Dropbox Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Radcom Limited Results Conference Call for the Q1 of 2024. All participants are present in 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 Helik Itmann, Radcom's Interim CEO and Hadarah Hogg, Radcom's CFO. Please note that management has prepared a presentation for your reference that will be used during the call.

Operator

If you have not downloaded it yet, you may do so through the link in the Investors section of Radcom's website at www.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 momentum, growth, future profitability, expected levels of gross margin, its ability to drive the business forward in 2024 and beyond. Its full year 2024 revenue guidance opportunities to expand sales with new logos for 5 gs and in the cloud and GenAI ecosystems, its pipeline, its leadership and innovation in artificial intelligence and as a cloud assurance vendor, the potential benefits of software as a service solution, the ability of Radcom Ace on Amazon Web Services to allow operators to achieve higher levels of automation and insights, future investments by operators in their network and 5 gs, its expectations with respect to research and development and sales and marketing expenses and headcount as well as grants from the Israel Innovations Authority and the company's expectations with respect to its relationships with Rakuten, AT and T and DISH. The company does not undertake to update forward looking statements.

Operator

The full Safe Harbor provisions, including risks that could cause actual results to differ from these forward looking statements are outlined in the presentation of 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 that have been expensed in accordance with the ASC Topic 718 Financial Income Expenses, Acquisitions 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 operations consistently from period to period. The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliations of GAAP to non GAAP financial measures included in the quarter's earnings release available on our website. Now, I would like to turn over the call to Helix.

Operator

Please go ahead.

Speaker 1

Thanks, operator. Good morning, everyone, and thank you for joining us for our Q1 2024 earnings call. My name is Hilli Gitman. Before being appointed by the Board as interim CEO, I served as Radcom's Chief Operating Officer since 2020. I was responsible for the product development and customer success teams.

Speaker 1

Before becoming COO, I served as Vice President of R and D from 2015 to 2020. During this time, I led the product transition from software to virtualization and finally to the cloud, including all the additional AI powered capabilities and automation features provided to our customers as part of our solution offering. I want to thank the Board for trusting me to lead the business as Interim CEO. Since achieving the role, I've worked closely with the management team to ensure business continuity and that our positive momentum and profitable growth continue. The mandate is clear and we are laser focused on leveraging market opportunities to expand our sales with new logos for 5 gs.

Speaker 1

Turning to the Q1 results. We continued our strong positive momentum for 2023 into the Q1 of 2024 with record first quarter revenue that increased by 70.5% year over year, a 19 consecutive growth quarter. We achieved our highest level cash levels, ending the quarter with 85,300,000 dollars We continued our profitability strategy and achieved positive income on a GAAP and a non GAAP basis. We had an encouraging start to 2024 by renewing our multiyear contract with 1 of our key strategic customer Rakuten Mobile. We continue to extend our collaboration and strengthen our partnership with this innovative operator.

Speaker 1

The contract extension included Vancera Power Analytics for its private cloud, enabling Rakuten Mobile to drive more automated network operations for its nationwide rollout. The partnership with Rakuten demonstrates our market leadership and innovation in AI, automation, the telecom network cloud and 5 gs. In addition, we announced that the U. S. Telecom operator extended its contract to use Radcom ASE.

Speaker 1

In this contract, the value we offer is that our solution will run on AWS as a SaaS. It is also available on other cloud platforms. Deploying Radcom ace on AWS will enable this operator to achieve a higher level of automation and gain wisdom insight into the network. Operator rely on assurance to navigate a smooth transition to 5 gs and the cloud and our goal is to be the leading assurance provider for transition. Hence, we want to offer telecom operators the ability to choose whatever cloud provider or deploy that more than they want and use our innovative assurance technology to manage their network transformation.

Speaker 1

SaaS is a popular cloud computing offering delivers a turnkey solution. Operators can access our cloud based assurance software quickly and gain its benefit as it has already been installed and configured. It also offers cost saving as operators don't need to invest in additional infrastructure. Furthermore, operators can scale their solution usage up and down based on specific needs. Offering SaaS provides customers with flexible options that can generate more sales opportunities for us in the future.

