Good day, and welcome to SuperCom's Third Quarter 2017 Earnings Conference Call. Joining us on today's call are SuperCom's President and Chief Executive Officer, Arie Trabelsi; and President of SuperCom Americas, Ordan Trabelsi. Following the remarks, we will open up the call for your 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 industry or due to risks identified in the documents filed by the company with the Securities and Exchange Commission. In addition to disclosing financial results calculated in accordance with the United States Generally Accepted Accounting Principles, GAAP, this call also contains non-GAAP financial measures, which SuperCom believes are the principal indicators of the operating and financial performance of its business. Management believes non-GAAP financial measures provided are useful to investors understanding and assessment of the company's ongoing core operation and prospects of the future, as the charges eliminated are not part of the day-to-day business or reflective core operational activities of the company. However, such measures should not be considered in isolation or as substitute for results prepared in accordance with GAAP. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are provided in the schedules attached in the earnings release. Finally, I would like to remind everyone this call will be recorded and made available for replay via link available in the Investor Relations sector of the company's website as well. At this time, I would like to turn the call over Ordan Trabelsi, President of SuperCom of Americas. Please go ahead.

Thank you, Operator. Good morning, everyone and thank you for joining us today. Before the market opened, we issued a press release announcing our results for the third quarter ended September 30, 2017, a copy of which is available in the Investor Relations section of our website. We are pleased with our performance this quarter reaching record quarterly revenues of 89% completely organic growth. Gross margins above 50% and EBITDA margins above 20% marking significant milestones in our long-term business plan. After three consecutive quarters of dramatically improved financial performance, it is becoming apparent just how impactful our enhanced business model is and how important the transition of 2016 however challenging was the SuperCom's future. Today, we cannot only better serve the Chief Security Officer of a nation or enterprise with three interconnected divisions in the e-Gov, IoT M2M and Cyber Security market but also operate our business much more effectively realizing significant synergies and a more robust global base of business. Coupled with our strong organic growth and diversification of revenue, we have also been able to realize key operational synergies across our recently acquired businesses and division to dramatically improve gross and EBITDA margin. Compared to the third quarter of 2016, gross margins have increased by 60%. SG&A costs are down by 34% and our core non-GAAP operating expenses which exclude other income have reached a low of approximately $3.8 million per quarter. For the first time since early 2016, we achieved positive GAAP earnings per share, GAAP net income and EBITDA, and moving forward we expect to maintain these margins on average and even see improvement over time as we realize additional cost and operational efficiencies in our business. On the operations side, we had another busy quarter resulted in continued growth across three core divisions. In…

Thank you, Ordan. As you just heard, the third quarter was yet another successful [credit] for our company marked by solid financial result as well as key new customer wins that progressed across all our present division. Moving forward, we'll be looking to grow our margins to an even healthier levels to remain focus on further solidify our cash position well into the future. Along those lines we are also - we are turning our revenue guidance of at least $35 million for the full year ending December 31, 2017 which represent an healthy increase of 75% compared to the last year. And with that, we will be ready to open the call for the question. Operator, please provide the appropriate instruction.

[Operator Instructions] We will go first question to [James Menezes] with Cowen.

So want to make progress the segment reporting as a housekeeping measure, e-government is now the old e-ID segment plus payment processing is that correct?

Yes, land correct.

It’s including what we all - the original e-ID plus all the land and payment together into e-government previously.

And the fiber security is as it was before? Yes the print segment is now consist of the old M2M business and Alvarion?

Yes, I mean okay. The M2M which we call IoT is comprised of the IoT or M2M division together Alvarion connectivity. This division will provide three different segments one is connectivity will provide by Alvarion, the other is IoT devices and the third one is IoT application some of them is for example the public safety. So this division will be able to provide both IoT enable connectivity application and devices. The third division is the cyber security division which consist of cyber secure division which consist of real estate including with product to various PCs, laptops and also for mobile devices. So those are the provision we have right now.

Are you able to provide sort of a baseline for us if not specific numbers but with sort of characterized how much of revenue is coming from each of those three segments right now?

