Q3 2020 Radcom Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Radcom Ltd results conference call for the third quarter of 270.
All participants are present in listen only mode.
<unk> managements formal presentation instructions will be given for the question and answer session for operator assistance.
During the conference Please press Star zero.
As a reminder, this conference is being recorded and will be available for replay on the company's website at www <unk> outcome Dotcom later today.
All our yell Harari Radcoms CEO and I'm your high that come see us.
Please note that management has prepared a presentation for your reference that will be used during the call.
If you have not downloaded yet you may do so theres only gotten the investor section of Radcoms looks like.
W. W. Radcom dot com slush investor to actually show.
Before we begin I would like to review the Safe Harbor.
Forward looking statements in the conference call Pops up over some uncertainties, including but not limited to the company's statements about its continued investments in technology and R&D.
The transition to enroll that Fiveg networks, and other market trends the company's market position cash position expected gross margins a potential growth the company's expectations with respect to its contract with them and continued relationship with TNT.
<unk> Dot com east product the company's expectations regarding the effect of COVID-19, that's revenue guide.
Yes.
The company does not undertake to update forward looking statements.
Full safe harbor provisions, including risks that could cause actual results to differ from the forward looking statements are outlined in the presentation and 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.
Excluding certain noncash stock based compensation expenses.
GAAP results provide information that is just.
In assessing about comes core operating performance I've only been in comparing results of operation.
Certainly from period to period.
In addition of central 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 sherfield reconciliations of GAAP to non-GAAP financial measures, which are included in the quarter's earnings release, which is available on our website I would like to repeat the information about the payments.
If you're not selling it yet you may do so through the link on the Investor section that comes up site Www Dot com dot com flush investor definitely no.
Now I would like to turn over the call time. Please go ahead.
Thank you operator, and thank you all for joining us today.
We issued a press release date is always third quarter results.
We are pleased with the results as we continue to execute against our full year goals plans, So Walter which was highlighted by increased revenue.
But the money is.
Well you've seen total revenue for the third quarter was 2021 of $9.8 million based on all this.
In the <unk> and focused execution, we expect went to 22 vehicles you in the future they going full year Twentytwenty revenue guidance of 75 million mph meal.
We continue to strengthen our position as the leading site issuance was lighter in the third quarter. When you can go and financial goals. We believe the R&D investment, we made and continue to make over the last few years and our current customer engagements we continue.
Goals in two years to come.
Last week, we announced the five key issues contract wins.
One is the industry's first standalone sized usual in school trucks.
He sees in addition, I would use agreement would result in mobile we shouldn't sites you know we go inside your issuance and analytic solution.
Launched in August.
And then selected.
And it's not extended on Fiveg service launched in September and extended on Fiveg service launch expected to curing Twentytwenty one oh.
Oh automated cloud native assurance solution will be critical component of direct and communication platform. Our solution will help braxton identify.
Issues in recon, and troubleshoot, and which is essentially full slightly weak rating.
Customers to the new Fiveg network and Onboarding new customers.
This election represents a significant milestone and won't go Fiveg journey.
Also an acknowledgment of leadership.
As a five year issuance vendor and is the result of all this focus investment in R&D and product innovation.
Additionally, we continue to support potential existing Fourg network needs to deliver top quality services to those customers at the end of September just six months after each full scale commercial launch of the world's first fully utilize more of unfold you Nicole.
Within launched Fiveg movements.
We are excited to continue all but she is recruiting expense each coverage in the U.S., we continue to deliver cutting edge software releases sleek and deep intellectual books will be mutually exclusive.
Nicole did banks nationwide side, you all of that.
Last month, the number one so we'll see the fastest nationwide. Thanks Nicole.
Discontinued emphases on high quality network to deliver equally easy to businesses and consumers alike.
Our wolf with world, leading customers, such as recruiting an AC and DC.
Yes, we'd invaluable experience and knowledge that can prove to be faisel is operators transition to fiveg. Currently we are involved in multiple sites the opportunities and its various stages and selected customers dictate. These we attribute it won't be that was continuous technology enhancements.
Yes, well pull the evolving market.
The telecom industry has been robust throughout the quarter.
Slum excuse me people cycle following the opening those doors.
