Maintaining Buy rating; raising price target from $10 to $12.

Key Points

Margins continued to expand; revenue lumpiness likely to persist in 2025.

Key metrics in 2Q’25, compared to the prior year, include:

Revenue was $7.1 million, vs. $7.5 million a year ago.

Gross margin expanded to 59.1% from 49.6% Y/Y.

Operating income increased by 187% to $1.1 million from $0.4 million Y/Y.

Operating margin expanded to 15.4% from 5.3% Y/Y.

Net income was $1.1 million compared to $2.2 million (or $0.4 million net financial gains of $1.8 million).

Non-GAAP net income was $2.2 million vs. $3.3 million (or$1.5 million, net financial gains of $1.8 million).

EBITDA increased to $2.5 million from $1.6 million Y/Y.

Non-GAAP EPS of $0.49 vs. our $0.19 estimate.

Cash and cash equivalents of $15.0 million, up from $5.7 million.

Strong momentum in the U.S. market continues. Since 2Q of 2024, SuperCom has secured more than 30 new electronic monitoring (EM) contracts in the U.S. Business in 2Q included new entries into Virginia, Nebraska and Tennessee. The Company also secured a statewide procurement vehicle in North Carolina and expanded service-provider partnerships in the Southeast and Midwest, while also adding new wins in Utah and Kentucky. Some of these wins displaced incumbent providers. Many of these incremental wins carry higher gross margins, contributing to2Q’s exceptionally strong margin quarter.

New Europe business continues to drive results. Although business in the United States tends to carry higher margins, SuperCom continues to generate new wins in the EU, holding a win rate exceeding 65%. Evolving national-level projects include the national Israeli EM project, the Swedish Ministry of Justice project, the Romanian Ministry of Interior project, and the Company’s seventh national domesXc-violence program in EMEA.

Balance sheet de-levering. The Company has been reducing its outstanding debt since the end of 2023, through premium-priced debt-to-equity conversions and improving cashflow. During 2Q, working capital improved to $40.8 million, up from $26.1 million, Book Value of Equity increased to $37.3 million, up from $13.8 million, and cash and cash equivalents on the balance sheet was $15.0 million, up from $3.2 million at YE24.

Changes to our estimates. We are again trimming our 2025 revenue estimates in our model, from $26.87 million to $25.46 million, primarily the result of some continued order push outs in Europe that started in 4Q’24 and have continued into 2025. While our conversations with management lead us to believe that these orders are intact and will be recognized later in 2026 and beyond, we prefer to increase our assumptions only after near-term visibility improves. Additionally, we do not see the record 1Q and 2Q margin levels continuing through the rest of 2025 because lower revenue levels in 2H’25 are likely to negatively impact economies of scale, despite the fact that recent product mix shifts, particularly in the U.S., have been favorable to margins. The reductions in revenues in 3Q and 4Q in our model, together with lower (sub-scale) margins in 2H’25 have the effect of reducing our non-GAAP EPS estimates for 3Q and 4Q from $0.19 and $0.20 to $0.06 and$0.11, respectively. Our Adjusted EBITDA estimate for 2025 is also reduced, from $8.36 million to $6.97 million.

SPCB shares remain attractive, we believe. Although we are reducing our 2025 estimates, we believe that SPCB shares remain attractively valued and have room for further price appreciation. Shares are currently trading at only 7.3x our revised FY26 non-GAAP EPS estimate of $1.32. For that reason, we are bumping up our price target from $10 to $12.

Our revised $12 price target assumes a P/E multiple of ~9x our FY26 estimate. We anticipate estimate increases after 2025 as revenue visibility improves.

Margins continued to expand; revenue lumpiness likely to persist in 2025. Revenue in 1Q 2025 increased 2.9% year-over year to $7.05 million from $6.85 million, while gross profit increased to $4.46 million from $3.88 million, with gross margin expanding to 63.3% versus 55.3% in 1Q 2024. Revenue in 1Q only slightly exceeded our $6.99 million estimate, due mainly to temporary order delays of a major monitoring contract in Europe (Romania). Non-GAAP EPS in 1Q 2025 was $1.50, due to both stronger gross and operating margins and a favorable confluence of one-time events.

Strong momentum in the U.S. market continues. Since 2Q of 2024, SuperCom has secured more than 20 new electronic monitoring (EM) contracts in the U.S., including entry into seven new states—Ohio, Arizona, Alabama, South Dakota, New York,West Virginia, and Maryland. The Company also expanded its footprint in key existing markets in California and Kentucky, primarily focused on domestic violence monitoring. Some of these wins displaced incumbent providers.