As customer we are providing this information only yearly basis we hope that next year we will be able to provide on a quarterly basis. But we as internal note, we can say that it significantly increase towards IoT and the cyber security while the e-government is interesting as well.

And we shared that roughly half of the revenues from the e-ID or e-Gov division according to our expectation for 2017 and the rest of another two division.

That' helpful somewhat, and we'll look forward to those annual numbers. Let me just ask one more and then I’ll get back in the queue and maybe come back in. Let's see, can you put any dollars values or time like the Denmark contract, how long does it run and how big is that contract?

We can't put a specific dollar value on the contract but it between 500 and 1000 offenders. I believe roughly four years is the contract with potential extension. Just to take envelope calculation, in the industry roughly per customer per year for active offenders you receive between $1000 to $2500 per year is little different in different regions in difference contract but just a general scale to help you reach some sort of estimate for those numbers.

And I think I am going to just hopefully squeeze one more if it's okay with you. If you go through the - on the cyber security business, you mentioned some pilot programs that you’re starting. What is the roadmap from platform improvements through the piloting program into something that might turn into national contract? How long did that take?

So in the fiber security division we are taking our customer base with safe and provision which is 1000 of customers mostly in developed regions of the world and not only providing them with a safe and suite but also providing upgrades to that suite. We have top Fortune 100, 500 customers there and the sales cycle is little different but government phase with enterprise is a little bit faster and the size of the actual sales are smaller but what we're doing is going to existing customers and developing our new capabilities such as the anti-malware and behavior analysis capabilities that we discussed also in the previous call which allow protection from attacks such as WannaCry and many other recently hyper attacks that out there. We demoed to our customers how we can block these attacks with these new solution, and not only can we bought them the requirement - the additional cost for them to deploy this software is minimal because they’re already running our Safend platform on thousand if not hundreds of thousands of deeds in their enterprise today.

We'll go next to [Kevin DV with Robert and Shaw].

Clearly some great improvement here congratulations on that. Could you give us sort of a rough idea on how I mean we are going to appreciate hearing you know half revs e-Gov and the balance in two other segments. What do you think your target is for full year 2018, I mean how do you see each of those segments growing and the mix changing?

So for 2018 we haven't yet given our guidance or completed our budget and we have three divisions that are all growth engines, they work interconnectedly but each have many potential opportunities in their pipeline and it's hard for us to tell which ones will come first and which ones will win in the race but either way we will be happy as long as they are each growing and continue to deliver positive results and new wins.

Given the dynamic nature of the financial model right now, is there a particular target that you're aiming for, I know your EBITDA margin back over 20, but not quite at where you seen it in the past, I am just wondering if you have a financial targets just for your financial model?

Our gross margin on non-GAAP basis we’re expecting to be between 50% and 60% that will fluctuate based on which businesses grow faster. As I said before there is different margin profiles for the different businesses and while each one can improve its gross margin on its own the actual mix will define our average gross margin. On the EBITDA side we are keeping our cost tight. Historically we have between 21% and 35% EBITDA before the transition and we hope to maintain the level we are today and potentially see improvements depending how we can grow our topline revenues because a lot of our cost we can leverage and increase our margin in that fashion.

Then you touched on some of the features that you've integrated in the Safend and it seems to me they are mostly - while you’re selling on e-basis mostly for machines. I'm wondering what you might be doing to complement your offering from a networking perspective?

Our offerings for the anti-malware and behavior analysis is sort of last level of defense is suppose to be used together with intrusion prevention, anti-viruses and other capabilities the enterprises of the nature of our customers already have. We're dealing with this type of security we want to add more and more layers and while we know that people are going to take McAfee or Symantec for the antivirus and perhaps the checkpoint for the firewall, we try to add in additional value to block those sneaky little attacks zero day of nature that can get through all of that and naturally add our level of protection on the end point.

Are there internal designs to perhaps come to the market at some future time with a more comprehensive full end to end solution perhaps competing with some of the guys that you mentioned?

Yes currently we are competing with those guys already but in our niches and end point security where we have a strong advantage. Over time as we continue to grow the business we are adding additional features which help protect other parts of the network as well not just the end point and that is part of our more long-term strategy to have one console included as much as possible and protection.

