RADCOM Ltd. (NASDAQ:RDCM) Q4 2023 Earnings Call Transcript
RADCOM Ltd. (NASDAQ:RDCM) Q4 2023 Earnings Call Transcript January 31, 2024
RADCOM Ltd. beats earnings expectations. Reported EPS is $0.25, expectations were $0.17. RDCM isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the Fourth Quarter and Full Year 2023 Results. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] 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 Eyal Harari, RADCOM's 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's deck in the 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 full year 2024 revenue guidance, the 5G market and industry trends and expected increase in standalone 5G launches, the role the company is expected to play in the 5G transformation, expected increases in sales activities and opportunities, its pipeline, the expected impact of currency rates, the company's market position, cash position, potential and expected growth in profitability in 2024 and thereafter, its expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel Innovations Authority, the company's expectations with respect to its relationships with Rakuten, DISH, AT&T and Vodafone, its expectation to continue enhancing its software solutions and demand for its solutions of the role of its 5G solutions and cloud developments, its ability to capitalize on 5G opportunities and win more market share and the potential of the company's use of artificial intelligence and its products.
The company does not undertake to update forward-looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward-looking statements are outlined in the presentation 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 noncash stock-based compensation expenses, financial income expenses, acquisition-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 general 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 Eyal. Please go ahead.
Eyal Harari: Thanks, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2023 earnings call. You may have seen that earlier today, we announced the CEO transition. I will be stepping down as the CEO and Guy Shemesh will succeed me. I wish Guy and the RADCOM team success in the coming years. RADCOM was my home for over 20 years in various leadership positions. RADCOM is close to my heart, and I will remain in an advisory role to ensure a smooth transition and help ensure the company's continued success. Let me start with the financial results and the business updates and then I will discuss the transition in my summary. 2023 marked an exceptional and record year for RADCOM, extending the momentum of the last four years of growth.
We achieved a revenue milestone of $51.6 million, representing 12% growth year-over-year, a fourth consecutive growth year. In the fourth quarter, revenue was $14 million, representing a year-over-year growth of 14%, while our net margin reached a record level. We continued our path to sustained profitability, achieving the record net income of $10.2 million on a non-GAAP basis or $3.7 million on a GAAP basis for 2023. Our finances strengthened due to the positive cash flow that reached a record level of cash and cash equivalents totaling $82.2 million with no debt. We crossed the $50 million annual revenue threshold and scaled to a midsized software company. In 2023, our team executed well while delivering a record year, laying the foundations for the robust 2024 and beyond.
I am proud of our employees and thank them for their dedication and commitment to delivering on our customer success and growth strategy during the year. Our strong results highlight the importance of our industry-leading solutions in this growing 5G market. Looking at 2024, thanks to our strong execution and current visibility, we are confident in delivering a fifth consecutive year of revenue growth and increasing our profitable growth metrics. Our full year 2024 revenue guidance is $56 million to $60 million. Since the October 7 attack and the resulting situation, our operation in Israel and globally have continued without interruption. We are closely monitoring the situation. Our Israel office is fully operational and running normally. At the same time, our business continuity plan is active, so we are prepared for any changes to the current situation.
As demonstrated in the fourth quarter of 2023, our team works diligently to fulfill our customer obligations, grow the business and drive the company forward. For our customers, we continue to provide software enhancement and to introduce new innovation software releases to assist them in managing their networks and ensuring great customer experiences. In 2023, we secured several new orders from our existing customer base and increasing our overall revenue from existing customers compared to 2022. AT&T, DISH and Rakuten remain key strategic customers. We believe our business with them will remain strong. We expect revenue from these customers in 2024 to stay at a similar level to last year with potential for further growth. Due to the continual acquisition, we added Vodafone as a new customer in 2023.
Vodafone is a British multinational operator operating in 21 countries, which provides potential growth area for more business in the future. During 2024, we will expand our focus on our sales activities to meet the expected 5G standalone monitoring demand with our leading 5G assurance solutions. Operators rely on assurance to navigate the transition to 5G and enhanced operational efficiency. As they adopt next-generation cloud technology to optimize cost and roll out 5G, the current macroeconomic landscape presents new opportunity for RADCOM, a leading global cloud-native assurance solution. We continue to enhance our software with additional automation, analytics and intelligence and AI-based capabilities to bring value and expand use cases for our customers as the adoption of the 5G technology progress.
We also rolled out RADCOM Virtual Drive Test, a product we acquired as part of the continual acquisition to help operators improve the customer experience while reducing costs. These product initiatives have already gained traction with potential customers and could lead to additional business. As I mentioned, our product strategy is making networks more intelligent and autonomous through AI-powered analytics to save costs, improve the customer experience and drive operational efficiencies. Recently, we announced our position as one of the first assurance vendors to harness the power of generative artificial intelligence or Gen AI, for real-time and efficient management of 5G networks. RADCOM's NetTalk, we are approaching this from the unique perspective of a company with years of expertise in the telco space and an advanced AI-powered analytics point of view.
These NetTalk applications enable operators to adopt the power of Gen AI and trusted data to manage their network operations faster and cost effectively. Executives and engineers can use natural language to tap into the wealth of data RADCOM ACE produces as its analyzed service quality. Operators can talk with their network and leverage the rich insights through RADCOM Gen AI applications using customized large language models, LLMs. Gen AI will be a hot topic in 2024, and we will be showcasing our RADCOM NetTalk use cases, which we'll continue to develop throughout the year, starting the Mobile World Congress at the end of February in Barcelona. Our market-leading solutions thoughtfully align with the operator needs, which drives revenue, reduce operational costs and provide unique technology to address critical network challenges.