Speaker 1

These projects reinforce the importance of our strategic journey to become a leading cloud assurance vendor and offer operators flexible SaaS options for deploying assurance in the cloud. Turning to our customers and sales pipeline. We continue to provide innovative software enhancement and new releases to our installed base customers to help them manage their network, deliver more automation and save operational costs. AT and T and DISH remain key strategic customer and we believe our business will remain strong. In addition, as I noted previously, our business with Rakuten Mobile remains strong following the renewal of our multiyear contract.

Speaker 1

Our pipeline is healthy based on our Radcom ACE product line and includes a good mix of new and existing customers. We see significant growth potential in our pipeline and have increased our sales team to ensure we fully capitalize on the growth opportunities ahead of us. We continue to work within the 5 gs cloud ecosystem for private, public and hybrid networks. In the public cloud, we offer potential customers integration with all 3 leading public cloud providers. Our investment in the cloud ecosystem are being fruit and we believe our integration with cloud providers will help generate additional opportunities.

Speaker 1

In previous call, we mentioned the importance of Gen AI and that all the leading public cloud providers or hyperscalers are emerging as having a pivotal role in the Geni ecosystem. We see an opportunity to use our unique telco centric assurance skill set to help operators manage their network as they partner with hyperscalers entering the telco space to facilitate operators' smooth transition to the cloud. Last year, we announced our position as one of the first assurance vendor to harness the power of Gen AI for real time management of 5 gs Networks, Radcom Networks. Our team continues to work on embedding GenAI technology into our solutions to enable innovation that helps operators manage their networks more dynamically and efficiently through AI and automation. As part of this effort, we announced the integration of our Gen AI application with AWS.

Speaker 1

Although Gen AI is in the innovation stage, customers see our innovation and thought leadership in this space, which can be a door opener that leads to other sales opportunities. We continue to engage with Operator Global through our sales and marketing activities, including direct meetings, tender processes and conferences. Operators are continuing to invest in their networks and rollout 5 gs. In the current macroeconomic landscape, operators are looking for innovative solution to help them reduce costs while seeking additional revenue due to significant investment in 5 gs. In addition, operators must ensure the subscribers enjoy top quality services in this highly competitive market, a critical use case for Assurance.

Speaker 1

This is an opportunity for Radco. Operators can use our solution to ensure service quality while driving operational efficiency and generating revenue through service like private networks for enterprise customers. Radcom continues to be engaged in multiple opportunities for our innovative solution at different stage of maturity. We continue to enhance our software with additional automation, intelligence and AI based capabilities and integration into the cloud to add value and expand our customers' use cases. The North Star that guides our product roadmap is to make networks more intelligent and autonomous through AI powered analytics.

Speaker 1

We will continue innovating to help operators become more efficient and increase revenues for 5 gs. We announced generative AI application support for Amazon Web Services so operators can roll out new services passed on AWS while improving operational efficiencies using Radcom Ace enhanced by generative AI. Radcom is a company with many years of expertise in the telco space. We know how to analyze data and deliver valuable insight into the telecom operators. So we approach all our product innovation from this unique perspective, starting from a foundation of a good data and telco domain knowledge.

Speaker 1

By visiting Geni products on top of this solid foundation, we are leveraging our know how to provide innovative solutions that enable operators to use natural language to tap into the wealth of data Radcoma produces, helping operators work faster and more cost effectively. To summarize, based on our good visibility into 2024, overall market opportunity and unique market position supporting telecom operators as they roll out 5 gs and optimize costs. We remain well positioned to drive the business forward in 2024. Our multiyear contract also provide a strong backlog, driving consistent results and giving us good visibility. We are confident in delivering the 5th consecutive year of revenue growth, increasing our profitability and continuing the last 4 years of growth momentum.

Speaker 1

This gives us the confidence to raise the lower end of our 2024 revenue guidance to $67,000,000 to $60,000,000 With that, I would like to turn the call over to Adana Arv, our CFO, who will discuss the financial results in detail.

