Radcom Ltd (RDCM) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM, Ltd. second-quarter 2008 results conference call. All participants are at present in 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 July 21, 2008. I will now hand over the call to Ms. Noga Fisher.

Thank you, Jonathan, and hello, 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 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 effect 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 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 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 reconciliation of GAAP to non-GAAP financial measures, which are included in the financial statements. 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 pleased to have delivered year-over-year revenue growth again this quarter. Our sales were $3.7 million, giving us a 57% increase compared to the second quarter of 2007. However, this is less than we expected.

The shortfall is due almost entirely to the slowdown in Europe and North America. We reported this regional slowdown during our last conference call, and it has gotten stronger since then, delaying many projects that we expected to close during the first and second quarter. We are pleased to report that we did not lose almost any deals during the period, but found it very difficult to close deals in Europe or North America.

In contrast, our revenues from emerging regions, Latin America, and the Far East, including China, delivered sales this quarter that were in line with our budgets and expectations. This shows the success of our focus and investment in these areas. Just as important, these activities have increased our sales pipeline by more than 60% compared to this time last year.

The projects in the pipeline are from all emerging regions, India, China, Latin America, Africa, and Eastern Europe, as well as the products that we continue to work on from Europe and North America. Most of the pipeline projects are for new customers.

Our work in Africa has been particularly impressive. Our pipeline in Africa has grown from zero to several million dollars in just a few months. This reflects the aggressive investments that operators have been making to upgrade the cellular infrastructure in Africa. They need our monitoring products and we have every reason to believe that a good percentage will convert into sales during the next few quarters. However, it is important to emphasize that all of our sales take time.

During the past year, we have made big changes in our strategy, turning the ship from our traditional focus on North America and Europe to a focus on emerging markets. This is a process that is not completed overnight, especially in stormy waters. But we see that this has been the right move for RADCOM and believe that it will soon produce better results. Therefore, we stand by our guidance that 2008 will be better than 2007, and we look forward to growth in 2009.

Our long-term growth will be driven by two additional factors -- OEM agreements and the growth of the IMS market. During the quarter, NSN -- that is Nokia Siemens -- announced the OEM agreement with us, becoming our first major OEM partner. Under this agreement, we will be going with NSM to sell complete service management solutions to its customers and accounts throughout the world. This has already begun to give us access to top tier operators that we could not have approached alone.

We view the OEM channel as the way to bring the value of our technology to a wider market, leveraging the partner's sales skills, company magnitude and brand to reach new customers and close new business. Therefore, we are working to expand our partnership activity.

We are (inaudible) advanced discussions with another top-tier equipment vendor. In fact, approximately 20% of our pipeline today comes from projects brought to us by our partners, and we will address them together with our distributors.

As we focus in 2007, we are also beginning to benefit from the IMS market. The initial IMS sales that we have achieved confirm that we have a clear technology edge. Operators throughout the developed world, especially in Europe, have announced that they will roll out IMS and we believe our technology advantage is positioning us to benefit.

After our product efforts, we are working to extend our key differentiating advantage -- that is, the multi-technology capabilities of our monitoring solutions. Over the past year, we have seen a consolidation of service providers due to the easing of regulations. Wireless providers and wireline providers are merging and offering a broad mix of services. They need tools to help them to assure quality in this complex environment. The multi-technology correlation capabilities of our Omni-Q solution and our R70 probe give us a clear edge here, and we are working to extend it further.

From a financial point of view, during the quarter, we completed the $5 million raise that we began last quarter, closing a $2.5 million venture loan. In addition, we complete the 4-for-1 reverse stock split, which enabled us to continue listing our company on the NASDAQ exchange. These are both important steps that make it possible for us to carry out our plan for building the company to the next level. So that's for the second quarter.

