Arie Trabelsi - President and CEO Ordan Trabelsi - President, Americas.

Tony Pollock - Aegis Capital C Brian - Samba Capital.

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 our e-ID division, we secured an 8-year contract with Iceland's for an ePassport and national ID card system.

In our M2M tracking division or IoT division, we secured another multiyear contract with the Ministry of Justice of Denmark to deploy our PureSecurity Electronic Monitoring Suite to track and monitor up to hundred offenders simultaneously in order to increase public safety, reduce prison overcrowding and lower recidivism in the country.

And finally, in our Cyber Security division, we continue to make significant progress developing new advanced products for our safer and cyber security platform and loyal customer base of leading enterprises around the world.

Based on our performance for the quarter, as well as the first nine months of the year, we believe we're well-positioned to reach our near-term financial targets, as well as drive long-term growth.

As it relates to the structure of this call, I will first provide more specific update and detail on the wins and development in our core divisions that I just mentioned, as well as provide an update on our major business initiatives. Then I'll provide our financial results for the quarter and first nine months of the year.

After that, I will turn the call over to Arie, who will provide some closing remarks, as well as an update on our business outlook. So turning to our core business division. It's worth mentioning that during the third quarter we consolidated parts of our connectivity and payments division into the e-ID and M2M division.

More specifically, VeloPOS our secured point of sales platform, as also as SuperPay, our mobile payment fleet are now part of our e-ID division. And our Alvarion Wi-Fi and backhaul technology will be included in our M2M division going forward.

This decision was made in order to better leverage synergies and R&D capabilities, simplify our internal structure and to more closely align our focus in a way that made sense for us both today and going forward. Now with that behind us I'll move into our division specific updates and major win starting with first, with e-ID.

As most of you know, SuperCom provides governments with a comprehensive end-to-end solution for deployment and management of secure government identity program, all of which compromise that we call e-ID.

As I mentioned earlier, we had another busy and productive quarter in this division perhaps most notably we won an 8-year contracts with Iceland to develop and maintain and enhance ePassport and national ID card system.

It's worth mentioning that SuperCom actually delivered the current ePassport e-ID card personalization system to Iceland nearly 10 years ago.

That original system is still running smoothly and has been maintained impeccably but naturally at some point also becomes necessary to refresh and upgrade to meet today's evolving needs and challenges in security.

The enhanced system will support the most recent e-port passport standard at additional layers of security, entail a new chip in operating system on the passports, and provide improved workflow of personalization among other new advanced capabilities.

The new Icelandic ePassport personalization system will leverage SuperCom's cyber secure Magna National Population Registry platform, which is the most advanced ePassport e-ID technology to provide improved secure document, issuance and delivery capabilities.

We are particularly excited about this contract because it allows us to continue with our strategy of growing revenue within developed countries. I would also like to point out that we were awarded a contract following an international open tender. This means that SuperCom's solution was selected over 12 competing companies that submitted proposals.

We believe this is a testament to both the superiority of our current offering, as well add to the quality of work and support we provided to Iceland over the last 10 years. In Colombia, we are still on track with our $9.3 million secure LAN geographical information system project that was launched earlier this year.

We believe that we'll be able to complete deploy and transition the project with steady-state revenue in 2018 as planned.

Moving now to VeloPOS, our secure point-of-sale platform which is now also part of our e-ID division will continue to make progress selling VeloPOS in number of large customers in Central America and the United Kingdom, and are currently working with customers and resellers in those areas on expansion to more locations and merchant site.

Our other payment capabilities and mobile payments and payment processing are integrated and being offered as part of our e-ID project solution, as well as independently to enterprises mostly in emerging countries.

There is also an extremely busy period in our M2M tracking or IoT division, where we were able to secure several new multi-year contracts to deploy our electronic monitoring solutions.

