NASDAQ:RDCM RADCOM Q1 2023 Earnings Report $11.28 +0.47 (+4.35%) Closing price 04/17/2025 04:00 PM EasternExtended Trading$11.25 -0.03 (-0.27%) As of 04/17/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast RADCOM EPS ResultsActual EPS$0.04Consensus EPS -$0.04Beat/MissBeat by +$0.08One Year Ago EPSN/ARADCOM Revenue ResultsActual Revenue$12.02 millionExpected Revenue$11.90 millionBeat/MissBeat by +$120.00 thousandYoY Revenue GrowthN/ARADCOM Announcement DetailsQuarterQ1 2023Date5/10/2023TimeN/AConference Call DateWednesday, May 10, 2023Conference Call Time8:00AM ETUpcoming EarningsRADCOM's Q1 2025 earnings is scheduled for Tuesday, May 13, 2025, with a conference call scheduled on Wednesday, May 14, 2025 at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by RADCOM Q1 2023 Earnings Call TranscriptProvided by QuartrMay 10, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to the Radcom Limited Results Conference Call for the Q1 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. As a reminder, this conference is being recorded and will be available for a replay on the company's website at radcom.com later today. Operator00:00:30On the call are Eyal Harari, Radcom's CEO and Hadar Rahab, Radcom's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you still need to download it, you may do so through the link in the Investors section of Radcom's website at radcom.com/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 guidance as well as revenue from its business with AT and 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 in end benefits from research and development its expectation to gain further interest from operators and play an important role in facilitating the transition to 5 gs the potential to leverage continuous technology and products to the benefit of Radcom with Vodafone and other customers, its expectations about its pipeline, opportunities, leadership position and momentum, further demand for its products and growth, the company's expectations with respect to its relationships with AT and T, Rakuten and potential grants from the Israeli Innovation Authority. Operator00:02:00The 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 user's overall understanding of the company's financial performance. By excluding certain non cash stock based compensation expenses, non GAAP results provide information helpful in assessing Radcom's core operating performance and 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. Operator00:02:53Investors are encouraged to review the reconciliations of GAAP to non GAAP financial measures included in the quarter's earnings release available on our website. Now, I would like to turn over the call to Eyal. Please go ahead. Speaker 100:03:09Thanks, operator. Good morning, everyone, and thank you for joining us for our Q1 2023 earnings call. We continued our strong momentum from 2022 into the Q1 of 2023, with revenue increase of 13% compared to the same quarter last year, a 15 consecutive quarter of year over year growth. Our solid performance and careful expense management improved all of our profitability KPIs. We also introduced some new product use cases built using advanced AI for 5 gs. Speaker 100:03:56This quarter we significantly improved our profitability tripling our non GAAP net income compared to the Q1 of 2022 and achieving a 15% non GAAP net margin. In addition, we are happy to report that our GAAP profitability reached a 4 year high, driven by solid team execution and increased revenues. We also had an encouraging start to 2023 by securing a new logo in North America. Our solution will smartly collect, process and analyze traffic in high automated way across both 5 gs and 4 gs networks, which helps the operator deliver high quality service nationwide, while proactively ensuring great customer experiences. This exciting news continued a positive momentum since the beginning of 2022. Speaker 100:04:585 gs Networks continue to roll out with telecom operator investing in infrastructure and new technology, while ensuring the seamless transition for some customer, so they receive top quality services. At the same time, operators must be efficient and keep the cost at a reasonable level. Operators can use our innovative assurance technology to manage the network through actionable insight to ensure excellent customer experiences while saving OpEx and driving automation. This is our added value which is why operators turn to our solutions. We continue to develop our AI driven use cases to push our vision of autonomous networks that will help operator deliver great user experience, save cost and monetize their services. Speaker 100:05:59During the Q1, we announced that we partnered with Rakuten Mobile to offer the telecom industry's first network data analytics function, NWDAF in production. Radcom and NWDAF is complementary product line to Radcom ACE and part of our long term vision of helping enable autonomous networks. The overall NWDAF market is at 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 network function deployed in an operator's network and not an add on. Speaker 100:06:46It uses the advanced AI to enhance the customer experience and drive closed loop automation. This partnership with Rakuten demonstrate our market leadership and innovation in AI, automation and 5 gs. AT and T remains a key strategic customer and we believe our business will remain strong. Last year, we announced that AT renewed its multiple year assurance contract with Radcom as we continue to expand our relationship by providing additional value and cutting edge software releases. We expect revenue from AT and T in 2023 to remain at similar level to last year with the potential for further growth. Speaker 100:07:33Turning to our product innovation. We continue our commitment to deliver innovative solutions as we enhance our software with additional automation and intelligence AI capabilities to bring the value and expand use cases for our customers as 5 gs technology moves forward. During the quarter, we announced Radcom Virtualized Network Corporation Center or VNOC. This new use case is powered by extensive AI and enhanced with our telco domain knowledge to digitalize the network operation center for 5 gs. The VNOC helps operator transition for manual operations to automatically detect anomalies and performing root cause analysis. Speaker 100:08:23These enable operators to solve customer affecting issues and drastically improve resolution times, making network teams more efficient while saving costs and improving the customer experience. We also advanced our cloud expertise, announcing tighter integration of Radcom Ace with Amazon Web Services, AWS, so operators can gain complete assurance lifecycle management on AWS to drive network automation. These provide operators adopting the public cloud with extensive operational agility that saves OpEx and enhance the user experience on AWS. We believe our integration into the cloud providers will help generate additional opportunities. In February, our sales team attended the Mobile World Congress in Barcelona, Spain. Speaker 100:09:22The leading telecom industry event with an audience of almost 90,000 people from 202 countries. We were excited to once again engage in the face to face meetings with customers, top tier operators and partners. We had many positive meetings including interest in our new mobility experience offering acquired from