Good day everyone, and welcome to today's First Quarter 2016 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Rob Fink. Please go ahead sir.

Good morning everyone. Thank you very much for joining us for SuperCom's first quarter 2016 conference call. Joining us on the call today are Arie Trabelsi, President and Chief Executive Officer; [indiscernible] VP of Finance; and Ordan Trabelsi, President of SuperCom of Americas. A press release disclosing the financial results for the first quarter was released earlier today and is available on the company's website at supercom.com. Following comments by management, we will open the floor up for questions. Before we start, I'd like to point out that this conference call may contain certain projections or other forward-looking statements regarding future events or future performance of the company. These statements are only predictions and SuperCom cannot guarantee that they will in fact occur. SuperCom does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, and the competitive nature of the security systems industries, or due to risks identified in the documents filed by the company with the Security and Exchange Commission. At this time, I'd like to turn the call over to Trabelsi. Ordan, the floor is yours.

Thanks Rob, and thank you everyone for joining us today. As we previously showed in our annual report, our operations were impacted by delays associated with macroeconomic conditions in certain emerging markets where we are deploying large long-term government system. In one specific country, we’re again impacted by temporary import tax that has also significantly impacted gross margins which I will discuss later on this call. While these challenges were mostly resolved subsequent to the end of the quarter, their impacts for our Q1 results were significant. During the first quarter, we also had significant increase in our consolidated operating expenses as a result of our recent acquisitions. These expenses were recognized before current bookings and new orders could be recognized as revenues. So while we believe that value of these acquisitions will be more clearly seen in the financial results of the coming quarters, the results they’re reporting today don’t yet showcase the synergies and incremental opportunities we are seeing in the business. Despite these factors, we are encouraged by both our near and long-term opportunities and are making progress with customers and potential customers. In addition, we expect our broader product lines and expanded global customer base to provide us with a more robust sales opportunities pipeline in the future, which is less sensitive to macroeconomic conditions in specific countries or regions. To augment our strategic position in the market we serve, expand our scale and add to our technological offerings, we have made several strategic acquisitions in the last few months. Hereto-date in 2016, we’ve acquired four new, yet complementary businesses or considerations of approximately $6 million in aggregate, excluding potential performance based earn out. These acquisitions were done at prices representing fractions of annual revenues of these companies in recent years. We expect these acquisitions will…

Thank you, Ordan. I will now walk you through our financial results for the first quarter. Revenues for the first quarter were $5.9 million compared to the first quarter of 2015 revenues of $5.7 million. I will be presenting the rest of the financial results on an non-GAAP basis which excludes stock based compensation expenses, amortization of software, IT and customer contracts, amortization of customer contracts, expenses related to transactions and due diligences and changes and bad debt allowance. For the full reconciliations from GAAP to non-GAAP numbers you can refer to the press release we issued this morning. Our gross margin in first quarter of 2016 were 17.7% a decrease from 71.7% in the first quarter of last year on a non-GAAP basis and below the 54.5% margin in the fourth quarter of 2015. The decrease was mainly due to a change in the gross profit mix derived from newly acquired subsidiaries with low gross margins in one particular contract deployments with low margin due to high import tax. Operating loss from the first quarter of 2016 was $1.2 million compared to an operating income of $3.1 million last year, an decrease of $1.2 million from $0 million in the fourth quarter of 2015. Net income was $0.2 million for the first quarter of 2016 compared to $2.6 million in the first quarter of last year. Earnings per share were $0.01 in the first quarter of 2016 versus $0.15 in the first quarter of 2015. Loss before the interest tax depreciation and amortization for the first quarter of 2016 was $1 million compared to earnings before income tax depreciation and amortization of $3.1 million in the first quarter of last year. Turning to the balance sheet, at the end of the first quarter, we have decreasing of cash and…

Thank you, [indiscernible]. The underlying fundamentals of our business remain intact and we continue to see growing demand for our growing line of products and solutions. The solutions we have brought to the market remain best in class and now resonate with customers' needs around the world. We intend to continue to refine and expand our solution suite to better capitalize on existing government relationships and forge new ones expanding our global footprint and giving us more comprehensive integrated offerings to cross-sell. We continue to focus our efforts on our long-term margin improvement by providing a suite of related securities, identification, payments and location solutions to government, customer and enterprise organization around the world. I firmly believe SuperCom is in improvement stable position. We have a growing pipeline of activity remained for our growing line of server and solutions is increasing. We already advance our driving attention and budget in direction that support our further outlook in our long-term prospect. We have a broaden suite of solution to sell to customers, developing our opportunity to reduce sales cycle and penetrate the market we are targeting. Now we – that said, I’d like to open the call for questions. Operator?

