Radcom Ltd (RDCM) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. third quarter 2008 results conference call. All participants are present 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 October 27, 2008.

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

Yes, thank you, 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've seen the earnings press release, which was issued earlier today. It is available on all the major financial news feeds.

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 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 reconciliations of GAAP to non-GAAP financial measures, which are included in the quarter's earnings 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. The third quarter was another period of growth for RADCOM -- our third quarter of more than 40% growth year-over-year. All sales were $4.4 million, which is up 46% on a year-over-year basis and up 18% compared to the second quarter. For the nine-month period, our revenues are up 47%, which is in line with our guidance for a much stronger 2008.

This is the outcome of the strategy we have been following for the past 12 months and that we continue to follow. In parallel, we have reduced our net losses by 56% compared to last year. We are not back to profitability yet, but we are working to get there as soon as possible.

I'd like to take advantage of this call to give you more details about the quarter and an update on our markets. Then Jonathan will go over the results and we will open the line for your questions.

As you may remember, our strategy is built on targeting several specific growth engines, emerging markets, IMS for developed markets, and sell-through partners. In another dimension, we continue invest strongly to build the RADCOM brand as the number one in our industry for customer satisfaction, and we considered that as a growth engine as well. I will go through each of these in turn.

Emerging markets continue to generate our strongest sales during the third quarter. Our largest deal was from an NGN cellular operator in Latin America, which deployed an extensive metal monitoring system. Part of the deal included replacing an installed system of one of our competitors.

Another large sale was to a Tier 1 NGN mobile operator in China, which is using our system to troubleshoot Softswitching on the core network. This sale followed the intensive trials, which proved our technology advantage. We were especially pleased with the deal because it was our fifth sale for Softswitching monitoring solution, a new technology we announced earlier this year.

Both of these deals are medium to large size, and in general, we are seeing larger opportunities on average than before. This shows that our customers more and more are coming to us for complete monitoring solutions, in line with the direction that we set for ourselves last year. This is good, because it has increased our total revenue potential. However, at the same time, it makes it difficult for us to predict the timing of any one deal, making it harder for us to make forecasts.

This trend has increased our sales pipeline. We are working on significant opportunities across all emerging regions -- India, Africa, Latin America and Eastern Europe. Latin America has proven to be a strong market for the past few years. Going forward, we believe that opportunities in other emerging regions will also be fruitful, especially Asia Pacific and Africa.

In a developed market, we continue to target the IMS activities and deployments of top tier service providers. What you are seeing in the field so far is that IMS-specific services have been slow to emerge. However, we are seeing a lot of hybrid IMS and NGN deployments. This trend increases the complexity of the network, which gives the service provider a greater technical challenge. This is a significant opportunity for RADCOM -- the fact that customer satisfaction is very hard to achieve in the network monitoring business.

We are a leader in large network operational IMS deployments, positioning us to make advantage. As for our sales in the US, we are beginning to see an increased level of interest and activity. This has not yet translated into significant sales, but we are working to make this happen.

Regarding our partnership activities during the quarter, we continued our sales effort with NSM, Nokia Siemens, as a major OEM partner. We are addressing a number of opportunities together, but have very long sales cycles and we have low visibility regarding their progress. However, we continue to believe strongly in this channel as a future driver of our business.

Regarding our brand building, we continue to invest to become identified as the number one in customer satisfaction, and this continues to prove itself. Customer satisfaction is very hard to achieve in the network monitoring business. This is because of the technology challenges in monitoring multi-service, multi-technology, interconnected networks, especially in the high traffic environment.

It is fair to say that all of the vendors in our market are struggling with this. We believe that our success in achieving repeat sales and replacing competitor's systems is due to our investment in customer satisfaction. And we believe this will continue paying off in the year ahead.

In summary, we have achieved three consecutive quarters of strong year-over-year growth, decreased our expenses, and are well on our way back to profitability. With a strong sales pipeline from both the emerging and developed markets, we feel well-positioned for generating additional growth.