Continual. We believe that some of these meetings could lead to new sales opportunities. As we covered in the recent blog post on the event, we saw evidence of our belief that automated assurance will be vital for 5 gs network operations. Speaker 100:10:04Operator must make their network more intelligent, dynamic and autonomous to deliver quality 5 gs services. So strong themes were the transition to the cloud, network automation and the importance of AI. All these are area of interest for Radcom and the 5 gs market remains promising while still in its early stages. The complexity of these new 5 gs network architectures requires automated assurance solution to provide the cornerstone to building network with extensive automation. We also hear this from our customers. Speaker 100:10:47Now I would like to provide more color on Continual. In February, we entered into a definitive agreement to acquire Continual. After satisfying customer and transaction specific closing conditions and regulatory approvals, we completed the acquisition in May. Continual focus on telco network analytics specializing in mobility insights. These insights enable the operator to understand the movement of their customer and how to improve service quality and coverage with a particular focus on the radio network and 5 gs. Speaker 100:11:27These mobility experience insight use AI technology and are cloud based. So they fit into our product philosophy and solution architecture while adding value to our current offering. It will also differentiate from our competitors with continual unique innovative location based technology. A modular add on solution is possible entry point into new accounts and an additional upsell opportunity into our installed base. In addition, it brings us new logos like Vodafone and offer us opportunity to expand into different areas. Speaker 100:12:05Finally, it adds further talent and telco domain knowledge to our team. We believe that adding continual advanced mobility experience analytics and intellectual property will enrich our 5 gs assurance solution and create new opportunities for Radcom. We see that new figures from GSMA Intelligence published during the Mobile World Congress shows that 5 gs connections are expected to double over the next 2 years, expedited by technology innovation and new network deployments in more than 30 countries in 2023 alone. As operators invest heavily in 5 gs, they seek new revenue streams to regain their investment and streamline network operation through cost saving. This trend is even more critical with the uncertainties around the macro economy. Speaker 100:13:03So we believe our position as an advanced automated assurance provider for 5 gs will continue to drive positive returns. Our pipeline continued to be healthy with good mix of opportunities from our current installed base and new customer. In 2023, we are gradually increasing our sales and marketing team to accelerate growth. 5 gs is moving forward, but rollouts takes time. We are laser focused on our business strategy and the 5 gs market. Speaker 100:13:37We believe our position as a leading assurance provider for cloud native 5 gs 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 Q1 of 2023. Our solid financial results demonstrate our successful strategy, execution and unique market position in supporting telco's operator as they roll out 5 gs. We believe this solid track record will drive consistent financial result in the future and continued improvements to the bottom line. We have a solid foundation in place for a strong 2023 and 4 successive year of revenue growth. Speaker 100:14:30With that, I would like to turn the call over to Adar Rav, our CFO, who will discuss the financial results in detail. Speaker 200:14:40Thank you, Eyal, and good morning, everyone. To help you understand the results, I will refer mainly to non GAAP numbers, excluding share based compensation. Now please turn to Slide 8 for our financial highlights. We achieved record revenues in the Q1, reaching $12,000,000 representing a 15th consecutive quarter of year over year revenue growth and an increase from $10,600,000 in the Q1 of 2022. 1st quarter revenue grew by double digit with year over year growth of 13%. Speaker 200:15:18This resulted in non GAAP net income for the quarter of $1,800,000 a 5 year high. At the same time, we continue to manage our expenses while investing in the business strategically and efficiently. Our gross margin in the Q1 of 2023 on a non GAAP basis was 73%. Please note that our gross margin may fluctuate depending on the revenue mix. We expect that the second quarter will remain at a similar level. Speaker 200:15:53Our gross R and D expenses for the Q1 of 2023 on a non GAAP basis were 4 point $2,000,000 a decrease of $724,000 compared to the Q1 of 2022. We received a grant of $262,000 from the Israel Innovation Authority during the quarter compared to $218,000 in the Q1 of last year. As a result, our net R and D expenses for the 1st quarter of 2023 on a non GAAP basis were $4,000,000 compared to $4,700,000 in the Q1 of 2022. We expect the Israel Innovation Authority grant in the 2nd quarter to be about $150,000 Sales and marketing expenses for the Q1 of 2023 were $3,000,000 on a non GAAP basis, an increase of $407,000 compared to the Q1 of 2022. G and A expenses for the Q1 of 2023 were $964,000 on a non GAAP basis, an increase of $139,000 compared to the Q1 of 2022. Speaker 200:17:13Operating income on a non GAAP basis for the Q1 of 2023 was $833,000 compared to an operating loss of $274,000 for the Q1 of 2022. The increased revenue and favorable FX drove this growth. Net income for the Q1 of 2023 on a non GAAP basis was $1,800,000 or a net income of $0.12 per diluted share compared to a net income of $614,000 or a net income of $0.04 per diluted share for the Q1 of 2022. On a GAAP basis, as you can see on slide 7, our net income for the Q1 of 2023 was $621,000 or a net income of $0.04 per diluted share. This compares to a net loss of 500 and $92,000 or a net loss of $0.04 per diluted share for the Q1 of 2022. Speaker 200:18:24At the end of the Q1 of 2023, our headcount was 277. We expect our headcount to grow to approximately 300 in the Q2. This increase includes additional sales and marketing employees and onboarding of the continual team. We expect the continual team's onboarding to slightly increase our operating expenses while helping to improve our top line as we integrate the solution, upsell to our current installed base and sell to new customers as a unique product differentiator. Turning to the balance sheet. Speaker 200:19:03As shown on Slide 11, our cash, cash equivalents and short term bank deposits as of March 31, 2023 were $77,900,000 That ends our prepared remarks. I will now turn the call back to the operator for your questions. Operator00:19:24Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. The first question is from Arjun Bhatia of William Blair. Please go ahead. Speaker 300:19:57Perfect. Thank you guys for taking the question. Eyal, can you talk about some of the AI investments that you're making? What capabilities are you introducing into the platform? And as we kind of roll some of these features out, how do you think about monetizing them? Speaker 300:20:17Is that going to be included in the core platform? Or is that something that you can upsell as customers adopt that? Speaker 100:20:26Hi, good morning. Terjei is a pivotal