Q4 2022 Radcom Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the rack Com Limited results conference call for the fourth quarter and full year 2022, all participants are present in listen only mode. Following management's 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 Dot Rad Com Dot com later today on the call are y'all Harare Rad com.
And her direct have Rad com CFO . Please note that management has prepared a presentation for your reference that will be used during the call. If you have not downloaded it yet you may do so through the link in the investors section of rack com's website at Www Dot rack com dot com slash.
Investor Relations before we begin I would like to review the Safe Harbor provision forward looking statements in the conference call involve several risks and uncertainties, including but not limited to the company's statements about the five G market and industry trends the role the company is expected to play in the five G.
Transformation sale opportunities sales cycle visibility leaves pipeline and backlog and the expected impact of currency rates, the company's market position cash position potential unexpected growth, including scalable and profitable growth and.
Momentum in 2023, and thereafter levels of recurring revenues and gross profit from such activity its expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel Innovation authority companies expect.
Patients with respect to its relationships with Rakuten and AT&T its ability to handle future growth and meet demand its expectation to continue enhancing its software solutions and demand for its solutions deployment of its five G solutions and cloud environments and the.
Potential benefits of its clients its ability to capitalize on the emerging five G opportunities and win more market share with new and existing customers the potential of the company's vision and the use of artificial intelligence and its products and its revenue guidance. 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 are outlined in the presentation and the company's SEC filings.
In this conference call management will refer to certain non-GAAP financial measures, which are provided to enhance the users overall understanding of the company's financial performance by excluding certain noncash stock based compensation expenses non-GAAP results provide information helpful. In assessing rack com's core op.
<unk> performance in evaluating and comparing the results of operations consistently 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 included in the quarter's earnings release available on our website now I would like to turn the call over to a Yao. Please go ahead.
Okay.
Good morning, everyone and thank you for joining us for our fourth quarter and full year 2022 earnings call.
The fourth quarter was a solid finish being equal D. As we expanded our installed base with multiple top tier mobile operators.
Julian 2022 we delivers equaled revenue each quarter.
Presenting a third successive view of growth.
Fourth quarter revenue was $12 $3 million and.
Full year revenues were $46 1 million a 14% you will go to you go.
And we reached an inflection point for the company delivering a book to bill even on a non-GAAP basis, while generating a positive cash flow of $7 million.
Ending the year with equal level of cash and a non-GAAP basis, and net income of $2 $90 million.
We also made an encouraging start in 2023 by announcing that we had secured another north American contract for all of us.
Our solutions.
This exciting news continues the positive momentum since the beginning of 'twenty to 'twenty two.
This addition brings us over $50 million to new contracts over the last 12 months periods. The new contracts secured during 2022 on top of our current agreements provide good visibility installed backlog for 2023 and beyond.
As business goes we carefully manage our expenses and believe we can maintain scalable all cyclical.
We delivered a record breaking view despite the current economic headwinds. We believe this positive momentum will continue into 2023 and expect an even more robust growth year in 2023.
Based on our current visibility we are providing full year 2023 revenue guide of $50 million to $53 million.
Turning to our customer activities.
In 2022, we announced the renewal of our contract with AT&T.
These are important milestones and data.
And few strategic accounts, with whom we have a strong relationship and partnership.
We continue to innovate and provide software enhancements to ensure excellent customer experience and offer an advanced assurance solution that provides intelligence insight.
Cloud native solution.
We also announced in 2022 direct within Symphony selected our cloud assurance technology <unk> service assurance solution.
We will be globally available you Didnt seaworld marketplace.
Integration of vertical maze, <unk> streamlined network operations and help students understand what is happening in the network and where are the customary reflecting issues.
It also provides building work flows and unified data analytics to enable mobile operators to deploy and rollout side too rapidly.
Being part of this could open significant opportunities for <unk> in the future.
Turning to the new contract.
The 'twenty to 'twenty, two we secured multiple new contracts, including dish in the U S. And then you will pay.
In mobile operator.
Thanks to solid execution by our teams we have made good progress in these accounts, which began to reflect the full quarter revenues.
Most revenues will be recognized Julien went through 'twenty three and beyond.
