Q3 2022 Radcom Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the <unk> Com Limited results conference call for the third quarter of 2022, all participants are present in a listen only mode. Following management's formal presentation instructions for the question and answer session.
We will be given 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 Dot <unk> Dot com later today on the call are <unk> CEO and <unk> <unk>.
CFO . Please note that management has prepared a presentation for your reference that will be used during the call. If you still need to download. It you may do so through the link in the Investor section of <unk> Com's website at Www Dot <unk> Dot Com Flash Investor Relations.
Before we begin I would like to review the Safe Harbor provisions forward looking statements in the conference call involve several risks and uncertainties, including but not limited to the company's statements about its full year 2022 revenue guidance visibility and expected growth in 2023 and beyond.
<unk> regarding the enterprise market for telecom operators, including trends in the market and effect of general economic conditions continued investment in and benefits from research and development its expectation to gain further interest from operators and play an important role.
All in facilitating the transition to five G. If expectations about its pipeline and momentum further demand for its products and growth levels of expenses and keeping them below revenue the potential for additional multiyear contracts engagements and the expansion of opportunities.
The company's expectations with respect to its relationships with Rakuten and potential grant from the Israeli innovation authority. The company does not undertake to update forward looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward looking statements our outlook.
And in the presentation and the Companys SEC filings.
In this conference call management will refer 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 noncash stock based compensation expenses non-GAAP results provide information helpful. In assessing <unk> core operating performance in evaluating and comparing the results of operations consistently from period to period.
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 included in the quarter's earnings release.
Available on our website.
Now I would like to turn over the call to weigh Yao. Please go ahead.
Thanks, operator.
Everyone. Thank you for joining us for our third quarter 2022 earnings.
We achieved political revenues in the third quarter, reaching $12 million, representing 13 consecutive quarters.
Yes.
Double digit growth of 17% compared to the third quarter of 2021.
At the same time, we manage our expenses, while investing in the business strategically and efficiently, resulting in a non-GAAP net income for the quarter of $1 million a foot.
We are proud of our best in class cloud issuers portfolio.
Nabors, operator to manage their networks with advanced AI, driven analytics, which provides automated actionable insights.
Engineering menu of Labor and health, we've resolved network degradations to ensure great customer experience.
We have a decent resilient software centric business with strong business model that delivers high gross margin and over 70% recurring revenue from the beginning of the year, while offering our customer focus to do long term pricing structure and great value.
Our multiyear contract wins as we prove the swelling backflow driving consistent results and giving us good visibility into 2023 and beyond.
Turning to the pipeline.
We continue to see strong demand for our advanced cloud assurance technology <unk> reflected in our healthy pipeline of opportunities as we manage multiple customer engagements at different stages of the sales cycle with healthy mix of new logos and the current installed base with most opportunities.
Focus on strategy.
We see good momentum for the <unk> market and believe it will be a catalyst for growth as the market ramps up.
Most sales engagements this can lead to additional multiyear contracts and increase market share.
Recently, we have been hearing concerns from technology companies regarding the macro economies negative impact on the market.
We believe the clinical market as robust as we sold during the most difficult periods of the Covid pandemic.
We continue to monitor the situation closely and will adapt as necessary.
We believe our position as the best in class assurance provider for cloud Native <unk> networks, and our cloud expertise and knowledge will continue to drive positive returns.
We are glad to report that the demand looks strong and we have a solid pipeline of opportunities that has the potential to increase our market share.
With the positive market trends and our healthy pipeline, we are confident in the growth outlook of our business.
Is it software focused company, we are very agile and can handle future growth prospects scale and meet more demand, while continuing to deliver on our current customer commitments.
We're happy that the new customers are enjoying a radical may software as we deploy it in their networks and the operational teams utilize these capabilities to market monitor service quality.
We are progressing positively and we continue integrating the software into the cloud environment.
As the size and cloud assurance leader, we are happy to be engaged with the teams work closely with them and also our expertise to help them as they will.
<unk>.
With our existing teams our software can scale seamlessly to many customers, which drives our financial performance and operational efficiencies.