[Operator Instructions] And we’ll take our first question from Josh Elving. Please go ahead, your line is open.

Hi Arie, Ordan,. I wanted to get a sense for – what the long-term gross margin outlook for the company is? I think the easy answer to what does the company look like with all these different acquisitions is, not a significant change to the gross margin, but clearly in the first quarter the gross margin was dramatically lower, and perhaps it was the vast majority of your revenue in the quarter was from that one customer with zero gross margins, but if that’s not the case, I understand there is a lot of integration work to be done. I guess maybe simplified, the question is, what does the gross margin profile of this company look like once these companies that you’ve acquired are integrated and at relatively full run rate?

Okay, first of all, we believe that once we merge and consider the operations flow, which we already acquired throughout the third and fourth quarters, we believe that we’d be getting a 50% to 60% gross margin. We will have our financial margin going down because we’ve combined operational expenses, both from G&A for the marketing and R&D.

Okay, so just as far as gross margin if I heard that correctly, you’ve said 50% or 60%?

50% to 60% towards the fourth quarter of this year.

Towards the fourth quarter of this year?

Yes.

Okay. Can you tell me in the quarter, can you give me any kind of a sense for the revenue breakdown between segments or perhaps how much of your revenue came from that country would be higher import tax?

I mean we did not provide these kinds of breakdown to the [indiscernible] in general, we have more revenue from the U.S. and Europe related to our last year which was over 95% from Africa and Latin America, and I would say that we have much more than uniform from other divisions than the e-ID with more from the end-to-end [indiscernible].

That means we’re not insignificant from that customer.

Not insignificant?

Yes.

Okay. Perhaps you addressed this, could you break down the $2.6 million in benefits in other expense? Can you go through that again, what was in that number?

Okay. I mean again we cannot break it down but we can say it consists mainly from a collection of [indiscernible] from the merger from one of our subsidiary.

Okay, and then my last question then I’ll hop back in queue. Can you give me some kind of an estimate of where cash is today? I know that the first quarter ended, you had [indiscernible] at $1 million, Alvarion $1 million, the OTI settlement was $2 million. And so we’d be thinking…

Okay.

Go ahead.

Okay. Again we cannot provide these additional information regarding [indiscernible]. In general, we believe that use of cash for the acquisition payment was $2 million for OTI. In fact our collection with our extended receivable, I believe, that we will see from now on growth in other cash.

You say you’ll see some growth in the cash?

Yes, yes.

In the second quarter or beyond the second quarter once?

No, I said I believe that from today we’ll see a growth in our cash.

Okay. I’ll get in queue, thanks.

Well, in fact after taking that account those acquisitions and the OTI earn out payments and as you collect more receivables that [indiscernible] in, we’ll see some growth with those profits.

I guess I’d like to emphasize that most of the cash was used [indiscernible] before subsidiary buyback program that we have during the fourth quarter and the first quarter then for OTI and some other working capital, they are the two mixed together all those two things together.

Okay, thank you.

And we’ll take our next question from Josh Nichols of B. Riley. Please go ahead, your line is open.

Yeah. Just going to press release, it says the company thinks that lot of the problems that’s one Q1 with the emerging markets for some of the e-ID customers have been resolved in Q2. What makes you think that’s the case given the commodity prices are still low, in fact the business in general for SuperCom…?

Okay, I assume that – I think the, after when we described that two of our large deployments has experienced some delay due to customer inability to provide us with the right infrastructure as through the deployment. And as you can see now a [indiscernible] and we believe that we’d be able to complete that in the second quarter. So, those two deployments are back online and we’d be able to complete and immediately after that we will have the requirement revenue directly from each one of them. The project that we have very low gross margin due to a major increase in taxes is still there, we will complete it I believe in the third quarter. And we do not expect any other very low margin as we had last time. I want also to emphasize that right now we have much more revenues from [indiscernible] countries say Europe, United States with more revenue from enterprises [indiscernible] sales cycle reduce dramatically from a manufacturer position and we do not expect this time a fluctuation on the gross margin going forward.

Okay. And so the company has been extremely acquisitive recently, are you still looking to acquire or do you think that it’s probably be better for the company start focusing on integrating these acquisitions and getting things realize…?

Okay, as you allude probably I believe we have lot of work right now. We need to get the whole structure for us to provide a more [indiscernible] that’s exactly what we are right now. In fact it has two or three quarters collecting together to have all those products and solutions what together is our cash infrastructure [indiscernible] and support our all the products line we have as all the G&A [indiscernible] margin etcetera. So you will see a major benefit of all these configuration in the fourth quarter which we believe will be back to a very reasonable gross margin revenue and other margin. As Ordan mentioned earlier, we have lot of insights now that each divisions doing two other and I believe that when we compare first our competitors we’re then among the few provider that can provide much more element in a simple solution with our competitor in e-ID or in particular to market.

