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

James Medvedeff - Cowen & Company Tony Pollock - Aegis Capital Greg Reiter - Investa Capital William Gibson - Roth Capital Partners

Good day, good morning. Welcome to SuperCom's Fourth Quarter and Full Year 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 their remarks, we will open up the call for 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, or 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. At this time, I would like to turn the call over to Mr. Ordan Trabelsi. Please go ahead.

Thank you, operator. Good morning, everyone. And thank you for joining us today. Earlier today we issued a press release with our results for the fourth quarter and full year ended December 31, 2017 a copy of which is available in the Investor Relations section of our website. 2017 was a banner year for SuperCom. We saw a dramatic transformation in our overall financial performance. This was driven by continued execution and growth across all three of our strategic business segments e-Gov, IoT and Cyber Security. We also grew our revenue across all of our major geographic markets: Africa, Europe, South and Central America, U.S.A., Israel and Asia Pacific. As a result, we were able to generate record annual revenue with 66% organic revenue growth, while also optimizing our cost in certain key areas of our business leading to a 200% improvement in our gross profit margins and positive EBITDA. In the fourth quarter specifically we grew our revenue 93% organically over the prior year period, while also reducing our operating expenses as a percentage of total revenue across the board. On the operation side, we had another busy quarter, which rounded out an overall productive year together driving continued growth across our three strategic business segments. In 2017, in our e-Gov business segment containing the formerly known known e-ID division our annual revenues grew to $18.2 million. We secured an eight-year contract with Iceland for an e-Passport and National ID Card system back in September. And more recently, we signed a new contract with an existing national government customer in Africa, representing approximately $4 million in total value. This contract in addition to other recent large-scale e-ID deployments we had in Africa, which have already transitioned to steady-state generating recurring revenue that contributed to our improved performance in 2017. In 2017 in our IoT strategic business segment containing the formerly known M2M Tracking division and Connectivity division, our annual revenues grew to $11.3 million. We continue to win new business in the US and globally at an aggressive clip. Since our Q3 earnings call alone, we've announced new contract wins in Tennessee, Atlanta, Bulgaria, Western Kentucky, Idaho, South Carolina, Eastern Texas and most recently Sweden. And in 2017, in our Cyber Security business segment, our annual revenues grew to $3.8 million. We are seeing significant progress in the development of new advanced cyber security products, adding more capabilities including anti-malware to be incorporated into the safe and cyber security platform. We also saw in 2017 significant optimizations in our operating expenses. Research and development, sales and marketing and general and administrative expenses as a percentage of total revenue decreased to 22%, 24% and 18% respectively in 2017 from 34%, 50% and 36% respectively in 2016. In recognition with significant growth year over the last year, SuperCom was also recently selected as one of Israel's fastest growing companies in the prestigious Deloitte 2017 Technology Fast 50 Program. This award recognizes SuperCom as one of the 50 fastest growing technology companies in Israel, based on the company's revenue growth from 2013 through 2016. Put together, it's been quite a year for our company. Now for today's call, rather than providing a full recap of every event we've had during 2017, I will instead focus on our recent success and progress since our last call, as well as provide a brief update on our major business initiatives for 2018. Then I'll provide our financial results for the fourth quarter and full year 2017, after that I'll turn the call over to Arie, who will provide some closing remarks including update on the outlook before turning the call over to questions. First as a side note, I mentioned on our last call, in the third quarter we consolidated parts of our Connectivity and Payment divisions into our e-Gov and IoT business segments respectively. Our Alvarion Wi-Fi and backhaul technology is now included in our IoT business segment. Our goal on consolidating these three business segment is threefold. First, to better leverage synergies and R&D capabilities. Second, to simplify our internal structure and measure performance in a more effective fashion. And third, to more closely align our focus in a way that makes sense for us both today and going forward. Now turning to our three business segments starting first with e-Gov. As most of you know SuperCom provides national governments with a comprehensive end-to-end solution for deployment and management of secure identity programs, all of which compromises or we refer to as our e-Gov segment. As I mentioned earlier, we had another full year in this segment. And most recently, we announced the signing of a new contract with an existing national government customer in Africa. Built around SuperCom's Magna platform, this deployment will allow for quick expansion of additional e-Gov modules which could lead to potential increases in overall size of this contract. Currently the deal represents approximately $4 million in value, the majority of which is expected to be recognized over the next two years and grow our steady-state recurring revenues. Moving to our IoT and Connectivity business segment. The area in which we've recently had the most new project wins is our IoT and Connectivity business segment. With our electronic monitoring of offenders business specifically, we've announced numerous contract wins and deployments