RADCOM Ltd. Q1 2023 Earnings Call

Thank you.

Okay.

Ladies and gentlemen, thank you for standing by welcome to the rack Com Limited results conference call for the first quarter of 2023.

All participants are presently in a listen only mode. Following management's formal presentation instructions for the question and answer session 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 Broadcom Dot Com letter later today on the call are al Harare, Broadcom, CEO and Dara hub Red come 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 and they do so through the link in the investors section of Rab comes website at Broadcom Dotcom Backslash 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 its full year 2023 revenue revenue guidance as well as revenue from its business with AT&T levels of gross margin operating expenses and headcounts expected growth in 2023 and beyond.

Expectations regarding the enterprise market for telecom operators, including trends in the market and the effect of general economic conditions continued investment and then benefits from research and development its expectation to gain further interest from operators and playing an important role in facilitating the transition to five G. The potential to <unk>.

Leverage continues technology and products to the benefit of Red Com with Vodafone another customer its expectations about its pipeline opportunities leadership position and momentum further demand for its products and growth of the company's expectations with respect to its relationship with AT&T and Rakuten and potential grants from Israel.

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 are outlined in the presentation in the company's 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.

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 in the quarter's earnings release available on our website.

Now I would like to turn over the call to <unk>. Please go ahead.

Thanks, operator, good morning, everyone.

Thank you for joining us for our first quarter of 2023.

At school.

We continued our strong momentum for 2022 into the first quarter of 2023.

Revenue increased 13% compared to the same quarter last year.

<unk> consecutive quarter.

Year over year growth.

Our solid performance and careful expense management improved all of our profitability to keep your eyes.

We also introduced some new product use cases.

Using advanced AI.

Oh, sorry.

This quarter, we significantly improve our profitability.

Our non-GAAP net income compared to the first quarter of 2022, and achieving our 15% non-GAAP net margin.

In addition, we are happy to report that our.

Careful suitability reached full year high driven by solid execution and increased revenues.

We also had an encouraging start to 2023 by securing a new logo in North America.

Although solution, we smartly collect process.

And analyze drove feet in height automated way of course, both <unk> networks, we chose the operator will deliver the high quality service nationwide.

Block to be ensuring great customer experiences.

This exciting news continued the positive momentum since the beginning of 2022.

Safety networks continue to rollout with clinical motivate all investing in infrastructure and new technology, while ensuring a seamless transition for some customer so they received top quality services.

At the same time operators must be efficient and keep the cost to reason delivered.

Operators can use our innovative assurance technology to manage the nipples, who actionable insight to ensure excellent customer experiences, while saving opex and driving automation.

D. C is our edit value, which is why operators drilled into our solutions.

We continue to develop our AI driven use cases to push our vision.

Tunnels networks.

Operator deliver great user experience save cost and monetize the sale he says.

During the first quarter, we announced that we bought it with Rakuten mobile to offer the telecom industries first network data analytics function NW dose.

Production.

Russell mean W. Does is complementary product line.

<unk> and part of our long term vision.

You may build autonomous vehicles.

The overall, the NW tough market.

Its very earliest stages, so the product will not generate revenue in the short term.

However, it is an important investment for the future as it is a native natural functions deployed in an open letter Snick book and not an add on.

It uses the advanced AI to enhance the customer experience. It was closed loop automation.

This partnership with Rakuten demonstrates our market leadership and innovation.

AT&T remains the key strategic customer and we believe our business will remain strong.

Last year, we announced that they can.

We expect revenue from AT&T in 2023 to remain at similar levels to last year with the potential for further growth.

Turning to our product innovation.

We continue our commitment to delivering innovative solutions as we then sell the software with additional automation and diligent CIBC abilities to bring the value and expand use cases for our customers is five G technology moves forward.

During the quarter, we announced radicals due to lease network operations Center.

No.

This new use case is followed by extensive.

And the enhanced with our telco domain knowledge to digitalize the network operations Center.

<unk>.

The Reno helps operators transition for menu and operations to automatically detect anomalies.

Performing root cause analysis.

Do you see navel operators to solve customer fixing issues and drastically in pool.

Solutions times, making missile teams more efficient, while saving costs and improving the customer experience.

We also advanced our cloud expertise announcing tighter integration of Russell base with Amazon Web services AWS. So operators can gain complete assurance lifecycle management on AWS to drive network automation.

