RADCOM Ltd. (RDCM) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Fourth Quarter 2015 Results Conference Call. All participants are at present in 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, February 17, 2016. I would now turn the call over to Ms. Noga Fisher. Ms. Fisher, would you like to begin please?

Thank you, Laura, and thank you all for joining us. With me today are RADCOM's CEO, Yaron Ravkaie; and CFO, Uri Birenberg. By now, we assume you have seen the earnings press release, which was issued earlier today. It is available on all the major financial news feeds. 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 a link on the Investors section of RADCOM’s website at www.radcom.com/investor-relations. If you have any trouble, please send Mark Rolston an email at markr@radcom.com and he will send it to you right away. Before we begin, I would like to review the Safe Harbor provisions. Forward-looking statements in the conference call involve a number of risks and uncertainties, including but not limited to product demand, pricing, market acceptance, changing economic conditions, product technology development, the effect of the company's accounting policies and other risk factors detailed in the company's SEC filings. The company does not undertake to update forward-looking statements. In this conference call, management will be referring 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 charges, non-GAAP results provide information that is useful in assessing RADCOM's core operating performance, and in evaluating and comparing our results of operations on a consistent basis 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, which are included in the quarter's earnings release. I would like to repeat the information about the presentation. If you have not downloaded it yet, you may do so through a link on the Investor section of RADCOM’s website at www.radcom.com/investor-relations. If you have any trouble, send Mark an email at markr@radcom.com and he will send it to you directly. Now, I’ll turn the call over to Yaron Ravkaie. Go ahead, please.

Okay. Thank you, Noga, and thank you all for joining us today. I hope you have our presentation in front of you, and I'm going to begin with Slide #3. So first, it's been a busy four weeks since our special conference right after the announcement of the biggest win in our history. This win has given us a record backlog as we enter 2016, with visibility for growth and financial stability for the next three years and maybe beyond. You can see on Slide 4, through the process of winning this order, our MaveriQ was vetted by a major North American carrier and chosen as the best NFV Service Assurance solution available. This means that we are now recognized as the clear leader of NFV Service Assurance, positioning us to write a significant transformation that is starting now in operator networks. And now we will become the first in our market to carry out a mega NFV deployment. As you can see on Slide 5, NFV networks need a different type of Service Assurance Solution. When you change the network core from physical to NFV, you must completely replace the monitoring probes. This is because you need to monitor the traffic traveling between the virtualized elements rather than from hardware box to box. Operators will need to invest in a new Service Assurance Solution for NFV that is fully software based and part of their virtualized environment. This is exactly what MaveriQ brings to the market. We can deploy it with many options from a fully virtualized network architecture to a partially virtualized environment, allowing CSPs to evolve their NFV transformation at the pace that suits their strategy. This means that a service provider can buy the MaveriQ at any stage of the evolution to NFV and still reuse most of the investment that they move over. Given that most operators will be moving gradually to NFV over a period of several years, this flexibility is a dramatic advantage. As you can see on Slide 6, the transition to NFV is expected to continue for the next 10 years. The maturity of NFV Service Assurance will proceed hand-in-hand with NFV through real-world mega deployments. Since we are the first to be in this process, our technology lead will further increase widening our competitive lead above the market. We are more excited than ever about the potential of the NFV Service Assurance market. We can see in Slide 7, the NFV tide is turning, the vast majority of the market now saying that they will move to virtualization. You can see in Slide 8, it is public information that operators such as Verizon, BT, AT&T, Sprint, Telefónica, Vodafone, KPN, Deutsche Telekom and others have all started the NFV process rolling and we are in talks with a number of them. These operators see companies like Amazon, Google and others running their services over an advanced cloud infrastructure, being able to roll-out and manage new services at the click of a button and give a mere instant response to customer demands. They are able to do all of this with minimal labor cost, while processing huge volumes of customer data and making sense of it. In fact as you can see on Slide 9, analysts like ACG Research are predicting that operators can save more than 65% of their network expenses by moving to NFV. So the task in front of us is to move aggressively to take full advantage of our lead. To this end, we are pursuing a number of activities. One direction is to establish a strong position within the NFV ecosystem. We have demonstrated that MaveriQ operates within the most common virtual environment, including OpenStack, VMWare and KVM and integrates easily with the solution of many leading NFV vendors, including Amdocs, HP, Intel, Nokia and others. We are collaborating with these ecosystem and channel partners to approach opportunities that we hope will become additional anchor customers. We are finding that our small size is actually an advantage in the NFV area. The big operators are looking to smart extremely agile companies for best of breed solution. For example in 2014, Affirmed Networks, a venture-backed company in the U.S. was one of the first to be awarded an AT&T 2.0 Domain win. As to how fast we will grow over what time period, it is hard to make accurate projections. We'll benefit from the revenues of the new deal over a period of three years, probably beyond. This will positively impact Q1 2016 and beyond. We are pursuing a number of significant opportunities both directly and with our channel partners. I can't say how many we will win or how long each process will take, but we are well-positioned in making progress. We are confident we'll take at least our fair share of the business and hopefully more. One analyst asked me if this is a winner take most market? I certainly believe so, and time will tell, as our - as to our expenses, we've already begun ramping up our R&D and we'll continue to do so. We are hiring more personnel and also investing in our labs. This will widen our technology edge and also give our customers confidence that they can rely on us as their service assurance expert as they transition to NFV. As you can see, we are investing to build the company to a size that is right for supporting the scale of the business, we expect to be closing. I hope this gives you an indication of just how big the opportunity is. An additional indicator of our growth is that we expect to have a cash balance north of $20 million by the end of the first half of 2016. This is compared with $8.7 million at the end of 2015. This strong cash balance is an indicator of our growth to come, as well as a tool for us to win additional significant transformational deals. In general, RADCOM’s future has never been brighter, NFV is happening, LTE, voice-over-LTE and IMS transformation are still heavily in progress. 5G is around the corner and we are positioned to benefit. We believe that we will be reporting very good news over the next few years and invite you to follow our progress. With that, I'll stop and turn the call over to, Uri, to discuss the financial results. Uri, please.

