Radcom Ltd (RDCM) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. first-quarter 2008 results conference call. All participants are presently in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded April 28, 2008.

I would like to now hand over the call to Ms. Noga Fisher. Would you like to begin?

Thank you and good morning, everyone. 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 today. It is available on all the major financial news feeds.

Before we begin, I would like to review the Safe Harbor provision. Forward-looking statements in this 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 noncash 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'd like to turn the call over to David. Go ahead, please.

Thank you, Noga, and thank you all for joining us today.

We're pleased to report a period of revenue growth and strategic progress, especially in a market that has begun a period of slowdown. We are encouraged by our success in increasing our revenues and the sales pipeline, confirming the strategy we have been following since beginning our turnaround in Q4 2007.

Revenues for the quarter were $5.5 million (sic -- see press release). This is up 40% year over year. The mix of our sales is a direct execution of our plan and the investment we have been making in our growth engines.

In addition, we secured the financial platform of the Company by completing a $2.5 million [pipe] during the quarter and, in the beginning of April, a $2.5 million venture lending transaction.

I'd like to take advantage of this conference call to report to you on each of our growth engines, our progress and our prospect as we move forward. I will start with the sales.

During the quarter, our sales were mostly from existing customers, demonstrating the value which our customers are getting from our solutions. This also reflects the execution of our policy of becoming number one in customer satisfaction. In addition, we are very pleased to be moving from mostly small deals to more midsized deals.

Our sales mix is confirming our assumptions regarding our markets and the investment we have been making to develop our growth engines. Our biggest deployments for the quarter were from wireline operators in Europe and a 3G cellular operator in Eastern Europe. This is in line with the different types of opportunities we have been targeting in developed and emerging regions.

In the developed countries -- that is, in Europe and North America -- we have been targeting the operators that are moving to new technologies, especially IMS as a platform and IPTV as a service. This has begun to pay off.

During the quarter, we made a milestone sale, selling an IMS monitoring system to an end generation pioneer, one of the major operators in Eastern Europe. This is an existing RADCOM customer that is already happy with our Voice-over-IP monitoring solution. They are a good example of the kind of customer satisfaction that is helping us build our reputation and penetrate the installed base of our competitors.

For emerging regions, our strategy is to target operators that continue rolling out cellular and Voice-over-IP services. Our biggest success in the emerging regions was a cellular operator in Eastern Europe who is moving to a GPRS network. We also received significant orders from Latin America.

We are pleased with the initial performance of our new distributors in the Far East. We have established a solid foundation for building our sales in India, Taiwan, China and other areas of the Far East. In addition, we are taking our emerging market strategy one step further by stepping up our activities in Africa. We have recently completed a market study, including local activities, and have concluded that several African regions offer us a lot of potential. As a result, we have begun establishing a network of distributors and agents to penetrate the market.

Unfortunately, we are beginning to see a slowdown in our [macro] markets, reflecting problems in the economic environment. This has affected our sales in North America, with operators reducing their budgets for capital investments.

As to our product development efforts, our focus has been to develop software products that extend our service assurance solution. The goal is to make our offering more strategic for the operators by expanding the value, and also to give us more products to sell to each customer. We have received positive feedback about applications we have launched so far, and consider them to be another growth engine for the Company.

So that's it for the first quarter. In summary, we are pleased to have achieved a nice increase in revenue for the quarter. But even more important, we are proud that our execution has been in line with our strategy. This makes us confident regarding our direction and the Company's future. With a stronger balance sheet, the right strategy, a significant product advantage and a great team, we are confident and working to achieve our full potential.

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 $4.5 million. As David said, this is up 40% year over year. About 65% of our sales for the quarter were from wireline operators, and about 30% from wireless operators, which is similar to the last quarter. The remaining 5% were from labs. The majority of our sales were from repeat customers.

Geographically, 75% of our sales were from Europe, including 15% from Eastern Europe, 9% from North America, 8% from Latin America, and the remaining 8% were from the rest of the world, mainly the Far East.

Gross margins for the quarter were slightly weaker than usual, 66%, which is below our target margin of 68%. This reflects the combination of our fixed costs and the fact that we're still below the breakeven level.