While at the same time delivering on our customers' expectations and requirements we have.
Receiving positive feedback and I'm proud of our employees, who are dedicated and committed to delivering on our customers' success as we can continue to deploy our solutions and deliver new cutting edge software releases.
Legacy assurance solutions are limited and not flexible well competitor takes weeks or months to deploy <unk>.
<unk>, our cloud based solutions in days or hours.
Our software as the critical social throughs fully G news, who needs to make data driven decisions affecting millions of subscribers across the retail network Sac and all service offerings.
We can adapt quickly and deliver features to customers.
As we move forward and deploy our software to new customers like dish, we see the value of our analytics through all stages of deployment to ensure a smooth network rollout and deliver great customer experiences.
Turning to requisition in Japan and references seasonally.
During the third quarter, we announced the renewal of our initial contract with Rakuten mobile.
We've used the agreement we continue our successful partnership with this innovative operator, providing advanced cloud native assurance solution for the network in Japan.
At the beginning of the quarter, we announced this records and Symphony <unk> available in the <unk> marketplace.
This integration of <unk> into records in Symphony streamlined network operations and help us understand what is happening in the network and whether the customers affected issues.
This also provides built in workflows and unify data analytics to enable more breeders to LPG deployment rollout five G with the Symphony platform.
Being part of this cloud opened significant opportunities to arise in the future.
Turning to our product innovation.
We continue our commitment to deliver best in class solutions as we enhance our software with more automation and intelligence AI based capabilities to bring value and extend use cases for our customers as <unk> technologies move forward.
I am excited to announce that we recently received you just real condition as two of our products will named finalist in the telecom focus the whirlpool gums. This recognizes the industry's top companies for their outstanding achievements in the next generation Communications technology strategies.
<unk>.
The AI ml based solution announced last year for the market to detection of network anomalies and automation Unitil Corporation views was named finalist and outstanding use case in the service provided AI category in the leading lights 2022 awards.
In addition, <unk> named as a finalist in the most innovative cloud offering category in the Global 2022 Awards program.
We invest strategically in R&D to enhance our solutions increased $5 capabilities expands our AI driven insights and seamlessly integrate our solution into the cloud.
All of these capabilities align with the market needs and is already bear fruit as reflected by our recent wins.
To summarize.
I am happy with our performance in the third quarter and of course, the first nine months of 2022.
Revenues up year over year by double digits, and we significantly improved our bottom line.
Yeah.
We have built a software centric company with a strong business model delivers high gross margins.
Our team has a proven ability to provide best in class solutions to some of the most innovative hopefully it will seem to work.
We are working hard to deliver on our customer commitments, while continuing to invest strategically.
<unk> software to boost features and capabilities.
With these new wins and our ongoing sales engagements, we have good visibility, which led us to increase our revenue guidance twice Julian to use first nine months.
To conclude we are optimistic about our ability to deliver sales consecutive growth year in 2022 and continue this trajectory into 2023.
Accordingly, we are reiterating our 2022 revenue guidance of 45 million to $48 million.
With that I would like to turn the call over to adapt.
Our CFO will discuss the financial results in detail.
And good morning, everyone.
So that's one of the center.
So mainly to non-GAAP numbers, which exclude share based compensation now please turn to slide eight so all those thing in Shanghai.
We achieved record revenue in the third quarter, reaching 12 million Giordano swiftly xanthine its chosen consecutive quarter of heal. Although you live in New York and then increased from 10 point to maybe one in the third quarter. It still doesn't in 'twenty one.
Double digit growth of 17%.
This resulted in non-GAAP net income for the quarter of one <unk>.
So your high.
Same time, we continue to manage other expenses, while investing in the business strategically indices shanty.
Our gross margin in the third quarter of 2022.
Macy's was 73%.
Gross margin can fluctuate depending on the web in uniques, we extended this Q4, what it would mean.
Yeah.
Although our gross R&D expenses for the third quarter of 2022.
Macy's full point $6 million.
Please the $150000 compared to the third quarter of 2021.
You always seem to go on $187000 from the enjoyed innovation.
