Q3 2024 RADCOM Ltd Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the RADCOM Limited Results Conference Call for the third quarter of 2024.
All participants are present in a listen-only mode.
Following management's formal presentation, instructions will be given for the questions 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.radcom.com later today. On the call are Hilik Itman, RADCOM's Interim CEO, and Hadar Rahav, RADCOM's 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 Investor section of RADCOM's website at www.radcom.com slash investor dash relations.
Before we begin, I would like to review the safe harbor provision.
This conference call will contain forward-looking statements. Forward-looking statements in the conference call involve several risks and uncertainties, including, but not limited to, the company's statements about the 5G market and industry trends, sales opportunities, sales cycles, and pipelines.
The company's market position, cash position, potential and expected growth, profitability, and shareholder value, its expectations with respect to research and development, and sales and marketing expenses.
from the Israel Innovation Authority, the company's expectations with respect to its relationships
with AT&T, DISH and Rakuten. It's expectation to continue enhancing its software solutions and demand for solutions.
and the potential benefits of its clients and ability to meet the needs of the market and increase market share, the use of artificial intelligence in its products, potential mergers and acquisitions, 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 today's press release and the company's SEC filings.
which are provided to enhance the user's overall understanding of the company's financial performance.
related expenses and amortization of intangible assets related to acquisitions, non-GAAP results provide information helpful in assessing RADCOM's 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 of gap to non-gap financial measures included in the quarter's earnings release available on our website. Now I would like to turn the call over to Hilik. Please go ahead.
Hilik Itman: Thanks operator, good morning everyone and thank you for joining us for our third quarter 2024 earnings call. Before discussing the third quarter results, I am excited to welcome Benny on board as a new CEO on December 1st, as you have probably seen in our earlier announcement.
Many residency in the U.S.
Hilik Itman: positions him well to drive the company's success into 2025 and behind.
Speaker Change: will significantly contribute to our growth strategy. With Manny starting his role as CEO, I will resume my previous role as a Chief Operating Officer.
Speaker Change: Focusing more on product development, continue leading R&D, participating in sale processes, and ensuring customer satisfaction.
Speaker Change: My goal is to focus on product innovations that drive the company's success, align with key market trends, address our customers' needs, and partner with Benny to ensure Radcom's continued growth. Now, let me turn to the results.
Speaker Change: We achieved record quarterly revenues of $15.8 million, and I am grateful to the Radcom team for their unwavering dedication and exceptional execution as we propelled the company to new highs by delivering innovative products that meet customer requirements and needs.
Speaker Change: During the last quarter, we secured a seven-figure multi-year contract with a North American operator for our Advanced Mobility Experience Analytics.
Radcom secured this contract after a competitive multi-vendor tender process.
during which the operator assessed various vendors' run capabilities.
Speaker Change: Our success was fueled by the synergy between our innovative assurance technology and the advanced analytics capabilities from the continual acquisition, which we have seamlessly integrated into our core technology. Turn into the telecom market.
Speaker Change: including 5G standalone. There is a wide customer interest and sales activity for our enhanced Radcom Ace platform across multiple regions.
both among new customers and within our existing install base.
Speaker Change: The transition to 5G standalone has presented challenges, particularly for operators lacking the necessary skills and knowledge for cloud migration. However, we are witnessing increased maturity with more operators, especially in North America and Europe.
moving towards 5G stand-alone solutions.
Speaker Change: I am confident that our position as a leading provider of best-in-class cloud-based assurance for 5G will continue to generate positive returns.
Speaker Change: We see sales opportunities that can lead to additional multi-year contracts and increased revenue. Demands for our cloud-based automated assurance and built-in AI capabilities are strong and reflected in our healthy pipeline.
Speaker Change: Customer feedback is positive as we engage with multiple prospects across various sales cycle stages. While these sales processes can be time-consuming and unpredictable, I believe we are well aligned with operators' needs, helping to address our customers' requirements.
Speaker Change: By delivering unique value and tackling critical network challenges, we are setting the stage for future business growth. With conversations with customers, I see that in today's telecom landscape, operators seek solutions that reduce costs.
Speaker Change: Dry efficiencies and allow them to operate with linear teams. We have invested in AI that enables operators to achieve these cost efficiency goals, answering key market requirements and creating opportunities for us to monetize our investments.
Speaker Change: By leveraging AI capabilities, we enable operators to identify network issues more rapidly and with less manual intervention.
Speaker Change: Operators are asking for more automated, intelligent solutions driven by AI technology.
Speaker Change: Turning to our install base. AT&T and DISH remain key strategic customers and we believe our business with these operators will remain strong. We know our customer requirements and are attuned to their needs and we continue to provide new software releases to help them manage their network.
Speaker Change: In the second quarter we announced the extension of our close partnership with Rakuten Mobile in Japan. This extension is a statement to the innovative solutions we offer and underscore how we assist the operator in maintaining service quality and driving efficient network operations.