Operating expenses for the quarter were $3.9 million, down 16% year over year. In general, we have been reducing our expenses steadily over the last year, from $4.7 million in the first quarter of 2007 to $3.7 million in the fourth quarter. Unfortunately, the decline in the shekel/dollar exchange rate has increased our expenses as expressed in dollar terms, resulting in the $3.9 million level for the first quarter.

On a pro forma basis, excluding share-based compensation, net loss for the quarter was about $700,000 or $0.04 per share. Given our current level of expenses and the current exchange rate, our breakeven point is about $5.4 million. Obviously, the breakeven point also depends on the exact mix of sales. We are fully focused on reaching this level as soon as possible.

Turning to the balance sheet, cash and bank deposits were $4.5 million at the end of the quarter. This included the $2.5 million pipe which closed at the end of January. The $2.5 million venture loan closed in April will be reflected in the balance sheet of the second quarter.

During 2007, we participated in substantial tenders in which we established a technological lead, but had problems closing the deal because of our financial positioning. We believe the funds that we have raised will enable us to overcome this obstacle.

We structured the transactions in a way that minimizes the dilution to our shareholders. We are pleased that our major shareholders and [planners] all participated in the raise, a demonstration of their confidence in the Company.

Our inventory decreased by another $500,000 by the end of the first quarter as compared to the end of 2007, down from its high point at the end of the second quarter. This reflects the increasing sales that we have achieved over the last few quarters.

Also during the quarter, we began the execution of a four-to-one reverse stock split, a move we are taking for the benefit of our shareholders. The NASDAQ hearing regarding the transaction will be held on May 1, and the shareholders' meeting to approve the transaction has been called for May 6. We will keep you informed.

As to guidance, given the macro environment it still remains too difficult to give specific numbers. We hold by our forecast that 2008 will 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'd like to thank you all -- our business partners, shareholders and the employees -- for your ongoing support. We are pleased with our progress and truly appreciate your trust.

With that, we would be happy to take your questions. Operator?

(OPERATOR INSTRUCTIONS). Jeffrey Meyers, Cobia Capital.

If you can just talk -- two things -- one is about the pipeline. Did the pipeline grow as quickly as revenues grew year over year this quarter?

Then the second question is in terms of partnerships. I recall in the past we've spoken about you guys having a tough time with some of the larger carriers because you are a smaller company. Which partners are you working with now, and how is the progress going there?

Okay, Jeff, thanks for the questions. First, I will relate to the pipeline issue that you raised. Looking at the pipeline, one of the issues that make us feel very good after the end of the first quarter is the substantial growth that we have been doing on the pipeline, not only on the sales that we've all seen the figures today, but the pipeline from the emerging markets of the areas that we are focused on, and the new technologies in the more saturated markets, the European and the U.S. And looking forward to 2008, that's where we think that we will get most of our revenues from.

So our pipeline has gone up. We don't specifically give a number, what the pipeline number is, but it would be correct to say that it has gone up substantially from what it was a year ago, and specifically in the areas that I'm relating to, the emerging markets and the new technologies.

I will relate it to the partners. Indeed, we understand that in some markets and some business situations, the fact that RADCOM is, relatively to competitors, a relatively small company, it damages the chance to participate in multi-million-dollar deals. So this is why we build strategy and we invest in building partnership.

Currently, part of the pipeline that Jonathan described is also built from going together with partners that we never worked in the past with, and those kind of partners are really helping us to bring the value of our technology while using their skills, their brands in front of customers.

You asked specifically about kind of partners; I can tell you that it's split into two. One is OSS type of partners, and bigger, of course, than us. And the other one is equipment provider or network equipment providers or vendors to cellular and Voice-over-IP networks. For those two type of partners, we are working and investing in building relationship with them. I hope this answers.

Good, thank you.

(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 U.S., please call 1-888-326-9310. In Israel, please call 03-925-5921. Internationally, call 972-3925-5921.

Mr. Ripstein, would you like to make your concluding statement?

Yes. Thank you, Noga. Thank you, Jonathan. And special thanks to all of you for your support and for participating in this conference call.

This concludes the RADCOM Ltd. first-quarter 2008 results conference call. Thank you for your participation. You may go ahead and disconnect.