During the quarter compared to $205000 in the third quarter of SaaS deal.
Our net R&D expenses for the third quarter of 2022.
The full $25 million compared to $4 $20 million in the third quarter of 2021, we expect to Israel innovation authority watching the first quarter.
To be honest.
This is in the third quarter.
Sales and marketing expenses for the telco a tale of 2022 with 2.8 million due at all.
An increase of $596000 consented it does quarter of 2021.
The increase in sales and marketing.
We think what's in backlog.
Good progress we've made delivering on our customer commitments, we expect.
Sales and marketing to remain at a similar level in the fourth quarter.
G&A expenses for the telco till 2022.
$958000.
This is an increase of 181 doesn't do it all as compared to the third quarter of 2021.
Operating income on a non-GAAP .
He sees for the third quarter of 2022, $545000 compared to an operating loss will still although it doesn't do it out for the third quarter of 2021.
Net income for the telco hotels 2022.
<unk> was $953000 or net income of six cents per diluted share compared to a net close to $333000 or a net loss of two cents per diluted share for the third quarter of 2019.
The positive 19 calls due to the increase in revenue and disable the impact of changes in foreign exchange rates.
On a GAAP basis as you can see on slide seven our net loss for the third quarter of 2022 with $289000 or closer to eight cents per diluted share. This compares to a net loss of $1 69000, or a net loss of eight <unk>.
For the third quarter of 2021.
At the end of the third quarter of 2022, our headcount was 289 turning to the balance sheet. As you can see on slide 11 cash cash equivalent in children and young people.
Standard therapy 2022.
70 point to age we don't do it at that and as I prepared remarks, I will now turn the call back to the author Rachel for your question.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you.
We're using speaker equipment kindly lift the handset before pressing the numbers questions will be pulled in the order. They are received please standby while we poll for your questions.
The first question is from our June <unk> of William Blair. Please go ahead.
Perfect. Thank you and congrats guys on a good quarter, Oh I want to start with you and starts why it sounds like you know you're you're adding a lot more features and capabilities until the offering telcos are still building out five G are clear thing good growth and customers are seeing the ROI, how do you think about price.
<unk> power going forward and in the model both with you know some of the newer rollouts and.
Even with your existing customer base as well.
Hey, good morning, yes, so we are continuing to invest in our <unk> platform.
We released our strategy solution couple of years ago, and since we are continuing and enhancing our product.
Last year, we added though.
Dave the anomaly detection capabilities, which are very important to support customers in their.
Journey.
We are really focused now on making sure we are creating additional value added capabilities and use cases.
To make sure that our customers are successful in their journey.
Going to the <unk> to implement their <unk> networks, we know that it's not simple.
<unk> not only to deal with the five T as new Telecom technology, but also with immigration cloud. So we are primarily focused on making sure the comscore.
Transformation, we view it as smooth as possible and as efficient as possible.
Those additional new capabilities that are added and then.
Some of them will use it to differentiate us when we are going and competing with a.
Yes, new opportunities and some of them become again, a possible up sales on existing customers that do not have those included so overall we are looking.
Looking to continue to invest in our R&D.
We continue to create a lot of innovation.
We feel very comfortable with and we dealt with offering to the market.
Yes.
Okay understood very helpful and then.
For her Dar.
The margin that you generated this quarter.
Yeah that was great to see when you look out ahead over the next several quarters, where do you see the most opportunity for for leverage and operating expenses going forward like is this a good run rate of operating expenses that you did in Q3 or could we see.
You know could we see more increases as a percentage of revenue.
In some areas like R&D for example.
He is with us so in the last two.
Yes, you saw the government was 19 was around.
70, 273%.
Other operating expenses, while at the agency and logged well, we believe that he will keep a female laser industry operating day expense says, we see a slight increase in <unk> and.
Mountain time.
Okay.
We didn't hear you for a moment please continue.
Okay says it will.
Believe me, it's really you know excluding any impacts us gaining share can you do at a ratio.
But we may keep the <unk> operating expenses.
<unk> closed out with signs that increasing the sales and marketing expenses.
