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Earnings Transcript for SPCB - Q4 Fiscal Year 2023

Operator: Ladies and gentlemen, good morning, and welcome to SuperCom's Fourth Quarter and Year End 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] 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 Trabelsi, SuperCom's President and Chief Executive Officer. During this call, SuperCom's 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 20-F and Form 6-K, 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. For a reconciliation of this non-GAAP financial measure to net loss, a comparable 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, April 22, 2024. Except as required by law, SuperCom disclaims any obligations 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, Ordan Trabelsi.
Ordan Trabelsi: 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 fourth quarter and full year of 2023, which you can find in the Investor Relations section of our website at www.supercom.com. Today, I'll start my comments with a brief update on our recent business highlights, strategy and Q4 and 2023 results, followed by Q&A session. I'm excited to share with you SuperCom's outstanding performance in 2023, which reflects the tremendous strides we've made in our operations and financial position. 2023 was a landmark [year for us] (ph) [0
Q - Matthew Galinko: Hey, thanks for taking my question, and congrats on a strong 2023.
Ordan Trabelsi: Thank you.
Matthew Galinko: I guess my first question is entering -- how does the pipeline look to you entering 2024 versus the pipeline entering 2023?
Ordan Trabelsi: The pipeline still looks strong in the past year and this year. We have some projects we've already been on and some that were in late stages, like presentation stages, like contract negotiation stages. We have other projects that are in the pipeline as opportunities that we expect to bid on or achieve win throughout the coming year or two. Things still look strong and we've been executing well on the opportunities we had in front of us.
Matthew Galinko: Got it. Okay. And I guess with the launch of the single piece products in the U.S. and I guess North America, I think that was second half of the 2023, how has the pipeline evolved in terms of geography? Is it kind of a stronger U.S. pipeline now? And obviously, I think, than a year ago, but how meaningfully has that changed the composition of the pipeline?
Ordan Trabelsi: So, in Europe, as we mentioned in the past, we continuously bid on national projects and that would depend on the timelines of the different nations around Europe and the projects they have. So, we were dependent in a way on their timelines and we were continuously bidding. We had a very high win rate of over 65%. This year, as we expanded more into the U.S., we're also looking at opportunities that are not necessarily at a large national level, we're also looking at counties and states. We're also looking at counties and states and resellers throughout the U.S. So, the pipeline in the U.S. is growing. We still have much work to do to grow the pipeline of the U.S. The actual market in the U.S. is 3 times that of Europe, according to market estimates. And we're starting off with the smaller projects. Just like we did in Europe, we start off with Latvia and Lithuania, which were $100,000 projects. And so, they grew to projects like Finland and Denmark, which is $3 million to $4 million, and in Sweden, $7 million, and in Romania, $33 million. It's kind of like a ladder. You start smaller, [you go there, attract] (ph), and then you go to the larger projects. And the U.S. was still at the earlier stages, but the pipeline of the U.S. has certainly been growing since we started expanding our focus on the U.S. market together with the PureOne product, which has already started to get rolled out and it's receiving very good feedback from customers.
Matthew Galinko: Got it. Thanks. And last question from me and I'll jump back in the queue. You mentioned the declining use of cash from operations over the last three years. I guess...
Ordan Trabelsi: The declining use of cash.
Matthew Galinko: Yes. Do you expect -- or can you point to a number on EBITDA maybe that you think gets you to breakeven? Like, if 2023 was around $5 million EBITDA, is it kind of linear and you just expect to be to be maybe closer to $7 million EBITDA to be at a breakeven cash from operations level, or is it a little harder to pin down based on where you are in a project cycle?
Ordan Trabelsi: Yeah, it's a good question, but actually the EBITDA over time should reflect our cash use. So, for $4.8 million EBITDA, that should certainly reflect the cash flow positivity. The reason why you see the gap between cash flows -- operational cash flows and EBITDA is also mainly because of the timelines and the cash needs of projects. So, some of these projects probably have to manufacture a lot of equipment, and then the cash comes in over the years. So, that movement throughout the project creates this gap. But over time, things need to stabilize. And if we didn't have continuously newer and larger projects adding on to our recurring revenue base, we wouldn't see this gap. So, if things kind of stabilized on the same project for a while, you would see the cash flows go closer and closer to EBITDA. So, it's hard to give you a specific number, because it depends on where, but it is good to know that EBITDA does reflect in a way a proxy for the cash potential creation of the company.
Matthew Galinko: Got it. Thank you.
Operator: Thank you. [Operator Instructions] Okay, we currently have no further questions on the line at this time. So, I will pass the call back to Mr. Trabelsi for any closing remarks. Oh sorry, we have -- oh no, I do apologize, sir. Continue.
Ordan Trabelsi: If we have any more questions, we can take them.
Operator: Okay. We do have a late question, sir, from [Jay Giotoschi] (ph), who is an investor. Your line is live.
Unidentified Analyst: Yeah, hi. Congratulations again on a great quarter and a great year. Question around your intellectual property. I see that you're using AI. Is that something you could patent in order to prevent other competitors from entering your market?
Ordan Trabelsi: Thanks, Jay. So, we do have in company over hundred different patents, and we've spent a lot of resources in the past on writing these patents. Lately, we've been so busy on our growth and our expansion that we haven't stopped as much to start writing new patents. Our AI capabilities do have unique applications to our specific market, and after we deploy them, we see their effectiveness. It's something that we consider if we want to utilize like we've done in the past times.
Unidentified Analyst: Okay. Thank you.
Operator: Thank you. [Operator Instructions] Okay, I believe we have a question from Matthew Galinko again. Matthew, sir, your line is live.
Matthew Galinko: Oh, sorry, I didn't have any follow-up questions.
Operator: Apologies, sir. It was still on the line. Thank you. Okay, sir, we currently have no further questions at this time.
Ordan Trabelsi: All right. I'd like to thank all of you for participating in today's call and your interest in SuperCom. We wish you a happy Passover. Please contact us directly if you have additional questions. We look forward to sharing our progress with you on our next conference calls, filings and press releases. Thank you very much, and have a good day.
Operator: Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.