As these vehicles in advance we believe there could be further opportunities to expand with these operators. For example, <unk> previously stated that the enterprise could generate significant new revenue stream.
This is with our Columbia assurance technology can help.
This can also the enterprise customers. So the assurance solution to monitor all these private networks to ensure service quality and certify SLS.
Hopefully those can sell premium services and value added packages, including service assurance the trend over the inside to cloud.
Multiple market verticals.
For the New North America contract, we announced last month, we provide real time insights into the network is open April maintained its folds in Nashville, when expanding <unk> coverage nationwide.
With our recent wins and positive customer feedback, we remain confident that our product offering in line with the market needs.
Best in class.
It will increase our market share by winning opportunities as the strategy transformation continues.
In 'twenty to 'twenty, two our multiyear contracts provide recurring revenue that accounted for approximately 70% of our revenue.
Our software centric business offers a robust business model that delivers high gross margin and significant recurring revenue, while providing customers with great value and predictable long term pricing.
Our team executed exceptionally well in 2022.
<unk> been salt, we extended our customer installed base, our customer support head count to remain approximately the same store.
This is a testament to the position of Liza will follow employees and the scalability of our innovative software.
Our solutions can be quickly deployed into ultra lethal snout nickel and rapidly rollout new customer features.
The agility and operational efficiency drove our financial performance this year, while simultaneously delivering on the customers' expectations and requirements.
As a software focused company, we maintained high gross margin do you see is 73%.
This helps our operational efficiency and improve our profitability kpis.
I am incredibly proud of the management team and all the employees and I. Thank everyone for their continued hard work and dedication.
In 2023, we plan on gradually increasing our sales and marketing teams to take advantage of the strong demand for cloud assurance technology reflected in our pipeline.
Operators continue to rollout <unk> and invest in their networks and we believe that factory markets remained strong with still only being in the early stages.
The complexity of these networks requires automated assurance solution to optimize performance and provide the cornerstone to building networks with extensive automation.
We do have uncertainty around the macro economy. Some older adults may take longer to rollout the <unk> network didn't address steel.
Still the market direction is clear and we believe our position is best in class assurance provider for safety will continue to drive positive returns.
With this transition to <unk> in the cloud open I, just want to become more efficient and reduce their capex and opex spending.
This is also an opportunity for us as I will elaborate on later.
Our long term vision is to help telecom operators become more to animals.
To achieve this goal networks must be software driven more intelligent and more automated.
This is what our solution enables to AI.
Formation, making to openly to sniff will more intelligent and automakers to AI powered analytics.
Our solution analyzes Macy's amounts of network data and provide insight to drive automated network operation.
I mentioned that the operators are under pressure to reduce capex and Opex spending. This is another area, where all of these innovative software and advanced AI can help.
Our solution enables sofas are you supposed to save cost by automating the network operations and automatically finding places to optimize that prevents revenue leakage and customer churn.
In addition, as we have a cloud based solution operators to reduce capex spending on the shoe and solved will not.
Not the world our solution installed with operators to do more with less and improve services.
These benefits can help hopefully to navigate the current economic headwinds.
So although there is uncertainty around the macro economy.
Well positioned to win more business swallowing ability to elbow creek to save costs and optimize.
Our solution will born in the cloud and design for telecom operators.
This helped us remain focused as we then sort of a solution.
So with <unk> capabilities and extend our AI driven insights.
Hey.
<unk> been in the news recently, we chose GTT going mainstream.
These cycles is called generative AI, which creates new content, such as images and videos.
<unk> has three models of walking one of those model is called gun for short.
Model generates synthetic data as an alternative to wheel network data.
We use AI technology to train and improve our solutions for advanced <unk> use cases develop AI models and also our customers new use cases.
Later this month, we will showcase our latest product innovation AI capabilities and exciting new use case at the mobile World Congress in Barcelona, Spain.
The leading telecom industry event.
We will hold many meetings with customers top tier operators and partners.
Rent is expected to do over around 80000 visitors is this shrunk after a couple of years have been fundamentally virtual event due to COVID-19 limitations.
Turning to the pipeline, we continue to see strong demand for our advanced cloud assurance technology reflected in our sales but.