Okay.
Yes.
Please go ahead with your questions.
Yeah, Yeah, Yeah, and maybe just last one.
For for me.
The al you called out the the Taco.
The strength in telcos and you saw that he told that in there. So obviously investing and building out what do you hear any sort of.
Commentary from them, you know walking back or being more cautious on capex spend going forward just given how much. The you know it seems the economy has has changed or is changing do you see them tightening their belts at all.
So overall, we see telecom industry being robust and we.
We see the <unk> business continues.
And I suppose the overall macro economy situation is affecting everyone and everyone is a bit more cautious in the lead.
And it can be some delays.
So a large investment.
The positive thing is that most of the <unk> already committed to the Fuji many of them are already in a multiyear long term plan that was already initiated and we'll continue to do so there might be some slowdown we don't know we continue to monitor that.
The good thing philosophies that we have.
We are targeting the few ones.
Larger than a.
There is also local rentals.
Looking on the long term strategy we.
We see them finally safety is an important part of the strategy.
We have good visibility with them. So we are monitoring this cautiously.
Oh P that there will be no effect from the macro economy, but rabies case.
In any case the lending situation.
Okay got it very helpful. Thank you for taking the questions.
The next question is from Alex Henderson of Needham and company. Please go ahead.
Thanks.
Let's just continue on that subject that last question.
So clearly in the fiber deployment.
Those are multi year long.
Our long term plans, but there are all other companies.
Companies and customers you have that are more.
Call it traditional so more in the pumps for GE arena using the technology.
In the older formats.
Those seem like they could be more sick.
Cyclical and more inclined to to cut back.
Can you talk to what portion of your business is tied to the.
<unk> at this point and how much of it is what I would call traditional or legacy.
Customers.
So thank you Alex.
As I pointed in my <unk>.
Most of all.
Those opportunities is it on <unk> also.
Part of our existing business and the recent wins, we had earlier this year is around <unk>.
Yeah.
What we see is that.
While some may be as mutation already leg on the radio side on implementing good nationwide coverage on that.
And investing a lot of scrap export.
On the traditional.
Radio antennas, they providers, where we play and the issuance space, which is more on the call. This is not the heavy capex investment.
And in many ways.
Do you need more of our tools as we provided a lot of automation and AI that allows them to do more with less and as.
They are adding multiple policies there are not going to add more people to the operation and sometimes they need to optimize adding tools like ours can have some continue to do what they need in a more efficient way and it would also drive the lease.
You said it might be some operators that you didnt start the journey for five years, it might be late and Houston ethane, but as mentioned in most of the providers that are already.
Already committed.
Continuing with our plans.
Well, that's that's that's what I thought your answer would be and so the.
Looking at the history of the company you've had number of periods, where you've had very good margins up in the 70 475 range and then some quarters, where that's dipped down.
You know considerably lower towards the 70% level and my understanding is that the primary difference between the higher margin quarters, and a lower margin quarters is the amount of traditional equipment that you're selling and that tends to have lower margin.
And so if the mix is shifting to the higher margin five G products in more and more towards straight software.
And fairly frictionless to play at that.
And then are we now in a period where the.
The expansion in gross margins that occurred are in.
In 'twenty to 'twenty 171.
72, two and and now in another call. It a 50 to 100 basis points in 'twenty.
'twenty two.
Well, we can start talking about.
The longer term gross margins up towards the 72 to 75 range as opposed to the 70 to 73 range that I think you've talked about historically.
Yes. So overall, we are seeing a trend.
Improved gross margin.
And getting closer to the 75% as we go more and more into <unk> cloud implementations.
As we say, it's part of the revenue may be said there.
Some of the appliance space. This was fluctuating a bit down the gross margin, but there is also that when.
When we implement new customers at all.
One time costs at all self biopsy components of licenses with us.
Adding to the course as most of the software in.
Yes.
It's very high gross margin so we sometimes see some fluctuation in the gross margins, but what.
What we see is that the overall trends.
Better than better gross margins and getting closer to the 75%.
It ranges, we continue to scale.