during the course of the year 2017. All of which have the potential to expand in size and contribute greatly to the overall growth of our steady-state revenues into the future. At this current moment, we actually have 11 EM projects that are being deployed globally. As I said in my early remarks, we've announced eight new project wins since the Q3 call alone. Our newest win in Sweden is a significant benchmark for SuperCom as it signifies the 10th country to select our PureSecurity Electronic Monitoring technology since 2016. We are excited to have been selected by one of the pioneers of electronic monitoring in Europe for such an innovative and technologically advanced program. This selection is another signal that some of the most advanced and evolved EM countries around the globe, both in Europe and throughout the developed world are turning to our technology to support their public safety efforts. This also reflects a greater overall shift to a more modernized effective approach towards alternatives to incarceration and an emphasis on offenders’ successful reentry into society. Our current and upcoming EM deployments have been serving a strong reference points and provide a concrete validation of the effectiveness of our proprietary EM technology, which we believe will support additional wins in the future. And while it's true that these initial contracts can vary in size and have thus been smaller than a traditional win in our e-Gov business segment, we remain high on this business due to its strong recurring revenue characteristics and strong prospects for future revenue growth for existing and new potential customers. Even within one given deployment which starts out as an initial order for an amount of monitoring devices can very reasonably expand into a long-term relationship with continuous follow-on orders, which of course leads to steady-state recurring revenue growth, one of our key areas of focus. As you've already seen, in our deployments this year Atlanta, Kentucky, and Tennessee among others, as we're experiencing the benefits of SuperCom's superior technology offerings, customers have consistently expanded the scope of these initial contracts becoming valuable long-term partners. We're incredibly encouraged by the continued strong pipeline we see in this business and look forward to providing positive updates in the near future. And regarding our Alvarion Wi-Fi technology, we are seeing continued sales in the US and globally as well as gaining traction to secure new purchase orders with distributors and integrators which have expanded this multi-million dollar pipeline of Alvarion. And lastly, in our Cyber Security business segment, we're continuing to see encouraging progress in development of our new advanced cyber security products adding more capabilities including anti-malware to be incorporated in the Safend security suite. Our pilot program in both the U.S. and Europe has also been providing us with valuable feedback as we work towards bringing new technologies in increasingly relevant industry. Safend concluded 2017 with a greater to 90% retention rate in the US driven by sustained customer satisfaction and continued technological improvements. Now moving to our key growth initiatives for 2018 and upcoming years. As we shared in our last few calls, SuperCom has built its growth strategy around four key initiatives. One, driving growth in developed countries. Two, driving steady-state recurring revenue growth. Three, leveraging the strength of our technology across our core business segments. And four, focusing on operational efficiencies. Its overall growth initiative grew out of a recognition that our business over the course of the last 30 years has changed. And while we rely on the valuable experiences we have had during those three decades, either through extremely challenging nationwide technology deployments, our long time relations with governments that persist through multiple elections and leadership changes, we've realized that we needed to expand for our company to thrive into the future. And as a result, we made some major overall during 2016 to drive sustained growth and improve profitability. Our intent to these initiatives is to better position SuperCom as a solutions provider of advanced identification, IoT 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 margins and also significant barriers to entry. Our goal at SuperCom has been and always will be to properly serve the critical security needs of our customers whatever they may be, by creating and building trust and providing superior technological solutions. Now I'll explain a bit more initiatives before getting into our financial results. First, driving growth in developed countries. We've expressed a value of diversifying our revenue base into developed countries. This broader and higher-quality revenue base reduces the volatility we've experienced with our past concentration and national governments within emerging markets. As I mentioned earlier, within our IOT business segment, we've seen continued traction here, even since our last call as we expand our footprint across the US and Europe. Soon all of these projects will be generating additional steady-state recurring revenue and we're looking to expand within these current deployments as well as capitalize our large pipeline international too, which brings me to the second key initiative, driving steady-state current revenue. As a reminder, when we refer to steady-state recurring revenues, we're talking about our most stable and predictable revenue. This revenue is from existing customers which have passed initial deployment in our various business lines. The majority of which is repeat business or recurring in nature. Whether the source is software maintenance, ordering of consumables for card production or daily rate built on total offenders being tracked and monitored. These forms of revenues are much more reliable and predictable in nature and form a crucial base for our businesses. In the last few years, our steady-state revenues have consistently increased