As we manage multiple customer engagement at different stages of the sales cycle with a healthy mix of new logos and current installed base with most opportunities focused on <unk>.
We see good momentum for the <unk> market and believe it will stimulate growth as it ramps up.
Most sales engagement that can lead to additional multiyear contracts and increased market share.
Our solid financial results and new contract demonstrates our strategies effectiveness.
And the unique market position and supporting telecom operators and say all outside.
Also our recent wins provide a growing stream of recurring revenue and improve our already strong backlog, providing us with long term visibility into 2023 and beyond.
We believe these solid footing will drive consistent financial results in the future and continuous improvement to the bottom line.
Despite the economic headwinds, we also believe that the <unk> market will drive additional demand for all of those solutions and Covid.
Our business and lead to further wins in the future.
As a result, all the foundations are in place for a strong 2023 and the full successive year of revenue growth.
Based on our current visibility our 'twenty to 'twenty three revenue guidance is 50 million to 53 million Donuts.
With that I would like to turn the call over to a dialogue I was CFO will discuss the financial results in detail.
Good morning.
Please turn to slide eight for the financials.
But in the slides contains GAAP and non gateway.
So many to non-GAAP numbers, excluding share based compensation.
We ended the fourth quarter of 2022, which was going to $3 million.
And then you wake up at quarter end increased from 11 point to me doesn't do it up in the fourth quarter of 2021.
Although gross margin in the fourth quarter of 2022.
Basis was 73%. Please note that our gross margin can fluctuate depending on revenue mix.
Although our gross R&D expenses for the fourth quarter of 2022.
Well for $7 million, a decrease of $60000 compared to the fourth quarter of 2021.
We received a grant of $160000 from days around innovation. So we can't do them in the quarter compared to Atlanta $194000 in the fourth quarter of last year.
Our net R&D expenses for the third quarter of 2022 on a non-GAAP basis fell 12.5 Dora to me now to the fourth quarter of two dozen in 'twenty one.
Sales and marketing expenses for the fourth quarter of 2020 229 million on a non-GAAP basis, an increase of $347000 compared to the fourth quarter of 2021.
G&A expenses for the third quarter of 2022.
Basis.
In $42000, an increase of $105000 compared to the fourth quarter of 2021.
Operating income on an ongoing basis for the first quarter of 2022 with $608000 compared to an operating loss of <unk>.
$158000 for the fourth quarter of 2021.
Net income for the fourth quarter of 2022 on a non-GAAP basis was $1.320 million or net income of nine cents per diluted share compared to a net loss of $237000 or a net loss of two cents per diluted share for the third quarter of 2000 and <unk>.
Right.
On a GAAP basis as you can see on slide seven.
Our net loss for the third quarter of 2022, with 0.0 to $3 million or a net loss of zero cents per diluted share compared to a net loss of $1.4 million or a net loss of 10 cents per diluted share for the fourth quarter of two dozen in 'twenty one.
At the end of the third quarter of 2022 I believe.
<unk> was 284 now, let's turn to the full Arizona.
We ended 2022, which revenue of 46.1 million, an increase of 14% from $43 million in 2021.
On a non-GAAP basis, although gross margin was 73% in 2022 compared to 72% in two dozen in 'twenty one.
Gross R&D expenses for 2022.
GAAP basis were 19 point of view.
Which was approximately the same in 2021 in 2020 tree, we plan on investing in R&D at approximately the same level as in 2022.
We received accumulative grants from the Israel Innovation authority for 762 doesn't go out to eat.
In 2023, we expect glass from diesel and innovation with Dougherty to be loyal by 50% compared to two dozen in 'twenty two.
Sales and marketing expenses for 2020 to $10 $9 million on a non-GAAP basis compared to $95 million in 2021 in 2023, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities.
G&A expenses for 2020 tool when a non-GAAP basis was $3.6 million, an increase of $301000 compared to the entirety of 2021.
Operating income on a non-GAAP basis for 2022 was 1.1 million compared to N appointing loss of 2.1 million daus.
So it doesn't in 'twenty one.
Net income for 2022 on a non-GAAP basis was $2.9 million or net income of 19 cents per diluted share compared to a net loss of $1 9 million or a net loss of seven cents per diluted share for 2021.