Could you describe a little bit about you mentioned briefly about Alvarion and how the revenue could be more than it was previously just this year because things are looking good. Could you talk a little bit about the revenue opportunity in the gross margin profile of that business?

For what company, sorry I couldn’t hear you.

Alvarion with recent acquisitions.

Alvarion, okay. Okay, I mean with the markets [indiscernible] identity Wi-Fi product. And when we look at that we are trying to first of all have the overall personal [indiscernible] to perform together. We have to sell both product to enterprises and other organization. Together with that because we have solution Phase II deposit safety, healthcare and [indiscernible] we are combining Alvarion product in solution together with our product [indiscernible] more ability to provide the better for us with the lower gross margin and have profit for us. So you mentioned our PL, we believe that in two quarters we will succeed or achieve the revenue, the others revenues of Alvarion in the last two years.

And for the gross margins you asked about over 50% of last two years?

Okay, Alvarion gross margin is [indiscernible] during the last two years over 50%.

Okay. And then just some recent news that the African union some of the member states are going to be moving to this ePassport documentation. I was wondering what type of impacts that could have on the company’s existing business from the region and places like Tanzania?

We correct that question, so we are working with the firm of this country. We believe it was one country but right now we are building for them their ePassport and we are talking to some of our government as well, those will be active with our ID or driver license. So, their decision to have a common ID sorry, ePassport, we’ll have I believe a very focused impact of our ability to increase our sales on the e-ID from [indiscernible] revenue every year for the considerable and source of which [indiscernible] gross margin.

Okay, I guess – what would the gross margins been for the quarter if you don’t have the impact of the import tax for one of your customers?

I’d say that probably [indiscernible] 10% to 12% higher the gross margin. Well that is a rough calculation but I’d say about 10% to 12% additional gross margin.

Okay, thank you.

Thank you.

And we’ll take our next question from Rob Stone of Cowen & Company. Please go ahead, your line is open.

Hi guys. So, I have a follow-up to that, the last comment sort of a two part question. One is, it seems like your customer is sort of violating the agreement that you made with them when you signed this field by [indiscernible] necessary products coming into the country so the contracts no longer profitable. Can you – is there any recourse for that? Can you seek to readdress and how will you protect yourself from that sort of an issue going forward? And then from that last comment, it sounds like even without that contract in the mix the gross margins overall would have been quite low relative to what we’ve seen, how much of that is from low margin contribution on your recent acquisitions versus deteriorating margin elsewhere in the business? I mean I have a number of other questions after that, thanks.

Okay. First of all as I said [indiscernible], I think that and fortunately we’re working with this customers for many years. There is a market change in custom fee and taxes was unfortunate and I don’t see we can get anything back from the customer but the customers realize the fact that those practices [indiscernible] we could have some conversion not as a state debt but I believe in some other contract or progress, because they realize that we started this contract [indiscernible]. Going back to your question about gross margin, okay there are three reason for our work with the low margin. It is called – one was the case of Latin America higher taxes, the second was the delay that we discovered earlier caused us the sale revenue to the second and first quarter while most of the costs were low. As you know, we cannot [indiscernible]. We had a lot of time, we’ve spent a lot of time trying to those people that are there to implement deploy and change the customer. So, we incur some additional costs into what we expect in our budget and that’s exactly that almost some cost with the lower revenue and it creates a lower margin. Now what we’re showing is the contribution of the two divisions we have, one division LCA has the lower gross margin as we announced earlier and the new one, and fortunately we have due to some GAAP accounting process we had to put all costs in that we’re not able to recognize almost any revenue due to specific accounting network that we have to import this quarter.

Our deferred revenue in the face on business, but even though bookings are high the revenue recognize will be overtime and we’re not recognized in deferred revenues from previous year because of the transition currently.

And if there is a mismatch between the timing of expenses and revenue recognition that doesn’t kind of imply that in some future quarter when you’re able to recognize those revenues that you would have higher than usual gross margins? You’re only talking about getting back to something below the margins you keep in last year but end of this year I understand that on a different mix of business but is it fair sort of a catch up of high margin of revenue [indiscernible]?