We are confident that our unique innovative offering will drive sustained growth. Our pipeline continues to be healthy with good mix of opportunities from our current installed base and new customers. In 2024, we will expand and focus on our sales activities, which we believe will lead to additional contracts and increased market share. To summarize, 2023 was an exceptional record year for RADCOM, continuing the last four years of growth momentum. We believe our strong sales and marketing engagement shows that the demand for our solution is robust. Our multiyear contracts also provide a strong backlog, driving consistent results and driving us good visibility into 2024 and beyond. Therefore, we are confident in delivering fifth consecutive year of revenue growth, further increasing our profitability and continuing the positive momentum in 2024.
Hadar Rahav: Thank you, Eyal, and good morning, everyone. Now please turn to Slide 8 for our financial highlights. While the slides contain GAAP and non-GAAP results, I would refer mainly to non-GAAP numbers excluding share-based compensation, acquisition-related expenses and amortization of intangible assets related to amortization and financial income expenses. We concluded the fourth quarter of 2023 with $14 million in revenue and making a new record quarter and an increase from $12.3 million in the fourth quarter of 2022. Our gross margin on a non-GAAP basis in the fourth quarter of 2023 was 76%. Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2023 on a non-GAAP basis was $3.9 million, a decrease of $785,000 compared to the fourth quarter of 2022.
We received a grant of $190,000 from the Israel Innovation Authority during the quarter compared to $160,000 in the fourth quarter of last year. Our net R&D expenses for the fourth quarter of 2023 on a non-GAAP basis were $3.7 million, a decrease of $815,000 compared to the fourth quarter of 2022. Sales and marketing expenses for the fourth quarter of 2023 were $3.3 million on a non-GAAP basis, an increase of $401,000 compared to the fourth quarter of 2022. G&A expenses for the fourth quarter of 2023 on a non-GAAP basis were $978,000, with no significant change from the fourth quarter of 2022. Operating income on a non-GAAP basis for the fourth quarter of 2023 was $2.7 million, 19% of revenue compared to an operating income of $608,000, 5% of revenue for the fourth quarter of 2022.
Net income for the fourth quarter of 2023 on a non-GAAP basis was a record of $3.8 million, 27% of revenue or a net income of $0.25 per diluted share compared to a net income of $1.3 million, 11% of revenue or a net income of $0.09 per diluted share for the fourth quarter of 2022. On a GAAP basis, as you can see on Slide 7, our net income for the fourth quarter of 2023 reached an all-time high of $2.6 million, 19% of revenue or a net income of $0.70 per diluted share compared to a net loss of $26,000 or a net loss of $0.00 per diluted share for the fourth quarter of 2022. At the end of the fourth quarter of 2023, our headcount was 295. Now let's turn to the full year results. We ended 2023 with revenue of $51.6 million, an increase of 12% from $46.1 million in 2022.
On a non-GAAP basis, our gross margin was 74% in 2023 compared to 73% in 2022. Our gross R&D expenses for 2023 on a non-GAAP basis were $16.9 million, a decrease of $2.1 million compared to 2022. In 2024, we plan on investing in R&D at approximately the same level as in 2023. We received a cumulative grant from the Israel Innovation Authority for $736,000 during the year. In 2024, we expect grant from the Israel Innovation Authority to be at the same level as in 2023. Sales and marketing expenses in 2023 were $12.7 million on a non-GAAP basis compared to $10.9 million in 2022. In 2024, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for 2023 on a non-GAAP basis were $3.8 million, an increase of $268,000 compared to the entire year of 2022.
Operating income on a non-GAAP basis for 2023 was also an all-time high of $5.7 million, 11% of revenue compared to an operating income of $1.1 million, 2% of revenue for 2022. Net income for 2023 on a non-GAAP basis was a record of $10.2 million, 20% of revenue or a net income of $0.67 per diluted share compared to a net income of $2.9 million, 6% of revenue or a net income of $0.19 per diluted share for 2022. On a GAAP basis, as you can see on Slide 7, our net income for 2023 was another record of $3.7 million, 7% of revenue or a net income of $0.24 per diluted share compared to a net loss of $2.3 million or a net loss of $0.16 per diluted share for 2022. In 2024, we believe the dollar-shekel ratio will stabilize at the current levels and not require hedging.
Turning to the balance sheet. As shown on Slide 11, our cash, cash equivalents and short-term bank deposits as of December 31, 2023, were $82.2 million. As was mentioned in the previous quarter in 2023, we completed Continual acquisition in the amount of $2.5 million. Thanks to our strong results, we generated a positive cash flow of $4.5 million, which led us to end the year with our highest level of cash. Now I will pass the call back to Eyal to summarize.
Eyal Harari: As I mentioned at the start of my remarks, I'm stepping down after over four years as a CEO and 20 years in various leadership roles within the company. It has been an honor to lead the incredible team at RADCOM. I am proud to have led the company to surpass the $50 million annual revenue threshold and scale the company up to a midsized company for the first time while achieving profitable growth. I'm leaving the company in a healthy situation with excellent visibility into 2024 for continued growth and increased profitability, while I move to my next challenge. RADCOM is in the hands of a capable and talented management team. I am confident that together, they will continue to lead the company, drive further growth and achieve new heights under Guy's leadership.
Thank you to all the employees, customers, investors and partners I worked with who have put their trust in the company, and I wish the Board, Guy and RADCOM every success. That concludes our prepared remarks. I will turn the call back to the operator for your questions.
Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Arjun Bhatia of William Blair. Please go ahead.
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