On a GAAP basis as you can see on slide seven our nature photo doesn't it went up to $2.3 million or a net loss of 16 cents per diluted share compared to a net loss of $5.3 million or nature of 37 cents per diluted share for 2021.
The increased share based compensation expenses negatively impacted GAAP net loss in 2022 compared to 2021.
In 2022, we believe that adult all shaken a ratio will stabilize at the current levels and we know it takes a while your hedging.
Turning to the balance sheet as you can see on slide 11 of our cash cash equivalents and short term bank deposit as of December 31, two dozen in 'twenty two.
77 7 million until now.
And now I will turn the call back today I'll tell Angel 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.
You are using speaker equipment kind of 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.
Okay.
Okay.
The first question is from Alex Henderson of Needham and company. Please go ahead.
Great. Thanks, so much.
Congratulations on the great inconsistent execution, you guys really are.
Our be delivering the right.
Mechanics in your business and it's a it's good to see.
I was hoping we could talk a little bit about the commentary around sales and mark putting.
What do you think there.
The Opex investment will look like over the course of 'twenty twenty-three assume your gross margins will stay pretty much where they are but.
Also in assembly.
It's a little bit more aggressively on the shelves.
There's some guidance there.
Yeah.
So thank you Alex and yes, we will finish and get a great deal with the improvements will notify with our kpis.
As <unk> pointed out we are looking to keep our operation expenses similar levels.
In general as we.
We are seeing it.
Our ability to be efficient and continue to deliver.
We dealt with the current team even though we are growing with all the customer base.
We are keeping all of the R&D expense.
The technical stuff.
The expense compared to 22.
We are looking to gradually increase over the fence and marketing as we see the reason to Houston.
And we want to have because each due to mobile comms and spy.
I'm just just can understand I mean, I would think that you have at least some wage inflation.
To deal with them.
It's niche isn't the shekel what's offsetting.
Michel over the last year offsetting the wage inflation is that how you're delivering stable opex.
That seems like a pretty so yes, we do have some we can even go up to the shekel compared to the dollar which allow us to optimize the beat our cost is always R&D remain close to these Israeli shekels, we do those so some.
D mutation and cost saving activities to adjust.
Our operational expense.
And this is why we'll be able to maintain similar levels. Despite also the inflation and some salary reductions.
We need to do.
One of the other variables.
A little bit challenging for us too.
To analyze externally as.
The change in cash generation.
In the company over the course of the years raised your cash balances and the.
Interest rate on your cash balances are going up.
So can you give us some sense of where we ought to be in terms of the interest income over the course of 2023.
It was up.
Up quite sharply quarter to quarter and I don't know, whether that's a function of something unusual in the number was.
Hum.
A translation.
Just the rise in interest rates on your balances.
Doug can you take this.
Yes sure. So we ended the last two years, we see positive cash flow and daily value they see with their transition to profitability.
Here, we see a strong correlation from a larger customer index. This is dangerous.
Basketball is east of course.
I would say based on the ATI two way, we will continue to generate cash.
In 2023.
Well, yeah, I would assume so but I guess my question is in the interest income line should we be using 500, K a quarter or two to roughly $2 million.
For the year similar to what you earned in 2022 two or.
Is there something in there that in 2022 that overstated that.
It should be down a little bit or.
Interest income to go up can you give us some guidance on the interest line for 'twenty three.
I see between two to three Navy Army enjoys C on a basketball game.
2023.
I'd say there are any offsets to that or is that.
Yeah, well, we should be using.
No. This is a significant portion of a financial income.
And the other two lines there.
I could use a little guidance on his D. N. A re line is that going to be as you know getting a little larger is that right.
Your line from the government subsidy is going to start coming down.
We're assuming it's going to come down 150, K for the year.
That rate is going up or what any thoughts on that.
So you're asking me what they see.
Yes.
And are the.
You know the the subs cities you get from the government and our Elan.
Okay any change any sense of whether that's going to go up down sideways for a 23.
So yeah the innovation.
So it is a concentrated.
The Companys NDA SASSA Cindy we believe they just said they see I E. Why did you want to do it is enjoying between the NOL by 50% compared to 2022.
It would be away from Nike doing this as part of the.
And then tax line any guy.