Recently Rakuten Mobile announced
Speaker Change: that it had reached a milestone of 8 million subscribers in just four and a half years since its full-scale launch as a mobile network operator.
Speaker Change: We are excited about this milestone and are pleased to contribute to their success by helping them manage their network efficiently and ensuring high quality services.
Speaker Change: We achieve high satisfaction level within our install base by delivering innovative products that meet customer requirements and needs. This approach drives growth and recurring revenue.
Speaker Change: We remain committed to ensuring customer satisfaction and continuously enhancing our offering to address the evolving needs of our customers.
Speaker Change: The focus on innovation ingrained in Radcom's DNA, and our many years of telecom expertise coupled with the Apple of our Radcom Ace platform to telecom operators, has enabled us to deliver continued revenue growth and improve our profitability KPIs.
Speaker Change: We understand the operators' pain point and know how to help them, which is how we approach AI and how we leverage this technology to benefit our customers.
JNI Technology continues.
Speaker Change: and the network's impact. During the quarter, we will lead several product enhancements aligned with key 5G technology trends.
Speaker Change: that help address our customers' needs. We announce that a North American operator has selected Radcom to provide its leading radio access network analysis solution.
Speaker Change: This includes sophisticated analysis that empower hundreds of engineers to deliver a superior 5G voice experience by providing precise real-time insights into the RAM network's performance. Our solution also integrates with the operator's service management system.
Speaker Change: to help their teams prioritize and resolve issues more efficiently, significantly reducing workload, cutting costs, and enhancing customer satisfaction.
Speaker Change: In the quarter, we will recognize in the Best AIML Innovation category for a Global Connectivity Award that showcases companies for outstanding achievements and innovations within the telecom sector.
To summarize
Speaker Change: We have made significant progress in expanding our business and are confident in our ability to continue our growth journey and increase market share by leveraging our healthy sales pipeline.
Speaker Change: Our best-in-class 5G assurance platform, integrated with advanced AI capabilities, positions us well to meet the evolving needs of customers in the 5G market.
Speaker Change: We remain confident in achieving a fifth consecutive year of revenue growth and increased profitability. This confidence enables us to raise our 2024 revenue guidance to 59 to 62 million dollars.
Speaker Change: My focus will be on driving product innovations that fuel the company's success, aligning with the market trends and customer requirements.
Speaker Change: With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial results in detail.
Thank you Hilik and everyone for joining us today.
Hadar Rahav: Now that Hilik has taken you through a few of the child quota highlights, let me take you through some financial details.
Hadar Rahav: While the slides contain GAP and non-GAP results to review our financial performance, I will mainly refer to non-GAP numbers, excluding stock-based compensation, acquisition-related expenses, and demortization of intangible assets related to acquisition.
Hadar Rahav: This acquisition has been successful as we integrated continuous core technology to enhance our solution portfolio.
Hadar Rahav: and assimilated the team into the company, contributing to our revenues and helping generate pipeline opportunities for RATCOM.
Hadar Rahav: Just as the incorporation of GenAI into our solutions is done, integrating continuous technology opens new sales opportunities for our Adcomase platform. Customers often are initially drawn to our innovations and subsequently appreciate the comprehensive value our offerings provide.
Hadar Rahav: Looking ahead to future mergers and acquisitions, the acquisition of Continual has reinforced our confidence in executing additional transactions.
Hadar Rahav: We have been open to pursuing further acquisitions for several years, and we continue to seek opportunities that expand our solution portfolio, enhance customer value, and deliver greater returns to our shareholders.
Hadar Rahav: With adequate cash reserves at our disposal, we are ready to act on promising opportunities. However, we will adapt a measured and strategic approach to ensure alignment and value creation.
Now please turn to slide 5 for the financial highlights.
Hadar Rahav: Third quarter revenue grew by 20%, reaching a new record of $15.8 million.
Hadar Rahav: Non-Gap Net Income for the third quarter was $3.7 million and the Non-Gap Net Margin was 24%, which grew by 6% compared to the third quarter of 2023. Gap Net Income was $2.3 million.
Hadar Rahav: up from a net loss of $0.3 million compared to the third quarter of 2023.
Hadar Rahav: In the third quarter of 2024, our non-gap gross margin was 75%.
Hadar Rahav: Note that our gross margin can vary slightly from quarter to quarter depending on the revenue mix.
Hadar Rahav: We expect that the fourth quarter will remain at a similar level.
Hadar Rahav: On a non-gap basis, our gross R&D expenses for the third quarter of 2024 were 4.2 million dollars with no significant change from the third quarter of 2023.
Hadar Rahav: In the fourth quarter, as we support the increase in revenue from top-tier operators, we expect a gradual increase of R&D expenses as we continue investing in other innovative solutions with AI and automation ensuring customer satisfaction as we enhance our offerings to address the evolving needs of our customers.
