SuperCom Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. Unless otherwise noted, amounts are U.S. dollars in millions.
Business context
SuperCom provides digital identity and e-government systems, electronic monitoring and other IoT/connectivity solutions, and cybersecurity products and services. Its three reporting segments are e-Gov, IoT, and Cyber Security. Results were driven predominantly by IoT, including electronic monitoring. Management said COVID-related restrictions had largely ended and operations returned to normal in 2022.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $17.649 | $12.267 |
| Gross profit / margin | $6.388 / 36.2% | $6.204 / 50.6% |
| Operating loss | $(6.005) | $(6.737) |
| Net loss | $(7.457) | $(10.138) |
| Operating cash flow | $(4.654) | $(9.413) |
| Investing cash flow | $(2.189) | $(1.639) |
| Cash, cash equivalents and restricted cash at year-end | $4.505 | $4.604 |
Current assets were $26.290 million and current liabilities $5.239 million, for reported working capital of $21.051 million. Total assets were $42.040 million, total liabilities $38.909 million, and shareholders’ equity $3.131 million. The balance sheet included $32.600 million of long-term loans and $0.900 million of short-term loans. Notes disclose $16.967 million outstanding under the Fortress senior secured facility and $15.633 million of subordinated debt principal and accrued interest at year-end.
Revenue increased 44%. IoT revenue rose 76% to $15.628 million; e-Gov revenue fell 63% to $0.637 million; Cyber Security revenue declined 15.3% to $1.384 million. Products generated $10.099 million and services $7.550 million. Europe contributed $9.559 million and the United States $6.877 million.
Changes, outlook and key risks
- Gross profit increased only 3% despite revenue growth, and gross margin fell to 36.2% from 50.6%. Management attributed the decline to implementation costs for a large contract, revenue mix, increased lower-margin IoT activity, and reduced higher-margin cyber-services revenue.
- Operating expenses excluding other expenses rose 31.3%, including higher R&D, administration, and sales and marketing spending. Other expense declined to $1.138 million from $4.374 million, mainly reflecting a lower bad-debt provision ($1.000 million versus $3.000 million) and lower other one-time costs.
- Net loss narrowed, while operating cash use improved by about 60%. Investing cash use increased; financing provided $6.744 million, mainly from share issuance and short-term credit. The company raised approximately $4.65 million gross in a March 2022 offering.
- Remaining performance obligations were $33.13 million at year-end; the company expected approximately 43% to be recognized within 12 months. This is contracted transaction value, not a revenue or profit guarantee. No specific earnings or revenue guidance is provided.
- Management said available cash, cost controls, expected contract cash flows, and a conditional $6 million of undrawn Fortress facility capacity were expected to fund operations for at least 12 months. The company had a $102.926 million accumulated deficit and recurring losses and operating cash outflows. The auditor identified going-concern assessment as a critical audit matter.
- Debt is substantial relative to equity. Fortress debt is secured; the company expected partial principal payments to begin in 2024 and a majority bullet payment at maturity, which it expected to amend to August 2025. Subordinated debt repayment is subject to the senior debt arrangements.
- Customer concentration increased: one customer generated 36% of 2022 revenue, versus two customers representing 10% in 2021. Net receivables were $10.852 million against a $12.667 million allowance for doubtful accounts; collectability remains a key estimate.
- Management concluded internal control over financial reporting and disclosure controls were ineffective at December 31, 2022 due to a material weakness: insufficient accounting resources, inadequate segregation of duties, and insufficient monitoring and oversight. The financial statement audit opinion was unmodified; the auditor did not audit internal-control effectiveness.
- Other risks include competitive tender outcomes, government-contract timing and cancellation, geopolitical and currency exposure, supplier dependence, and potential share dilution. The company issued 800,937 options in 2022 and had warrants outstanding. It reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the $33.13 million remaining performance obligations convert into revenue on schedule and at sustainable margins.
- Customer A’s contract terms, revenue contribution, payment record, and the concentration of receivables; review the allowance and subsequent collections.
- Debt balances, covenants, interest and payment terms, Fortress facility availability, and the expected maturity amendments and repayment capacity.
- Cash-burn trends and whether management’s 12-month liquidity assumptions remain valid, including the timing and cash economics of major contracts.
- Remediation progress for the material weakness, and any changes to accounting staffing, review controls, or disclosure controls.
- Potential dilution from outstanding warrants, options, and subsequent financing. The filing also reports a March 2023 offering after year-end.