Syntax.
Kelly.
The tax line any guidance on the tax line.
And regarding the talks we are known as seasonality cause T Z was eating into doesn't enjoy detour because they we believe that the OE. Okay. So there's nothing else. We all said they expected profitability a view into that.
Yeah.
Okay. Thanks.
Can you talk just a little bit about the pipeline.
What the whiteness of what you're looking at is is there a lot of transactions that are being slowed down as a result of the the conditions in the marketplace and to what extent.
You'd think that.
You're going to have some news flow in the first half of the year or is it going to be mostly in the back half of the year, just some sense of timing of what Youre chasing.
So when I was back then is solid and we have a good mix of opportunities between our existing customers and new customers.
We are monitoring like it because we want to use and we see telecom operator.
And then continue to invest in five G. But they're also looking at how do you need to adapt to the new micro economy.
Hard to predict.
Telecom and vertical specific when exactly this will happen.
But I think most importantly is the.
We are starting 'twenty to 'twenty three with very good visibility into the year based on our very good performance.
I went through 'twenty, two and which gives us the confidence.
This would be another growth year.
And any.
Yeah.
We have in our pipeline that makes up for it.
Opportunities different stages definitely some good stood up in the first half of the U S.
As long as there is no unforeseen delays due to the to the macro economy.
But it's really hard to predict.
Thank you so much.
Thank you Alex.
If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
The next question is from Safe Pruner of William Blair. Please go ahead.
Hey, guys its faith on for origin again, congrats on the corner.
Just wanted to talk a little bit now that you've reached that inflection point what are the levers that you guys have ear disposal from both the top line perspective, as well as Martin said I know you touched on previously to kind of keep this level trending as you kind of go back towards historic net income numbers.
So thank you Fraser and good morning.
I think to start with.
Went to 22 was our third consecutive year of growth and you see it.
All of the guidance we are looking to continue growing also in 'twenty two 'twenty three.
And double digit level.
There is a software company, we made gross margin in Q4.
73%.
And then in 2022 and we're looking to have a similar level in 'twenty two 'twenty three a lot of the top line goes to the bottom line.
You mentioned it in my prepared remarks.
There was.
Asking the previous questions.
We are able to maintain our operational expenses.
Controlled manner and we don't.
We didn't see a need to increase our operational teams. Despite these goals and additional customers that we work with.
This is why we see that the significant part of that.
Of the top line Houston slated to the Buck and we see this trend in the profitability.
Profitability Kpis improving.
The last that's really is the long read the globe. So as we are expecting to also go do you see as.
Walking and then executing with our existing and new customers. We are expecting these to be improving goes so again, good profitability and continue to generate.
Cash flow doing point to point.
Okay, great. Thanks, and then I just wanted to talk about where it is for a second we've been hearing a lot about it in your recent deals can you just talk about how this solution brings customers to the table and how it's contributing to the overall pipeline.
So Russell banks is there is a solution that was born in the cloud for Tenneco won't potatoes, as they transform into five G.
Unlike many of our competitors are all based on legacy platforms. This beautiful.
The full gene networks in the appliance days, we are we've been ground up although it was technology at Homegoods utilization in cloud.
Pictures.
This allow us now to be focused not only on the infrastructure, but we'll continue to add more innovation into the value.
Maybe some will follow the other.
Market players so busy today too to be great or build a cloud native solutions. This is something that we already have for the last two years and then we got endorsement for the recent wins.
Companies like they used to do very advanced in the cloud maybe.
The only operator that is fully cloud native utilizing AWS.
So this this allow us to direct our R&D investment to create these additional edge and as pointed out before he got technology.
He is amazing and we are trying to harness these are great tools to allow additional value to our customers.
Required to open.
Optimize them.
Save cost and by leveraging the technology that we're able to add a lot of machine based applications for automation.
The language that was a long term strategy to help operators become more.
So we are seeing great response from our customers and prospects about the reticle Mace and we believe this is probably the best product out there with five year issuance in the cloud.
Awesome, Thanks for the color and again congrats on the year.
Thank you for it.
This concludes the Rad Com L T T fourth quarter and full year 2022 results conference call. Thank you for your participation you May go ahead and disconnect.
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