area of investment for us as part of the overall vision for creating autonomous network operation. The main driver for us is to see how we can turn many of our processes used today, expensive engineering teams and implementing leveraging the AI capabilities to be done in a much more efficient way. In addition, it also adds a lot of improvements to the time to repair. As if you need to do things manually, it always takes time and you have resource constraints. Speaker 100:21:06And if we are able to do it with our AI capabilities, operators are able to identify and solve the faults much faster. If we look on the business side, we are looking at it in 2 ways. Definitely, this is an add on sale into our installed base. It's another we are packaging it in different applications, creating different use cases on top of our main RASCO based platform. But this is also very key as a differentiator when we are approaching new customers and they are puzzled on the reasoning to replace their incumbent solutions. Speaker 100:21:47One of the key drivers for them is once we show them the improving the network operation and efficiencies, which helps to justify the ROI for a replacement of their old legacy tools. So it's a mix of absence to the existing accounts and also enabler that improve our positioning with new accounts. Speaker 300:22:12Okay. That's helpful. And then on Continual, congrats on closing the deal. What I'm trying to understand what were operators doing to understand subscriber movement before continuing? Like is this a is there a tool that they had in place to do this? Speaker 300:22:32Or is there something else that you think you'll replace or consolidate as you roll this out and cross sell into the base? Speaker 100:22:41So the continued product line is actually getting a totally new dimension to the analytics you can do. Networks, you always try to analyze them by geographies, by locations, and this is a technology and concept that are already in place for telecom. But the main complexity of mobile networks are people that are taking calls and sessions while they're on a move and you can see them in a different location in different time, but you don't it's very hard for you to identify the overall journey without a dedicated solution. So it's actually a very innovative concept that they have, as I mentioned, that they are many times blind, otherwise who use, I would say, more primitive tools that show them only part of the time, part of the reason is it's very hard for them to really isolate the network quality issues results specifically in usability because it might be that while I'm making my call, I'm traveling the cost 5 cells. Each of them by itself is providing good quality to the area. Speaker 100:23:58But while I'm in transition, I actually get inferior quality. So operators today do not know how to differentiate that and by that they are blind into the quality of experience of their subscribers. They over assume that they give better service than they actually do And this conflict makes the customer less satisfied and more likely to churn. Mobility is always more complex when we are in the move, mainly when we are in a car as we move in a higher speed, maybe on trains as this really challenged technology. And we feel this is really unique approach. Speaker 100:24:38This is what we like about this company. And it definitely adds into our cutting edge offering with new application. So we are very excited on that. Speaker 300:24:50Yes, definitely. That sounds very interesting. I appreciate the color. Last one for me. Just when we're thinking about margins for the year, it looks like you're driving some upside here. Speaker 300:25:02How should we think about the leverage in the model throughout the course of this year? And how much room is there to improve 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 Speaker 100:25:18we are we saw that this quarter we executed better than given our expectation and we are very happy on the results. We hope to continue to overachieve and beat our expectations. We do have increase of cost as we augmented the continual team into our operational expense. This is a bit offset by the weakening of the shekel compared to the U. S. Speaker 100:25:49Dollar. But overall, we are looking to we increased our operational expense a bit. If all goes well and we continue to grow and win more accounts, we are looking to continue and see the trend of profitability improving. And of course, we are still relying on the rate of the shekel. If the shekel will continue to be in a similar level, this is very favorable for us. Speaker 100:26:18We have some like maybe 5% gain due to the weakening compared to the dollar as our R and D expense is heavily based on checkers. Speaker 300:26:30Okay. Got it. Thank you for taking my questions guys. Operator00:26:37If The next question is from Alex Henderson of Needham and Company. Please go ahead. Speaker 400:26:56Great. Thanks. So I wanted to just dig down into the addition of Continuum and I assume some additional hiring that you're doing independent of that acquisition. By my math, it sounds like your expectation for headcount is up about 8.5% sequentially. And so should we be considering that kind of rise on average in your OpEx? Speaker 400:27:30And can you give us a little bit of a sense of the split between R and D and sales and marketing in that cost addition? Speaker 100:27:40Yes, Alex. Good morning. We are increasing our headcount. We are looking to increase our headcount to next quarter in the range of 8%, 9% as primarily by addition of Continuity, but also with our continued increase of investment in the sales and marketing, while Continuum team is mainly R and D. And on top of that, we had our additional investment into sales and marketing. Speaker 100:28:14I would say that this will be around the same ratio on both R and D and sales and marketing, but G and A is going to stay about the same. Of course, I'm not taking the effect of any FX changes. Speaker 400:28:32So we should be taking about a 10% increase in both sales and marketing and a very minor increase in G and A? Speaker 100:28:41Again, about 8% to 10%, correct. Speaker 400:28:46Obviously, you're not adding to your G and A from that acquisition. So I assume it's a little higher than the 8% number primarily with the increase in those key lines. Speaker 100:28:57Yes, Joel. Speaker 400:29:02So based off of the strength of the quarter, should we be looking at any sequential growth or is it fairly stable on the top line sequentially as we go out with most of the increase in revenues remaining to get to your target in the back half of the year? Speaker 100:29:25So we start we see that we managed to get over the $12,000,000 a quarter based on our recent wins. We are looking to keep improving and add additional revenue quarter over quarter. With that, it's very hard to forecast exact and when exactly we will have additional upside as we are looking to get more revenue both on our existing and new customers. I think that overall, we are going to gradually continue with our plan and we reiterate our guidance that we are still feel comfortable that this year will be another growth year for us. Speaker 400:30:15In context of the U. S. Wireless market, it's become increasingly clear that there is a challenge around the open 5 gs core. Many of the service providers appear to be struggling with the mechanics of getting