Radcom Ltd (RDCM) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Radcom conference call. At this time, all participant have been placed on our listen only mode and the floor will be opening for questions and comments following the presentation. At this time I would like to turn the floor over to your hostess, Noga fisher (Phonetic).

Thank you, Kim. Good morning to the Radcom limited first quarter 2002 earnings conference call. With me this afternoon are Arnon Toussia-Cohen and David Zigdon, CFO. By now you should have issued a press release which was issued last evening. Before we begin, I'd like to review the safe harbor provisions. Forward looking statements in the conference call involve a number of risks and uncertainties, including, but not limited to, product demand, pricing, market acceptance, changing economic conditions, product technology development, the effects of the company's accounting policies and other risk factors detailed in the company's C.E.C. filings. Now I would like to turn the all over to Arnon.

Thank you. Thank you all for joining us. The last quarter's conference call, we reported signs of recovery in the markets for all our products, especially in the U.S. This quarter, sales so far convergence product lines continue to get stronger throughout the world, especially our city made U.N.T.S. and our voice over performance product. Sales for one month and investments begin to shift towards convergence. Sales wer slower in the U.S. and the far east. Sales in Europe were weaker than we expected. At the same time, we improved our bottom line through our cost-cutting programs. David, our CFO, will talk more about that in the call. I would like to talk in the next few minutes of the overall trends in our market. The U.S. is the most important market for us because it's a trendsetter for the communication industry and has the largest revenue potential. When we planned the marketing strategy for our convergence product lines, we felt the U.S. firms would be the first and largest customers. However, the U.S. was the first to be hit by the slowdown. During the slowdown, we took a number of steps to reposition ourselves. We introduced new products and new support structure to fit the changing needs of our customers. We also significantly improved our channels. The fact that the results of this quarter were very close to the sales of the fourth quarter, despite seasonality, is a great improvement and shows that we are positioned correctly to take advantage of growth in the market when it comes. So far, there is growing demand for our next generation voice over package products and we expect U.S. demand to continue building. At the same time, sales of our long distance were down in the quarter. This confirms our understanding and anticipation of market trends. As budgets move up, the first areas of investment is in the new technologies and there is less investment in the (Inaudible) network. It is worth noting that we did win one competitive vendor from the food service organization of one of America's (inaudible), proving that our A.T.M. technology still leads the markets. In Europe, the short term picture is not as positive. The slow down started later in Europe and the budgets are still frozen. The normal weakness of the first quarter also had an effect, just as we did in the U.S. when the slowdown began there, we are taking advantage of the situation to improve our positioning throughout Europe and we are investing in all of our European sales and marketing activities. As with the U.S., it is difficult to predict when recovery will come to Europe. At the same time, we already see increased convergence activity in Europe. Our most important European sales during the quarter was a repeat from a very important vendor. At this time, purchase a total of 14 units last year and we expect them to continue buying at a similar rate in the future. This is the type of relationship that we are targeting with all our major customers.

I'd like to stop here and let David go through the numbers. Then I'll come back and give you more detales and to answer questions.

Thank you. And hello, everyone. If you have the financial statement in front of you, I'd like to go over the highlights. As you can see, our revenue were down compared to the fourth quarter. The main reason are a normal seasonal weakness of the first quarter together with low demand in Europe. In the U.S. and the far east, our sales were stronger. Demands were especially strong for U.N.T.S., voice over. A geographic breakdown of the revenue was $1.9 million in the U.S., $1.3 million in Europe, and about $1.2 million in the rest of the world. Our cost reduction from the last year gave us to minimize our losses -- sorry. Our cost reduction from the last year helped us to minimize our losses for the quarter and to improve our margins. Total operating expenses are down by nearly 30% compared to the last year, excluding dry costs. Accomplish this through a change of marketing strategy, together with improved (Inaudible)in our research and development. Our growth margins for the quarter were 66%. Better than it was all through 2001. Current industry conditions give us more leverage in negotiating with our suppliers and we continue to work to raise our gross margin.

