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.