Speaker 2

Thank you, Hillek, and good morning, everyone. To review our financial performance, while the slides contain GAAP and non GAAP results, I will mainly refer to non GAAP numbers, excluding stock based compensation, acquisition related expenses and amortization of intangible assets related to acquisition. Now please turn to Slide 8 for the financial highlights. 1st quarter revenue grew by 17.5%, reaching a new record of $14,100,000 This represents a 19th consecutive quarter of year over year revenue growth and an increase from $12,000,000 in the Q1 of 2023. At the same time, we continue to manage and control our expenses while investing strategically and efficiently in increasing our investment in sales marketing.

Speaker 2

This resulted in non GAAP net income of $2,800,000 for the quarter. Our gross margin on an end GAAP basis in the Q1 of 2024 was 74%. Note that our gross margin can vary slightly from quarter to quarter depending on the revenue mix. We expect that the Q2 will remain at a similar level. Our gross R and D expenses for the Q1 of 2024 on a non GAAP basis were $4,000,000 a decrease of $168,000 compared to the Q1 of 2023.

Speaker 2

With the market evolving rapidly, our continued investment in research and development to extend our technological leadership within this space is vital. This is a key enabler for our future business. We will continue to invest strategically in R and D and maintain similar expenses as in 2023 to enhance our Racom AES solution, increase our 5 gs capabilities, expand our AI driving insights and seamlessly integrate our solution into the cloud. Excluding any impact from exchange rates, our R and D expenses in the next quarter will remain at a similar level with a slight increase. During the quarter, we received a grant of $209,000 from the Israel Innovation Authority compared to $262,000 in the Q1 of last year.

Speaker 2

As a result, on a non GAAP basis, our R and D expenses for the Q1 of 2024 were $3,800,000 compared to $4,000,000 in the Q1 of 2023. We expect the Israel Innovation Authority grant to remain at Q2. As announced in previous calls, we continue strategically investing in sales and marketing to expand our business and capture more opportunities in the 5 gs market. Towards the end of 2023, we made an incremental investment in sales and marketing. In the Q1 of 2024, sales and marketing expenses reached $3,800,000 on a non GAAP basis, an increase of 700 and $47,000 compared to the Q1 of 2023.

Speaker 2

In the following quarters, we expect a gradual increase in sales and marketing expenses to support an increasing pipeline of opportunities. G and A expenses for the Q1 of 2024 were $1,200,000 on a non GAAP basis, an increase of 200 and $10,000 from the Q1 of 2023. Thanks to increased revenue and careful expense management, operating income on a non GAAP basis for the Q1 of 2024 was $1,700,000 compared to $800,000 for the Q1 of 2023. Net income on a non GAAP basis for the Q1 of 2024 was 2,800,000 dollars or $0.18 per diluted share compared to $1,800,000 or $0.12 per diluted share for the Q1 of 2023. On a GAAP basis, as you can see on Slide 8, our net income for the Q1 of 2024 was $762,000 or $0.05 per diluted share.

Speaker 2

This compared to a net income of $621,000 or a net income of $0.04 per diluted share for the Q1 of 2023. At the end of the Q1 of 2024, our headcount was 290 6, the same as the previous quarter. We expect our headcount to remain similar in the second quarter. Turning to the balance sheet. As shown on Slide 11, our cash, cash equivalents and short term bank deposits were 85.3 $1,000,000 as of March 31, 2024.

Speaker 2

That ends our prepared remarks. I will now turn the call back to the operator for your questions.

Operator

Thank you. The first question is from Alex Henderson of Needham and Company. Please go ahead.

Speaker 3

Thanks. It's a nice quarter and certainly a great start for 2024. I wanted to address the linearity implied by the large beat in 1Q versus only taking the low end of the guidance up. Was the Q1 a little of a lumpy quarter in terms of the lump into the quarter and hence we should anticipate a more moderate result in the upcoming quarters in terms of the year over year growth rate?

Speaker 4

Okay. Hi, Alex. Thank you for your kind words. So as you saw, we raised the lower end of our revenue guidance and we updated the guidance to 57% to 60%, which means that we are likely to have a higher second half of the year in terms of the revenue. And if no change in the ForEx, we expect a similar on the bottom line.