Do you suppose bidarka titles adopting the public cloud with extensive operational agility, it saves opex spending and the user experience on AWS.

We believe all of the integration into the cloud providers will have to generate additional opportunities.

In February our sales team attended the mobile World Congress in Barcelona, Spain.

The leading telecom industry event, we didnt audience of almost 90000 people from twin 200 in two countries.

We were excited to once again engage in a face to face meetings with customers top tier operators and partners we.

You had many positive meetings, including interest you know new mobility experience offering it was form continuum.

We believe that some of these meetings could lead to new sales opportunities.

As we covered at the recent blog posts on the event. We saw evidence of our believes that automated assurance will be vital for Pfizer network operations.

Operator, we must make the network more intelligent dynamic in autonomous to deliver quality focused services.

So strong teams with the transition.

So the cloud network automation and the importance of it.

All of these already else interest for radical them into five new markets remains promising.

Cds, it's early stages.

The complexity of these new <unk> network architectures requires automated assurance solution to provide the cornerstone to building this work with extensive automation.

We also hear from our customers.

Now I would like to provide more color on containerboard.

In February we entered into a definitive agreement.

Well continue on.

After satisfying customer and transaction specific closing conditions.

Two approvals, we completed the acquisition in May.

Continual focus on telco network analytics specializing in mobility insights.

These insights enable delta or at all to understand the movement of the customer and how to improve service quality and coverage with a particular focus on the radio network and <unk>.

These morbidity experience insight use AI technology.

Cloud base, so the fleet into our product philosophy and solution architecture, while adding value to our current offering.

It will also differentiator from our competitors with continual unique innovative location based technology.

A model and a rhythm solution as possible entry point into new accounts, and then additional upsell opportunity into our installed base.

In addition.

This new logos like Vodafone and to offer us opportunities to expand into different areas.

Finally, it adds further talent and telco domain knowledge to what we'll see.

We believe that adding continual advanced mobility experience analytics and intellectual property, we limit each over a five year issuance solution and create the opportunities for Red School.

We see that new figures from GSM intelligence published Julie that mobile World Congress shows that 50 connections are expected to double over the next two years.

David by Technology innovation, and new network deployments.

More than 30 countries in 2023 alone.

As operators invest heavily and <unk> to seek new revenue streams.

The gains in investment and streamlined network operation cost savings.

This trend is even more critical with the uncertainties around the macroeconomy.

So we believe our position as an advanced automated assurance provider for <unk> will continue to drive positive returns.

Our pipeline continues to be healthy with good mix of opportunities from our current installed base and new customer in.

2023, we are gradually increasing global sales and marketing team to accelerate growth strategies moving forward, but all else takes time.

We are laser focused on our business strategy and the <unk> market, we believe our position as a leading <unk> provider for cloud native <unk> networks, and our cloud expertise and knowledge will continue to drive the growth of our business.

To summarize we have continued our strong momentum from 2022 into the first quarter of 2023.

Our solid financial results demonstrate our successful strategy execution and unique market position and support supporting telco operator, as they roll out fiber.

We believe these solid threat critical will drive consistent financial results in the future and continued improvements to the bottom line.

We have a solid foundation in place for a strong two into 'twenty three and full success the view of revenue growth.

Bill will discuss the financial results in detail.

Thank you Jan and good morning, everyone to help you understand those.

So need to non-GAAP numbers, excluding share based compensation now please turn to slide eight for the financial highlights.

We achieved a very cold weather in the first quarter, two reaching $12 million, representing 15 consecutive quarter of you Obelial revenue pools, and then increased from 10.6 million daus in the first quarter of 2022.

First quarter live and you'll go they double D. G to with you although growth of 13%. This resulted in non-GAAP net income for the quarter of 1.8 million Daus. Besides you hi.

At the same thing we continue to manage our expenses, while investing in the business so digitally indecision Kay.

Gross margin in the first quarter of two dozen advantage way on that basis was 73%. Please note that our gross margin may fluctuate depending on mix.

But did the second quarter would remain at the scene.

Gross R&D expenses for the first quarter of two dozen events each week.

I'm good basis for $12 million, a decrease of 724 doesn't do it off compared to the first quarter of 2022.