Last question from me sort of high level question tech question. There's a lot of chatter about Blockchain implementation in government, personal identification trackers which sort of decentralizes that system a little bit. I'm wondering if you're seeing a higher level of competition from solution sort of based on that technology versus what I understand with your more centralized government living adoption.

Government specially our customers are very risk-adverse and while there is a lot of cool concepts out there with security using Blockchain and others, we’re having a hard time sometimes getting our customers to use the cloud. So they take things slowly, they like on-premise deployment, they feel secure about the fact that all the data is sitting with them and similarly they like physical identification things they could feel and touch which is in the past decades coupled with electronic chips which help provide another layer of security. But from that to go into completely digital and to our virtual security platforms this in the government space on a national level we think they are still a lot to do.

Is that something that you're considering or what’s your sort of thinking about adoption in their own self, but in terms of offering it is an additional capability?

We have spent and continue to spent R&D also in advance identification methods such as the mobile drivers license, mobile identification, our land deed has a proprietary technology with a chip on land deed itself and one of the areas to expand into is potentially some of the Blockchain then others. We as a software provider and innovator are always trying to keep ahead of the trend where possible so we also have to keep in mind the rate at which these changes take place in the government and not to invest too much into 2040 or 2050. So we're taking a step-by-step but we are certainly there and bidding on anything that we see that comes out with some requirement for a mobile or digital or other secure platform where innovation is involved.

We’ll go next to Tony Pollock with Aegis Capital.

Could you give us a little feel on the R&D expense, I see that was the only expense that went up what's that addressing and how soon do you expect revenues from that R&D or do you?

I think as you can see complete different positions interconnect division in order to make our products most critical for example in the e-government, we are preparing our product we will work more with mobile technology this time with our IoT inside the security, we develop products that secure in the mobile. So we have to continue invest in technology to be able to be on the touching gear there. We believe that the level of R&D as part of revenue will go down but we as always to keep our R&D level in the range of about $1.5 million to $1.6 million as per quarter which we believe is highest level to be in advance and technology ahead of our competitor and looking at what our customer needs and as you know there is a rapid changes in most we are active in so we have to keep in. So we concentrate on existing our operating central flight G&A and some of making more efficient via sales and marketing but we’ll keep R&D in the end we believe is the future for the company. And we believe again as we are growing our revenue, we have percent of R&D if it goes down to the normal rate.

In terms of this potential India bidding is that been approved by the government in India already and what is the timing of that?

As you know I think the government of India put a program out there for 100 cities around India to be a Smart City. Their budget is over $100 billion and our company today if you look at what Smart City is if you see that there are lots of parts that are offering to sales without buying product, we can just provide connectivity involved doing the wide space of the city and then provide Wi-Fi around the city the other part is cyber security with some IoT certain they're looking for less GPS management and personal. So we are cooperating with some large Indian companies that we are offering some of our product also solution for them to be able to choose our product. We believe that the huge market out there and we are waiting for them to offer I believe that those projects for the next five years and we also be able to be part of consortium that will offer the sign of other Smart City to India. Again India is only one of the countries that are going into the future of Smart City, smart compass and we see more and more government around the world in Europe, South America and all the other more is going towards the technology as they believe it will increase efficiency and take the sitting to next generation. So we are there, we have excellent product and solution and we are offering India.

What’s the timing of that, when they’ll start implementing this even if you don’t, do you have any idea?

I think that right now there are at least 10 cities that are in different stages of five different tenders out there right now. So I believe that in the next 12 months we should see some wins in these area, it can be large wins or smaller wins that providing our Wi-Fi connectivity but we do believe that we’ll see an increase revenue coming from these kind of market.

In terms of some GAAP expenses the amortization of software customer contracts, do you expect this to continue going forward each year?