from approximately $12 million in 2014, $15 million in 2015, $17 million in 2016 and up to approximately $24 million in 2017. That's more than a 25% compounded annual growth rate. As I just mentioned a moment ago, our ongoing project deployments in our e-Gov and IoT business segments provide a significant source of steady-state revenue growth, both in the near term as well as in the case of follow-on orders. We expect our steady-state revenues to continue increasing in upcoming years. Our third key initiative is leveraging the strength of our technology across our core divisions. This initiative ties in most directly with several acquisitions we made last year in 2016. With these acquisitions came not only invaluable technology, but also the expertise and additional relations that allow us to attract new customers and create new business opportunities where having these existing relations play a big role in the bidding process. We spent time focusing and aligning our technology offerings into three interconnected business segments: e-Gov, IoT and Cyber Security. They offer significant synergies on the sales and cost sides, but they also have distinct advantage of being able to share technology capabilities and offer integrated solutions such as secure Wi-Fi and secure mobile payments for government identification. And finally, our fourth key initiative which I touched on earlier is create additional operational efficiencies. We are continuing to see significant traction as we continue integrating the real -- and realizing synergies from our acquisitions. Most of these integrations operationally have reached a close to completion stage with only potential upside in additional synergies to realize and fixed cost to leverage. While this quarter continues and contained a few irregularities, over the long-term, we're seeing continued gross margin increases across our businesses not to mention a healthy reduction in operating expenses as a percentage of sales. I will now turn to our financial results for the fourth quarter and 12 months ended December 31, 2017. For the fourth quarter of 2017, our revenue grew organically by 93% from Q4 last year to $7.8 million. For 2017, our revenue increased 66% to a record $33.3 million compared to the same period of 2016. For the fourth quarter of 2017, our non-GAAP which include a realization of $1.4 million in deferred revenue grew organically by 127% from Q4 of 2016 to $9.2 million. For 2017, our non-GAAP revenue increased 72% to a record of $34.6 million compared to the same period in 2016. On a non-GAAP basis, for the fourth quarter of 2017, our gross margin improved to 31.9% compared to a negative 23.1% in Q4 of ‘16. And for the full year, our non-GAAP gross margin improved to 45.5% from 16.9% in 2016. Turning to our expenses, our total operating expenses for the fourth quarter of 2017 were $6.1 million, which was down as a percentage of total revenue from Q4 of 2016. For 2017, our total operating expenses were $19.4 million or 58% of total revenue which was also down as a percentage of total revenue compared to 2016. The improvement in our total operating expenses as a percentage of revenue for both periods reflect the continued cost reductions and improved efficiencies across our business, as well as our focus on tightly managing expenses. Looking at our core expenses more closely, R&D was $1.9 million for the fourth quarter of 2017 or 24% of total revenue. This compares to $2.6 million or 65% of total revenue in Q4 of the prior year. For the full year, R&D was $7.2 million or 22% of total revenue compared to $6.7 million or 34% of total revenue in 2016. It's important to note that R&D is critical for us but to be sure, we are very strategic in R&D investments focusing on the highest potential ROI areas for our business. Sales and marketing expense for Q4 2017 was $2.1 million or 27% of total revenue. This compares to $3 million or 73% of total revenue in Q4 of the prior year. For the full year, sales and marketing expense was $8.1 million or 24% of total revenue compared to $10 million or 50% of total revenue for the prior year. G&A for the fourth quarter of 2017 was $1.7 million or 22% of total revenue. This compares to $1.9 million or 47% of total revenue in Q4 of the prior year. And finally, G&A for the full year was $6.1 million or 18% of total revenue compared to $7.3 or 36% of total revenue in the prior year. Now turning to our profitability measures. For the fourth quarter of 2017, EBITDA loss totaled $1.2 million, which compares to an EBITDA loss of $3.7 million in Q4 of the prior year. For the full year, EBITDA increased to a positive $188,000 compared to an EBITDA loss of $6.5 million in the prior year. As I stated earlier, we have operations in several countries in connection with the sale of our products. Substantial portion of our sales expenditures are denominated in dollars. We have mitigated and expect to continue to mitigate a portion of our foreign currency exposure to salaries, marketing and support operations in which all costs are local currency based. As a result, our results from operations and cash flows can be affected by fluctuations in foreign currency exchange rates, primarily the NIS or New Israeli Shekel. In the fourth quarter of 2017, we incurred a foreign currency loss of approximately $1.7 million. In the future, we may choose to carry out certain transactions that would be designed to hedge our exposure in New Israeli Shekels against the US dollars. On a non-GAAP basis for the quarter, our net loss improved to $2.1 million or negative $0.14 per share from non-GAAP net loss of $4.1 million or negative $0.28 per share in the same year ago quarter. And for the full year, our non-GAAP net loss totaled negative $2.2 million or negative $0.14 per share, an improvement from non-GAAP net loss of $7.8 million or negative $0.52 per share in the prior year period. By year end, we approximately had $2.1 million in cash and restricted cash. And with that, I'll now turn the call over to Arie for some closing remarks before opening the call for Q&A.