Yes, okay. First of all as I said, if we take out the one time project in Latin America with the zero gross margin in particular and we increase on the LCA, when we increase our product sales to perform to LCA we increase our inter-company gross margin this is the second thing. The third thing we believe that on [indiscernible] 90% gross margin because it’s a filter business that we believe that [indiscernible] will increase. We’ll be able to decide for the quarter, we will see an increase in revenue with a very low margin and I believe in few quarters we will see that some things will contribute high revenue with the very high gross margin [indiscernible] today have over 60% gross margin. So yeah, we believe that in two quarters we would be very high gross margin and with excellent solution to our customers.

Great. I had a question related to Alvarion and network is a pretty large market and there is some other companies that comes to mind which are pretty, of course, remind a few figure like Cisco for instance. So what is the special thought that allows a company the size of Alvarion sort of an $8 million annual run rate to compete a large market in this way?

Okay, first of all I’m sure that you know that Alvarion was bought two years ago we’re setting $250 million bucks a year. So it’s not that , being in a market of $40 billion to $50 million bucks a year which is a Wi-Fi market what you have to do is decide what are the vertical markets which where you have some unique advantages both in technology point of view and maybe from solution point of view. We already identified some of them and we are providing or refining our solution both for Alvarion and SuperCom division to solve this market face. And as I mentioned earlier, Alvarion is among the best outdoor product, if you compare it to Cisco or the other providers you’ll see that Alvarion has among the best [indiscernible] and I’ll also personally advice from one point because [indiscernible]. So there is a lot of customer will certify again and again the same product. Now, the other advantage that Alvarion has together with its controller that they have a lesser excellent performance and identity area [indiscernible] I guess exactly there that we’re also active with the other solutions, the payment, healthcare [indiscernible]. So if you combine together what Alvarion has in their product, together with additional features that we have in our solution both in the payment and e-ID together with that, we address specific market where we have a very unique product and we believe that for those vertical markets it will be very key player and will have an increased revenue. Now while we’re comparing with Cisco in every area that we’re working with [indiscernible] is the area that Alvarion has comfortable product and as you know, a better product. Now if you look at the adjustable market, we talked about $10 billion, there also the $50 billion market for the right size, what you’re looking at is smaller market which is about $10 billion and we are feeling to be a key player of that.

Great. I had a couple of housekeeping questions also please. One, you mentioned in the prepared remarks about buyback from shares, could you just tell us how many shares were repurchased and how much cash was used for that?

I believe the number was about 1.2 million shares and that’s been reused between $6.5 million to $7 million to acquire those shares. Again [indiscernible] number but above $6.5 million $7 million.

Okay.

You’re talking about the total number though, for all the shares in the program not just in the first quarter?

Well, if you have the Q1 detail that would be helpful also.

We don’t have that currently.

Yeah, okay all right. My last question then is with respect to accounts receivable which are around $17 million against the latest quarter not quite $6 million, can you provide some color on the aging of your receivables and why the balance is so high in relation to run rate revenue? Thanks.

Yeah, okay. It doesn’t have – as you mentioned earlier - the last customer we had from the country that [indiscernible] but because our solution was critical, essentially we are much worried that they’re not going to pay with just the delay [indiscernible] and we do not see any reason and not collecting all the receivables that are right now our balance sheet.

Okay, thank you.

Thank you.

And we’ll take our next question from Marcel Herbst of Herbst Capital Management. Please go ahead, your line is open.

All right, good morning. Thanks for taking my questions. Going forward after you have integrated your acquisition, what is your longer term normalized level of non-GAAP operating expenses?

I think it’s a bit of…

Percentage wise I believe that we tend to have an overall around $2 million for the quarter of operating expenses.

I want to season a little bit, just a bit premature we’re still putting integrations with some of the new acquisitions? It’s still a little hard to tell what the merged operating expenses will be but towards the end of the year we won’t see that much more of significant everything that’s combined.

Okay. And can you plot to the outcome of the safe mobile pilot with that large European enterprise that you announced in January and the two commercial that you announced this February?

We cannot provide estimates but would say that that these kinds of pilots is providing us with the local information but besides the information that it’s going to that we are refining our products so we’d be able to just sell it to all other organization on an orderly basis. There were excellent customer front, so we’re testing this.

So the pilots have concluded now or it is still to be decided that those will be followed by…?

They are in process and we believe that the pilot face will be completed to result to [indiscernible].

Okay. What customer percentage of your Q1 revenue would you characterize as recurring?

We haven’t broken that out in the press release. We’d further do that on…

We did not [indiscernible] provided information that I would say that it should be similar to what we are last year on percentage wise.

We prefer to do it on annual basis because of some of the fluctuations but this quarter also had recurring revenues coming in from LCA which are also very valuable.