Most recently, we announced that our SuperCom subsidiary Leaders in Community Alternatives or LCA at California was awarded a contract to provide RF home detention GPS tracking and monitoring, as well as alcohol monitoring to a new county probation department in Northern California.

The program is up and running and has begun generating recurring revenues.

This is also coming off another win earlier in the quarter where LCA secured a four-year contract valued at up to $3.4 million to provide pretrial and early intervention court services, as well as electronic monitoring services with Alameda County Probation Department also in Northern California.

Additionally back in July we secured a multiyear contract for the Ministry of Justice of Denmark to deploy a PureSecurity Electronic Monitoring Suite with the goal of increasing public safety producing prison overcrowding and lower recidivism in the country.

This comprehensive nationwide program sets and encompass electronic monitoring of offender programs within the country, is planned to monitor up to 1000 enrollees simultaneously. Additionally, we announced the win back in March for project in the Czech Republic were it is up to $3.7 million.

In September, our team joined the Minister of Justice of the Czech Republic in a large media event which marks the project launch of the country's first electronic monitoring of offenders program.

Overall [this meets] electronic monitoring for public safety market we are currently deploying five new projects in parallel, two with LCA, as well as Denmark, Czech Republic and our previously announced $1.7 million win in Canada, all of which we expect will be generating recurring revenue, generating soon - will be - recurring revenue generating soon if we haven't already.

And it's finally moving through our Alvarion Wi-Fi technology which I'd like to remind everyone again is part of M2M division now. We have continued sales of Alvarion Wi-Fi technology in the U.S. and are gaining traction in new purchase orders, new distributors and integrators, and a new pipeline in the millions of dollars.

We've also been considering bidding to partake in various new Wi-Fi projects globally such as the $100 billion Smart City program in India.

Alvarion's Wi-Fi technology offers unique competitive advantages compared to its competitors and other industry players when it relates to the outdoor intent demand of Smart City or connected city projects which are becoming more and more popular in regions around the world.

And lastly, in our Cyber Security division we continued our development of new advanced product adding market abilities, including anti-malware which will be incorporated into the Safend cyber security platform. We have been demoing to customers in both the U.S. and Europe and have been receiving positive encouraging feedback.

Additionally this quarter we hosted a conference titled "Winter is Coming" where we brought our experts in the cyber security fields who are able to provide attendees with lot of in-house knowledge about security best practices which we believe is not only informative and educational, but also a great representation of the value of our offerings.

It can provide many different businesses and organization.

As you can see, our business is continuing to grow in all areas as we make further progress along our division and what's also important to note is that while we've been successful at growing this business right now, we've also been doing so while focusing on the things that allow us to grow well into the future.

We spent a lot of time on previous call talking about the unifying characteristic of what makes upfront customer base. At SuperCom, we work with Chief Security Officers who are under immense pressure to secure and protect millions of people in their nation or thousands in their enterprise, one missed detail and the ramification can be catastrophic.

And while these customers are highly discerning and requires significant resources to attain, they also provide immense value with their unparalleled loyalty and stickiness.

It’s taken us nearly 30 years through extremely challenging nationwide technology deployments and multi-decade relationships with governments that persist through multiple elections and leadership changes to develop our relationships.

As part of our DNA our entire organization from top to bottom carries this DNA, and our goal at SuperCom is to create and build trust by properly serving these critical security needs of our customers. While I'm confident in our capabilities within our core focus, we realized that we needed to expand for our company to thrive into the future.

As a result, we made some major overhauls during 2016 to drive sustained growth and improved profitability. As we mentioned before, our growth strategy currently goes on four initiatives.

First, driving growth in developed countries, second, driving steady-state revenues, third leveraging the strength of our technology across our core divisions and finally focusing on operational efficiencies.

Our goal with these initiatives is to better position SuperCom as a sole provider of advanced identification, M2M tracking and cyber security solutions for high end growth markets.

We are broadening our reach to end markets that offer more abundant opportunities for us to generate recurring revenue with solid margin and all significant barriers to entry. Now I will explain a little bit more on these points. First, driving growth in developed countries.