Thank you, Ordan. As we've just heard 2017 was a good year for SuperCom highlighted by superior financial performance and continued growth within our three major divisions. Moving forward, we remain focused on growing our margin even greater level by winning new business and positioning our various ongoing deployments into long-term steady-state recurring revenue generator. Looking to the rest of 2018, we are looking to improve both our top-line results for this year, while also returning to EBITDA profitability. We are really excited and optimistic about where our business is today. In fact, SuperCom has never been better positioned operationally and financially than we are today. We look forward to providing more update on our expectation for the years on upcoming calls. And with that, we are ready to open the call for your questions. Operator, please provide appropriate instructions.

Thank you, sir. [Operator Instructions]. And we will take our first question from James Medvedeff with Cowen & Company.

Hi. Thanks for taking my questions, and congratulations on a strong year. And some real progress especially in the IoT business. A couple of housekeeping questions just to start off. What was the weighted average shares outstanding in the fourth quarter and the year?

About 14.95.

Is that for the quarter or for the year?

For the year it's about 15 million and for the quarter about the same. We have almost no change during the year except for 20,000 shares that auction was materialized. But except for that, was at the same level for the whole year.

Okay, thanks. And also what was capital spending during the quarter?

About CapEx?

Yes, please?

What is the capital spending? Over less than $1.5 million was the total CapEx for the year.

For the year. Okay, thanks. So congratulations on the expense controls also by the way. That’s -- how should we think about that going forward? Will you reduce them pretty nicely? And the question is, are you now sort of at a steady-state level of spending in those areas or should we expect them to grow a little bit with revenues through year or how should we think about that?