These decisions assemblies continue to rely heavily on high quality missile defense for managing day to day life.
Is this you should use.
As a result, our customer's needs, which is crucial as ever we're very proud of our team.
How do you continue supporting government customers. Despite the challenges of the COVID-19, social distancing restrictions.
Why we focused on delivering on our customer commitments. We also ensure our employees vendors and customers health and safety.
We welcome from home and do close interactions and you'll know we believed technology trends did they rely on Fiveg I'll play always useful more with mobile operators Fiveg is expected not only to increase network speeds and performance.
I also like to make one looks you obligation for the telemedicine remote machinery geared shouldn't reality and countless other applications.
As you roll out a would be staged Wilson.
We also use those choosing to Nick will provide the first then evaluating Fiveg Assurant solutions is the technology continues to rollout.
We consider these sites you contracting referenced in mobile and other current customer engagements since rise is a good sign the defense you market. These evolving.
Suppose I will view that some operators are already moving beyond the initial sale of selecting the nickel providers to choose issuance sandals.
We believe is gradual buckets used when spring new Yorkers Judy's these losses and debt, we are well positioned to capitalize on this with our innovative solution resumes.
Based on the latest Fiveg markets such as peoples did you say at the beginning of October.
Well already over 100 Fiveg networks worldwide D.
Diesel first 65 units looks at the beginning of Twentytwenty. This.
The same site beautiful it states that they'll be a little more than 397 operators only investing in fiveg.
This includes fries acquisitions licenses and nickel lending.
So we are encouraged by the industry's advancements in Fiveg.
Some of the operators it'd be wasteful mold fiveg devices to be commercially available before launching five new settings.
We sold the sales force or the number of commercially available devices almost doubling.
You know sober helpful has the visual event.
Slogan High speed you each day, you highlighted the benefits that fiveg has to offer.
This means that if consumers buying a new Iceland, well it will be fiveg named those.
Harbinger of mainstream technology adoption, we believe that the essence entrance into the fives you musket sends a strong signal that decided to use a solution is underway and evolving.
Especially we should fight investment and solution evaluations full early adopters ramp up into Twentytwenty one.
So far the customer feedback we have received sold the resumes its been very positive revenue.
Wrestlemania is fully cloud need these designs for the new Fiveg network architecture and is building the AI and machine learning capabilities to deliver with too much real time insights. So overall, we still see shoe is still feels fiveg customer experience.
We believe that the reticle Macy's the most advanced solution for automated assurance and differentiated based capabilities.
We should position us very well to capture market share is more operational since usually to fiveg and selected to show incidental we.
With that I would like to kind of go live as long as high of a CFO will discuss the financial results in detail I mean, please go ahead.
Thank you.
Morning, everyone. This quarter, we continued to grow revenue gross margin and benefits from companies that seems a little lower expenses, which went into people's our bottom line.
Now please turn to slide six wells.
Hi, nice.
I understand the results I wouldn't be the seven minutes or non-GAAP numbers, which exclude share based compensation.
We ended the first quarter of 2020 with revenue.
9.8, and he's going to allow an increase from $9.4 million.
Third quarter 2019.
GAAP and non-GAAP basis gross margin was 76 cents in the first quarter 2000, Twentys you expect.
Non-GAAP gross margin to be assuming the 11th.
Sure.
Our gross margin conceptually it depending on the source.
Our gross R&D expenses for the third quarter 2020 on an ongoing basis, we'll talk with $6 million.
That's an increase of $100000.
To the first quarter of 2019 during the quarter with grants from the Israel inhibition authority.
$78000.
Sales and marketing expenses for the first quarter 2020 with $2.3 million on their own.
Compared to $2.6 million in the.
First quarter 2019.
Does that mean that led to reduction in southern expenses you took over.
General expenses for the first quarter of 2000.
Well.
$798000.
First cousins rollout in the first quarter of 2019, that's income on a non-GAAP basis for the first quarter of 2022.
$239000.
To an aggressive goal was $1.2 million.
First quarter of 2017.
Net income for the first quarter of two so that went on an ongoing basis were $246000 or net income was two cents per diluted share compared to a net loss of $988000 or a net loss of seven cents diluted share for the first quarter of 2019.
