Q3 2023 RADCOM Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the rack Com Limited results conference call for the third quarter of 2023.
All participants are present in a listen only mode.
During 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 come Dot Com later today on the <unk>.
Paul are you all Harare Rad come CEO and Hodara Hob Rad comes 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 <unk> Com's website at Www Dot rack com dotcom slash Investor Dash 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 2022 revenue guidance the potential to scale up to a mid sized software company levels of gross margin further increases to revenues and profitability in 2020 for operating in stock base.
Compensation expenses head count expectations regarding continued rollout and the <unk> market and investments in networks sales opportunities pipeline momentum potential and expected growth the effects of the warrant Israel its expectations with respect to investments in research.
And development and sales and marketing as well as grants from the Israel Innovation authority deployment of its five G solutions in multiple cloud environments and the potential benefits to clients the potential of the company's product with respect to artificial intelligence and generate of AI.
And customer satisfaction. The company does not undertake to update forward looking statements the full safe harbor provisions, including the risks that could cause actual results to differ from these forward looking statements are outlined in the presentation and the Companys SEC filings and 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 acquisition related expenses and amortization of intangible assets related to acquisitions non-GAAP results provide information.
<unk> helpful in assessing <unk> core operating performance and evaluating.
And comparing the results of its 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.
A 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 our Yao. Please go ahead Vince.
Thanks, operator.
Good morning, everyone and thank you for joining us for third quarter 2023 and schools.
I wanted to start by commenting on the terrorist attack on October seven and the situation in Israel.
Does that concern really is the pillsbury cake and wishes to extend our deepest sympathies and condolences to those effects.
Thanks.
This was the worst that can.
Newsroom 75 Years' history and has been felt on a global scale.
With victims for at least 13 nations effected Baidu strategy.
And over 240 people kidnapped all wheel harkey, Sweden, and we hope they will come home safely.
We also pray for the victims their families and their loved ones.
We empathize with every individual impacted strongly condemn the actual violence.
We are confident in your store and strengths this will not let go.
I want to touch all of our customers partners and stakeholders for their.
Unwavering support and best wishes and we are grateful for their continued confidence in Grad school.
A little creations in Israel continue without interruption and we are attending to all employees and their families needs and will be.
Our business continuity plan has been activated and while we are closely monitoring the situation.
Office is fully operational and running on all cylinders.
Looking onto boldly picture most of our workforce is outside of Israel. So we don't expect these events to impact our overall business.
As a software company a little more duration, sorry, the cloud, which means we are Asia and can adapt to the evolving situation.
Our global support center span multiple regions, they're all running as planned.
We continue fulfilling our customer commitments, providing 24, seven football and focusing on growing the business.
We remain steadfast in our commitment to driving the company forward. Our view continues to work diligently to fulfill all obligations for 'twenty to 'twenty, three and pave the way for 2024.
I want to express my appreciation for their hard work and devotion.
Turning to Q3 results.
The positive business momentum for the first six months continued in the third quarter of 2023.
We achieved record quarterly revenues of $32 million.
Double digit percentage and deliver 17th consecutive quarter of year over year. When you go.
Net income in the third quarter reached a six year high and we continue to improve our gross margin.
Strong team execution led to good financial performance driving revenue growth and improving our bottom line.
We believe that during the fourth quarter, what would you see Kevin go simple suitability pool, which will continue and extend into 'twenty 'twenty four and he will provide opening tools with AI powered analytics to ensure excellent customer experiences.
This reinforced our guidance as we expect to deliver our fourth consecutive growth year in 2023, and stand up and meet sites social company for the fourth time in.
In the company's history.
Turning to our customers.
We have made good progress in our existing and new accounts. Thanks to our focused team performance with the additional accounts activities increased by further customer expansions during the year.
Houston to scale to meet the higher demand and continuing to provide value and deliver cutting edge social releases global customer base.
There needs to decide which markets we.
We see operators continue to rollout <unk> and invest in their networks.
Market direction is clear.
Base may vary.
We are engaged in multiple opportunities at different stages of maturity.
Engagements include mix of new and current customers is also need to continue the strategy transformation.
Therefore, we increased our investment in sales and marketing to meet the expected demand. So all of the carrier grade solutions.
A couple of weeks ago opened signals published its latest mobile experience with bolt on highly competitive Japanese market.
It showed digest, a three and a half years after launching reckless in mobile and efforts to deliver a high quality easy to access at the mobile services.
Validated by expert Research report stated that the countries U S soccer Rachel unfolds highly in several key measures.
Dish announced another world first second significant simultaneous I think downlink speed.