We received a grant of $262000 for them to Israel innovation authority during the quarter compared to 218000 doors in the Susquehanna deal affect you.

As a result of them as R&D expenses for the first quarter will still does any advantage, we good basis the $4 million.

There are two fold, one 7 million barrels in the first quarter of two dozen in 'twenty two.

The Israeli innovation authority grant in the second quarter to be about $150000.

Sales and marketing expenses for the first quarter of two dozen in 'twenty, three but actually they don't do enough good basis, an increase of $407000 compared to the first photo studios into 'twenty two.

G&A expenses for the first quarter of 2023 and the $964000.

non-GAAP basis, an increase of $179000 compared to the first quarter of 2022.

Yeah.

Operating income on a non-GAAP basis for the first quarter of two dozen important between 800, and so Detroit doesn't do it off compared to an operating loss of $274000 for the first quarter of 2022 days.

I used to live in you and favorable FX drove the school.

Net income for the first quarter of two dozen of 'twenty three.

With Macy's.

The $8 million or net income of 12 cents per diluted share compared to a net income of $614000.

Income four cents per diluted share for the first quarter of 2022.

When it got basis as you can see on slide seven of our net income for the first quarter of two dozen of 23 $621000 or a net income of four cents per diluted share. This compares to a net loss of $592000.

Net loss of four cents per diluted share for the first quarter of 2022.

At the end of the first quarter of 2023.

One was 277, we expect our headcount to grow to approximately 300 in the second quarter.

This increase includes additional sales and marketing employees and on boarding of the continuing theme.

We expect to continue on Jameson bogging to slightly increase of operating expenses when helping to improve our top line as we integrate the solution upsell to our coatings go away and so to your question is a unique product differentiator.

Yeah.

Balance sheet is China on slide 11 of our cash cash equivalents and short term bank deposits as of March 31, two dozen of 'twenty, which we will 77 points to $90 million debt end of our prepared remarks, I will now turn the call of VIX to the operator for your questions.

Yeah.

Thank you ladies and gentlemen at this time, we will begin the question and answer session.

Have a question please press star one.

If you wish to cancel your request please press star two.

If you are using speaker equipment kindly lift the handset before pressing the numbers questions will be called in the order. They are received please standby while we poll for your questions.

The first question is from Arjun Bhatia of William Blair. Please go ahead.

Perfect. Thank you guys for taking the question.

Al can you talk about some of the AI investments that you're making what capabilities are you introducing into the platform.

And you know as we kind of roll. Some of these features out how do you think about monetizing them is that going to be included in the core platform or is that something that you can upsell as customers adopt that.

Hi, good morning.

Do you think that people scenario of investment philosophy is vital fluids overall vision for Cree.

Creating a totally new snack local durations.

The driver for US is to see how we can turn maybe what's this is used today is basic engineering teams and implement the levers you've got this ability is to be done in a much more efficient way.

In addition, it also adds a lot of improvements today.

Turning to repair is if you need to do things manually. It always takes time to do a resource constraint and if we are able to meet with all of the Ics abilities operate tools are able to identify and solve this and this.

It was much faster.

If we lose on the business side, we are looking into ways definitely this is Ed <unk>.

The stall base is another where we are.

Thank you Judy.

And different applications.

Creating different use cases on top will follow main vessel based platform.

But this is also very key as the differentiator.

We are recruiting new customers.

Positives on the reasoning to replace their incumbent solution one of the key drivers School dam is once we show them that.

Moving to an ethyl corporation and efficiencies, which helps to justify.

Slowly and replacement of the old legacy tools. So it's a mix of absolute to the existing accounts and also enablers that improve our positioning we do income.

Yes.

I'm trying to understand what where operators are doing to understand subscriber movement before continue on like is this a is there a tool that they had in place to do this and or is there something else that you think you'll replace or consolidate them.

As you roll this out and cross sell into the base.

So there could be a slow decline is actually totally new dimensions to the analytics you can do.

Yeah.

[laughter] networks, you you always try to analyze them by geographies by location and this is clearly a cheat and constant this already playful tenneco.

The main complexity of the mobile network, so people with us.

And so this is why they are on the move and you can see that we need.

Decent location at different times, but you don't it's really hard for us to identify global journeys, we dealt with ATP solution. So it's actually a very innovative concepts.

As I mentioned this many times blind otherwise we'll use.