Operating and (Inaudible) losses are still high. But cost reductions make a difference and our net loss was 12 cents per share for the quarter, compared to 24 cents per share before writeoff in the first quarter last year. Even though revenues were down. Our cash balance at the end of the quarter was $11.3 million. Our inventories are down slightly, and (Inaudible). Looking forward, it still remains very difficult to predict our future revenues. On the one hand, we are focused on growth and we see good growth potential in our strategic market. On the other hand, the report of the market leaders including the larger service providers and developers as well as our competitors all point to continued weakness. Therefore, we expect second quarter sales to be similar to the first quarter, that is between $4 million and $4.5 million, with net loss of of 12 cents per share, to 16 cents per share.

The market is still too volatile to give guidance for the full year. Back to you.

Thank you, David. It was a good quarter for R&D and the most important announcement was the simulator and major extension to the performer which offers benefits throughout the voiceover network cycle. It simulates difficult network conditions that are used to test network performance. The main organization is the scale of the traffic it simulates. It can generate up to half a million calls simultaneously compared to just 2,000 with our earlier system. Strategically, the mega 6 is important to us. Before we focused on flexibility, which is important in the early development stages. When moving to the Q.A. stage, (Inaudible) is becoming important. Now we offer flexibility and skill, which maintains our technology. We continue to get a lot of industry recognition for our products. In general, the he perform an want the product to a communication from solution magazine. In March, the performer won the editor's choice award, and prism won the well-connected award in network computing magazine. I would like to finish up by addressing the political situation in the Middle East. Although it is on everybody's mind and it is very unpleasant, this situation has not and does not pose a threat to our business. This is for three reasons. Only a very few of our employees were drafted into the army on the first callup. All of them are safe and most have already been released. In general, since service is an obligation for Israeli adults, we are accustomed to donating our worker to the army for several weeks at a time throughout the world and have built enough flexibility into the organization to handle it. Also, our sales and marketing operations are spread through the world, and while manufacturing is in Israel, our facilities are in areas that have not been affected. I hope that this is reassuring. We pray for an end to the conflict, but business continues. So that's it for the quarter. In summary, we are encouraged by growing demands for a convergence of products all over the world, U.S. and foreign sales remain strong. European sales dropped this quarter. Our expense reduction and cash management strategies continue to include our bottom line. Overall, the increasing convergence in investments throughout the world make us confident that our product and approach are correct for the long term, although the visibility is limited, we are cautiously optimistic as we look ahead. With that, we'd be happy to take your questions. Operator.

Thank you. The floor is now open for questions. If do you have a question or comment, please press 1 followed by 4 on your touch tone telephone at this time. Thank you. Our first question is coming from Richard Sherman of (inaudible).

Good morning. Question, if Arnon you could break out the test performance averages versus Omni Q. in the first quarter.

In the first quarter, we didn't have sales for Omni Q. and we did have -- we do see in the Omni Q. projects that were open, but we think that our slowdown, we see that major opportunity that we have, we didn't lose them, but the budgets were frozen and we see a slowdown even as we expected.

On the other hand, what we see is that the voice over for the developers stage is growing. In fact, our voice over data sales beyond the percentage line grew from 28% to 40%. So although -- so we see a demand, especially from vendors, but also from some of the providers of voice over, I.P. products, but for the testing side of that. And we believe that this is a trend. We do believe that we start seeing that our product at least will have more and more opportunities in the testing site.

Okay, so Omni Q came in and basically zero D., you have the breakout of the land-land test equipment versus performer line?

Yes. I'll do it by market, not by product, but by the market. The voice over data, we grew from 28% to 40%. The (inaudible) area, we grew from 28 to 32%, and (inaudible) land, we dropped from 40% to 28%. If you're looking at products, the important good -- the good news for us is that the performer grew from 15% to 25%. And that's a good indication for acceptance in the market.

Okay. Has there been thoughts about retrenching from certain geographic regions in order to improve your penetration in the U.S. market, allocating resources away from, say, the rest of the world in the far east in order to create critical mass in the U.S.?