And I should state.
This can also faster speed and low latency delivering better customer experience. So data application like video conferencing and uploads.
Also AT&T recently delivered strong results in the United States, We fully funded you cool.
As they continue to invest in best in class Iot connectivity and enhanced the largest wireless network in North America.
You know these examples we believe assurance solution are vital in managing the complexities issuing subscribers received excellent customer experiences and enjoy high quality self he says.
So we continue to invest in R&D, and then some product portfolio and provide customers with a best in class assured solutions to help them drive the network's full world and innovate.
Hopefully it will stay in a highly competitive market, especially in the current economic climate is there pressure to control costs and streamline processes.
These trends lead to them to rely on assurance to improve efficiencies in the cost of operations. This will generate the opportunities for <unk> com as they turn to the next generation cloud technology to optimize cost and rollout phase.
We continue to work we see besides your cloud ecosystem, we also as potential customers integration with all three leading public cloud providers Amazon web. So he says Microsoft Azure and Google Cloud.
In previous calls I mentioned the importance of generalists.
<unk> and all of the leading public cloud providers or Hyperscale is emerging as everything gets people to roll in the <unk> ecosystem.
We see an opportunity to bring our unique telco centric assurance schemes that we have these HEICO scaling boost the push into the cloud space.
The team is already working hard on embedding Gen AI technology into our solutions to enable innovations to help operators manage their networks more dynamically and efficiently.
And distillation.
We hope to share some of those exciting updates in the fall schools too.
Turning to our pipeline.
Our pipeline continues to be healthy offering further scope to grow the business with new and existing logos.
Demand for our advanced issuance solution continues to be strong boosted by the integration of continual unique technologies.
And reached our cloud focused portfolio. So we continue investing in defense and market needs to create more safety engagement. This can lead to additional multiyear contracts and increase our market share.
We continue to deliver innovative solutions and the NASA with social with additional automation intelligence and AI based capabilities to bring value and expand use cases for our customers fight you technology moves forward.
Over the last 10 months, we have announced move to pay that nobody's capabilities and features global solution.
Well the strategy is making network more intelligent and autonomous.
<unk> powered analytics.
But you know internal audits locally in discussions for 'twenty 'twenty four and beyond we lose two pillars to guide our strategy is to continue to drive the growth and transformation of the company, we will expand on this fourth quarter and full year results.
To summarize.
We have made good progress in advancing our business performance, increasing revenues and improving profitability, while seeking sustainable goals. We believe this positive momentum will continue in Q4 and beyond as we innovate and deliver value to our customers.
Our program continues to be healthy offering growth opportunities, we do in existing logos.
Well guess what.
Our business strategy demonstrates the value of our solutions and the strength of our business model. Therefore.
Therefore, we reiterate 'twenty 'twenty through revenue guidance of 50 million to $53 million.
With that I would like to turn the call over to our CFO, who will discuss the financial results in detail.
And good morning, everyone.
So that's why those tenders are able to sell 92, non-GAAP numbers, excluding share based compensation acquisition related expenses and amortization awesome Tianjin better completion.
Now please turn to slide eight for the financial highlights we.
We achieved a I call it delays than yours in the telco Oak Hill, which in southern Plains to median Dora representing the 17th consecutive quarter of <unk>.
Oh, the ear revenue cost and then increased full twist point fall in the second quarter of 2023.
Third quarter revenue grew by Devon with you although cost of 10%.
This resulted in non-GAAP net income for the quarter of 2.4 million dollar six heel height.
And the same thing we continue to take a deliberate approach to managing our expenses. We just total focus on innovation and invest in the business efficiently.
Although gross margin on a non-GAAP basis in the third quarter of 2020 suite where 75%.
Gross margin in our sector it between the quarters, depending on delays in your mix.
But the fourth quarter would remain at a similar Nathan.
Gross R&D expenses for the third quarter of 2023.
I haven't got the basis will solve plus $3 million.
Close to $302000 compared to the third quarter I'll start at the end of 'twenty two.
You'll see a decline of 104.
$4000 from the Israeli innovation, it sounds like Youre in the quarter compared to one island, an 87000 doors in the third quarter of last year as they always do it on a non-GAAP basis, our net R&D expenses for the third quarter of 2020 suite will solve pain to them, we don't do it.
As compared to cellphone sized William Doyle in the third quarter was still doesn't in 'twenty two.
Expect today's land inflation, that's already client in the fourth quarter to remain at the same at all Nathan.
Marketing expenses for the third quarter of 2023.
$3.4 million on a non-GAAP basis, an increase of $524000 compared to the third quarter of 2022.