I would say more.

Previously as tools that show the newly out of these times volatile.

It's really a household name to really isolate it.

This is a quality issue as a result.

This ability because it might be this year.

What I'm, making my cool.

Because five sales each of them like says he spoke very good well listen to the area, but why on each physician I actually get.

Inferior quality so operators today do not know how to differentiate that and they didn't know.

Blind into the quality of experience with new subscribers as well.

You did you use.

So he said they actually do and these costly snake.

Customer less satisfied and more likely to churn.

Mobility is always more scope looks when we are in a more maybe wouldn't be and his colleagues were moving to high speed, maybe even three.

These really challenged that technology and we feel this is really unique.

Well. This is what we liked about this company and its definitely adds into our coffee.

The lottery.

These new applications. So we are really excited in that.

Yeah definitely that sounds that sounds very interesting I. Appreciate the color last last one for me just when we're thinking about margins for the year. It looks like you're driving some upside here or how should we think about the leverage in the model throughout the course of this year and how much room is there to improve it.

The margin profile it sounds like there's some investment going on in product and go to market, but just help us walk through the cadence for the year.

So we are the <unk>.

You saw the disclosure, we executed better than I do.

Given our expectation that we are very happy with the results. We hope to continue to achieve and beat our expectations. We do have an increase of cost is.

You mentioned, there could be USDA into all of the operational expense.

This is a disease of Citibank.

We do have the share count will go through the U S dollar.

The way we are looking to we increased our operational expenses.

If all goes well and we continue to grow and with lower comps.

We are looking to continue and see this range of sports suitability movies.

And of course, we are there.

The denials.

On the April the shift of Easter shifting.

Okay.

It continues.

Continues to be in this thing that 11, this is really super well for us.

Someday.

5% gain due to the weakened even compared to the dollar.

R&D expenses are heavily based on changes.

Okay got it thank you for taking my questions guys.

If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.

Thanks, Dan.

Call for more questions.

Yeah.

The next question is from Alex Henderson of Needham <unk> Company. Please go ahead.

Alright. Thanks.

So I wanted to just dig down into the addition of continuum.

And I assume some additional hiring.

Youre doing independent of that acquisition.

By my math it sounds like your expectation for head count is up about eight 5% sequentially.

And so should we be considering it.

That kind of rise on average in your Opex.

Can you give us a little bit of a sense of the split between R&D and sales and marketing and that and that cost addition.

Yes, Alex good morning.

Yes.

Including these holidays.

With all of that come to us.

Next we'll go.

The range of eight 9%.

I merely by addition of say a continual team, but also we know that continued increase of investments into sales and marketing while continuing on Tvs, mainly R&D.

And then on top of that we had.

In addition, our investments into sales and marketing I would say that this would be around the same ratio.

Cause both R&D and sales and marketing, but G&A is going to stay about the same.

Of course.

First of all if any.

If exchanges.

So we should be taking about a 10% increase in both sales and marketing in a very minor increase in G&A.

Again about 8% to 10%.

Obviously, you're not adding to your G&A from that acquisition. So I would assume it's a little a little higher than the 8%.

Primarily with the increase in those key lines.

All right.

Right so.

Based off of.

The strength.

Over the quarter.

You know should we be looking at any sequential growth or is it fairly stable on the topline sequentially is as we go out with most of the increase.

Revenues remaining to get to your target in the back half of the year.

So we thought we'd see this week.

Managed to get.

Over the 12 million so another quarter is based on our leases.

Looking to keep improving.

In addition, our revenue flows Walter we'd ask you to.

Hard to forecast exact.

And when exactly we will have the addition on the outside.

We are looking to get more value both on existing and new customers I think that overall, we are rapidly and continue as planned.

We need to raise our guidance we have assumed.

The few folks a little this year will be another growth year for us.

In the context of.

The U S wireless market.

There is a challenge around the open.

<unk> core.

<unk>.

Many of these service providers appear to be struggling with the mechanics of getting that to work we've heard that there's going to be.

There's a push out in the time that they move from four and a half two to five G core.

Ah.

I can read that in two ways.

One way to read it would be there has to be a delay in spending.

Our products are the other way to read it would be.

Significantly increases the need for your products.

His ability and analytics are critical to solving the software challenges while doing the open core so could you talk a little worried about.