Yeah, So as we look at the fourth quarter it looks like.
There is some upside to our model on the gross margin is the 73 Mark that you did in September .
September quarter.
The right level for the fourth quarter.
Yes.
Again, it makes sense again for important too. So it's always been can fluctuate a bit because of the.
The exact revenue mix, but this is.
Good assumption.
Yeah.
So if that's the case, then you're really kind of at 73 here.
Sure.
Women modeling 71 three.
I would say twenty-three out through 'twenty, four should that'd be taken that up to 73 and using that as the new benchmark.
And as I said, we expect it.
It makes sense is a good assumption yes.
Okay perfect I, just wanted to be clear on it.
Can you remind us.
You don't hedge the shack pull at all in your sales outside the U S are all in dollars correct I mean outside the.
Globally.
Okay.
We do not and so we had some.
Upside from that.
Sure.
We can even compared to the dollar.
And most of our customers internationally.
Lola.
Big part of our revenues are going up.
We don't have any significant effect on the full extent.
Alright, so the cycle as well.
Much.
Onto.
Loans for the year here at the end of it you know.
At the end of the quarter, it's down considerably I think it's you know.
Double digit decline.
So at these levels for the full year that should help you on the Opex are you reinvesting that Opex I think the comment was that you're going to increase.
Sales and marketing slightly but overall spend.
Spend in dollars would be fairly flat.
As we look out to 'twenty three is that.
Oh reinvestment in local currency.
And therefore, that's why you're able to keep it flat and still get the benefit of some additional investment.
So.
We are going to keep our R&D flat flattish we are still.
We saw our end of the year plans, but.
The strategic.
Glenn you the capital the last couple of Sidoti.
We believe we go through the right R&D level of course trying to.
To take the advantage of.
The pools.
To check of an issue to gain some efficiencies and maybe strengthen some areas, we do look into increasing.
In some level of expense in marketing in order to capture the market opportunity in both of our.
Walk.
Wolfgang as we are doing now is to make sure we have good coverage.
Okay.
Okay. So so low advanced so we do look look to increase on the long run slide.
Slightly do collection expense, but as we go and as I mentioned more importantly, we are looking to grow.
The next year.
The.
Our compression expense increase is going to be modest.
Look on the better numbers on the bottom line.
Yes.
Uh huh.
Question was asked earlier about pricing, but I always like to rephrase that one a little bit is there a way that.
Or is there any motion in the development cycle that.
We'd give you an opportunity to start doing some up sell to existing contracts by adding a bundle of additional features or some.
Some additional capabilities.
That might not have been covered by the existing contracts with some of your.
<unk> customers.
Our up sell opportunity when it might start to see it.
Listing customers buying.
A larger.
Packaging product from you.
Definitely definitely we see and we do this in the past.
Opportunities.
Customary enhancing views our techs.
And I'll, let you cover you mentioned that the add on applications to useful additional use cases of additional products.
<unk> that are not necessarily part of what you've seen to date, we are spending on R&D to create additional utilization and as I mentioned, it's both in order to to add some upsides upsells into our existing installed base. The social also to create additional cutting edge capabilities that will allow us to continue and win more.
Contracts in penetrating into.
Additional carriers.
One last question that I don't see before so as we look out into 'twenty three.
You produced on average and double digit growth over the last three years, it dipped a little bit low in 'twenty, one but 14%.
Plus in both 2020 two is it reasonable to think the 'twenty threes, another double digit growth rate, though I realize that you haven't done your homework.
Forecasting yet and therefore, we're not going to hold you to it but it seems pretty plausible, but given the momentum that you've got another.
Another double digit year.
Yeah.
We are looking and we have good visibility to 'twenty three menu for customer contracts are multiyear and.
We already see that.
2023 looks like now the goal here.
Likely.
Debit Egypt again still early but we are looking positively to continuing the similar momentum and hopefully improve.
Thank you so much and congratulations on a.
Good execution and visibility.
Thank you Alex.
This concludes the rack com L. T D third quarter 2022 results conference call. Thank you for your participation you May go ahead and disconnect.
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