Speaker 4

As announced in the credit report, we continue to strategically invest in sales sales and marketing to make sure we have the credibility and enough boots on the ground to capture more opportunities in the 5 gs market. So part of the revenue increase will be used for sales investment, but most of it will go down to the bottom line.

Speaker 3

I see. So in the second quarter, relative to the Q1, it's fairly stable sequentially, I assume?

Speaker 4

Yes.

Speaker 3

Looking at the pipeline, you obviously had some nice news on Rakuten. The deal with Rakuten does sound like it's an expansion, not just a renewal. Can you talk about the size of the upside that's going

Speaker 4

So the renewal of the

Speaker 3

Yes. Can you talk about the upsell to your larger partners, not just Rakuten, DISH as well as any others that you want to mention or put together. What is the large cohort of the top Tier 1s look like in terms of ability to upsell in 2024 and for that matter into 2025?

Speaker 4

So about the contract with Rakuten, the renewal is in the same rate as the previous one, but it has a few opportunities for extension around the AI products and services. We have with our existing customers different opportunities in our pipeline, and we believe that some of them will be executed in the second half of twenty twenty four.

Speaker 3

If I were to look at the pipeline, I think you said it was evenly split between both new customers and existing customers. Is that how you're expecting the incremental growth to play out? Or is it more just due to new customers driving the upside to the revenue?

Speaker 4

No, both. Also from existing and from a new customer. Our pipeline including is including mix of opportunities from existing and from new customers.

Speaker 3

So evenly split between the 2 or is there a bias to type versus the other?

Speaker 4

No, it's 50. Okay.

Speaker 3

Just in terms of new products, I think you guys have had a fair amount of new technology announcements and new product announcements. Can you just talk a little bit about whether that's something that's starting to metastasize into the revenue streams?

Speaker 1

I can take about the technology side of this product. Actually, you know the Gen AI now is bringing to the table a new very dramatic opportunities, I mean, technology wise. And we are actually acquisitive a lot of information and our product is based on a lot of knowledge in the telecom and especially in cellular fields. And the combination between the 2 of these spaces, I mean the information that we capture and analyze and save in our customers and the Gen AI capabilities in understanding a lot of information and knowledge base bring a lot of significant capabilities for us and we believe it will bring a lot of opportunities in the future and even now the engagement that we have with customers in this area.

Speaker 3

All right. I'll take the floor. Thanks.

Operator

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

Speaker 5

Yes, perfect. Thank you so much and very nice job on the

Speaker 3

service chart to the year.

Speaker 5

Maybe actually to continue on that last point, when you think about all the new capabilities and all the innovation that you've added into the platform, obviously you're doing a lot with AI, with analytics, etcetera, right? And how do you think your pricing strategy might evolve as you look at your existing customers? Obviously, it's sticky and you want to capture the value. So to talk about whether you think there is pricing power over time and how you maybe intend to use that as a lever?

Speaker 4

Okay. So if you look

Speaker 1

Now it's generalized. Okay. Yes, there you can.

Speaker 4

I will just refer to the SaaS model. So if you look at the SaaS model for Xampere, so it's a win win situation. On the one hand, it's a saving cost for the Adcom, as more operators will switch to the SaaS model, the marginal cost will decrease and we will improve our gross margin. So this is from the financial

Speaker 1

No, no. Okay.

Speaker 5

Got it. And then so I guess the other piece just as you're making more sales and marketing investments, Can you just help us understand a little bit about how those are how you're executing on those? I mean is that mostly new sales reps that you're hiring to go after new telco accounts that you don't have? Is it pipeline conversion? I assume a lot of this, I think we touched on this a little bit last quarter that it's following the 5 gs ramp and that's kind of where you're really focusing.

Speaker 5

But how is that how is kind of executing execution on that front going and where are the new reps kind of being targeted?

Speaker 4

So we are following very carefully the evolution of 5 gs and primarily the private center on. And as we announced in our previous calls, we saw that the early adopters in the markets are in North America and in some advanced countries in Asia like Japan and South Korea. And there we focused on the last few years. In the last year, we started to see that more than start to progress, namely in Europe. And you know that Europe is more scattered.