that to work. We've heard that there's going to be a push out in the time that they move from 4.5gs to 5gs core. Speaker 400:30:47I can read that in 2 ways. One way to read it would be there could be a delay in spending for your products. The other way to read it would be that just significantly increases the meat of your products as visibility and analytics are critical to solving the software challenges of doing the open core. So can you talk a little bit about that issue and how it might imply if there's a delay in the timing of the transition to a full standalone 5 gs? Speaker 100:31:23Yes. 1st and foremost, it's evident today that all telco operators are in the process of implementing 5 gs and in specific 5 gs core or 5 gs standalone as a strategic investment. This is very important as this is the foundation of our strategy as we build the company and we build the product and technology towards that transformation of telcos. This adds for us an opportunity to replace the legacy solution as a technology revolution, but it also require operators to move to the cloud. This being said timing wise, there are some factors that make things more complicated and slower. Speaker 100:32:11One of them is the technology itself that is quite complex and not as mature and it takes for the network vendors time to implement and the operators are it takes them longer than before. For us, it's a good thing because the more complicated the technology is, the more relied of a solution like ours they are. So we are helping them to crack this complexity. We see that customers that adopt our technology like Rakuten and Dish and more are managing to move faster than others in the 5 gs space. The macro economy is definitely make everyone facing their investment. Speaker 100:32:59They are shrinking it sometimes with teams that are with optimizations and it's harder for them to progress with the project. This obviously might create some delay with the investment, but the good thing is that our business model is robust. We are working with the leading carriers. We have a multi year review. We have recurring revenue. Speaker 100:33:22And even in this environment, the delays, as you could see, we are able to perform continuous growth and be prepared to the journey that it will take. I would want to highlight that my personal belief is that this is the 5 gs is progressing. This is why we are increasing our sales and marketing, but we look at this as a journey. This is not things that happens over the quarter, but we see the next 2 years are going to be critical and additional customers and additional operators are going to migrate to 5 gs. So we believe in this space and we're investing in this space. Speaker 100:34:07Timing is always a question, but you need to work closely with the operator in order to make sure you have the selected solution when they are ready. Speaker 400:34:18So just going back to the point, it sounds like, yes, there may be some slowdown in the timing of open cloud based 5 gs core, but the complexity challenges are being realized in a way that drives increased need to your product. And therefore, while it may be a detriment to say a Nokia or an Ericsson, this actually could be a positive for you guys in that context. The other side of this is the international markets have generally cleaved to a lesser open but still cloud oriented 5 gs core and that in turn is easier to implement. And so I guess the question is, do you see some acceleration or improved opportunities in the international market as a result of that dynamic? Speaker 100:35:21Yes. We do see that there is more adoption of cloud technology. Going back to my comment about Mobile World Congress back in the end of February, We sold the hyperscalers, Amazon, Google and Microsoft taking the prime attention of all telcos. This was dominated by European carriers and we see many a lot of more investment by all parties and we start to see more and more projects of Telco going into the cloud. This is a good sign for us. Speaker 100:35:55As I mentioned, any investment to this direction make our value much higher, our differentiator more critical, and we really believe that this trend could help. 5 gs is progressing in Europe and in Asia and we start to see initial times in Latin America. For us, we don't look necessarily on the geographies. We are mainly looking on the market as our advanced operators are with 5 gs. The more advanced they are with 5 gs, the more advanced they are with cloud, they have a better fit. Speaker 100:36:32So we are really targeted in our approach and trying to partner with those that are more advanced. So even if we don't know the pace of the adoption, but we want to make sure that all the early adapters, many of them as possible, are partnering with Radbourne. And this will help us to continue and innovate, continue to create unique capabilities and raise the bar for any competition that might try to follow. Speaker 400:37:03Okay. Two more questions, fairly brief though. The Continuum acquisition obviously has some nice incremental technology. I assume it is not included in your AT and T or Rakuten contracts. How do you see that technology being adopted by your existing customers? Speaker 400:37:30And what kind of uplift would there be to your revenues at individual clients if they did that? In other words, if they were selling just choosing a number randomly here, dollars 1,000,000 to AT and T in a year, and they adopted this, would that be $1,100,000 to $1,200,000 What would the incremental uplift be for that adoption? Speaker 100:37:57So we are still early in trying to introduce this technology to our installed base. Overall, we see excitement from that. And I would say that while currently Continuum was a start up and their revenue level, as we mentioned, is insignificant to our numbers in this stage. We see a potential that this could grow and help to improve our top line. I would say this would grow up to 15%, 20% of our revenue if all goes well. Speaker 100:38:34But it really depends on the adoption, but this is just like an initial sense. We are still looking to continue and introduce it to the market and we are still finalizing all the details, closing App and Jazz couple of weeks ago. And I'm sure that we will be smarter in couple of quarters when we start to plan our 2024. Speaker 400:39:03Great. Thank you so much. Operator00:39:10This concludes the Radcom Limited First Quarter 2023 Results Conference Call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRADCOM Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K) RADCOM Earnings HeadlinesRADCOM (NASDAQ:RDCM) shareholders have earned a 15% CAGR over the last five yearsMarch 28, 2025 | finance.yahoo.comRadcom developing next-generation networking data plane solutionFebruary 27, 2025 | markets.businessinsider.comNow I look stupid. Real stupid... I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was. Because here we are, a quarter of a century later, almost to the exact day, and it’s happening again. April 19, 2025 | Porter & Company (Ad)RADCOM Developing Next-Gen Networking Data Plane Analytics Solution, Powered by NVIDIA BlueField-3 DPUFebruary 27, 2025 | prnewswire.comRadcom (RDCM) Gets a Buy from William BlairFebruary 20, 2025 | markets.businessinsider.comRadcom: Solid Execution And Differentiation Could Drive More UpsideFebruary 20, 2025 | seekingalpha.comSee More RADCOM Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like