In summary, our revenues grew year-over-year, but this quarter was below our expectations. Nevertheless, our sales pipeline is very strong, confirming our strategy of addressing opportunities in emerging markets. We believe that we will benefit from three growth engines, emerging markets, OEM agreements, and the IMS market, that will begin bearing fruit already in the second half of 2008 and of course in 2009. The venture loan and reverse split transactions completed during this quarter have improved our balance sheet and liquidity.

We have come a long way since last year, turning our company like a ship around, moving it over the sand bar where it was stuck and sending it back into the open sea. Although the water is stormy, we have a firm hand on the steering wheel and are confident regarding our prospects.

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. As David said, revenues for the quarter were $3.7 million, which is below our expectations. This is up by 57% year-over-year, but still well below our breakeven point. We believe that all the pieces are in place for a much better second half and are fully focused on making that happen.

About 55% of our sales for the quarter were from wireline operators and about 37% from wireless operators, which is similar to last quarter. The remaining 8% were from the labs. The majority of our sales were from repeat customers. This continues to demonstrate the importance of our emphasis on customer satisfaction.

Geographically, our sales have shifted from Europe and North America to emerging regions. 42% of our sales were from Latin America. This is a region that has become very active for us. 25% of our sales were from the Far East. Europe, including Eastern Europe, accounted for 18% of the quarter's sales, and North America for the remaining 15%.

Gross margins for the quarter were very low, 55%, due to the low level of revenues for the quarter. We continue to target a gross margin of about 68%, depending of course on the exact mix of sales.

Operating expenses for the quarter were $3.8 million, down 21% year-over-year. In general, we have been reducing our expenses steadily since the beginning of 2007, from $4.7 million in the first quarter of 2007 to $3.8 million in the current quarter. Unfortunately, the decline of the shekel/dollar exchange rate continues to affect us, increasing our expenses as expressed in dollar terms.

On a pro forma basis, excluding share-based compensation, net loss for the quarter was about $1.7 million, or $0.34 per share. Given our current level of expenses and the current exchange rate, our breakeven point is about $5.5 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 sheets, cash and bank deposits were $5.7 million at the end of the quarter. During the quarter, we received about $2.5 million from the venture loan, which is presented on the balance sheet under the categories of venture loan and shareholder's equity.

Our inventory continues its downwards trend, from $3.5 million at the end of 2007 to $3 million at the end of the first quarter to $2.4 million at the end of the second quarter. This reflects primarily the increase in the sales that we achieved over the last few quarters.

As to guidance, we hold by our focus that 2008 will be much better than 2007, both in terms of the top line and the bottom line. All 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 ongoing support.

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

(OPERATOR INSTRUCTIONS) Jeff Meyers, Cobia Capital.

Thanks, guys. Jonathan, would you have the corresponding geographical breakout for a year ago?

No, I don't have it in front of me at the moment. I will get back to you later today and give you that info.

That's fine. Is there -- I guess, what is your sense on Europe and North America? Do you think we are at a bottom here for revenues from those two, or do you think they could possibly decline further?

Two things -- let's differentiate. One is the mix between the different parts. We do think that the mix can increase in those areas, especially for Europe, which in the last quarter -- in the first quarter of this year was the major part of our income for that quarter.

And then secondly, for increasing the absolute number, both in North America and in Europe, we definitely think that there is potential for an increase. And the pipeline that we mentioned during the call now, part of that is, of course, attributable to those markets.

Right. And would you say, I guess, when you take a look at some of the deals that didn't close in the quarter, was it increased scrutiny by the telecom providers, like you needed extra signatures to get the deal through, or is there something else, I guess, that you saw?

I think exactly what you said -- it is additional, extra signature, additional time to make sure that they are doing the right decision, so that the sales process becomes more complex, things like that. We can feel and smell the hesitation of the service provider before they are doing the investment, even if it is relatively small investment. And we see that only in Europe and the US.

Okay, very good. Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Before I ask Mr. Ripstein to go ahead with his closing statement, 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 1-877-332-1104. In Israel, please call 03-925-5945. Internationally, please call 9723-925-5945.

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

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

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