On a GAAP basis as you can see on slide five our net loss for the first quarter 2020 was $422000.03 diluted share. This compares to a net loss of $1.7 million, whereas most.
Cents diluted share for the first quarter of 2019.
At the end of the first quarter 2020 or headcount was 278.
Turning to the balance sheet.
This is slide nine our cash cash equivalents and short term bank deposits at the end of the first quarter 2020 was $65 million.
We believe that our strong balance sheet provides us with the system you need to execute the opportunity there to pass on to adopt to then Glenn.
Certainty.
And the other person Mike I will now turn back the call to do a person who your question.
Thank you ladies and gentlemen at this time, we will begin the question answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you think speak up at night.
That's for pressing the numbers.
The question will be pulled in the order. They are received please stand by we pull a fair question.
The first question is from Alex Henderson of Needham and company. Please go ahead.
First off congratulations a very nice quarter, a pretty much across the board.
I wanted to ask a couple of questions one relative to the the Covance situation. Obviously, there's been a lot of delays or most companies that are dealing with service providers as a result of.
Do you have ability to pull to get into the labs and to meet with the right people and and service providers across the globe [noise].
However, it does sound like there's been some progress on that I was wondering if you could give us your sense of how.
How challenging it was to execute in that environment, whether that's starting to improve and therefore starting to free up.
Some of the opportunities that are obviously in front of you.
Hi, Alex Good morning Al.
Yeah, I think that we have now already starting to get used to this and the new normal.
While definitely going to be thinking that some restrictions and travel is very limited.
Do we really sets up the company for walking them, we'll be books.
I think that that is a software company focused on mutualize technology.
We are well equipped to do a lot of the duties with customers definitely.
Conferencing sessions that we just sessions and also tried using good couldn't do before we won't we doesn't it requires we won us and our customer community to adjust to these new environment.
But we see also some benefit as well.
You could allow us to have also begun to reach more customers because everyone is now.
Click of a button you can then have more engagements most sessions, yes, no different it's not like a.
And on site the meetings and in some areas that they had some difficulties, but overall I think we we are very proud of the team and overall execution as you can see in the resulting in quite.
Positive.
Okay.
Looking at the pipeline of activity that you pulled in and.
Yeah, we see a good success with rocket 10, and they tend to be.
Is it reasonable to think at this point that a you will expect some additional contracts to help drive continued growth and 21 any thoughts on on the shape of the curve there.
Oral Conversely.
The slowdown from coal the.
Diminishing rate of acceleration.
No. So it seems the marketing we see there are lots of activities and we existing and new customers exploding getting older than you newly launched <unk>.
I was in a new cloud, making things like insurance solution and as I pointed the message we're getting is very positive.
During the increased number of operators that that's starting to invest in fiveg, while as I as I mentioned before most of them on the unit, we shouldn't stage, but we are very encouraged by the industry moving forward and investing more and more than five.
The Best example, I believe these they most of what you sold at the event, we are launching the new iPhone 12.
Oh, I think I mentioned Weve also you'll months ago that is many of us use Iceland full connectivity and people have been we support.
Fives, you meant for many of us it won't be relevant no difference than you only from slug coming into demand from the customers will find you will increase and I believe this will drive full world Docker make those investment into Fiveg.
So we are there.
Definitely seeing good <unk> opportunities that could raise that you did next.
And the Cobi deepening these 18 complexity, but it's not that the market is not there looking for different most all of them down and then ultimately be occasion.
Oh, the continued investment in this space.
Okay, if I could just delve into rocket 10 per a moment, obviously, it's a big improvement.
The improvement there, but they've had some issues where their network have they decelerated their rate of deployment because of Oh, I think a little bit of a little bit of a overly aggressive strategy.
Causing some issues on their deployment.
Or are we now past all of that and there are we accelerating things.
So we don't get into Washington, and confidential as Seifi I think the.
The one thing you could not thinking about correct within the data maybe accelerating.
Then just launched in Fiveg network and.
Last month, he sees only six months after the commercial launch of the Fourg network I think DC vertical speed full in the up later.
They'll continue pursuing innovation and we are working with them on the contracts and these contracts is that a great sign probably and one of the first opened they don't sue to compete on the five G.