New contracts in the U.S. market. SuperCom was awarded new monitoring contracts in Utah, Kentucky, Ohio, and Arizona. Since mid-2024, there have been eight new state market entries, with additional wins currently in progress. We believe that the recent gross margin expansion is partly the result of a higher U.S. market presence, where network security requirements are less cumbersome and allow for greater contribution of higher-margin software to the revenue mix.

Balance sheet de-levering. The Company has been reducing its outstanding debt since the end of 2023, through premium-priced debt-to-equity conversions, including another significant reduction in its long-term debt in 1Q 2025. Long-term debt currently stands at $24.2 million versus $29.7 million at YE’24. The Company raised $16 million in new capital in 1Q 2025 and had $17.13 million of cash at quarter-end.

Changes to our estimates. We are again trimming slightly our 2025 revenue estimates in our model, from $29.77 million to $26.87 million, primarily the result of some order push outs in Europe (Romania) that have occurred in 4Q 2024 and have continued into 1Q2025. While our conversations with management lead us to believe that these orders are intact and will be recognized later in 2025, we prefer to increase our assumptions only after near-term visibility improves. At the same time, we have expanded our 2025 gross margin assumptions from 47.1% to 55.7%. While we do not see the record 1Q margin levels continuing through the year, recent product mix shifts have been very favorable to margins.

SuperCom’s revenue mix is improving and could lead to further gross margin expansion over 2024 levels. Although the record gross margin in 1Q 2025 of 63.3% was likely an anomaly impacted favorably be first-time U.S. system deployments, we see a generally positive secular trend emerging: The higher software content of next-generation platforms, we believe, is likely to expand gross margin above 45% in 2025 and contribute to improving earnings leverage over the next several quarters. Additionally, the increased software content of next-generaTon platforms, we believe, is likely to minimize any potential negative effect of import tariffs in the U.S. market.

SPCB shares remain attractive, we believe. Shares are currently trading at 9.5x our revised FY26 non-GAAP EPS estimate of $0.76 (previously $0.42). Our $10 price target assumes aP/E multiple of 13x our FY26 estimate. We anticipate further estimate increases in 2025 as revenue visibility improves.

Strong margin improvement despite some revenue lumpiness. Revenue in 4Q 2024 increased 11.6% year-over-year to $6.33 million from $5.67 million, while gross profit increased to $2.7 million from $2.35 million, with gross margin expanding to 42.7% vs 41.4% in 4Q 2023. Revenue in 4Q was slightly shy of our $6.46 million estimate, due mainly to temporary order delays of a major monitoring contract in Europe (Romania). Non-GAAP EPS in4Q was $0.66, above our estimate of ($0.45).

Growing momentum in the U.S. market. Since 2Q of 2024, SuperCom has secured more than 20 new electronic monitoring (EM) contracts in the U.S., including entry into seven new states—Ohio, Arizona, Alabama, South Dakota, New York, West Virginia, and Maryland. The Company also expanded its footprint in key existing markets in California and Kentucky, primarily focused on domestic violence monitoring. Some of these wins displaced incumbent providers.

International markets continue to diversify. SuperCom, together with partner company Electra Security, was awarded a five-year national electronic monitoring contract by the Israel Prison Service to cover the entire EM offender population in Israel. Additionally, the Company launched national domestic violence electronic monitoring programs in Latvia and another EU country during the second half of 2024, both secured through formal competitive tenders.

Balance sheet de-levering. The Company has been reducing its outstanding debt since the end of 2023, through premium-priced share issuances, including a $4.37 million reduction in its long-term debt, which currently stands at $29.7 million. The company had $3.15 million of cash on hand at YE24.

Reducing our revenue growth assumptions slightly. We are trimming slightly our 2025 revenue estimates in our model, from $32.25 million to $29.77 million, primarily the result of some order push-outs in Europe that have occurred in 4Q 2024. While our conversations with management lead us to believe that these orders are intact and will be recognized later in 2025, we prefer to increase our assumptions as near-term visibility improves. This reduction has the effect of reducing our EPS estimates for 2025, from($0.03) to ($0.27). We are keeping our 2026 and 2027 estimates unchanged.

SuperCom’s revenue mix is improving and could lead to further gross margin expansion. Although gross margin in 4Q was impacted minimally by the European order delays (42.7%vs. our model’s 43%), we see a more positive secular trend emerging: The higher software content of next-generation EM platforms, we believe, is likely to expand gross margin above 45% in 2025 and contribute to improving earnings leverage over the next several quarters. Additionally, the increased software content of next-generation platforms we believe is likely to minimize any potential negative of import tariffs in the U.S. market.

SPCB shares remain attractive, we believe. Shares are currently trading at 14-15x our FY26 non-GAAP EPS estimate of $0.42. Our $10 price target assumes a P/E multiple of 24x our FY26 estimate. Moreover, yesterday’s sharp sell-off, we believe, provides investors with an attractive entry point.