We continue to make progress in the areas of partnership and the IMS markets. We believe they will be a key to our long-term growth. Taken as a whole, we are proud of our progress and optimistic regarding our prospects. Our success would not have been possible without the dedicated efforts, talent and goodwill of a fantastic team. I would like to thank each and every one of them for their efforts. We are making progress and our goals are within reach.

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 $4.4 million, which is up by 46% year-over-year and 18% compared to the second quarter. About 70% of our sales for the quarter were from wireless operators and about 25% from wireline operators. The remaining 5% were from labs.

The majority of our sales were from repeat customers. This continues to demonstrate the importance of our emphasis on custom asset section. Geographically, the majority of our sales were from emerging regions once again this quarter. 48% of our sales were from Latin America; 20% of our sales were from the Far East; Europe, including Eastern Europe, accounted for 17% of the quarter sales; and North America for the remaining 15%.

Gross margin for the quarter was 60%. As our revenues come back into the target range, we are moving closer to our target of about 68% gross margin, depending on the exact mix of sales.

Operating expenses for the quarter were $3.6 million, down 9% 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 $3.6 million in the current quarter. In fact, our expenses for the nine-month period are down nearly 15% compared to the first nine months of 2007.

We are very pleased to have been able to achieve these reductions, while simultaneously increasing our focus on customer satisfaction, and operating in a macroenvironment of currency fluctuations, which increased our shekel-based expenses as expressed in dollar terms.

We remain focused on minimizing costs in the upcoming quarters. On a pro forma basis, excluding share-based compensation, net loss for the quarter was about $1 million or $0.19 per share. Given our current level of expenses and the current exchange rate, our breakeven point has gone down to about $5.2 million. Obviously, this depends on the exact mix of sales. We are fully focused on reaching this level as soon as possible.

Turning to the balance sheet, as you can see, cash and bank deposits have gone down, while trade receivables have gone up somewhat. As we collect the amounts due in the current quarter, we believe that the cash balance at the end of the year will return to its previous level.

We have succeeded in reducing our inventory significantly during the year, from $3.5 million at the end of 2007 to $2.5 million at the end of the third quarter. We are pleased that we have been able to achieve this inventory reduction, while actually increasing our sales during the last quarter.

Before offering you guidance, I would like to say just a few words about the overall economic environment. We are obviously concerned about our markets, as everyone is. I can tell you that to date, we have not seen any concrete effect on our business. That is, we have not seen any projects canceled so far. We are seeing very slow sales cycles, and it is reasonable to assume that they will slow down even more in such an uncertain environment. We will build this expectation into our work plan for 2009.

That said, we have achieved strong year-over-year growth in each of the first three quarters, and we believe that we will be able to deliver additional growth in the fourth quarter. We therefore continue to hold back our forecast that 2008 will be much better than 2007, both in terms of the top line and the bottom line.

For the year ahead, we believe that we will be able to take advantage of significant growth drivers, and are focused on bringing the Company back to profitability as soon as possible.

Back to you, David.

Thank you, Jonathan. Before taking your questions, I'd like to thank you all, our business partners, shareholders, and employees, for your ongoing support. With that, we'd be happy to take your questions. Operator?

(Operator Instructions). [Tim Flous], a private investor.

I just got onto the call, so I missed what was said. But I wanted to ask you -- what is the current cash position of the Company? And how does the Company see itself -- does the Company see itself raising more cash in the coming year?

Thanks for your question. As you can see in the results that we published earlier today, the cash that we had at the end of the quarter was $3.8 million, which I mentioned is relatively low. And we are looking forward to the end of the year. We do expect to go back to the previous level, which was about $5 million. And so that would be for the short-term.

Your second question was about raising capital in the current year. Currently, with these figures that we have and -- of cash and our current business plan, we do not have intentions to raise capital. As you probably remember, we did raise capital at the beginning of the year, and that has enabled us to have the amount of cash that we currently are talking about.

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 03-925-5929. Internationally, please call 972-39-255-929.

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

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

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