Thank you, Yaron. Since you have the financial results beginning on Slide 11, I will just go over the highlights. To help you understand the results, I’ll be referring mainly to non-GAAP numbers, which mainly excludes share-based compensation. For the year, revenues were $18.7 million, down from $23.6 million in 2014. As Yaron said, our revenue for 2015 reflects our focus on wining the tier-1 deal that we closed on December 31, bringing us to a record level of booking. For the quarter, revenues were $2.7 million, which is in line with the guidelines we gave on the last call. Turning to Slide 12. Our gross margin for the year was 77.9% compared to 70.9% for 2014. For the quarter, the gross margin was 64.5% compared to 74.6% for the fourth quarter of 2014, due to the low revenues. In general, our sales were made up of a mix of lifetime plans and standard service, some times the level of this project, depending on the mix of these components and the structure of upcoming projects, our gross margin must fluctuate due to accounting rules. As you can see on Slide 13, our gross R&D for the year was $5.5 million, basically unchanged from 2014. For the quarter, it was $1.5 million, up 25% from last quarter. This reflects the beginning of the ramp up in our R&D capabilities as Yaron discussed before. We will be hiring more R&D engineers and also investing in new labs to maintain our technology edge and to give our customers confidence in viewing RADCOM as their NFV Service Assurance expect. We recognized $576,000 contribution from the receipts [ph] of the Chief Scientist during the quarter, in line with our old prediction. We expect to continuously bring the R&D grants in the future as we did in the past, but we can never predict the timing. For the year, sales & marketing totaled $7.5 million, up slightly from $7 million in 2014. For the fourth quarter, sales & marketing was $2 million, up from $1.7 million in the fourth quarter of 2014. Our G&A are unchanged from last year about $2 million for the year and $450,000 for the quarter. On Slide 14, you see that we posted a $1.2 million operating profit for the year. For the quarter however, the low revenue and gross margin resulted in a $1.7 million operating loss. Financial expenses for the year was $121,000. For the quarter, we posted a financial income of $48,000. As you know, this item fluctuates from quarter to quarter based on currency exchange rates. As you can see on Slide 15, we posted $656,000 net income for the year, which is $0.07 per diluted share. For the quarter, net loss totaled $1.6 million on a non-GAAP basis or $0.20 per diluted share. Turning to the balance sheet. As you can see on Slide 16, our cash and cash equivalents as of the end of the quarter were $8.7 million, up 27% from the end of 2014, reflecting continued strong collections. Our inventory levels have decreased to $1.5 million from $2.7 million at the end of last year, reflecting the condition to a software based product. I would like to direct your attention to Slide 17 and 18, which demonstrates the improvement in our key balance sheet threshold over the past two years. I think that this shows the stability of our company better than almost anything else we can present. Back to you, Yaron.