We have expressed the value of diversifying our revenue base into developed countries. This broader and higher-quality revenue base reduces the volatility we experience with our past concentration and national governments within emerging market.

To that end, we are currently deploying six new government project in e-ID and M2M division which are in developed countries, the U.S., Canada, Iceland, Denmark and Czech Republic. And soon all these projects will be generating additional steady-state recurring revenue.

We remain confident in our previously stated expectations at the percentage of our steady-state revenue from developed markets will grow from less than 5% in 2015 to close to 50% in 2017.

Our pipeline is now strong across various geographies and markets and with our state-of-the-art technology and increased award rate, we're confident in our ability to continue winning more customers as well as expanding our offerings to existing customers. Our second key initiative is driving steady-state revenue.

As you might remember from previous calls, steady-state revenues refers to our most stable and predictable revenue, the majority of which is RFID business or recurring from existing customers in our various business lines.

Whether the source is software maintenance, ordering of consumables for card production or daily rates, this built on total offenders being tracked and monitored. These forms of revenues are much more reliable and predictable in nature.

For the crucial base for our business in the last two years our steady-state revenues have consistently increased from approximately $12 million in 2014 to $15 million in 2015 and up to $70 million in 2015.

In this quarter of 2017 we are seeing year-over-year growth to our steady-state revenues and expect steady-state revenues to account for the majority of 2017 annual revenues. As we have in the past, we look forward to been able to provide that full year number when it becomes available.

With over eight multiyear government projects currently in deployment stages, that are expected to complete and transition into the steady-state in the near future, we expect our steady-state revenues to continue increasing. Our third key initiative is leveraging the strength of our technology across our core division.

This initiative ties in most directly with the several acquisitions we made last year. We believe that with these acquisitions came not only invaluable technology but also the expertise that allows us to attract new customers and create new business opportunities for existing relationship to play a big role in the bidding process.

We spent time focus and aligning our technology offerings into three interconnected divisions, e-ID, M2M tracking and cyber security.

They offer significant synergies on the sale and cost sides but we also have a distinct advantage to be able to share the technology capabilities and offer integrated solutions such as secure Wi-Fi and secure mobile payments for government identification.

And the breadth of our offering is becoming increasingly evident to current and prospective [users], customers alike. And finally our fourth key initiative which I touched on earlier is on operational efficiencies.

We are continuing to see significant operational efficiencies gain traction as to continue integrating realizing synergies from our acquisitions. Most of these integrations operationally have reached a close to completion phase of potential upside in additional synergies to realize the end fixed cost to leverage.

That said, we are already seeing solid gross margin increases across our business.

Not to mention a healthy reduction in operating expense, the percentage of sales, as well as the return to the positive gap and non-GAAP net income and earnings per share and EBITDA margin of over 20% returning to a level close to that of years prior to 2016 transformation.

We believe these positive signs are the beginning and believe we can achieve even greater improvement as we continue to grow our topline and perform according to our plan.

For nearly three decades now, SuperCom has built technologies and provided services to effectively protect people and information that has always been at the core what we do, we're expert in our field and is precisely that expertise that has allowed us to not only make our reputation as a reliable security resource and partner but also leverage these valuable relations and to continued new business.

Turning to our financial results for the third quarter and nine months ended September 30, 2017. For the third quarter of 2017, our revenue grew organically by 89% from Q3 of last year to a record $9.6 million and 28% from the prior quarter.

For the first nine months of 2017, our revenue increased 69% to $25.5 million compared with the same period last year. With the improvement in revenue for both the quarterly and nine-months periods, we also saw significant gross margin expansion.

On a GAAP basis for the third quarter of 2017, our gross margin improved to 53% compared to 33% in Q3 last year, and 46% in the prior quarter. For the first nine months of 2017, our GAAP gross margin improved to 46% from 24% last year.

