Radcom Ltd (RDCM) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Radcom first quarter earnings results conference call. At this time, all participants are in a listen-only mode. Later we will open up the lines for questions and answers. (OPERATOR INSTRUCTIONS).

As a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your first speaker, [Noga Fischer].

Thank you, John, and thank you all for joining us. With me today are Radcom's CEO, Arnon Toussia-Cohen and its CFO, David Zignon.

By now, we assume you have seen the preliminary -- the earnings press release which was issued this morning. It is available on all the major financial news feeds.

I would like to review the Safe Harbor provision. 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 effect of the Company's accounting policies and other risk factors detailed in the Company's SEC filings.

In today's conference call, management will be referring to certain non-GAAP financial measures which are provided to enhance the user's overall understanding of the Company's financial performance. By excluding certain non-cash charges, non-GAAP results provide information that is useful in assessing Radcom's core operating performance and in evaluating and comparing its results of operations on a consistent basis from period to period. The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles.

Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures which are included in this press release. The Company does not undertake to update forward-looking statements. Now I would like to turn the call over to Arnon. Go ahead, [Noni].

Thank you, Noga. And thank you all for joining us.

As we discussed in our preliminary earnings conference call our revenues for the first quarter were $5.1 million short of our original forecast. The reason was straightforward. We had expected a large repeat order to close during the quarter but received only part of it. We expect to receive the remaining portion, more than $1 million, in the next few months leaving us on track for achieving the growth we had forecasted for 2006.

Given the shortfall, we are pleased to have achieved non-GAAP breakeven for the period. By non-GAAP I mean on an operating basis which excludes the non-cash charges we have taken to reflect the value of share-based compensation. Our ability to break even at this level of revenues demonstrates the fundamental strength of our business platform and our successful control of expenses.

We have a strong pipeline of sales that has been driven by the record growth of the 3G markets, a multiyear trend that is still in early stage. As a result we are excited about our prospects for this year and beyond.

I would like to take advantage of this conference call to give you more insight regarding our market and the steps we are taking to position the Company. In general, 2005 was the year during which the 3G cellular market finally got going and the 3G cellular services are now getting mainstream acceptance. Although we expect the cellular 3G adoption wave to last a good two to three years we can already foresee the emergence of the next generation [wireless] networks.

These networks will be established to address the demand for ultra-high bandwidth services, especially those driven by IPTV as a service and IMS as an infrastructure.

We believe these metrics will come onto the scene in several years' time and become widespread through the wireline market, which is even larger than the cellular market. Our focus for the past three years has been to expand our sales and marketing ability. After building out our sales organization in the U.S. and China, this quarter, we established a new presence in Korea and began investigating other opportunities in the Far East.

Our efforts in Europe and other countries are also paying off, giving us a strong pipeline of sale and strong win rate. A good example is the partner deal that we announced a few weeks ago. This is a large multi-quarter sale that we had worked on for 1.5 years. A complex system, our solution will give partner visibility into its entire network from a single control center and will integrate fully with existing OSS measurement systems.

The comprehensive nature of the solution is the factor that differentiates us from the competition.

On the technology side, we continue to develop and engineer all of our products to maintain our technology leadership. We are pleased to have integrated the (indiscernible) business intelligence application into our Omni-Q solutions. The addition gives our customers a tremendous flexibility in their ability to design report as well as a new dashboard application that makes it easier to take advantage of the system.

We continue to improve functionality of our existing product and make progress on our next generation offering. During the quarter we launched our run analysis, a comprehensive UMTS-run traffic analysis. This is a solution that helps carriers pinpoint RS problem and discover optimal radio access network parameters, including antenna and power settings.

Using this software package saves them time and money instead of sending technicians to the field to take these measurements.

I would like to stop here and turn the call over to our CFO, David Zigdon, to go over the financial reports. As we announced this morning David will be leaving the Company on June 15th to take on a new challenge in a promising start-up in the medical device field. It will be hard to see him go. David has served Radcom with skill and dedication over the past six years, helping us weather difficult periods and to manage the record growth over the past three years.

Due largely to the efforts of David and his excellent team we carried out successful PIPE offering in 2004 and dual-listed the Company on the Tel Aviv Exchange this year. Speaking personally, it has been a pleasure working with him and I will miss him. We offer him our thanks and wish him every success in his new venture.

As to David's replacement, we are currently evaluating several qualified candidates and hope to announce our decision soon. To ensure a smooth transition, David has offered to be available to the new CFO as needed after he leaves the position. David.

Thank you, [Noni], and hello, everyone.

Before reviewing the financials, I would like to take this opportunity to thank Noni and the entire Radcom team. The Company has come a long way during the past six years and I believe it has a very bright future ahead. I am proud to have been a part of its success so far and look forward to watching its progress.

Now the financial statement. Since you have the copies in front of you I will review just the highlights. Revenue for the first quarter was 5.1 million, up slightly year-over-year as compared to the first quarter of 2005. On a geographical basis, North America accounted for about 25% of our sales, Europe for about 56% and Asia-Pacific for 14%.