RADCOM? Sign up for Earnings360's daily newsletter to receive timely earnings updates on RADCOM and other key companies, straight to your email. Email Address About RADCOMRADCOM (NASDAQ:RDCM) provides 5G ready cloud-native, network intelligence, and service assurance solutions for telecom operators or communication service providers (CSPs). It offers RADCOM ACE, including RADCOM Service Assurance, a cloud-native, 5G-ready, and virtualized service assurance solutions, which allows telecom operators to gain end-to-end network visibility and customer experience insights across all networks; RADCOM Network Visibility, a cloud-native network packet broker and filtering solution that allows CSPs to manage network traffic at scale across multiple cloud environments, and control the visibility layer to perform analysis of select datasets; and RADCOM Network Insights, a business intelligence solution that offers insights for multiple use cases enabled by data captured and correlated through RADCOM Network Visibility and RADCOM Service Assurance. The company also provides solutions for mobile and fixed networks, such as 5G, long term evolution (LTE), voice over LTE, voice over Wifi, IP multimedia subsystem, voice over IP, and universal mobile telecommunication service. It sells its products directly to customers through executives and sales representatives, as well as through a network of distributors and resellers in North America, Asia Pacific, Latin America, Europe, the Middle East, Africa, and Israel. The company was formerly known as Big Blue Catalogue Ltd. and changed its name to RADCOM Ltd. in 1989. RADCOM Ltd. was incorporated in 1985 and is headquartered in Tel Aviv, Israel.View RADCOM ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 5 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to the Radcom Limited Results Conference Call for the Q1 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. As a reminder, this conference is being recorded and will be available for a replay on the company's website at radcom.com later today. Operator00:00:30On the call are Eyal Harari, Radcom's CEO and Hadar Rahab, Radcom's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you still need to download it, you may do so through the link in the Investors section of Radcom's website at radcom.com/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 guidance as well as revenue from its business with AT and 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 in end benefits from research and development its expectation to gain further interest from operators and play an important role in facilitating the transition to 5 gs the potential to leverage continuous technology and products to the benefit of Radcom with Vodafone and other customers, its expectations about its pipeline, opportunities, leadership position and momentum, further demand for its products and growth, the company's expectations with respect to its relationships with AT and T, Rakuten and potential grants from the Israeli Innovation Authority. Operator00:02:00The 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 user's overall understanding of the company's financial performance. By excluding certain non cash stock based compensation expenses, non GAAP results provide information helpful in assessing Radcom's core operating performance and 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. Operator00:02:53Investors are encouraged to review the reconciliations of GAAP to non GAAP financial measures included in the quarter's earnings release available on our website. Now, I would like to turn over the call to Eyal. Please go ahead. Speaker 100:03:09Thanks, operator. Good morning, everyone, and thank you for joining us for our Q1 2023 earnings call. We continued our strong momentum from 2022 into the Q1 of 2023, with revenue increase of 13% compared to the same quarter last year, a 15 consecutive quarter of year over year growth. Our solid performance and careful expense management improved all of our profitability KPIs. We also introduced some new product use cases built using advanced AI for 5 gs. Speaker 100:03:56This quarter we significantly improved our profitability tripling our non GAAP net income compared to the Q1 of 2022 and achieving a 15% non GAAP net margin. In addition, we are happy to report that our GAAP profitability reached a 4 year high, driven by solid team execution and increased revenues. We also had an encouraging start to 2023 by securing a new logo in North America. Our solution will smartly collect, process and analyze traffic in high automated way across both 5 gs and 4 gs networks, which helps the operator deliver high quality service nationwide, while proactively ensuring great customer experiences. This exciting news continued a positive momentum since the beginning of 2022. Speaker 100:04:585 gs Networks continue to roll out with telecom operator investing in infrastructure and new technology, while ensuring the seamless transition for some customer, so they receive top quality services. At the same time, operators must be efficient and keep the cost at a reasonable level. Operators can use our innovative assurance technology to manage the network through actionable insight to ensure excellent customer experiences while saving OpEx and driving automation. This is our added value which is why operators turn to our solutions. We continue to develop our AI driven use cases to push our vision of autonomous networks that will help operator deliver great user experience, save cost and monetize their services. Speaker 100:05:59During the Q1, we announced that we partnered with Rakuten Mobile to offer the telecom industry's first network data analytics function, NWDAF in production. Radcom and NWDAF is complementary product line to Radcom ACE and part of our long term vision of helping enable autonomous networks. The overall NWDAF market is at 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 network function deployed in an operator's network and not an add on. Speaker 100:06:46It uses the advanced AI to enhance the customer experience and drive closed loop automation. This partnership with Rakuten demonstrate our market leadership and innovation in AI, automation and 5 gs. AT and T remains a key strategic customer and we believe our business will remain strong. Last year, we announced that AT renewed its multiple year assurance contract with Radcom as we continue to expand our relationship by providing additional value and cutting edge software releases. We expect revenue from AT and T in 2023 to remain at similar level to last year with the potential for further growth. Speaker 100:07:33Turning to our product innovation. We continue our commitment to deliver innovative solutions as we enhance our software with additional automation and intelligence AI capabilities to bring the value and expand use cases for our customers as 5 gs technology moves forward. During the quarter, we announced Radcom Virtualized Network Corporation Center or VNOC. This new use case is powered by extensive AI and enhanced with our telco domain knowledge to digitalize the network operation center for 5 gs. The VNOC helps operator transition for manual operations to automatically detect anomalies and performing root cause analysis. Speaker 100:08:23These enable operators to solve customer affecting issues and drastically improve resolution times, making