Okay. And can you give feedback for a little color on your e-ID pipeline in particular, have your strategic focus now shifted completely to pursuing larger deals sort of let’s say 8 or 10, 8 out of maybe 10 deals are off the larger pipe or do you still bid on a significant number of smaller bread and butter type deals as well?

I would say that our flexibility are further give opportunity to bid and participate in a very large standard and we came to the conclusion that it’s rare to get very large tender or process in gold mine inside of [indiscernible] but we still working with our distant customer providing done with the sales of the current revenue. But this is our opportunity on the large opportunities that we have around the glass with e-ID and we are continuing with this transition and we hope [indiscernible] contract.

In speaking of the progression through the pipeline, are there any larger deals in the pipeline that you have already won in the contract negotiation face?

[Indiscernible] one of those that we’ll probably put out on our press release, so right now we are in different stages and different proposals but none of them is in that position that we feel announce or to close our contract.

All right, thanks. That’s it from me.

Thank you.

And we’ll take our final question from Josh Elving of Feltl & Company. Please go ahead, your line is open.

Hi, thank you. Couple of additional questions. First on just the cash balance, you talked a little bit about some of the different moving parts here, just want to make sure I have a really concrete understanding of expectations here. So, if I take cash, cash equivalents past restricted cash deposits as of the end of the first quarter that’s about $15 million. I believe there is about $4 million of additional identified uses of cash. We should have potentially some cash flow generation just from your normal course of business. And then is it fair then to assume, assuming we start to convert some of those receivables to cash, if we go from $15 million back on to $11 million that’s going to be kind of the base line or we should see that grow off that level, is that fair?

Yes.

Okay. And then quickly on California, there were some comments there about I want to say I heard 200s are currently being monitored in California, did you say that was on SuperCom equipment or that was a new win?

In California that was over 200 offenders being – that has been monitored on SuperCom equipment.

Okay. And that was in the first quarter or is that adds today or?

Today there has been over 200, there is going to be much more specifically equipment is working well and integration is very effect as far.

And that’s great to hear. And so those are LCA customers and just with regard to the LCA relationship they’re now using SuperCom equipment in those 200 are being monitored on the SuperCom equipment that…?

So 200 offenders have been monitored and they’re through LCAs relationships.

Got it, okay. And then so much focus on the ID business is on Africa and obviously there has been a lot of rumors about the different countries within Africa and obviously there is a lot of economic challenge in parts of Africa. Can you talk about, Africa has historically been one of your focuses, is there a significant focus outside of Africa, can you maybe just touch [indiscernible] opportunities you see outside of Africa for ID?

Okay, this is what I would say that Africa was in the past and today one of the main revenue generator for [indiscernible]. Together when you look SuperCom and the other division we believe that Africa is probably in the year 2016 probably will provide us less than 50% of our revenue and I believe which will go down in the [indiscernible] even to below 25%. We are aiming very strong on the Europe and United States for our security products, communication products and electronic monitoring products. Together with Asia which we have there a lot of countries with very large [indiscernible]. So we believe that will close to an increase amount of revenue from major for all our division.

Right, just as far as…

So as the year ago, Africa [indiscernible] and Latin America was almost 100% of our revenue, I believe their goals Africa and Latin America will be between 20% to 30% of overall revenue in the [indiscernible] 2017.

Okay, but just specific to ID, I know you made a number of acquisitions and diversifying geographically but as far as ID, where do you see the best opportunities in ID going forward, it’s still in Africa or?

So we right now I can say that what we are dealing with right now, we’re dealing right now with our lot of tenders and opportunities in Latin America, in Africa and in Asia – all of Asia as a large amount of opportunities, some of them are very, very large, so we are dealing there. Our less opportunity ID market in Europe mainly because most of the countries they have contract with very strong local European vendors like [indiscernible] but I would say that even Europe has large opportunity and we believe that we’ll take part of that.

Okay. My last question, and you may have touched on I didn’t really hear that very well, but in countries where you’re being constantly challenged by some of your competitors, but you haven’t won a large contracts there couple of years now. At some point does it make sense to potentially partner with some of your competitors on opportunities in some of these countries in Africa or where would they maybe in the world?

Okay, first of all we are always – when there is a need we partner with local companies or even international companies. We are in the past joint ventured with some of our competitors with opportunity I believe three months with very large competitor and one with the African country. So we never say no to opportunity, even if we have to work with our competitor, [indiscernible] and we’d rather and sometimes combination of what is the best solution for the customer. So but our case slightly different, I probably going to be [indiscernible] in the future.

Thank you.

This now concludes today’s first quarter 2016 earnings conference call and webcast. Thank you for your participation. You may disconnect at any time and have a great day.