Business Context and Reporting Period
SuperCom Ltd. (NASDAQ: SPCB), a global provider of secure solutions for e-Government, Public Safety, HealthCare, and Finance sectors, reported financial results for the second quarter ended June 30, 2017. The filing, submitted on July 31, 2017, details a strategic transformation following four acquisitions in 2016 aimed at diversifying revenue streams and improving margins.
Key Financial Metrics
Second Quarter 2017 (Three Months Ended June 30)
- Revenue: $7.5 million (GAAP).
- Gross Margin: 46% (GAAP); 49% (Non-GAAP).
- EBITDA: $0.8 million (Non-GAAP), compared to a loss of $0.34 million in the prior year.
- Net Income (Loss): $(0.66) million (GAAP); $0.23 million (Non-GAAP).
- Earnings Per Share (EPS): $(0.04) (GAAP); $0.02 (Non-GAAP).
- R&D Expenses: $2.0 million.
- Liquidity: Cash and cash equivalents totaled $0.93 million as of June 30, 2017.
Six Months Ended June 30, 2017
- Revenue: $15.83 million.
- Gross Margin: 41% (GAAP); 44% (Non-GAAP).
- EBITDA: $(0.2) million (Non-GAAP), an improvement from a $(1.3) million loss in the prior year period.
- Net Loss: $(2.66) million (GAAP); $(0.88) million (Non-GAAP).
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenue increased 50% year-over-year ($7.5M vs. $5.0M). Six-month revenue increased 45.5% ($15.83M vs. $10.88M).
- Margin Expansion: Q2 Gross Margin improved 70% year-over-year (46% vs. 27%). Six-month Gross Margin increased 102.5% (41% vs. 20%).
- Profitability Milestone: The company achieved positive Non-GAAP EBITDA and Non-GAAP EPS for the first time in several quarters.
- Expense Management: SG&A costs decreased 18% year-over-year in Q2, while R&D expenses increased to $2.0 million from $1.5 million to support product development.
Guidance, Outlook, and Management Commentary
Management reaffirmed its full-year 2017 revenue guidance, expecting to surpass $35 million, representing approximately a 75% increase compared to 2016. CEO Arie Trabelsi highlighted the successful transition to a business model with higher predictable, steady-state revenue, particularly from developed markets. The company aims to grow the percentage of steady-state revenue from developed markets from less than 5% in 2015 to close to 50% in 2017.
Segment Highlights:
- e-ID: A $9M project in Colombia is on track for steady-state transition in July 2018. Large-scale African deployments are transitioning to recurring revenue.
- M2M: Secured a multi-year national electronic monitoring contract in Denmark and a $3.4M contract with Alameda County, California.
- Cyber Security: Safend platform saw year-over-year sales growth and expanded distribution channels.
- Connectivity and Payments: Initiated sales of Alvarion Wi-Fi technology in the U.S. and VeloPOS in Central America and the UK.
Risks: The filing includes standard forward-looking statement disclaimers regarding risks that could cause actual results to differ, including market volatility and integration challenges.
Investor Verification Checklist
- Verify the reconciliation of Non-GAAP figures to GAAP, specifically the treatment of amortization and restructuring costs.
- Confirm the timeline for the transition of the Colombia e-ID project to steady-state revenue.
- Assess the impact of the new Denmark and California contracts on future recurring revenue streams.
- Review the cash burn rate given the cash balance of $0.93 million against operating expenses.
- Monitor the achievement of the full-year revenue target of $35 million.