Yep issue.

First and foremost.

It's evident today, that's all telco play to US early in the process of implementing <unk> and specific 50 coal <unk> standalone.

Is this strategic investment.

This is very important as this is the <unk>.

<unk> of our strategy as we build the company and will leave the floor.

Policies.

That sounds good.

Formation of telcos.

As for US an opportunity to replace the legacy solution as we said.

It's a technology evolution, but it also require operators to most of the clubs.

You said timing wise there are some factors that makes things more complicated and slower one thing is that the Coolidge itself. This is quite complex and not as mature and it takes for the network vendors time to implement and the <unk>.

Populate those it.

It takes a bit longer than before.

It's a good thing because the more complicated the technologies you use the more reliable.

The Congress.

So we are helping them to create these complexity, we see those customers adopt our technology like <unk>.

Winston and dish and more.

As you to move faster than others in the <unk> space.

The macro economy is definitely make everyone.

The.

Pacing data.

Vestments Shri.

We do get some things where it gives us.

The musicians that it's harder for them to progress with the project.

Obviously, Mike.

Some delay with the investment but the good thing is that our business model is robust we are walking with.

Leading carriers, we have been mostly in view.

He told me because there is a new and even in this environment. The delays as you can see we are able to perform.

It is both.

And we prefer to go.

So the journey that typically take.

I would want to highlight that.

My personal belief is that.

This is Ed.

<unk> is progressing this is why we are increasing our central marketing, but we looked like this is a journey. This is not seen as have been sold in the quarter, but we see the next two years are going to be critical.

<unk> is always a question, but you need to work closely with the openings will we know that to make sure you all the selective solution.

Great.

So just going back to the point.

Of open our cloud based five G core, but the complexity our challenges are being realized.

In a way that drives increased need for your product and therefore.

While it may be.

A detriment to say, a nokia or Ericsson.

That's actually could be a positive for you guys are in that context.

The other side of this as the international markets have.

Generally cleave to a lesser open.

Open, but still cloud oriented.

<unk> core and that in turn is easier to implement.

And so I guess the question is do you see some some acceleration or improved opportunities in the international market as a result of that dynamic.

And yes, we do see that.

There is always notion of cloud technology going back to my comments about mobile World Congress the FDA in end.

Through February and we sold the hydro scanners.

Google and Microsoft taking a prime.

<unk> of all telcos these will still be done by European carriers.

And we see maybe a little more investment by all parties and we start to see more and more projects of Tesco going into the cloud. This is a good sign for us.

Mentioned in any investment to this direction.

Our value is much higher.

Yes.

<unk> differentiated tool.

More critical and we really believe that this trend could help.

How did you progressing any in Asia, and we start to see these shifts thanks, a lot of people in America.

We don't necessarily on the geographies.

Mainly looking on the market.

Our defense slope in April so with five due to moving finished down five three at the moment.

Cloud data center.

With his feet. So we are really targeting the novel approach.

Trying to policies as we go through the whole of advance so EBIT.

We don't know the pace of adoption, but we want to make sure that all the early adopters.

Many of them as possible.

The positive is Russell and this will help us to continue and innovate continue to create unique capabilities and the powerful any competition.

<unk> tried to follow.

Okay, two more questions.

Charlie freestyle.

The continuum acquisition.

Obviously has some nice incremental technology I assume that's not included in your AT&T.

Or a racket 10 contracts.

How do you see that.

Technology being adopted by your existing customers and what kind of uplift would there be to your revenues.

Individual clients if they did that in other words.

I'd say were selling are just choosing a number of randomly here a million dollars to to AT&T in a year.

And they adopted this would that be a 1 million one 1 million to what what would the incremental uplift.

For for that adoption.

So we are we are.

Still early and then trying to introduce this technology to all of our installed base globally, we see excitement from that.

I would say this.

While currency was a startup and their.

Revenue level as we mentioned is.

It is significant to our numbers at this stage, we see a potential diseases.

To grow and it helps.

I would say this was low at 252% of our revenue.

It really depends on the industrial adhesives just like.

Yeah.

Since we are still looking to continue.

Sure.

Small cells, coupled with <unk> when we saw sustained almost went before.

Great. Thank you so much.

Okay.

This concludes the rack Com limited first quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.

Yes.

Okay.

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