Speaker 4

There are more operators boots on the ground, as I say. And therefore, we expanded our investment in sales and marketing and this up to this increase has already been reflected in the results of the Q1. And we may see an additional increase a gradual increase in the second half of the

Speaker 5

Yes. Very helpful. Thank you.

Speaker 4

You're welcome.

Operator

The next question is from Jeff Meyers of Covia Capital. Please go ahead.

Speaker 6

Thanks guys. Congratulations on a good start to the year. I just wanted to ask about your cash position, you sort of all time high. What are your thoughts about that? Have you thought about a share buyback or tender offer or something along those lines?

Speaker 4

Okay. So in the last 3 years, we generated about $15,000,000 and it gives us a very strong position in the market and allows us to engage and take more risk. Last year, we did our 1st M and A transaction, and we want to make sure that we have enough cash and sufficient level of cash to execute other relevant opportunities of M and A. Dividend or buyback is something that is being discussed and the Board and the company may allocate a limited level of cash for this purpose, but we don't see it as the key as the strategic use of our cash. We use our cash for stability, for increasing our market share, excuse me.

Speaker 4

And as I said, we want to maintain a sufficient level to engage and to make another M and A transaction.

Speaker 6

Understood. I mean, I think you guys it seems like you have enough cash to do all three things to maintain stability, do a buyback and any acquisitions you might look at. But congratulations again. Thank you.

Speaker 4

You're welcome. Thank you.

Operator

The next question is a follow-up question from Alex Henderson of Needham and Company. Please go ahead.

Speaker 3

Thanks. So listening to virtually every person who sells into the telecom space, it seems pretty clear that most of the telecom industry is under duress and cutting back on their budgets and spending. There's clearly been some challenges around the 5 gs core in terms of delivering a true multi vendor modern API driven micro service based architecture. And so when I talked to virtually every other company in the category, they're telling me that we're kind of in telecom winter here that the pace of adoption of 5 gs is going to be slower than originally expected with challenges around delivering some of the advanced architecture, new features like network slicing and the like that were intended to monetize the 5 gs investments. So I think it was obvious that AT and T had tried to go down the path of multi vendor and ended up with cutting out Nokia and going with Ericsson.

Speaker 3

So how does all of that affect you? Are you negatively impacted by it? Or are you alternatively, and I think is the right answer, the answer to the problem and actually amplified by those issues because your solution to get them to the next plateau.

Speaker 1

Yes, exactly. I think in order to understand all the 5 gs evolution in the right context, but all the technology transition are derived from some valid and strong business. So actually 5 gs is the I think is the only way for transition to modern software based and cloud based networks for the telecom. So from what I see, we saw that the telecom is keep going to the autonomous journey and I think that the train is left already left the station. I know that there is some difficulties, but again, we are in the best position in this space and we have a lot of things to bring to the table to help them with this journey with assurance and not and even with new aspects.

Speaker 1

So I think that we are in a good position in all this 5 gs transition and autonomous network position. I think it's going together and I don't see any way that it will not happen eventually. Thank you. You have more question about it?

Speaker 3

Well, there's clearly a problem, right? I mean, I don't think there's any issue that anybody believes that the 5 gs core is working as expected. And AT and T was kind of at the center of that with the decision to go multi vendor to standardize on Ericsson. So given the observation that this problem is the Rakuten, excuse me, is the Radcom products the key to solving those problems. And so instead of slowing investment, they're actually accelerating investment with you?

Speaker 1

Yes, that's true. I think that the fact that we are dealing with this space with all the 5 gs and cloud native transitions and we bring the platform that customer rely on with these transitions. So it put us in a good position. We saw it in with all the customers that we are working with around all this 5 gs transition, the newcomers, it's very significant that we are that they are relying on our technology because they reduce costs by reduced people and we are in the best position because we are with our platform, you can manage your network more efficiently and more scalable manner. So yes, I think it's very helpful to work with us on all this area.

Speaker 3

Okay. Thanks.

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