G&A expenses for the third quarter of two dozen in 'twenty three.
962002, it off on a non-GAAP basis do you read out to the third quarter of 2022.
Aten gain come on a non-GAAP basis for the third quarter of 2020 suite with $1.4 million compared China for Aten gain come a fascinating and join us for that.
Third quarter of 2022 deemed crypto Avenue towards these calls.
Financial income for the third quarter of 2023 was $1 million, mainly due to interest income on short term bank deposits.
Net income for the third quarter of 2023 on a non-GAAP basis was $2 4 million dollar or a net income of 15 cents per diluted share compared to a net income of $1 million or net income of six cents per diluted share for the third quarter of tilda.
And in 'twenty two.
When it got phases as you can see on slide seven.
Net loss for the third quarter of 2023.
The old point $20 million or a net loss of two cents per diluted share.
This compares to a net loss of zale, thank phone window and door locks or Nicholas.
<unk> cents per diluted share for the Cat hotel after 2022.
This quarter, we recognized stock based compensation expenses in the amount of $2.5 million compared to $1.2 million in the first and second quarters of Danielle.
In closing the third quarter resulted from a change in the full feature latest stimulation. It led to a one time expense this quarter of 1000 20 million to house. This.
This estimation change reflects the company's success retaining key employees and deficiency of the I'll tell you one thing from October two dozen in 'twenty one.
We expect the stock based compensation expenses in the fourth quarter to be similar to previous lesson.
At the end of the third quarter of 2023 hour Edcon with three onward and one we.
We expect other edcon to rise slightly in the fourth quartile.
Turning to the balance sheet is shown on slide 11, our cash cash equivalents and short term bank deposit as of September 32000, Twenty's suite.
$78.6 million.
That ends our prepared remarks, I will now turn the call back to the Alto <unk> for your question.
Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session. You will 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 with the handset before pressing the numbers.
The first question is from our June <unk> of William Blair. Please go ahead.
Hi, its faith on for RJ and just a couple questions for you guys you.
You talked about overall the direction is clear in the market that Friday rollout is here, but can you talk about maybe how the paces varying depending on the different sizes and locations and why you guys are seeing there.
Hi, good morning.
I think the most important to emphasize that.
If you have it.
Are you going to continue our revenue growth, we did not hear it.
Consecutive quarter with double digit.
Within two hours.
You can also see the immediate impact on our bottom line.
Yeah.
Net income.
Both of them.
And also if you look on the nine months.
We see that.
The market. These progresses, even if the current pace, we are able to compete more with growth.
And you have seen.
I'm very optimistic with regard to development as we see it as I mentioned in my previous remark that hopefully can St. Jude.
While overall pace.
We see this as an industry.
I mean, there is more and more activity in the space.
Well, the stomach nickel's going slow there or maybe more operational.
That would be fine.
So you can make the whole thing economies like always in telco.
I think that most of the intelligent thoughtful manager.
And to grow in.
Can you go through it.
Our.
Performance Kpis.
And.
Hey, everybody.
Okay. Thanks for the color on that and then just another quick one I know you guys called out you're working on embedding more AI solutions across the platform and you're gonna be announcing needs in the next quarter or so but have you had to talk high level, where you know the general priorities are and water cuts.
<unk> is asking for.
Where do these kind of concentrated across your platform.
So we're absolutely invested in the eye.
The last three years as we feel that our cloud platform.
To gain a lot of more value from the insurance platform.
What what do you see this over equal today are mainly looking for cost savings.
Moving to efficiencies the only way to do it used to be place.
Labor intensive work, we got conviction.
Following their airports across the platform that we can see how we can.
Increased deal because they took the efficiencies by taking actions that 30 day done manually.
To me you can close the loop as possible.
To gain not only the bakery efficiency in cost, but also when you do you can.
You can gain much better quality, you've got to fix the customer experience.
So we have the huge advantage.
We have a lot of dataset collected full gamut look like are we're.
Monitoring capabilities, and we leverage technology to analyze them in real time and provide.
Closer to two to close the loop and improve the nickel and getting those two goals.
And it was mentioned I would elaborate more mixed sloping once when you ship them over both over the 'twenty 'twenty four P M.
Alright, perfect well that's it for me. Thank you guys. Congrats again on the quarter.
Thank you.
The next question is from Alex Henderson of Needham and company. Please go ahead.
Great. Thanks.
And Uh huh.
And team I'm.
Just wanted to express my.
You know hearts with you guys relative to this Uh huh.
Terrorist attack on your country and I hope all your employees and family are safe.