On a non-GAAP basis excluding from cost roughly $200,000 per quarter of amortization of software and IP and some stock-based compensation expenses which are non-cash expenses. For the third quarter of 2017, our gross margin improved to 55% compared to 37% in Q3 last year and 49% in the prior quarter.

And for the nine month period, our non-GAAP gross margin improved to 48% from 28% in the same period last year. Turning to our expenses. Our total operating expenses for the third quarter of 2017 were $4.7 million which were down as a percentage of total revenue from the prior quarter and also down from Q3 of last year.

For the first nine months, our total operating expenses were $13.3 million or 52% of total revenue which is also down compared to last year. The improvement in our total operating expenses for both periods reflect the continued cost reductions and improved efficiencies across our business, as well as our focus on tightly managing expense.

Compared to the third quarter of 2016, SG&A costs are down by 34%. On a non-GAAP basis excluding from operating expenses approximately $850,000 per quarter mainly of amortization of software and customer relationships and excluding other income. Our core non-GAAP operating expense have reached a low of approximately $3.8 million per quarter.

Looking at our core expenses more closely, R&D was $1.7 million for the third quarter of 2017 which compares to $1.4 million in Q3 last year and $2 million in Q2 of this year. For the nine month period, R&D was $5.3 million compared to $4.1 million in the same period last year.

It's important to note that R&D is critical for us but to be sure we are very strategic in our R&D investments focused in the highest potential ROI areas for our business. Sales and marketing expense for Q3 2017 was $1.7 million or 18% of total revenue.

This compares to $2.5 million or 49% of total revenue in Q3 last year and $2.3 million or 31.2% of total revenue in the prior quarter. For the nine month period, sales and marketing expense was $6.0 million or 24% of total revenue compared to $7 million or 44% of total revenue for the nine months period of 2015.

G&A for the third quarter of 2017 is $1.2 million or 12% of total revenue. This compares to $1.9 million or 38% of total revenue in Q3 last year, and $1.5 million or 20% of total revenue in the prior quarter. And finally, G&A for the first nine months was $4.4 million or 17% of total revenue compared to $5.4 million or 34% of total revenue last year.

Now turning to profitability [metrics]. As I mentioned earlier, Q3 marked the second consecutive quarter in which we achieved positive EBITDA and non-GAAP profitability. For the third quarter EBITDA totaled $2 million with an EBITDA margin of over 20%.

This was a significant improvement from an EBITDA loss of $2.4 million in Q3 of last year and represents a 150% increase from EBITDA of $800,000 in the prior quarter.

On a non-GAAP basis, our net profit improved to $1.6 million or an earnings per share of $0.11, an improvement from non-GAAP net loss of $2.5 million, our earnings per share of negative $0.17 per - in Q3 of 2016.And from non-GAAP net profit of $0.2 million or $0.02 per share in the prior quarter.

And for the first nine months of the year, our non-GAAP net profit totaled $700,000 or $0.05 per share. This was an improvement from non-GAAP net loss of $4.3 million or a loss of $0.29 per share in the same period of 2016.

Now turning to our balance sheet, at quarter end we're at approximately $1.2 million in cash and restricted cash, a level similar to that of the Q2 quarter end. While we had positive EBITDA of $2 million, the rapid increase of 28% in revenues quarter-over-quarter created the growth of trade receivables by approximately $2.3 million.

Although if we maintain this level of EBITDA generation with minimal CapEx interest and tax expenses, we expect significant positive operating cash generation. As noted, we are deploying currently over eight government projects and as they transition in a steady-state we expect working capital to release some cash.

We also expect more than a couple million dollars to be collected from settlement and collection of markdown accounts receivable between now and year-end. This together coupled with positive operating cash generation will allow us to build ourselves up to more comfortable cash position.

And with that, I'll now turn the call over to our Arie for some closing remarks before opening the call up for questions.

Arie please?.

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..

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect..