Radcom Ltd (RDCM) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM fourth-quarter 2007 results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session.

As a reminder, this conference is being recorded February 4, 2008. I would now hand over the call to Ms. Noga Fisher. Ms. Fisher, please begin.

Thank you very much and thank you all for joining us. With me today are RADCOM's CEO David Ripstein and CFO Jonathan Burgin. By now, we assume you have seen the earnings press release which was issued earlier this morning. It is available on all the major financial news feeds.

Before we begin, I would 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 SEC filings.

In this conference call, management will be referring to certain non-GAAP financial measures which are provided to enhance the users' 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 our 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 David. Go ahead, please.

Thank you, Noga, and thank you all for joining us today. We are very pleased to report significant improvement in our revenue and a return to breakeven for the fourth quarter.

Our sales are just under $5 million, which is up 62% compared to the third quarter. We have posted a slight profit, which is significant improvement compared to the third quarter of 2007 and the fourth quarter of 2006, both of which had losses.

These improved results are in line with the goals of the turnaround plan that we have been following for the past four months. In fact, this is an exciting time for RADCOM. We are halfway through our turnaround plan, a process during which we have been built out our sales organization; cut expenses; increased repeat sales; and expended our pipeline of new opportunities.

In parallel, we have recently closed a $2.5 million PIPE transaction, which improves our balance sheet and our ability to do business. This effort has given us control over the Company and sets us on a path of growth.

Our task in the year ahead is to keep our hands firmly on the steering wheel, holding steady as we move out into open waters. Although there will be storms as well as bright days ahead, we believe that our strong core assets, our strong technology, customer base, and especially our great team will enable us to achieve our potential.

I would like to take advantage of this call to give you details regarding our progress and then to speak more about our business opportunities. A major goal of our turnaround plan has been to improve our sales infrastructure. We have worked to improve the satisfaction of existing customers, build our sales organization and distributor network, and build out the sales pipeline. We are pleased with our progress in each of these areas.

First, we are focused on improving customer satisfaction, which is actually very hard to achieve in the network monitoring business. This is because of the technology challenges in monitoring multiservice, multitechnology, interconnected networks, especially in high traffic environments. It is fair to say that all of the vendors in our markets are struggling with this.

As part of our turnaround plan, we took a decision to be number one in customer satisfaction and to use that as the basis for penetrating our competitors' installed base. This is also the way to achieve repeat sales from our existing customers, an effort that is always easier than winning a new customer. In fact, our focus on customer satisfaction is paying off with a higher level of repeat orders, as well reduced DSOs.

Another way in which we are building repeat sales is by extending our solution horizontally with additional software-based applications. This application extends the value of the data already collected by our systems, and therefore the overall value to our customers.

For example, we have built a special solution for monitoring the quality of roaming services. What we do is to present the data in a way that highlights the problems that need to be fixed to assure a high-quality roaming experience. Since roaming is a high-margin service, this application brings the carrier increased revenues and profits, positioning us with a clear return on investment for the carriers.

Also, our sales infrastructure. During the past quarter, we filled out our internal organization including the addition of new sales manager for Asia-Pacific and Eastern Europe. We also flattened out the overall structure of the sales organization.

As I mentioned in the last conference call, we continue to work on building OEM relationships with top-tier equipment vendors. This will help us further increase our pipeline.

With a strong sales organization and good reference accounts, we're now strongly focused on closing deals in the sales pipeline, while also adding new opportunities. As I have said in the past, there is no magic in the method that we are using, just solid systematic work that we see is bringing results. This will take time and effort, but we are making progress.

I would like to finish up my part of the call by giving you an update regarding our market and business opportunities. As I explained last quarter, we see the world in terms of two markets, and four technologies.

The developed regions, including Western Europe and North America, are our targets for IMS and IPTV solutions. And the emerging regions, which include Eastern Europe, Latin America, and Asia-Pacific, are our targets for voice-over-IP and 3G solutions.

IMS deployments are now beginning to materialize. At this stage, we see islands of IMS deployment where the carriers are using IMS as the basis for voice-over-IP and other services. Our place in this is to monitor the quality of the services and to help troubleshoot the network. The fact that our product can support both legacy SS7 and next-generation voice-over-IP networks and IMS enable us to offer a very strong solution for this market, we believe, which will become one of our growth engines for 2008 and 2009.

IPTV is still a longer-term opportunity to [which] many markets do not yet have the regulations that are needed before IPTV services can begin. In addition, we see that many carriers are hesitating before they move into this new area. We are keeping close tabs on the market and will keep you informed as they develop.

The emerging regions, which are only now deploying large-scale voice-over-IP and 3G networks, offer us a lot of good immediate opportunities. We are currently working to grow a number of deals, especially in Latin America. As always, the sales cycle of any one deal can be long, so it will take time; but we are moving in the right direction.

So that is it for the fourth quarter. In summary, we are halfway through the turnaround plan. As a result, we now have a strong hand on the rudder and are moving on a path of growth. As projected, we have returned to top-line growth and breakeven.

Our sales are being driven by improved customer satisfaction, which has been one of the key goals of our efforts. The job ahead is to turn our sales pipeline into sales; and we're totally focused on making that happen. The entire team is motivated and working to achieve the Company's full potential. We look forward to reporting to you our progress in the year ahead.

I will stop here to let Jonathan review the highlights of the financials. Then I will come back to take your questions. Jonathan, please.

Thanks, David. Revenues for the quarter were $4.9 million. As David said, this is up 62% compared to the third quarter, and double as compared to the second quarter. The higher revenues combined with the cost cuts that we have put into place during the year enabled us to record a slight net profit of $52,000 for the quarter.

About 65% of our sales for the quarter were from wireline operators and about 30% from wireless operators. The remaining 5% were from LANs. The majority of our sales were from repeat customers.

Geographically, 33% over our sales were from Europe; 30% from North America; 23% from South America; and the remaining 15% were from the rest of the world, mainly the Far East. We're very pleased to see an increase in sales from North America. This is mainly attributable to the customer satisfaction effort that David mentioned earlier.

Gross margin for the quarter was very strong, 75%. This reflects a onetime adjustment made to our provision for warranty liability, following the cost-cutting program which reduced our cost base. Excluding this onetime effect, gross margin would have been 69%, which is right in the middle of our target range of 68% to 70%. As always, the exact number will vary from quarter to quarter, depending on the mix of sales.

Operating expenses for the quarter were $3.7 million. This includes the full effects of our cost-cutting program, which we were able to achieve a little ahead of schedule. In general, we have been reducing our expenses steadily throughout the year from $4.7 million in the first quarter to the current level of $3.7 million.

As you know, the shekel-dollar exchange rate has changed significantly over the past few months. Because most of our salaries are paid in shekels, a reduction in the value of the dollar increases our shekel expenses as expressed in dollar terms. The fact that the exchange rate has continued to slide in the last few weeks makes it difficult to predict exactly what our expenses will be going forward and therefore to predict our breakeven point for the first quarter.

Turning to the balance sheet, cash and bank deposits were $3.8 million at the end of the quarter. This does not include the $2.5 million PIPE which closed last week at the end of January.

DSOs are down significantly for the quarter, standing at 122 days at the end of the year. This reflects our successful collections effort, which was enhanced by a higher level of customer satisfaction.

As to guidance, we are not able to give specific numbers at this time. However, we expect for 2008 to be much better than 2007 both in terms of the top line and the bottom line. All of our efforts are focused on making this happen.

Back to you, David.

Thank you, Jonathan. Before taking your questions, I would like to thank you all, our business partners, shareholders, and employees, for your support and for participating in this conference call. With that, we would be happy to take your questions. Operator?

(OPERATOR INSTRUCTIONS) [Jeff Meyers] of Copia Capital Partners.

Thanks, guys. First question is maybe if you could talk a little bit about the growth in the pipeline both sequentially and also year-over-year.

We see growth, especially in the emerging markets, which is part of the new strategy that we defined. It (inaudible) regions but we didn't have any pipeline and now we have opportunities that are going to a stage of matureness. So in general, this is what we see in the emerging markets.

In Europe and North America, we didn't recognize the growth yet. The only thing that we believe will motivate a high growth on the pipeline will be the IMS, and this is the area that we're focusing now in Europe and North America.

Got you. How fast would you say the market is growing for your type of equipment?

According to the numbers that we know, the user growth is 6%. This is, I would say well-known numbers from the markets, from research. We are focusing more on the next generation of this market, and we believe that this part of the market is growing faster.

Got you. What about in terms of your product set? Are there any new products coming out? Or is it pretty much the same products you have had and just trying to sell them more thoroughly?

Yes, there are two dimensions of the products improvement that we are doing. One dimension, as I mentioned in the conference call, is having applications of both our solutions.

Till today we used to give our customers reports; and then they should have take those reports, and understand the network problem, the network trends, the network performance, and lead the process from this point.

We are taking the solution another step, and we are trying to give application which gives them the service of understanding the value of their services. So they will not have to dig down into the data and into the basic report to learn about the network.

We believe that those applications from one side bring value to the customer; they also -- application software-based that we know that the market and the customer has the way to pay for them. This is a growth engine, especially for the installed base that we have. This is one side.

The other side is in [cromes] arena. We are making progress in the enabling technologies, which are the IMS and IPTV. We believe we have a leading position in the way that we are monitoring IMS and IPTV networks.

The situation in the markets now that we see in IMS and IPTV, IMS is a little bit more mature and we see trials and also networks that started to roll out IMS activities. Then we see a need for our solutions and the good feedback that we get till today.

Got you. My last question is on the OEM side of things. Who are your big OEMs today? Who, I guess, are you trying to work with in order to bring online?

We are targeting vendors, and we believe that we can provide the vendor in the market value by adding our products to their solutions. In this stage, I cannot share with you, with the investors, any more details about it. I promise to report in the moment we will have something to report and also the permission of the partner.

Got you. Good, thanks a lot, guys.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Before I ask Mr. David Ripstein to go ahead with his closing statements, I would like to remind participants that a replay of this call is scheduled to begin two hours after the conference.

In the US, please call 1-888-295-2634. In Israel, please call 03-9255-921. Internationally, call 9723-9255-921. Mr. Ripstein, would you like to make a concluding statement?

Thank you, Noga; thank you, Jonathan; and special thanks to all of you for your support and for participation in this conference call.

This concludes the RADCOM fourth-quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.