Hmm.
Looking at the model I think you commented that you expect gross margins to be similar to the third quarter in the fourth quarter.
That's quite a bit higher than the.
Recent quarters and.
Kind of above the normal range can you talk a little bit about what in the mix is causing that and whether that's something that we should see persists into the 'twenty four time frame.
Or will the mix up.
Regress back to a more like a 72 and a half type of number that.
You've posted in a number of our historical quarters.
Okay.
Alex.
As you know we.
We mentioned before we.
We see our gross margin trends to improve as the revenue goes.
You create some efficiencies that allow us to improve with scale and also the gross margin in the trucking company and.
We said that wants to be a very.
Very often but we didn't commit their lives in it.
What we are seeing now is that it would be.
And as you recall when I was I've been uniques and.
The trends that you're really at a higher level is what we are looking for in the long run these being said on a quarter by quarter, there might be some fluctuations and we expect to broadly between things.
Angel the 70 to 75.
But trending to the 75.
<unk> revenue continues to grow.
Again.
Goldman below what's driving best we do you think improvement of all of course with the BBC, which is starting to be with you.
Sizable.
Right. So it's it's logical then that.
We're going to have a.
74 ish type margin here for the year.
Is it reasonable to think that we're at least 74 in 'twenty four.
It sounds like a good.
Good okay.
It's very hard to actually make the exactly because there might be some fluctuations, but you'll see what our performance in the last couple of periods you can see the trend and I think this is where we are headed.
Okay.
Yeah.
Opex side.
Can you remind us of what percentage of your cost structure is.
Shekel based and what portion is outside of Israel, obviously, the shekel weaknesses are.
Setting up for a pretty easy setup.
Compares on the Opex and Israel.
So okay.
Both the percent of all the employees are based in Israel most of them all.
So I believe around 60% or so.
It's going to flower then of course.
Based on chicken.
Okay.
So.
Have you guys done English hedging or are you.
No.
Adrian Littlewood typically once before they're actually using.
And he was rollouts in there.
We did in the classroom time confronting some very short term hedging if required but currently we are at.
Maybe are leveraging data share cause weakness there and the bulk of what helps us to compete.
Full capability.
We're giving guidance, but is there any reason to believe that the.
Okay.
Is it going to be any more than four 5% growth in opex because.
Given the shekel levels it's.
It's a pretty good.
Offset to any spending growth and what do you think the merit rate wages look like into 'twenty four.
Yeah, we are still building to go Walkman fourth went through 'twenty four.
And as we speak.
We are the <unk>.
If I look strategically as mentioned, we keep our R&D.
Excuse me low levels, and we continue to incrementally increase selling sensitive marketing because we see a decent amount of them.
Opportunities that we want with the breadth of coverage.
Of course.
Foreign exchange fluctuations are little countries, we can expect.
And I guess once we have the 'twenty 'twenty four plants.
And they're doing it.
But the model, even if the sanctions busting.
Got it.
Important part.
Stages.
Both shrinking.
Very consistent with the revenue growth.
The gross margin. So I think we're going to go up.
Good central.
The model for the company.
Going down on the income statement I was little surprised to see our interest income declined quarter to quarter as you're generally.
Solid cash interest rates are rising.
Is there some is there some.
Some charge or something of that sort in that line that caused.
Cause it to come down.
$240000 quarter to quarter.
So Alex can you repeat the question.
Well.
I'm sorry, the interest income line declined $240000 quarter to quarter.
Given the rising interest rates and rising cash balances I would've thought it might have gone. The other direction can you talk to why that that occurred was there a charge or some offset and do we expect it to.
To recover sequentially in the December quarter.
Back to the June quarter level.
So interest rates actually compete in there.
Yeah.
It was lower than the previous quarter.
Compared to the quarters before.
We see also that you can come in most of the changes in some of the foreign exchange.
And we have hum.
Customers death, and so on so overall do you believe that God.
Good.
Good destination for what we expected.
But I think it's been filed.
Due to both the change in interest rates and some foreign exchange exposure.
So most of them all right.
Yeah, I, usually the prices as interest rates declined a bit tired.
Interest rates were going up but Ah, okay, and any thoughts on the tax line. The last question for me.
Hello.
Joey.
T O plastics.
Any change in tax expectations going forward.
I heard that there are some increases in euro taxes coming down the pike that you're operating in certain geographies that might impact your any anytime.
No.
I'm, just a little more than they do in two.
2024.
Alright. Thanks.
I appreciate your time.
And nice print.
Thank you Adam.
Okay.
This concludes.
This does conclude the rack com third quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.
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