Okay, yes. We are already continuing the first quarter and we believe that in the second quarter as well we will -- our goal is to reach our optimal OpEx. We’d like to have an average of $4 million like our OpEx per quarter. And our goal is to reach about $1.2 million off the quarter for R&D, $1.5 million to $1.6 million for sales and marketing and G&A to keep to the level of $1.2 million. And we believe that once we reach these levels, we'll be at what we call an optimal OpEx. The sales and marketing may increase based on our commission that we provide our sales people as our sales are doing.

Okay, sorry?

He is referring to the non-GAAP numbers, as you know which is close to 4.6 -- $4.5 million 2017 of amortization, depreciation and stock-based compensation which are adjustments from GAAP to non-GAAP on operating expenses.

Okay, I just want to be -- I want to be clear I understood. These are goals, and when will be achieved?

We believe that this -- the second quarter we will be very close to those levels. Second quarter of this year, we're continually striving towards them.

Okay, I appreciate that. Thank you.

Thank you. We will take our next question from Tony Pollock from Aegis Capital.

Good morning. I did not hear the explanations that were given for those questions. They were very garbled. So I was wondering if you could repeat them with a little more clarity.

Which one?

All of them, they were all garbled and I couldn't understand what they were saying.

Okay, I’m not sure we'll remember all the questions but there was a question regarding the operating expenses and Arie referred level. I'd shared some numbers of our goal non-GAAP operating expenses by expense line, R&D, sales and marketing and G&A. And the sales and marketing might fluctuate based on revenue growth, but our goal for G&A and R&D is of that the numbers that he shared. The total at current levels, the total close to it.

So are they what they were for the 12 months as you expect that going forward because it appeared you haven't told me the numbers.

No, we expect that our OpEx for the year 2018 is going to be in the range of about $4 million non-GAAP OpEx.

No, I understand the OpEx but what about the R&D and the G&A, and the selling and marketing?

Per quarter non-GAAP our goal is to reach close to $4 million with the current revenue levels. As revenues will increase, sales and marketing, and commissions will probably increase accordingly. We also shared the CapEx would -- CapEx of 2017 I was asked is a little less than $1.5 million. And those details would be on the 20-F.

Okay. Research and development last year was 7.2 million. Can you give us an idea of the return on investment expected on that research and development, what it went for and whether that number will continue?

Without the specific ROI measured on R&D but we could tell you that we have been investing across our three business segments, some of what you can see already in our IoT investments or the wins that we've been having lately across Europe and the US and our ID business as well. And of course in our cyber we're able to maintain our current customers as well as develop new products to help us win new business.

Okay. In terms of -- do you have an idea of what the research and development spend is on new products versus your existing business?

We haven't broken that number out. It’s -- the teams work together on existing business upgrades and also new products.

Okay. I still am a little confused on what you expect the R&D to be going forward?

It should be in the range of $4.8 million to $5 million per year.

So that will be substantially less than last year.

Yes, as we -- our disposition finalizes most of our product line from R&D point of view, the complete integration between businesses we acquired into our product line. It's very predictable that our R&D expenses should be reduced to a level that will allow us to continue to push it forward. A lot of R&D was invested in the IoT product line, which we believe it’s in a very material position right now and we do not expect or need to invest more into R&D, as we believe our products are among the most advanced products in the market. There will be some adjustments and there will be some new features built into that to believe that we should not invest as much as we invested in the last four years in the R&D. It's time to get other way.

Alright. I saw a prediction of 35 million in revenues. Was that for 2018? And can you tell us what quarterly level you need to breakeven in terms of sales, assuming there is no …?