network teams more efficient while saving costs and improving the customer experience. We also advanced our cloud expertise, announcing tighter integration of Radcom Ace with Amazon Web Services, AWS, so operators can gain complete assurance lifecycle management on AWS to drive network automation. These provide operators adopting the public cloud with extensive operational agility that saves OpEx and enhance the user experience on AWS. We believe our integration into the cloud providers will help generate additional opportunities. In February, our sales team attended the Mobile World Congress in Barcelona, Spain. Speaker 100:09:22The leading telecom industry event with an audience of almost 90,000 people from 202 countries. We were excited to once again engage in the face to face meetings with customers, top tier operators and partners. We had many positive meetings including interest in our new mobility experience offering acquired from Continual. We believe that some of these meetings could lead to new sales opportunities. As we covered in the recent blog post on the event, we saw evidence of our belief that automated assurance will be vital for 5 gs network operations. Speaker 100:10:04Operator must make their network more intelligent, dynamic and autonomous to deliver quality 5 gs services. So strong themes were the transition to the cloud, network automation and the importance of AI. All these are area of interest for Radcom and the 5 gs market remains promising while still in its early stages. The complexity of these new 5 gs network architectures requires automated assurance solution to provide the cornerstone to building network with extensive automation. We also hear this from our customers. Speaker 100:10:47Now I would like to provide more color on Continual. In February, we entered into a definitive agreement to acquire Continual. After satisfying customer and transaction specific closing conditions and regulatory approvals, we completed the acquisition in May. Continual focus on telco network analytics specializing in mobility insights. These insights enable the operator to understand the movement of their customer and how to improve service quality and coverage with a particular focus on the radio network and 5 gs. Speaker 100:11:27These mobility experience insight use AI technology and are cloud based. So they fit into our product philosophy and solution architecture while adding value to our current offering. It will also differentiate from our competitors with continual unique innovative location based technology. A modular add on solution is possible entry point into new accounts and an additional upsell opportunity into our installed base. In addition, it brings us new logos like Vodafone and offer us opportunity to expand into different areas. Speaker 100:12:05Finally, it adds further talent and telco domain knowledge to our team. We believe that adding continual advanced mobility experience analytics and intellectual property will enrich our 5 gs assurance solution and create new opportunities for Radcom. We see that new figures from GSMA Intelligence published during the Mobile World Congress shows that 5 gs connections are expected to double over the next 2 years, expedited by technology innovation and new network deployments in more than 30 countries in 2023 alone. As operators invest heavily in 5 gs, they seek new revenue streams to regain their investment and streamline network operation through cost saving. This trend is even more critical with the uncertainties around the macro economy. Speaker 100:13:03So we believe our position as an advanced automated assurance provider for 5 gs will continue to drive positive returns. Our pipeline continued to be healthy with good mix of opportunities from our current installed base and new customer. In 2023, we are gradually increasing our sales and marketing team to accelerate growth. 5 gs is moving forward, but rollouts takes time. We are laser focused on our business strategy and the 5 gs market. Speaker 100:13:37We believe our position as a leading assurance provider for cloud native 5 gs 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 Q1 of 2023. Our solid financial results demonstrate our successful strategy, execution and unique market position in supporting telco's operator as they roll out 5 gs. We believe this solid track record will drive consistent financial result in the future and continued improvements to the bottom line. We have a solid foundation in place for a strong 2023 and 4 successive year of revenue growth. Speaker 100:14:30With that, I would like to turn the call over to Adar Rav, our CFO, who will discuss the financial results in detail. Speaker 200:14:40Thank you, Eyal, and good morning, everyone. To help you understand the results, I will refer mainly to non GAAP numbers, excluding share based compensation. Now please turn to Slide 8 for our financial highlights. We achieved record revenues in the Q1, reaching $12,000,000 representing a 15th consecutive quarter of year over year revenue growth and an increase from $10,600,000 in the Q1 of 2022. 1st quarter revenue grew by double digit with year over year growth of 13%. Speaker 200:15:18This resulted in non GAAP net income for the quarter of $1,800,000 a 5 year high. At the same time, we continue to manage our expenses while investing in the business strategically and efficiently. Our gross margin in the Q1 of 2023 on a non GAAP basis was 73%. Please note that our gross margin may fluctuate depending on the revenue mix. We expect that the second quarter will remain at a similar level. Speaker 200:15:53Our gross R and D expenses for the Q1 of 2023 on a non GAAP basis were 4 point $2,000,000 a decrease of $724,000 compared to the Q1 of 2022. We received a grant of $262,000 from the Israel Innovation Authority during the quarter compared to $218,000 in the Q1 of last year. As a result, our net R and D expenses for the 1st quarter of 2023 on a non GAAP basis were $4,000,000 compared to $4,700,000 in the Q1 of 2022. We expect the Israel Innovation Authority grant in the 2nd quarter to be about $150,000 Sales and marketing expenses for the Q1 of 2023 were $3,000,000 on a non GAAP basis, an increase of $407,000 compared to the Q1 of 2022. G and A expenses for the Q1 of 2023 were $964,000 on a non GAAP basis, an increase of $139,000 compared to the Q1 of 2022. Speaker 200:17:13Operating income on a non GAAP basis for the Q1 of 2023 was $833,000 compared to an operating loss of $274,000 for the Q1 of 2022. The increased revenue and favorable FX drove this growth. Net income for the Q1 of 2023 on a non GAAP basis was $1,800,000 or a net income of $0.12 per diluted share compared to a net income of $614,000 or a net income of $0.04 per diluted share for the Q1 of 2022. On a GAAP basis, as you can see on slide 7, our net income for the Q1 of 2023 was $621,000 or a net income of $0.04 per diluted share. This compares to a net loss of 500 and $92,000 or a net loss of $0.04 per diluted share for the Q1 of 2022. Speaker 200:18:24At the end of the Q1 of 2023, our headcount was 277. We expect our headcount to grow to approximately 300 in the Q2. This increase includes additional sales and marketing employees and onboarding of the continual team. We expect the continual team's onboarding to slightly increase our operating expenses while helping to improve our top line as we integrate the solution, upsell to our current