Until a year ago, SuperCom Inc. (Nasdaq: SPCB) shares were traded on the Bulletin Board in the US at a company value under $10 million, with zero investor interest. Today, after the company’s share value rose 920% between January 2013 and January 2014, the company is worth $74 million. Along the way, SuperCom attracted institutional investors from the US, held a secondary offering, and acquired a rival’s unit.
What caused the sudden interest? “It’s not sudden, it is the result of hard work to stabilize results. When investors see that, the stock goes up,” says CEO and primary shareholder Arie Trabelsi. “Part of it is explained in that the stock was extremely undervalued, because of the losses, and trading on the Bulletin Board. With the return to profit and the move to Nasdaq, investors have become exposed to us. Investment funds entered for the long-term, and that, itself, was a positive sign for other investors.”
SuperCom is active in two markets: EID and RFID. EID is the issue of smart national documents, and RFID is an alternative technology to barcodes. The company recently completed its acquisiton of a unit from OTI - On Track Innovations Ltd. (Nasdaq: OTIV; DAX: OT5) for $10 million (another $12.5 million will be paid based on performance). The unit is involved in EID deals, which were 90% of sales, but, in the future, they should comprise a smaller percentage of sales: “RFID is a very strong growth engine and, in the future, the division will be 50/50,” says Trabelsi. “The EID market will grow, but the rate of RFID growth will grow more, and that’s important, because we want to be built on two complementary platforms.”
The customers in the EID market are governments. The projects are long term and revenue is stable over time. The RFID market, in contrast, is mainly made up of private organizations. “Investors like to see big projects, and a company like ours can one day report that it has been awarded a project that is worth more than our entire annual revenue. That’s a big upside,” says Trabelsi.
SuperCom is a small company. Governments aren’t afraid to work with you?
Trabelsi: “So far, we haven’t been ruled out because of our size, because we have outstanding experience, and there is 100% confidence in our technology. It’s true that when considering a proposal, the balance sheet is taken into account, and it could reduce our chances, but, up until now, in projects of up to $200 million, we have not encountered problems in tenders. In certain cases we collaborate financially with other entities.”
And in bigger projects?
“Right now we are limited in our financial ability to get a big project going. I believe that in the future our financial base will broaden and we will be able to take it to the next level.”
Are you involved with the biometric project in Israel?
“No. We bid in the tenders. We do similar things abroad, but, in Israel, for some strange reason, we have not been integrated in the project, though there is still a possibility that we will be.”
Trabelsi has managed SuperCom since 2010. He initially invested in company when he acquired the company’s debt to a US fund for a few million dollars through his privately-owned company, Sigma Wave Ltd., and the debt was then exchanged for shares.
Bought back activity sold to OTI
“I was a development engineer and I rose to management positions,” says Trabelsi. “A decade ago, I decided to stop being an employee, because as a manager I can promise something to investors, but I have no control over it, if the controlling shareholder has a different agenda.”
“I looked for a company in a field with high entry barriers. In the Internet market, you can invest a lot of money, and then two guys who are developing something at home are competing with you,” he adds. “We are conservative. EID and RFID require long-term development investments. No government will give a project to a company that doesn’t have at least five years experience.”
According to him, “Luckily for me, SuperCom was in poor financial shape, not because of mistakes it had made, but because of the financial crisis. I saw what I was looking for in the company: long-term projects, interesting projects, and RFID development that had not yet been translated into projects. It was a golden opportunity.”
Since then, Trabelsi led a streamlining process at SuperCom, bringing the company from a $2 million loss in 2010, to a $4.1 million profit in the first half of 2013. “A company in trouble loses market, customer, and supplier confidence, but we worked hard, and today we are in an entirely different place,” he says. “There were difficult stages; banks refused to lend us even a shekel. In the first stage, we made painful cuts - negotiations with suppliers and customers, and layoffs of some employees. As soon as the company stabilized, we decided to work on increasing sales. We became profitable, and were able to raise capital for acquisitions.”
The unit that was acquired from OTI is based mostly on operations that SuperCom sold to OTI in 2006. “The sale in 2006 was, of course, a mistake. SuperCom sold a profitable unit because it needed money to invest in RFID. I wouldn’t have sold the unit, but you can’t step into the shoes of managers who made decisions that they thought were correct at the time.”
“Acquisitions will shorten time to market”
SuperCom recently closed a $13.8 million investment round. After the investment, and with the expected growth in the markets, Trabelsi is confident in the company’s ability to grow, with the help of acquisitions as well. “We have a strong technological basis. The goal is to reach annual sales of $250 million within five years, and we will shorten our time to market and increase our market presence through acquisitions,” he says.
Sales totaled $26 million in 2012, and you are talking about $250 million in 2018?
“Right now it seems super-high, but our potential markets are above $10 billion, and I think that a 2.5% market share, which would bring in this revenue, is possible. To date, our business plan has been fully realized, and has even exceeded expectations.”
Alvarion investors missed out; we passed on an appeal because of the workers.
Last summer, Trabelsi’s Sigma Wave made headlines when it was one of two contenders for the acquisition of communications equipment company Alvarion Ltd. (Nasdaq: ALVR; TASE: ALVR), which was in receivership. Sigma Wave won the bid, but the other contender, Valley TeleCom, surprised them during the discussions in court. Valley TeleCom increased its bid, despite Sigma Wave’s objections, and the judge recommended that Sigma Wave withdraw its offer, due to the fact Alvarion workers preferred Valley TeleCom. Trabelsi is still disappointed about the decision.
“I think that Alvarion investors missed out on an amazing plan that we had put together, and we believe that we could have brought Alvarion back to its glory days,” he says. “I wish the company that won the bid success, despite the fact that I believe that the manner in which it won was flawed. I hope, for the sake of the investors, that Alvarion will get back on the high road to success. If the opportunity arises again, I believe we could acquire Alvarion.”
If the decision was flawed, why didn’t you appeal?
“We could have appealed, because we believe that their win was not legal. But I looked at the workers, who had been dragged through this for a long time, and this would have dragged out another month or two more. So we decided to let it go, though I am convinced we would have won.”
Published by Globes [online], Israel business news - www.globes-online.com - on January 15, 2014
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