Radcom Ltd (RDCM) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. third-quarter 2011 results conference call. All participants are present in a listen-only mode. Following the 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 24, 2011. I would now like to hand over the call to Ms. Noga Fisher. Ms. Fisher, would you like to begin?

Yes, thank you, and hello, everyone. With me today are RADCOM's CEO, David Ripstein and CFO, Gilad Yehudai. 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 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 developments, the affect 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 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. I would like to turn the call over to David now. Go ahead please.

Thank you and thank you all for joining us today. Our revenues and earnings for the third quarter were $3.4 million, which is below what we had expected. This was our first revenue decline after nine quarters of continuous growth. We fully believe that it is temporary and that we will return to a growth curve in the fourth quarter.

The decline was due mainly to a delay in the recognition of the revenue of two large projects, both of which were shifted from the end of the third quarter to the fourth quarter. This is one of the effects of the fact that we are now winning larger longer-term deals from Tier 1 customers.

Taken as a whole, this is a very positive trend, a key driver of our ability to grow over the long term. However, it also means that our results for any one quarter are currently sensitive to small changes in the timing of just one or two projects.

As we expand our customer base, we expect that the increased value of repeat business will have to smooth out our revenues from quarter to quarter. However, looking at the big picture, our prospects remain stronger than ever. First, we expect to recognize the delayed revenues from these two projects during the fourth quarter.

Even more important, our bookings for the last 12 months are up 68% compared to the previous 12 months and our backlog is extremely high. For example, in September, we announced additional orders from a Latin American group that totaled about $6.5 million. We expect to be able to recognize these revenues over the next several quarters. This is one of the reasons that we are able to project a very good Q4 with a return to profitability. We finished off 2011 according to our original plan and most strongly into 2012. In addition, the trends that have been driving our growth for the past two years remain very strong.

Demand for our mobile data devices continues to grow driven by demand for smartphones, tablets and mobile applications. This is causing an amazing increase in the amount of network traffic, making service quality one of the most painful problems for service providers.

RADCOM solutions are the gold standard for fixing this problem. Our tools monitor all services, identify the source of problems and tell service providers how to fix them quickly. They have a clear technological edge and we have recently taken that edge to the next level with our new GEARX8 technology. It is unique in its support for extremely high traffic and multi-services.

Using our system, service providers are able to keep their services up and running, making their users satisfied. This gives them lower churn and higher revenues. That is why we are consistently among the vendors for all of the major projects that we participate in and are winning at least our fair share. With each new win, our standing improves for future tenders.

In summary, our business is being driven by smartphones and mobile devices. It is one of the strongest trends in the communications industry. We are participating in more larger tenders than ever before and winning our fair share. Our products 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.

With a higher number of seven figure projects, our results from any one quarter are fluctuating more than before. We are focused on reducing our sensitivity to individual orders with a goal of smoothing out our business. With strong bookings and backlog, we are having to project a return to profitability and growth in the fourth quarter. I will stop here to let Gilad review the highlights of the financials.

Thank you, David and hello, everyone. Since you have the press release before you, I will just go over the highlights. Revenues for the third quarter were $3.4 million. This is down 28% compared to Q3 of 2010, reflecting delays in the recognition of two major projects that were expected to be completed before the end of September. However, despite this shortfall, our revenues for the first nine months of 2011 are up 8% compared with the first nine months of 2010.

We continue to see increased momentum in all target regions and our bookings for the past 12 months are up by 68% compared to the previous 12 months. This, combined with the fact that we expect to complete the delayed projects during the fourth quarter, leads us to project a strong finish to 2011 and a stronger 2012.

Gross margin for the quarter was 60% compared with 67% last year. The reduction is due to the lower revenues, together with deals in Brazil, whose margins are lower mainly due to import taxes. We expect the margin to return to our normal range in the fourth quarter and beyond.

For the nine-month period, gross margin was 69% compared with 67% for 2010, so we are doing well on the aggregate. Operating expenses for the quarter were $4.1 million, reflecting the significant investment that we have made in sales, marketing and R&D 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 satisfaction. We believe this is the right level for executing our business growth, especially as we move to higher level revenues.

On a pro forma basis, excluding stock-based compensation, we recorded a non-GAAP net loss of $2 million for the quarter, or $0.31 per diluted share. This is our first net loss in eight quarters and is due entirely to the lower revenues. We expect to return to profitability in the fourth quarter and to move forward from there. With the foundation we have built, we believe we are positioned for significant growth in the bottom line, as well as the top-line result.

Turning to the balance sheet, you can see that cash and bank deposits were approximately $3.2 million at the end of the quarter. This reflects the previous net loss, delays in collections associated with the delayed projects and the working capital required to grow our business. 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. With that, we would be happy to take your questions. Operator?

(Operator Instructions). There are no questions at this time. Mr. Ripstein, would you like to make your concluding statement?

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