Radcom Ltd (RDCM) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. We apologize for the delay due to the technical difficulty on (inaudible) network. Welcome to the RADCOM Ltd. second-quarter 2011 results conference call. All participants are at present in listen-only mode.

Following managements formal presentation instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded August 1, 2011.

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

Thank you, Adam, and thank you all for joining us. With me today are RADCOM's CEO David Ripstein and CFO Gilad Yehudai. By now we assume that 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 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. The Company does not undertake to update forward-looking statements.

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 evaluating and comparing our results of operation 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.

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. As you know, this is our first earnings conference call in a while. I would like to explain why we have decided to start again now.

Three years ago the economy was in crisis and RADCOM was struggling. As part of our turnaround strategy we (inaudible) to stabilize our business, focusing on our technology edge, and restructuring our business. We began building our sales pipeline and over time our revenue began to increase.

Then, continuing with our plan, we began building our business platform with a goal of taking the Company to the next level. Our efforts were very successful. We returned the Company to profitability seven quarters ago and have been building revenues continuously to the current level of $5.9 million, the highest level in 18 quarters.

This is good, but it is only the beginning. Our revenues today actually reflect the orders we received nine to 12 months ago. There is a lag between our success in closing business and our financial results. So what is more important is our booking and backlog which give a good indication of what our revenue will look like a year from now, providing us with good visibility for the coming quarters.

For Q2 our bookings are higher than they have ever been in the second quarter. They have been very strong for several quarters now. In fact, for the past 12 months, from Q3 2010 until Q2 of 2011, they are up by 61% compared to the previous 12 months.

As we continue working to speed up revenue recognition I can't promise that this will translate into strong revenue growth a year from now, but it is an extremely positive sign that make us very excited about our prospects.

Our success is due to the combination of three drivers -- very, very strong markets, a clear technology advantage, and the success of our sales and marketing approach. I will discuss each of these drivers one at a time.

First, our markets. Our products enable telecommunication network operators to monitor their service and to continuously improve their quality. RADCOM's solution take a comprehensive approach to solving quality problems and are considered to be superior on a technology basis to the competition.

When we first came to the market, operators considered [broad]-based service assurance solution to be a nice-to-have, not a must-have. But then smartphones came along and everything changed. Suddenly, tens of millions of people began using their phones, not only to make calls but also to surf the Internet, download TV shows, etc. This created a major stress on our networks and operators began finding it difficult to provide quality services.

This created a big problem. In a business where reducing churn is the first priority, operators were suddenly faced with the reality of unhappy customers and poor services. The solution is our products. We offer a proven, cost-effective method for monitoring services and maintaining high quality. As a result, our sales have been growing strongly for two years.

And we don't see the smartphone phenomenon slowing down anytime soon. In fact, based on analysts' projection, cellular data traffic will continue to grow for years. Recognizing the need for strong infrastructure, operators are beginning to migrate to LTE infrastructure, the next generation of communication technology. This migration is creating a new phase of infrastructure investment which gives operators the budget they need to invest in service assurance solution [in parallel].

In summary, the market needs our system and it has the budget to pay for them. This is great for RADCOM.

The second factor driving our growth is the technology leadership of our products. The market for our solution is guarded but once you get to the high end there are very few players and that is where we are positioned.

Our solution can handle higher volume of traffic. It also takes a more integrated approach to solving network quality. This means that operators can identify problems very early.

Once we identify the problem, we get right to the source and even suggest how to correct it. The results for our customers is smooth service, satisfied users, reduced churn, and higher revenues. The best confirmation of our value is the fact that we win a high percentage of tenders that we participate in and almost always make top three.

The third factor driving our results is our sales and marketing approach. During the economic crisis, we decided to target emerging regions less affected, especially Latin America and Asia. This approach worked very well for us. We have been able to penetrate many Tier 1 operators and to increase the average size of orders.

With the goal of taking full advantage of the smartphone and LTE opportunities, we are investing in our sales force, sending more salespeople into the market while continuing to invest in our technology edge. We are very excited about the GEARX8, a next-generation platform for all our monitoring products. With fewer hardware parts the product costs less to produce yet performs much better. This is an important advantage.

As our Gilad, our CFO, will explain, these investments in sales and marketing as well as R&D have increased our operating expenses in a controlled manner, but they are necessary to position the business to take full advantage of these exciting market opportunities we have.

In summary, with strong sales, record bookings, and strong drivers we are well-positioned to achieve accelerated growth in revenues and profitability. Our business is being driven by smartphones, one of the strongest trends in the communication industry. We are participating in more and larger tenders than ever before, and we are winning a fair share.

Our product and customer service are recognized at the high end of the market. We are investing in sales and marketing as needed to take advantage of the opportunity. And most important of all, our bookings indicate that our revenues and profit are ready to move to a new level.

I will stop here to let Gilad review the highlights of the financials. Gilad, please.

Thank you, David, and hello, everyone. Since you have the press release before you I will go over just the highlights.

Revenues for the second quarter were $5.9 million, their highest level in 18 quarters. This is up 30% compared with the second quarter of 2010, reflecting the increased momentum of our business in all target regions. In general, we are seeing larger deals on average as well as a larger number of deals.

Gross margin for the quarter was 72%, up significantly from 67% in the second quarter of last year. This demonstrates one of the many benefits of having larger deals with a higher proportion of software, enabling us to achieve higher profitability.

Operating expenses for the quarter were $4.3 million, reflecting the significant investments that we have made in sales and marketing as we scale up our business. These investments are enabling us to ramp up our sales capabilities in target markets and to maintain an extremely high level of customer support. We believe that our expenses are at the right level to execute our business goals. As our business grows further we expect that additional increases in our expenses will be needed to support our growth.

On a pro forma basis, excluding stock-based compensation, we recorded non-GAAP net income of $315,000 for the quarter or $0.05 per diluted share. We are very pleased to have been generating net income for seven straight quarters, a period during which we turned the Company around and started building our revenues to a new level. With the foundation that we have built, we believe that we are now positioned for significant growth in the bottom-line as well as the top-line results.

Turning to the balance sheet, you can see that the cash and bank deposits as of the end of the quarter were approximately $4 million. This is down $1.8 million over the past six quarters, reflecting our need for working capital to support the growth in our business. We believe that our cash balance is currently sufficient to support our plans.

Looking forward, as David said, our bookings and backlog are to record levels. This gives us visibility for very strong growth towards the end of 2011 or the beginning of 2012. Since it is difficult to predict the exact timing of the installation and the customer sign-off for each project we do not feel comfortable giving exact guidance.

However, it is a fact that our bookings for the past 12 months were 61% higher than our bookings for the previous 12 months and this should translate into much higher revenues and profitability in 2012. This makes us very excited and confident about the future.

Back to you, David.

Thank you, Gilad. Before taking your questions, I would like to thank you all -- our business partners, shareholders, and employees -- for your ongoing support. I would also like to welcome new analysts and investors who are just beginning to follow us.

So with that we would be happy to take your questions. Operator?

(Operator Instructions) There don't seem to be any further questions at this time. Mr. Ripstein, would you like to make your concluding statement?

Yes. Thank you, Noga. Thank you, Gilad. 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 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.