Gross margin for the quarter was 68% - unchanged for the first quarter last year. In general the gross margin will vary, depending on the exact mix of sales.

On an operating basis, our expenses will single out to the level they have been for the past few quarters. On a GAAP basis we recorded 128,000 of non-cash charge during the quarter as part of our implementation of the FAS 123(R) standard, which required us to recognize the fair value of fair-based incentive as compensation.

This is the first quarter that we have implemented this standard. In the earnings release, we have provided a separate table that details their locations. For all 2006, we expected that non-cash option expenses will be at about $5000 to our expenses. On a non-GAAP basis, excluding this charge, we broke even for the quarter. Actually we posted $9000 net profit. On a GAAP basis we recall that net loss of $190,000 for the quarter or $0.01 cent per share.

Turning to the balance sheet, cash and equivalents were 12.3 million at the end of March, up by 1.8 million since the end of 2005. This increase reflects the exercise of foreign (indiscernible) to purchase ordinary shares by our PIPE investors and exercise of options to purchase(indiscernible). As of the end of the quarter, we had about 16 million shares outstanding.

Turning to long-term deferred revenues, as of the end of the quarter were about $3 million compared to $2.7 million at the end of 2005. This was mostly due to an increase in the number of wholesale customer support warranty beyond the initial period.

As to guidance. Please keep in mind, our results for any one quarter will vary, depending on the timing of individual large deals. Nevertheless, with the current pipeline we project that the second-quarter revenue will range between $6.6 million and -- sorry -- to $6.5 million, [4 million].

For 2006 we continue to project growth at least in line with the growth of the overall market. Back to you, Noni.

Thank you David. So that's it for the quarter. In summary, despite the revenue shortfall we are on track towards achieving better than the market growth. We continue to benefit from the rising deployment of 3G Cellular Networks in many regions throughout the world and are positioned to address new opportunities in China and the Far East.

Our business model - which consists of a growing base of repeat customers together with a steady flow of new customers - is proving to be correct for maximizing our growth in the client market. On the long-term horizon we believe that the wireline markets will take our business to the next level.

Thank you for the support of Radcom and for participating in this conference call. With that, we will be happy to take your questions. Operator.

(OPERATOR INSTRUCTIONS) From RBC Capital Markets. Daniel Meron.

David, congrats on moving. Good luck going forward. Noni, maybe you can provide some more light, shed more light on the push-out of the contract and do you think -- when do you think you can recognize that contract? Also, how -- can you also quantify the growth of the market that you are benchmarking yourselves against?

Concerning the specific order, we do see the need by the customer that in fact we got through the quarter at a part of this PO that was supposed to be even larger than the $1 million that we are talking about. And we cannot commit as we don't have the commitment from the customer on the schedule for such for the PO.

As we said, we hope that it will -- we believe that it will come in the next few months but we don't have any assurance for that and we don't have especially for the schedule for receiving that. So we will have to take into account that we are not sure -- we cannot commit to specific timing of getting it and we are taking it to account in our forecast.

And concerning the growth of the market, we believe the market is still the same way as we've seen it before which is around 20 to 25% growth.

Thank you.

Intrepid Capital, Jeff Meyers.

If you look at, I guess, your pipeline coverage this next quarter's estimate versus your pipeline coverage of Q4 of last year where you did a little bit more than that, 6.6 million. How does that look at this point?

The pipeline looks better than it looked in the past. We see opportunities in different areas in the world we are involved in, in quite a few large deals. I think that it's always true and as it happened to us this quarter the issue is more the timing.

We do see that if you look at the size of the pipeline, the pipeline is larger. We see more opportunities are involved both from the short-term and medium-term which is part of our pipeline.

And do you see when you are looking at the Omni-Q product, is that starting to kick in yet in terms of bigger volume deployments? Or is that still more smaller testing type things?

We do see that, if I'm looking at the cellular, it is in more opportunities and even larger. If you look at Omni-Q we do see a few opportunities. Most of the opportunities is still in the size as we discussed which is the larger size. We do see a few opportunities that are larger than that. I believe personally that implementation - even if someone wins this - the implementation of this project will take more time. But we do see larger opportunities in the pipeline.

Okay. Great. Thanks. Good luck.

(OPERATOR INSTRUCTIONS) [PRB]. [Jeff Fisherman].

I would like you to comment on the amount of shares still outstanding for the Star Growth enterprise, the sellers?

I don't know. I don't get the reports day by day from them. On the 20th we get a report how many they have. I don't remember not in my head if it was about around 8,000 shares but I don't say. We don't -- there are [no inside]there and they are not providing us information day by day.

Hello?

Okay. Thank you.

And at this time there are no other questions.

Okay. Thank you very much, guys, and hope to talk to you even better quarter, next quarter.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation and thank you for using AT&T Executive teleconference. You may now disconnect.