instead of just looking at one national project, you have dozens and even hundreds of projects spread across the US throughout different counties and the same county have multiple projects because they'll have the Sheriff program information.

We'll have early intervention court, I call monitoring, it's very fragmented and requires more relationships.

But the retailers do accum aggregate some of these and work for these hours.

We have quicker expansion and we try, as you can see, we try to keep an eye also on our, our cash use and our profitability.

We, we were looking to, to grow faster.

We could we could have raised that.

We, let's say venture capital backed fund company.

We could have raised more money and try to put many, many feet on the ground to spend faster and faster.

We, at the same time though, we're trying to maintain our profitability.

We're trying to optimize our cash use, which you may have heard on the script from three years ago where we had a negative nine point a $7 million in cash for this year cash deposit so far.

So we're trying to manage everything.

At the same time, we are cognizant of how many sales people we put on the ground.

And we have seen great growth already even as we work very efficiently with our, with our capital and try to optimize and utilize our sales people and our sales expenses adopt as we can.

Great.

Well, I appreciate all the answers and I'll be back if there's no other questions in the queue, but thanks.

Thank you.

Your next question is coming from Dan Shas.

Your line is live.

Hi or on.

First of all, sounds like another great quarter of execution.

We really appreciate that.

I have a, I guess a couple of questions.

First one would be how in the deck debt to equity conversion, how many new shares were issued?

And at what price.

Don't have the that it's not 11 conversion over the course of the year, we've done several conversions and usually at a premium sometimes up to 100%.

And that would be yeah, as you saw in the numbers that helped to reduce our long term liability by $4.5 million.

I think it's a benefit to shareholders, of course, because we're getting we're going to forgiveness together with that, we reduced the debt while using a significant premium to the top price.

So.

Well, how many I'm I'm more concerned about this particular quarter.

How many, how many new shares were as part of that conversion were.

Issued this quarter?

This quarter?

Nothing was.

Zero in the, in the third quarter.

Yeah, it's just an update.

We give annual updates and compared to the last year, you see the long term liabilities are reduced because of the conversion, previous quarters previous okay.

Small small amount, not just not just one conversion, small conversions with with optimal terms, we try to achieve our initiative.

Okay, wonderful.

That's, that's excellent to hear.

How many can you give me a account of how many shares are outstanding at the end of the third quarter?

We did report, we did report we had a semi annual report that we recently or roughly 2 million outdated shares.

Okay.

Great.

A little bit more than 200 outdated shares.

Okay, wonderful.

I'm thrilled to hear that there wasn't any additional dilution been a long term shareholder and I believe in your, your product and your mission.

But it's been a little disheartening to see the continue the continual dilutions over the last couple of years.

I, I hope that's, that's behind us.

And just one final comment, the the market will once you once that is common knowledge and is out there, your stock performance will change because right now that's what's been holding you back and that's all I got to say.

I understand.

Yeah, yeah, I understand.

Thank you for that.

And I want to know that we have but we have been working to grow our infrastructure and expand and even reducing our use of cash.

And over time, as I said, we went from negative 9.7 million to negative 4.7 to 2.4.

Now positive for the cash flow, we don't control the exactly the project stages and how things will roll out and we hope to win more projects.

And sometimes we, we need to use cash to support this growth, but we are trying to be cognizant and that's why these conversions that we described the debt, we've done them at a premium up to 100% that provided great value to shareholders.

We're trying to be cognizant and delaying extended and push the maturity of our debt.

And we've worked closely with our, with various partners and credits and parties to help, you know, get the best terms and to be able to execute and grow and, and implement our business plan while while trying to optimize shareholder.

And I appreciate your support to come over the years.

Thank you.

Your next question is coming from Matthew Galinko from Maxim Group.

Your line is live.

Hey, thanks.

Thanks for taking another couple of questions from me.

Can we expand a little bit more on the the deal you have now in Israel particularly maybe a little bit more about the structure.

Is it is it more of a purchase or kind of a recurring structure?

And what are the opportunities for expanding that, that project over time?

Good question.

And just make sure I have some information organized for you.

So we start with a high level.

The project was through an incumbent, there's an incumbent for many years in Israel partnership that, that was holding the project.

And we came with a different partnership all together with the Electra and we won bid.

The first, the first period is five years.

There's 41 year extensions.

That's nine years.

If we do, well, that could be extended for another nine years as we see in many regions in the world.

Initially, it starts with house rest, which is R based and that is the initial program is expected to have a 15 100 offenders.

And it's not a purchase delease model that we see many times in the US market and some parts of Europe, there are other types of programs that as we discussed on the call, like domestic violence and others that we believe that Israeli Israeli Prison IP S is what they're called.

They, they plan to use more of these programs to help with the criminal justice in Israel.

There's been a law passed last year around domestic violence which is, which allows and complements the use of electronic monitoring for domestic violence.

And there's all the things that are in process.

This project gives us the right for all the electronic monitoring projects in the country over these years.

So as the the government decides to deploy more projects, we will be the vendor employing them.