installed base and sell to new customers as a unique product differentiator. Turning to the balance sheet. Speaker 200:19:03As shown on Slide 11, our cash, cash equivalents and short term bank deposits as of March 31, 2023 were $77,900,000 That ends our prepared remarks. I will now turn the call back to the operator for your questions. Operator00:19:24Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. The first question is from Arjun Bhatia of William Blair. Please go ahead. Speaker 300:19:57Perfect. Thank you guys for taking the question. Eyal, can you talk about some of the AI investments that you're making? What capabilities are you introducing into the platform? And as we kind of roll some of these features out, how do you think about monetizing them? Speaker 300:20:17Is that going to be included in the core platform? Or is that something that you can upsell as customers adopt that? Speaker 100:20:26Hi, good morning. Terjei is a pivotal area of investment for us as part of the overall vision for creating autonomous network operation. The main driver for us is to see how we can turn many of our processes used today, expensive engineering teams and implementing leveraging the AI capabilities to be done in a much more efficient way. In addition, it also adds a lot of improvements to the time to repair. As if you need to do things manually, it always takes time and you have resource constraints. Speaker 100:21:06And if we are able to do it with our AI capabilities, operators are able to identify and solve the faults much faster. If we look on the business side, we are looking at it in 2 ways. Definitely, this is an add on sale into our installed base. It's another we are packaging it in different applications, creating different use cases on top of our main RASCO based platform. But this is also very key as a differentiator when we are approaching new customers and they are puzzled on the reasoning to replace their incumbent solutions. Speaker 100:21:47One of the key drivers for them is once we show them the improving the network operation and efficiencies, which helps to justify the ROI for a replacement of their old legacy tools. So it's a mix of absence to the existing accounts and also enabler that improve our positioning with new accounts. Speaker 300:22:12Okay. That's helpful. And then on Continual, congrats on closing the deal. What I'm trying to understand what were operators doing to understand subscriber movement before continuing? Like is this a is there a tool that they had in place to do this? Speaker 300:22:32Or is there something else that you think you'll replace or consolidate as you roll this out and cross sell into the base? Speaker 100:22:41So the continued product line is actually getting a totally new dimension to the analytics you can do. Networks, you always try to analyze them by geographies, by locations, and this is a technology and concept that are already in place for telecom. But the main complexity of mobile networks are people that are taking calls and sessions while they're on a move and you can see them in a different location in different time, but you don't it's very hard for you to identify the overall journey without a dedicated solution. So it's actually a very innovative concept that they have, as I mentioned, that they are many times blind, otherwise who use, I would say, more primitive tools that show them only part of the time, part of the reason is it's very hard for them to really isolate the network quality issues results specifically in usability because it might be that while I'm making my call, I'm traveling the cost 5 cells. Each of them by itself is providing good quality to the area. Speaker 100:23:58But while I'm in transition, I actually get inferior quality. So operators today do not know how to differentiate that and by that they are blind into the quality of experience of their subscribers. They over assume that they give better service than they actually do And this conflict makes the customer less satisfied and more likely to churn. Mobility is always more complex when we are in the move, mainly when we are in a car as we move in a higher speed, maybe on trains as this really challenged technology. And we feel this is really unique approach. Speaker 100:24:38This is what we like about this company. And it definitely adds into our cutting edge offering with new application. So we are very excited on that. Speaker 300:24:50Yes, definitely. That sounds very interesting. I appreciate the color. Last one for me. Just when we're thinking about margins for the year, it looks like you're driving some upside here. Speaker 300:25:02How should we think about the leverage in the model throughout the course of this year? And how much room is there to improve 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 Speaker 100:25:18we are we saw that this quarter we executed better than given our expectation and we are very happy on the results. We hope to continue to overachieve and beat our expectations. We do have increase of cost as we augmented the continual team into our operational expense. This is a bit offset by the weakening of the shekel compared to the U. S. Speaker 100:25:49Dollar. But overall, we are looking to we increased our operational expense a bit. If all goes well and we continue to grow and win more accounts, we are looking to continue and see the trend of profitability improving. And of course, we are still relying on the rate of the shekel. If the shekel will continue to be in a similar level, this is very favorable for us. Speaker 100:26:18We have some like maybe 5% gain due to the weakening compared to the dollar as our R and D expense is heavily based on checkers. Speaker 300:26:30Okay. Got it. Thank you for taking my questions guys. Operator00:26:37If The next question is from Alex Henderson of Needham and Company. Please go ahead. Speaker 400:26:56Great. Thanks. So I wanted to just dig down into the addition of Continuum and I assume some additional hiring that you're doing independent of that acquisition. By my math, it sounds like your expectation for headcount is up about 8.5% sequentially. And so should we be considering that kind of rise on average in your OpEx? Speaker 400:27:30And can you give us a little bit of a sense of the split between R and D and sales and marketing in that cost addition? Speaker 100:27:40Yes, Alex. Good morning. We are increasing our headcount. We are looking to increase our headcount to next quarter in the range of 8%, 9% as primarily by addition of Continuity, but also with our continued increase of investment in the sales and marketing, while Continuum team is mainly R and D. And on top of that, we had our additional investment into sales and marketing. Speaker 100:28:14I would say that this will be around the same ratio on both R and D and sales and marketing, but G and A is going to stay about the same. Of course, I'm not taking the effect of any FX changes. Speaker 400:28:32So we should be taking about a 10% increase in both sales and marketing and a very minor increase in G and A? Speaker 100:28:41Again, about 8% to 10%, correct. Speaker 400:28:46Obviously, you're not adding to your G and A from that acquisition. So I assume it's a little higher than the 8% number primarily with the increase in those key lines. Speaker 100:28:57Yes, Joel. Speaker 400:29:02So based off of the strength of the quarter, should we be looking at any sequential