We have not provided guidance for '18 but we believe that we will continue to see a growth mainly because the key businesses of the three segments that we have are all growing very nicely, the IoT is running very fast and getting more and more contracts. Now we have to remember that each contract in the IoT and area which will then provide us with a record against the buildup. So we will see in the next quarters and even for the next [60] months an increased revenue from those contracts that are being built. As Ordan mentioned earlier, our recorded revenue is increasing from year-to-year and this is our basis for revenue with a high gross margin and we believe we will continue to see this kind of growth.

Alright. Could you give us an idea of what your breakeven point is accounting currencies and things like that?

So that will depend of course on where the revenues reach with the new projects and -- because the gross margins are impacted by different project levels, projects can vary. But generally speaking from current gross margin rates, if you look at non-GAAP gross margins of 50% and $35 million of revenues which is close you are looking at around $17 million to $18 million in gross profit, if you reach a non-GAAP operating expense level between 4 million and 5 million which we are driving towards, we meet that breakeven there.

Okay. So we’re assuming that approximately $8.5 million quarterly run rate to your breakeven.

Again it depends on the breakdown of the gross margins for the project and also we are still improving our OpEx as we move along but ….

I think that it’s important, it's very important. Ordan mentioned that we went last year to a large construction -- the construction of our business into two segments, consolidating, converging all the business we acquired to very, very strong segments right now which -- by -- that each one of them is growing very fast. We are very close to getting into the optimal point in our expenses and we do believe that the coming year will be a turning point from GAAP to non-GAAP profit after we reach this point. So we believe that you will see that in the near quarter a major change in the profit levels.

Okay. When can we expect the March 31st numbers?

We cannot say exactly as we are just closing everything for the -- from the earliest but we hope that between Q2 and four weeks from today and even less than that we will provide those numbers. We have most of the information on hand but still we need to complete the number here and drive those near structural EBITDA. So I believe in between three to four weeks that is going to be out and we believe and hope that later on all the four late quarter will be reported within the [35] days after being reported.

And we will take our next question from Greg Reiter with Investa Capital.

Just tell me or reconcile, you talked about Ordan more visibility with a steady-state revenue ramping yet you're not providing guidance. We are already through the first quarter, I mean help me understand why you are hesitant to do that?

So our steady-state part of the business as we said for 2017 was 24 million and we are expecting that number to continue growing but the other portion of our business which in this year was over $8 million of projects-based revenue, it's hard for us to predict at this point. There’s many projects that we're deploying in parallel, I think close to 13 or 14 just in e-Gov and IoT and there’s a big pipeline of other opportunities which are -- some of which are close to close. And it makes hard for us predict things beyond the steady-state revenue at this point.

Alright. And is it fair to assume given what you just said that project revenue should be up in fiscal '18 versus '17?

We do not know that as of yet. We’ll have to see that …

Despite all the projects …

Sorry?

Despite all the projects that you just cited that you have underway?

Yes. And it depends on how much of the projects progressed. It’s -- we're talking about government timelines in different locations around the world. And there is some less visibility around that. But we do expect as projects continue to have additional growth revenues -- sorry project revenues and we also have project revenues from projects that target and impacted 2017 and those will also contribute to 2018 by growth additions.

I think it's important maybe to -- talking about the way this recurring revenue being built-up. We have contracts that -- and we have completed in the e-Government and they are generating positive recurring revenue. We have an excellent pipeline of contracts in the IoT that are being built right now. And we will believe it will provide us with very nice stream in growing revenue. And we have our Cyber Security revenue which are -- each one of them has a very nice and high gross margin. I think that’s important thing if you look at what happened the year 2017, we optimized our cost, we've built a very strong structure to implement our business plan, sell our project and be very, very efficient. And growing our base of steady-state recurring revenue will provide us with a very high margin revenue. And coupled with a very low operating expenses going forward, we will see a major change also in the portfolio built-in margin us going forward. We believe that we will see very similar number that we had in the year 2015, set up for margin contribute.