And we have experience, I've noted in many of these programs in many countries around the world of various sizes including the 15,000 unit domestic projects in Romania, which is many domestic clients.

We've seen even in house arrest increases to the quantities every year and we expect those numbers to grow.

That's just for the initial program.

But beyond the initial program which grows, so we're expecting a potential additional programs to be added on to the project which would be very valuable.

Got it.

And as we think about, you know, additional units on the house arrest or additional programs under that, that win.

So if you add incremental units, what does the margin look like if you go beyond the 1,500 I guess, but I guess is there a benefit to add?

Yes.

Oh, yeah.

Yeah.

Yes.

Yes.

Yes.

So we're this, there's a lot of cost with the deploying a new system that includes installations and hardware, teaching and setting up support such as set up manuals and setting up software that includes development of the software and adaptation and specific programs that the customer wants.

We'll do that with every, not every customer but every large customer that has specifications, we have to put our effort in that and that lowers our margins.

But as you know that every additional price that we put on has very high margins much higher than the original ones.

Because you don't have to do any additional customization, whether you're doing 1,500 or 10,000 units.

It's mainly the same, you can add more units and the margin on each additional unit is very high.

So 70% higher, it depends on the specific pricing of the specific program.

You have one bracelet and one phone and now they have one bracelet and two phones.

Sometimes you don't have a phone at all.

You just have bracelets and you have a house unit.

Each one has different calls, a different cellular costs and margins could change, but they are much higher.

When you add additional additional units to each existing contract.

And what's nice about besides Israel, which is going to put more programs and it's going to be interesting, good margin in the US.

Almost all the programs run on the cloud and they run the same language and out of the same infrastructure and the same protocol.

So it's very nice that the market there, which is already 3 to 5 times a year, the size of Europe will utilize the same systems allowing us to reach higher margins.

Versus in Europe where each nation had a lot of it was purchasing and a lot of different languages, different protocols, different laws and it made it a little bit more complex there from nation to nation here in the US.

We're actually seeing more consolidation and more similarities between programs that's going to be a benefit for us going looking forward in the future.

Got it.

Thank you.

And then final question on that.

I don't know if you can answer this, but is there a number of, you know, track defenders?

You think the Israel deal can reach over, you know, the first initial five year period?

So we started at 1,500 you know, maybe that ends at like 3,000 or is it, you know, impossible to answer that at this point?

Trying to give you a rough estimate without so as the population in, in Israel, as of under 23 it was close to 10 million in Romania, you're looking at 19 million population without getting into the specifics of the different laws and processes, different programs.

You can see that if Romania started with 15,000 and they're still talking, considering growing, there's certainly room for much more than 1,500 in Israel.

There's, there's, there's a lot of potential to be done, but it's not just the population of the country.

It also depends on the processes and the government's propensity to move quickly.

Our experience in Israel and our headquarters are here is a lot of the, a lot of the different programs in Israel.

The government processes like technology, they're comfortable with technology.

We, we had a program in Israel for the COVID even tracking.

And we, we have good operations to work closely together with them and with Electra to deploy effective solutions and as these numbers, as the decisions work well, they grow the numbers and it's a lease project.

So they continue to continue to grow it as they see it working effectively and improving the numbers.

Thanks, I'm sorry, 11 last follow up for the initial 1,500.

Do they turn on, you know, as soon as you're implemented or is there kind of a ramp up period to that initial number where you need to go in and swap?

You know, the old for the new or what, what's the process towards, you know, go live and reaching that point.

We already started with the project deployment.

It takes time right now, the process is the definition of planning.

And it should take six months or so for the some of the initial deployment stuff.

The beginning number expect it to be a little less than 1,500 then it, then it can grow maybe somewhere between 1,000 to 1,500 at the beginning and then it grows 1,500 quickly, but it does, it does happen through swaps.

And Israel is a smaller region easier than when you spend across larger regions like California.

So you have easier touch points and access to, to the, to the offenders.

You're able to do the swap from one to another relatively quickly.

It can be done in a month, for example, that kind, that, that number, but first you have to set up the infrastructure, run the test train, everyone, get everyone ready.

And that's what we're looking to do in the six months while the program is running right now with different vendors.

So it's a swatch, a swap with a handover process which we're very familiar with.

And we've done, you know, dozens of times around the world successfully.

And of course, that's what gives our customers the confidence when they choose.

So we're doing that here in Israel just a little closer to, closer to some of our, our staff, which will make it actually easier than normal.

Great.

Thanks again.

And I mentioned our, our, we have a local partner Electro, which is a large corporation here in Israel and they're spread out throughout the country and they're going to be doing and handling a lot of services and swapping and so forth and, and while it's an interesting endeavor for anyone, you know, we feel confident as well that this process should be smooth.

Like, like many others that we've seen in the past through our partnerships.

Congrats sounds like a great win and thanks again.

Thank you.

Thank you.

At this time, we will pass the call back to Dan for closing remarks.

I want to thank you all 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 our next conference call filings.

Thank you and have a good day.