<unk> Standalone issuance would use the five you longer than they had expected to launch in June 20th went to one so do we think that there is very high we talk within and continuing to invest in power and and fully committed to the fiveg and we are very active with them.
Both on that and if it comes into full Judy agreement and then you five gene mutation.
Do they start field, we there's a mental that Joe was just launched <unk> non stand alone and that used to make sure. The Doe loan shoot Highquality next move a little bit Standalone Mead went to 21.
One last question, then I'll cede the floor the.
Competitive landscape.
Yeah.
A while growing to get to these fiveg deployments or have any of you that competitors.
Managed to step up their game or do you still have the commanding lead that you've had over the last several years.
So so don't know what the message we get from our existing customer and no student fees is a it's great that they appreciate our technology I think the in depth of our eventually use they shouldn't expertise you've shown and why you have that looking on Fiveg and virtualization you use equity.
Since no one is implementing using full plan for your house or any new fiveg.
So.
While I believe before we were walking into virtualization that this was a niche in the fold useful five do you see the central stage, all fiveg networks or most of them at least as I was going to be based on virtualization and our technology advantage use and use a producer.
Good thing like the customer by the market and we believe that we are very well positioned and we'd be space, we didn't see any.
Anything significant from competitors, so far but I'm sure that competitor also also looking on the five year opportunity because most of the carriers today are they.
In this stage that starting to look into.
Due to the issuance solution. They are looking on to Fiveg network. Some of the early adopters like recommend already.
In closing the agreements Siamese we take a couple a few but.
Jeez when everyone is targeting so competition is I'm also space, but we believe all the technology. So I won't give you, but then to you is going to be positioned us very well in those opportunities.
Great I'll cede the floor I look forward to seeing you next week.
Then you have a very pop schedule so.
Yeah look forward to that thanks.
Thank you Alex.
The next question is something that's top William Blair. Please go ahead.
Hey, good morning. Thank you for taking my questions I guess personal start off maybe just asking a you know Alex is reconciled question a different way.
So you talked about kind of moving pieces here supporting the Fourg network, obviously to have limited five you watch.
Last month.
And our planning that the Standalone network and middle of 2021.
I would love to just get an update on how you're thinking about.
Well you know.
This partnership this this progress is being reflected in numbers.
How that's expected to be reflected going forward given these moving pieces and then on top of that maybe an update on thoughts on other adjacent opportunities with with rockets on from there.
So so do you believe the as you pointed out to you very very very important milestone in the the fact you space, but it is also a multi million dollar deal that the use that.
I'm going to be spread over there want to use agreement. He says cement all in partnership with <unk> and the increased level of visibility to Twentytwenty one is.
A significant part of the revenue is going to is planned to do Twentytwenty one onwards.
There are an additional opportunities.
As we go and as we continue.
When do you need to maintain healthy relationship and then we continue to work with direct with them on different innovations and but their social the five year agreement is they're very slow Ted you call out.
Is that being one of the first if not the first contract whole five do you go to meet the developments in our markets. We see these not only are they and.
One 2 million dollar deals that do significant philosophy, but also known as the partnership that we couldn't festival is approval for oil and <unk> technology, but also that this would drive us to continue to innovate to continue to invest in our product and will help US also another oh put through.
Hi.
As we all know and.
Follow revenue can use a recruiting of looking and are you marketing there obviously beat the top within cloud platform globally with different operators and projects around the world as being the insurance provider of choice gives us a lead position those opportunities will evolve.
So there is a constantly you will doing with them you can Japan <unk>.
<unk>, if and when that off within wouldn't be able to expand.
But your fund these and might there be an additional opportunity to fill up but we are not expecting this is due to the vending scholten leases there may be a meet them opportunity and defense on the left within success to market their technology.
Right right that's helpful.
And then just in terms of the.
The broader.
Set up so you guys have a kind of across at this point you talked about having having a number of Susan workshops, you spoken previously about kind of having ongoing yossi with tier one customers that can you just give us an update on the number of proof of concepts that you haven't progress and.
Are you seeing an increase in fuel Susan workshops at this point and I mean any other detail you can provide on how that pipeline is shaping up today.
So we don't see anything there I would say an overall increase in the Fiveg environment.