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Hadar Rahav: During the quarter, we received a grant of $182,000 from the Israel Innovation Authority, which increased by 75% compared to the third quarter of 2023. We expect the grant to be approximately $100,000 in the fourth quarter.
Hadar Rahav: In the third quarter of 2024, sales and marketing expenses reached $4 million on an end-gap basis, an increase of 19% compared to the third quarter of 2023.
Hadar Rahav: G&A expenses for the third quarter of 2024 were $1.3 million on an NGAP basis, an increase of $298,000 from the third quarter of 2023, turning to the company's profitability.
Hadar Rahav: Thanks to higher revenues and careful expense management, operating profit on a non-gap basis.
Hadar Rahav: Our non-gap operating margin was 17%, growing by 7% compared to the third quarter of 2023.
Hadar Rahav: Diluted EPS for the quarter was $0.23, growing by $0.08 from the third quarter of 2023.
Hadar Rahav: As shown in slide 7, our gap net income for the third quarter of 2024 was $2.3 million.
Speaker Change: Diluted EPS was $0.14 compared to a loss of $0.02 from the third quarter of 2023.
Turn to the balance sheet.
Speaker Change: As shown on slide 11, we continued generating cash and ended the second quarter with $90.2 million in cash, cash equivalents, and short-term bank deposits.
However, 8 count to remain similar
Joe
Speaker Change: That ends our prepared remarks. I will now turn the call back to the operator for your questions.
Speaker Change: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.
Speaker Change: The first question is from Batya Rosen of William Blair. Please go ahead.
Hello. Hi guys. Thank you and congrats.
Speaker Change: Big contributor to the win, and is it fair to say that they're mostly using continual capabilities today? And if so, just how do you think about the expansion path?
Speaker Change: for that customer from here to get them to broader platform adoption over time.
Speaker Change: Yes, hi. So actually the continual acquisition is something that is complementary to our platform.
Speaker Change: and if I am looking forward, I think that it will be, it contributed a lot for
Speaker Change: for new opportunities and new logos because of the matching between the two platforms.
So this is the main plan for continual.
Speaker Change: Okay, understood. So it sounds like they're using both. And then can you just maybe to follow up on that, what does the...
Speaker Change: expansion path look like for that customer? Is there more room to go beyond where they are now? Is it a typical ramp in the contract? Or is there anything special that we should note about the structure of that deal?
Hadar, can you answer this?
Hadar Rahav: Yes, of course. So this is a multi-year contract. We will start organizing webinars in 2025.
Hadar Rahav: As we mentioned in the call, it's about a seven-figure contract, which includes an annual license.
Hadar Rahav: And upon the delivery and the acceptance, we will start to recognize the revenue.
Thank you for watching!
Speaker Change: Perfect. Very helpful. Thanks, Hadar. Actually, and if I can follow up on one more thing. So, I think you've had quite a few new deal signings this year. And for a lot of them, like this contract, the REV REC doesn't start until 2025.
Speaker Change: Can you maybe just help us level set how to think about...
Speaker Change: 2025's growth potential in relation to, I think your implied guide is about 10% in the fourth quarter. Is that kind of a fair starting point or are there any other dynamics that we should think about as we look to 2025 revenue?
Speaker Change: And, you know, we have a business model which I think is incredibly powerful. Most of our contracts are multi-year contracts and about 70% from our current revenues.
Speaker Change: So you understand that we have healthy backlog and this puts us in a solid position, ending into the fourth quarter in 2025. And yes, I'm really and truly confident that we can deliver additional revenue growth.
Speaker Change: and we may increase our operating expenses to support this revenue growth, but excluding any false impact, we believe that we will sustain our current profitability. So, your assumption is definitely something that is reasonable.
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All right. Perfect. Thank you very much.
Thank you. You're welcome.
Speaker Change: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions.
Speaker Change: The next question is from Ryan Kuntz of Needham & Company. Please go ahead.
Thanks for the question. I'm hoping you can maybe...
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Okay, so...
As you said, I...
Speaker Change: The main, our main focus in terms of geographically is for sure is North America and also in Europe.
Speaker Change: of cloud platforms, part of that it's public, part of that it's private, and we
Speaker Change: We still see, and continue to see, that our platform is...
in addition to the core technology of RADCOM.
for run and call and use of experience.
In terms of 5G transition
Speaker Change: got it and is most of the demand coming from voiceover new radio so voiceover 5g or is it primarily still for for data applications you're seeing the most interest
I think the most.
Speaker Change: For sure the most interesting is the voiceover on your radio.
Thank you.
Speaker Change: New services and new technologies that we see that they start to come up in Europe and North America position us very well.
Speaker Change: got it and you think you'll see some voiceover new radio deployments in 25
yeah
Speaker Change: Great. That's all the questions I have. Thank you. Thank you.
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Speaker Change: This concludes the RADCOM LTD third quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.