growth or is it fairly stable on the top line sequentially as we go out with most of the increase in revenues remaining to get to your target in the back half of the year? Speaker 100:29:25So we start we see that we managed to get over the $12,000,000 a quarter based on our recent wins. We are looking to keep improving and add additional revenue quarter over quarter. With that, it's very hard to forecast exact and when exactly we will have additional upside as we are looking to get more revenue both on our existing and new customers. I think that overall, we are going to gradually continue with our plan and we reiterate our guidance that we are still feel comfortable that this year will be another growth year for us. Speaker 400:30:15In context of the U. S. Wireless market, it's become increasingly clear that there is a challenge around the open 5 gs core. Many of the service providers appear to be struggling with the mechanics of getting that to work. We've heard that there's going to be a push out in the time that they move from 4.5gs to 5gs core. Speaker 400:30:47I can read that in 2 ways. One way to read it would be there could be a delay in spending for your products. The other way to read it would be that just significantly increases the meat of your products as visibility and analytics are critical to solving the software challenges of doing the open core. So can you talk a little bit about that issue and how it might imply if there's a delay in the timing of the transition to a full standalone 5 gs? Speaker 100:31:23Yes. 1st and foremost, it's evident today that all telco operators are in the process of implementing 5 gs and in specific 5 gs core or 5 gs standalone as a strategic investment. This is very important as this is the foundation of our strategy as we build the company and we build the product and technology towards that transformation of telcos. This adds for us an opportunity to replace the legacy solution as a technology revolution, but it also require operators to move to the cloud. This being said timing wise, there are some factors that make things more complicated and slower. Speaker 100:32:11One of them is the technology itself that is quite complex and not as mature and it takes for the network vendors time to implement and the operators are it takes them longer than before. For us, it's a good thing because the more complicated the technology is, the more relied of a solution like ours they are. So we are helping them to crack this complexity. We see that customers that adopt our technology like Rakuten and Dish and more are managing to move faster than others in the 5 gs space. The macro economy is definitely make everyone facing their investment. Speaker 100:32:59They are shrinking it sometimes with teams that are with optimizations and it's harder for them to progress with the project. This obviously might create some delay with the investment, but the good thing is that our business model is robust. We are working with the leading carriers. We have a multi year review. We have recurring revenue. Speaker 100:33:22And even in this environment, the delays, as you could see, we are able to perform continuous growth and be prepared to the journey that it will take. I would want to highlight that my personal belief is that this is the 5 gs is progressing. This is why we are increasing our sales and marketing, but we look at this as a journey. This is not things that happens over the quarter, but we see the next 2 years are going to be critical and additional customers and additional operators are going to migrate to 5 gs. So we believe in this space and we're investing in this space. Speaker 100:34:07Timing is always a question, but you need to work closely with the operator in order to make sure you have the selected solution when they are ready. Speaker 400:34:18So just going back to the point, it sounds like, yes, there may be some slowdown in the timing of open cloud based 5 gs core, but the complexity challenges are being realized in a way that drives increased need to your product. And therefore, while it may be a detriment to say a Nokia or an Ericsson, this actually could be a positive for you guys in that context. The other side of this is the international markets have generally cleaved to a lesser open but still cloud oriented 5 gs core and that in turn is easier to implement. And so I guess the question is, do you see some acceleration or improved opportunities in the international market as a result of that dynamic? Speaker 100:35:21Yes. We do see that there is more adoption of cloud technology. Going back to my comment about Mobile World Congress back in the end of February, We sold the hyperscalers, Amazon, Google and Microsoft taking the prime attention of all telcos. This was dominated by European carriers and we see many a lot of more investment by all parties and we start to see more and more projects of Telco going into the cloud. This is a good sign for us. Speaker 100:35:55As I mentioned, any investment to this direction make our value much higher, our differentiator more critical, and we really believe that this trend could help. 5 gs is progressing in Europe and in Asia and we start to see initial times in Latin America. For us, we don't look necessarily on the geographies. We are mainly looking on the market as our advanced operators are with 5 gs. The more advanced they are with 5 gs, the more advanced they are with cloud, they have a better fit. Speaker 100:36:32So we are really targeted in our approach and trying to partner with those that are more advanced. So even if we don't know the pace of the adoption, but we want to make sure that all the early adapters, many of them as possible, are partnering with Radbourne. And this will help us to continue and innovate, continue to create unique capabilities and raise the bar for any competition that might try to follow. Speaker 400:37:03Okay. Two more questions, fairly brief though. The Continuum acquisition obviously has some nice incremental technology. I assume it is not included in your AT and T or Rakuten contracts. How do you see that technology being adopted by your existing customers? Speaker 400:37:30And what kind of uplift would there be to your revenues at individual clients if they did that? In other words, if they were selling just choosing a number randomly here, dollars 1,000,000 to AT and T in a year, and they adopted this, would that be $1,100,000 to $1,200,000 What would the incremental uplift be for that adoption? Speaker 100:37:57So we are still early in trying to introduce this technology to our installed base. Overall, we see excitement from that. And I would say that while currently Continuum was a start up and their revenue level, as we mentioned, is insignificant to our numbers in this stage. We see a potential that this could grow and help to improve our top line. I would say this would grow up to 15%, 20% of our revenue if all goes well. Speaker 100:38:34But it really depends on the adoption, but this is just like an initial sense. We are still looking to continue and introduce it to the market and we are still finalizing all the details, closing App and Jazz couple of weeks ago. And I'm sure that we will be smarter in couple of quarters when we start to plan our 2024. Speaker 400:39:03Great. Thank you so much. Operator00:39:10This concludes the Radcom Limited First Quarter 2023 Results Conference Call.Read morePowered by