You can increase this is becoming because of the fact you market is getting the momentum we were waiting for the five gene.
Two maturing for walk when they go to take their mobile Cvs investment can be staged and I believe also that.
The time between the open pit going but im going to unfold you. Do then now that's been full gene combined solution that was getting again and.
In some cases outdated make all political will open to looking to investment in new issuance solution. So I think the overall message is supposed to do but I'm I'm not sharing exact numbers for competitive reasons, but.
Gogo and momentum is supposed to do we see the market is growing and we expect to continue and it will while mall and mobile potatoes, we live in Stockton Basketball unit Fiveg network, and then we need new five years Hsulin solutions.
Right. That's super helpful. Just a a couple of more for me you know it given where we are in the early stages of.
Operators thinking about and becoming more serious about investing in fiveg adoption, we're kind of analysis precipice I'm as you kind of laid out.
Operator is looking at you know kind of hardware infrastructure and kind of getting to the point, where they're looking for Assurant solutions. So given where we are in the process. How do you expect.
To wrap your hiring or your overall Opex ahead of this and then how you expect that to be kind of reflected in in the overall opex going forward.
So overall as you could see the last few quarters, we managed to keep our localization expense and the stimulant level, we invested in our R&D ahead of the market because we were looking for you to do so let's use. This is what you want to do when you believe that the reason.
Slippages opportunity and so our R&D live is and you scantily seemed a little too is the.
The last couple of quarters, we are now starting to.
I will walk and then meetings for full Twentytwenty one in their budgeting and then.
Please be patient Foley.
Next quarter, when we can release, our plants fully 2020, one, but we are not the looking too I don't see a need for a significant increase on that on the R&D because that we have a very sizable and technology group that that technology and the product was already launched so we are.
Going to continue to invest there, but it's not that we're going to double up.
Something like that.
Yeah understood and then last question for me.
Obviously, a lot of exciting new new deals new customers that are kind of layering and for the foreseeable future.
When you look at your existing contracts you know any any meaningful renewals that you would point out that are coming up in 2021 and.
Or maybe thoughts on how much revenue is tied to upcoming renewals I'm not on the other side.
So you know in any given time, we got to the BC. We did you was there all right. Our contracts are typically read and up to five years or so and we have typically multiple contracts, we teach and customer like we see now we have the contract for the full to redirect within and we have to quantify the fiveg.
So.
Since our life and we used to it we are working closely with our customers to make sure.
And satisfies flow and says he says and appreciate all the technology and.
And then you can say in general that you never get everything that usually go live that bullshit that use the required new ones.
Got it thanks for taking my questions.
Thank you Matt.
Is there any additional questions. Please press star one if he likes to cancel your request. Please press star two please stand by we pull from my question.
The next question is from all the Harlots of Old School partners. Please go ahead.
Hi, good afternoon.
I was wondering if you could talk about the R&D first at what point do you think that the R. and D. is going to stop.
That there will be a lot less of a need to invest in that forward R&D or as a percent of revenue is at least at the R&D will stop going up.
Well I think that.
We are not going to stop the R&D investment all over because they see it and nobody really because we believe that now is space innovation has always been acquired it.
If you look on the last week work as compared to last year do you see that the R&D and percentage wise decreased I think about four or 5% and and this is mainly because our revenue growth we will be still keeping above the same R&D.
Investment, while increasing their revenue and be the percentages there.
It is lower and as they mentioned to Matt We will still walking now we'll know woke blends but.
I would say that we are looking to keep similar levels. So far in deals next year.
And then maybe some more disclose but not something significant wide.
Our revenue continued to grow it means percentage wise, it's going to be.
No one.
Okay, because I I mean, what I see here is the R&D is your biggest expense and clearly if you were to get some revenue growth here and keep that R&D somewhat steady on an absolute basis.
You would actually be very profitable at that point because your gross margins are so high.
And that's why I want to understand here is what can we expect for R&D next year.
Well be up 14, whether the site will be a $4.5 million number a quarter is that what you're anticipating or is it going to again, it's a beach beats a bit too early because we all know just stopping dollar then well open until next year, but as I pointed out I would say that the good.
The estimate that we will keep them they seem to live in this year as you can see that also previously it was both simulators in its size and the reason is because not because and.