Yes, as you know that we acquired some companies in the past in the last two years so we have some intangible asset that we have to move as along the years so you can see in the last two years we had about 20% for what the IP that we acquired from OCI in years and I believe those numbers will continue until I believe in about two years we’ll be able to some amount all these expenses and then return back to normal GAAP, non-GAAP quality. I think that one of the IP or software because continue to put R&D into this so we will see continuation of depreciation and amortization of software that’s all the other part I believe will somehow come to an end.

Those adjustments from GAAP and non-GAAP are non-cash expenses. It’s important to know is there in the script they are roughly today $200,000 of COG non-cash expenses $800,000 in operating expenses per quarter. So there is a quite a big difference there and those are non-cash items mostly amortization of software and customer.

And as also stock based compensation which was…

We’ll go next to C Brian with Samba Capital.

Congratulations guys on a good quarter, quarterly good step forward in your transformation and how about you put in the last 10 year. Quick question just on the sales and marketing and G&A which took a pretty substantial dip sequentially, was there any movement in that quarter that we shouldn't expect to occur in Q4 and much more normalized sales and marketing G&A expense that you expect going forward?

I think that what we saw in the third level is going to be almost a final G&A level we believe and also sales and marketing we have done in the efficient process optimization of all the - we acquired and I think that going forward we’re going to see similar level for SG&A going forward. So until so we believe as percent of revenue is going to be lower on the R&D itself as I mentioned earlier we would like to keep our R&D at the level of $1.5 million per quarter we believe that what is required to as well with a competitive leverage competitor around the world.

So in sales and marketing the baseline should be 1.7 million going forward and then obviously it will grow with sales based on the commission rates that you pay your people?

There is a element of commission for size of sales and that can move around a little bit based on the mix of revenues that come in. So it’s not as simple as just taken a base and adding the difference but it is a range.

We'll go next [John River with River Bank]

A question on some of the old legacy giant contracts that you had hope to procure in 2015/2016, are any of these large ones still alive or are they all disappeared number one and like to answer that one first.

First of all, all those large contract offenders or opportunity allow there I mean - as we mention at the earlier call last year and et cetera it’s just because of the magnitude and a lot of competition go over that it take a lot of time until the positive is completed and even if you’re being selected there is a lot of friction and there is difference from large competitor around the world to try to put this kind of wins in the interest of position that still there and we’ll see them around the world including in Europe and South America, Africa and Asia. I will not be surprised if it can be niche - in the near quarter or two quarter we announcement last quarter from this area. The reason that we have all these from state transformation last year is we wanted to give the company and our investor a more broader source of income not only depend on government and those in Asian countries and after this year, we have wins and tenders in the IoT M2M in Europe in the U.S. et cetera we have a lot of revenue from the cyber security enterprise.

So basically you're saying that some of those large opportunities you thought would close in 2017.

Those are still there.

You expect one or more of them to close in the next six to nine months?

I can say that one of the largest opportunity we have about two years ago which were being select originally its out still there and we have opportunity as well large ones that are on the table and we are hoping that somehow they are going to be releases from the struggling period of protest and additional protest and period in some other processes. We see that this kind of behavior is less common in Europe, in Europe it's in the U.S. the person getting released much faster and easy wins and contract pretty fast. After that in South America in the Africa we are expecting taking much longer but at the end of the day government need these kind of service, this kind of solution and the end of the day they will have to award it and we have to be the one to be award as well. So we will not be surprised if one of them will be announced by us in the next quarter.

So then my second question and it related - it would seem to me with your recurring business especially with one of these old legacy closes in the next six to nine months that your visibility on 2018 should be pretty good, you didn’t - you sort of duck the question on 2018 so what kind of visibility do you have on 2018?

First of all I’ll say, we will complete our budget in next month and we’ll provide guidance I believe in the center beginning of the year so it’s not that we don’t have our vision of what number is going to be about do like to continue and finalize our budget. We will be able to provide solid projection but I would say that if I compare our visibility today to what we had two years ago, it’s a complete different story. We see clearly what’s going to be our revenue in other areas, we have steady state revenue as we know what level going to be. We have some contract there. We believe we’re going read some of them and we see much better years ago what’s going to be the number. So I propose there to wait a month or two to finalize our processing and provide guidance and I can assure that once we provide guidance we will meet it.