No. What we -- what we do see and we have done that in the U.S. and we believe that it will be certain in the U.S., that's what we are doing. We succeed in the parts. Although we reduce the expenses in the marketing, to improve our positioning and what we have done is we change the way that we work in the market, and as we succeeded, what we've done in the states, is we recruited because of the situation, we had the better chance of recruiting new presentation, new reps, so although the slowdown in the market, we have a larger presence in the market than we had a year ago and we believe this is the right approach. We have should take advantage of the slowdown and slowdown in sales also for our competitors and then reaching for competitor channels, getting them, and by that position ourselves for the future.

Okay. And then your gross margins for the second quarter of revenue, does that assume that Omni Q. has no contribution in the second quarter?

Exactly.

How long do you think you can sustain the gross margins at this high level?

I believe that we can do better.

Okay. And what leads you -- leads your confidence in increasing gross margins?

Cost reduction. We believe that we still have the ability to do cost reduction. Of course, there is a price pressure in the market, but we do believe that our cost reduction and moving towards this will help us -- remember that just last year, margins were even higher than we are today, so it's not easy because there is price pressure in the market, but we don't look at 66% as extremely high or as one-time achievement that can't be achieved again.

We're not talking about improvement to 20%, but we can see a 1% and things of that nature in order to improve our position.

Okay. Thank you.

Thank you.

Two questions of C.B.M.2000 and U.N.T.S., can you provide a breakout of what that was revenuewise in the quarter, and as you're talking about total revenue, flattish for Q.2, those two products, technology areas, do you see those based on product line and deals also being flattish or possibly increasing as a percentage of mix or will be decreasing as a percentage of mix in Q.2 and also on the gross margin question, is there much of an impact as you go forward from parts costs coming into your units or are you talking more about things that you would do overall cost structure that you're managing within the company? Thanks.

Okay. First question concerning the cellular. We did increase in the quarter the percentage from 28% to 32% in the -- in the cellular. I don't have the breakdown of the -- in front of me with the 2,000 and U.M.T.S., but we do see opportunities in both areas. We -- we believe that we'll continue, we are both going to bring new products that will keep the -- hit the stage of the market. We do believe that the market is now moving towards integration and a final testing integration, and installation, and we are introducing a product that will help in these stages. We are going to the customers and bringing products that will fit the stage in the market that they are currently in, so we believe that this is a good market and we believe that it will continue to grow and it's based also on the opportunities that we see in the market. And concerning. And concerning the margins, it's a combination. I would say that it's a combination that on one hand, we have a cost reduction -- what we have done until now is we used a lot of the inventory that we had and that's reducing the inventory levels, and that's why we had the costs of the parts as what they were before the slow down. We are going -- now we are stopping, and we do it more and more, purchasing more parts in new prices that are lower than we bought the parts a year ago. And this is one source of revenue -- of improving gross margin.

The second thing, and this is a trend, this is not new, that we've seen more and more cellular packages and we believe it will help us, too. I believe the major contribution will be because we are moving too -- we are purchasing more in parts now and we are getting better prices than parts which we bought a year ago.

And then just a quick followup on the voice over I.P. where that was up to 40% from 28% last quarter. Were there any new customers in that or was it more repeat orders from existing, and then assuming your primary customer base will still be equipment vendors as opposed to service providers? Can you just verify that?

It's a combination. Although we do -- I don't have the exact for the voice over I.P., but we -- it's combination and usually it's a little bit more vendors but not dramatically. We are selling also to service providers, who are using our equipment in order -- even in early stages in order to test and to compare performance of different products that they are testing from their customers.

Well, was it new customers though, that run your percentage of total up?

It's a combination. We have new customers, but we also have, and this is something that we are working in order to -- also to have sales to our existing customers, usually, we had a lot of relatively -- compared to the industry, new customers, and especially in this stage of the market.

Okay. Thanks.

Thank you. Once again, if do you have a question, please press 1 followed by 4 on your touch tone telephone. 1 again, if do you have a question, please press 1-4 at this time. I'm showing no further questions in queue.

Okay. I would like to thank everybody for participating and we will talke to you next quarter.

Thank you, that does conclude today's teleconference. You may disconnect your line at this time.

(Whereupon, the proceedings were concluded at 9:27:00 a.m.