And.
We don't see the need for and do but because we started investments two years ago or even more because we look forward for the five year opportunity and you know the two at least in reticle base and on time, we needed to have a dime and won't do any investment and this is something we are looking forward we pay off.
Now with the deformity market stuff it would be a moment.
So.
I would say a good estimate is that we will keep you can see minute 11th maybe we'd have more this oh, okay. Okay. Because I think it just before you talked about it well in double so I was wondering if it's not going to double but it's only up 20, 30% and you're really saying is it's going to be flattish for next year.
Okay. Wonderful also can you give us a sense of how you're seeing 2021 unfolds in terms of new contracts is there anything in the pipeline that seems as though you you know that it's almost done or is it you know is the kind of thing that you feel like it's more a second half story in 2021.
<unk> are there deals actually that you're starting to see even now.
So when we looked for the end of the year it into fiscal two when do you when do you want to see the first deal.
I don't Fiveg, we are happy to add the correctly then they agreement and we managed to do it as a leader.
And if you fall, we choose a default would expectation and we'll continue to engage both with our existing customer and new opportunities and look to build it accounts, we see opportunities in different levels, it's very hard to estimate the timeline in the telecom space because set aside because typically.
Long gun they could move between quarters, but then it's a it's a possibility that we would see also.
And do you shouldn't be seem to Phil's Photofix went to 21.
But it also might the app.
Some of them might delay to the league football.
We are keeping very focused and then on the tier one customers and engagement and I think what's important to remember is that the overall crane is a is positive.
I'm all in all these investments in Fiveg demos get the 70 cents ruins hold and hold the fiveg use going and we are well positioned there also.
Mainly mental Stein, when we will be able to capture those opportunities. Okay. When would you agree though that 2021 should be the breakout year for Fiveg for Radcom.
So we all open for that and we are looking good and they continue to invest we dealt with customers and opportunities. It's still very early to do that and determine that but we are going to be fully focused on executing our opportunities and we hope that the market was.
<unk> momentum and investment in fiber, we continue and that's in the middle we mature students Twentytwenty. One is that it's still early adopter for Fiveg. If you look on the and at least we are talking about a trend that is going to be with us.
<unk> 20th when do you want to probably 20 to 24 and five.
Oh the investment in five years. So he is going to ramp up for a while if we win a significant.
And we'll do it we are walking with multimillion dollar deals and.
And every new we news is significant so we don't need to win Tonsils account you know do to grow the company and but the opportunity is not going to end in Twentytwenty. One I would say it comes in on dog aside because more predictable so going to continue in bed supposedly 2020 two would be 23.
As the it moves a little bit early adopters to the market and then to the late adopters maybe in their lives in developed areas.
It'll be sensitive question, yeah, Yeah, no. It's essentially it's there's a long runway of business for you guys over the next couple of years, which I think means it's a multiyear growth story.
I also just I wanted to know this.
This quarter did you generate cash this quarter from operations.
Yes.
[music].
And then this quarter we ended the.
$65 million the into the second quarter, we ended with 66 minute, though so it was a small change.
Basically.
You know, it's kind of a breakeven where did it go.
Any cash.
What's the kind of the collector payment we received after the quarter end about two $2.2 million.
Right.
This is the difference.
So net excuse me so next quarter, we should see more like 67, and a half million dollars depends depends on if the if the right.
Okay, Yeah, okay.
No. It's good to talk to it's why we've got to go to want me doing there.
Okay, I think about that.
Yeah. So last part I, if I remember correctly, you generate around $4 million from operations, Yeah, and this quarter you generated essentially with those extra.
That extra money about two and a half million dollars, let's say, but one thing I wanted to ask sorry, Okay. Do you expect to be cash flow generating cash in Q4.
That's what I'm talking about basically I think that it depends on the customer payment to become there not be.
They are less than 1 million of that can be up by <unk> by 1 million pieces. The range. Okay. Okay fair enough alright, very good. Thank you guys. Thank you very much and congratulations on a really nice quarter.
Yeah.
There are no further questions at this time.
So Radcoms Ltd third quarter 2020 results conference call. Thank you for your participation you May go ahead and ask.
[music].