Okay, appreciate the added color, Arie. But I guess just again not to diminish what you did during the current year, but Q4 I’ll say it was noisy to be quite. What the deferred revenue, this is big crap up all of a sudden and hasn't really happened to GAAP versus non-GAAP up to this point. And what the cash flow from operations in Q4? It looks quite negative. And I see there is now some now related party loan on the balance sheet. Can you detail that as well?

Okay. So you will see our order of cash flow for the year and I think that it's much, much lower than previous years. It's very close to getting to have the breakeven point that we are looking for. Now from -- sorry, Ordan?

I have that number available on the operating cash flow for the year. It was a little less than negative $2 million, significantly better than 2016, which is around $10 million or $11 million negative operating cash flow. So that's improved significantly in 2017. I’m not sure?

Now I’m -- but I’m not willing to talk about the cash that you just mentioned. We are winning projects and as you can see every project in the IoT and other requires our investment in couple of small point of view. We are building product for customers. It should have a nice return after eight to nine months after the delivery. So right now every win that we have, we build upon it, we lease it to our customers who will see a major need for capital of cash as we had in the next -- in the last six months. But we do see and believe that that all those investments in few of the products that we had in the last year and that we are letting it to our customers will provide us with a very nice return and very strong cash flow in the following quarter. And again our business right now is turning cash into products that later are being leased to governments around the world with a very nice return.

Okay, I mean I don't doubt that but I mean the elephant in the room is your balance sheet, right? And this fourth quarter is a pretty negative in terms of cash from operations by what I see has happened to the balance sheet. This related party and liability of 2.1 million. Can you detail that, is that a loan from you, and what's the terms of that?

Yes, first of all -- okay, first of all, I’m not saying we can speak on the exact number right now, the -- that is on the first quarter. But as I said we are investing into products that are being leased to our customers, so we need cash for that. There are three options of doing that. One is to raise capital, and we are not going to do any capital raise, especially not of this value of the shares. I am not even thinking about that. The other option is raising cash debt in the market. And if we see that we just need some couple of million dollars for bridge loan for building these products, yes, we, the CEO and Chairman of the company provided the frontline for the company in about $2 million, $2.5 million to bridge a bridge loan with no interest. So we have a strong belief in what the company is doing. So we provided this kind of digital company and we do believe that the company will be able with the return on the product we already built to turn into a very positive cash flow and there’s going to be no need for raise capital or no need to raise debt.

Alright, that is very helpful. No interest on the loan, zero interest rate.

No interest, no interest.

Well, we're obviously on the same page there. It's excellent. And in terms of cash flow from operations then, what should we think about for the next couple of quarters? I'd like to see the balance sheet improve next time we talk in a month or so.

Okay, I believe that you will see that improve well before the first quarter but we do anticipate a strong cash flow for the year 2018 based on what we’ve built already and based on project that's already in deployment.

Okay. So cash flow is a number one thing at this point. So thank you for answering the questions and appreciate the no interest loan for all of us shareholders. Thank you.

Thank you.

We'll take a question from William Gibson with Roth Capital Partners.

Thank you. What accounts for the difference between reported revenue and then you had a non-GAAP number?

Could you repeat that, could you repeat the question? Sorry.

Yes. In your release you have your reported revenue and then you had a larger non-GAAP number and I was just curious what accounts for the difference?

Okay. There is about $1.4 million worth of income that is in on the GAAP is being identified as other income. We believe that on the netted basis, it should be regular revenue. It’s a payment for receivables. And the GAAP calls for different treatment for that and we believe that we should be into non-GAAP basis it should be on the revenue side. It’s payment for invoices.

Got it, thank you.

And ladies and gentlemen, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Arie Trabelsi for his closing remarks.

Okay, thank you for joining us today on this call. We especially want to thank our employees, partners and investors for their continued support and patience. We appreciate your interest in SuperCom and we look forward updating you on our next call. Operator?

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for joining us today for SuperCom's fourth quarter and full year 2017 earnings conference call. You may now disconnect.