We'll go next to [indiscernible].

Two questions, one I was a little bit confused, what percentage of your overall revenues in 2017 would you say are recurring and what do you anticipate 2018 as a percentage of overall revenues to be in terms of recurring?

Our steady-state revenues the metric we use which is revenues from existing customers at the business deployment most of that is recurring in nature, it’s available on a daily rate of consumables, some of it is add on then adjustment that we put that together in one bucket called steady-state revenue. That number according to our expectations for 2017 is the firstly majority of the revenue. Although we have not shared that number, we typically share that once the year is done and we finish our analysis we shared for the full year what the steady-state it was. We did say that for 2014 even 2016 it did grow from 12 to 15 to 17 and for this year for looking to see the majority of the revenues come from there.

Second question, given where you are balance sheet wise do you have any need to raise capital to achieve whatever goals you have for 2017 and - well 2018 call?

No, we are not, we don’t need or we don’t to need to have any capital raising. We believe that the cash what we have contain plus towards year the market result we’ll be able to provide with everything we need for our cash need and we are not anticipating or thinking about raising capital again in the near future.

And final question thank you for being patient - what percentage of the equity in the company is held by insiders, when I say insiders Board of Directors and Management?

I would say that if we look at the insiders on a broader way it’s about 28%.

So you guys have a lot of incentive to see a higher stock price, nice to see at least you’re getting some movement today. Thank you very much I appreciate.

We'll go next to [indiscernible].

I was wondering if you could say your award rate, win rate so far this year?

I would say that on the IoT which is much spicer awards.

We did share and as of the summer in Europe, we had over 60% win rate in our M2M tracking or IoT division. Our general blended win rate we've not shared historically in IT division if you look over the course around 20 years, you’ll see around one new win, one new large customer per year and we’re currently roughly on that rate over the last three or four years as well and in M2M IoT we’re seeing a much faster win rate we’ve actually expanded into eight or nine countries over the past two years and we’re doing very well in tenders. The market is highly [barriered] with only roughly 10 players out there and our technology is state-of-the-art and perhaps a couple of generations ahead of some of the other competitors that are out there. So we have been performing very well and we hope to continue to do so in future.

Can you say just how much in RFPs you currently have bids on right now?

In the M2M tracking we have over $100 million outstanding in bids, much larger in the e-ID space but e-ID space that the run rate is a bit lower and we have the average of roughly one a year the size varies.

We'll go next to [indiscernible]

I just want to return to the gross margin briefly because it came in quite a bit higher than Q2 and higher than we had modeled. And so my question is what are the drivers of that this quarter specifically the upside this quarter and whether that's sustainable into Q4?

Sounds good as you can see the [measure] inventory for higher gross margin is increasing sales our, cost is I think based on our engineers modeled across these engineers and labor and some - only small part of that would be [indiscernible]. So when we increased our revenue if the gross margin is going up and obviously it's important to say that in this quarter we haven't made revenue from all three divisions which makes the level of our gross margin that we expect to see. We believe that this level will continue to be in the near future.

So let me just go a level deeper on that, if you're in deployment right now on the number of these contracts including Colombia for example and putting up 55% gross margin non-GAAP, is there some justification for being more so towards the higher end of range as we go forward the 50% to 60% range?

We like to be conservative of our expectations but it is possible. It depends on which...

It’s moved on to steady state.

I think that if we keep the stem level of revenue and because of the steady-state, we will be – we’ll probably be in the range of 55% to 60% range. The question is, if we get a large contract for deployment which in general has a lot of gross margin for at least for the period of the deployment, we may see a small drop on gross margins for deployment with these last contract which should resume immediately after that and our few -- will back on the higher margin. So it’s only a question of mix of saving specific quarter but I think that if you look on the average, on the annual leverage I think that 50 to 60 gross margin is right margin we would like to see for the next year.

At this time it does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Arie Trabelsi for any closing remarks.

Okay. Thank you for joining us today. I specially want to thank our employees, our customers, partners and you investors for your continued support. We appreciate your interest at SuperCom and we look forward to updating you around next earnings call. Operator, thank you.