Thank you, Uri. So that's it for the fourth quarter. As we move into 2016, we are financially stable, have the biggest backlog in our history and are ideally positioned for success. There is a buzz in the house and we are motivated to write the growth of the NFV market. We are moving ahead with confidence and look forward to reporting our progress in the quarters ahead. With that, we would be happy to take 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 Brian Kinstlinger of Maxim Group. Please go ahead.

Hi guys. Thanks for taking my questions. Can you talk about the company's plans to balance installing MaveriQ with your first customer and establishing performance while selling to other international mobile carriers? And I guess, what I'm trying to get at is, are you targeting other NFV sales this year, or is that more likely by choice a 2017 event as you work through your initial install?

Hi Brian, just that I recap the question. I understand you're asking if additional NFV sales are expected this year as we target them basically, or into next year.

Yes, do you hope to sign more this year, or are you trying to first finish your install, make sure that you can show how well it works before you take on more customers?

So I would - first of all, we are not waiting, okay. So it's not - we don't have a strategy to wait. One of the reasons why we are ramping up the R&D, the labs, another maybe smaller ramp up in the company that we can engage in multiple fronts and be successful with the current contract as well with future prospects. Now whether we can translate it into a win in 2016 or is it in 2017? I would say that the campaigns are longer campaigns. They can take six months, nine months, some of them can take more than a year. Customers, when they go to NFV, they typically perform intense lab trial. They test not only the service assurance stack, which is our stack, they will test many of the NFV components. They will put in orchestrator. They will make sure that everything works in concert and that takes time, and they want to verify that their selection is the right one et cetera. So I would say that, conservatively it will happen in the tail end of 2016 and into 2017 because of delays of these activities. Saying that, there is always a decent chance for some positive surprises of potential clients that will do it faster than others.

Great. And then I know your first customer getting thorough evaluation of your software as well as others, and obviously the results came up very favorably. I'm wondering if there are other customers, given the buys for what's happened here have started to evaluate and test software vendor solutions yet?

All right, so from our experience, we see the beginning of some labs starting in the world. What we should expect is that usually the carriers will start with their core pieces of the network, making those selections starting to try them in a lab and then they would add a service assurance stack above that, so expect that to happen. We are already invited some trials, additional trials, so within all this evolution I think this is how it's pretty much going to play out.

Great. One more. I'm curious what’s the plan for selling your software solution that’s non-NFV this year? Is it business as usual to support the near-term, or is there a significant lack of focus in that business as you push your NFV business?

So thanks for the question. We are expecting a business as usual on the non-NFV piece. Now saying that, it might be also somewhat conservative because at a certain stage, some of the lines might blur because there might be - I’m making up an example, okay. There might be a carrier that wants to deploy voice-over-LTE because they have a need for them all morning, but they started to also look ahead as to NFV. So these things will start to mesh together at a certain stage in some customers, and some customers they won't. The fact that we do have several very nice anchor customers in the current install base combined with this mega transformation to NFV that we’ve embarked in puts us in a very good position to enjoy both worlds.

Great. Thanks so much for your time.

Thank you.

The next question is from Alex Henderson of Needham & Company. Please go ahead.

Thank you very much. I was hoping you could describe a little bit more around what the competitive environment looks like, particularly with an eye towards understanding the mechanics between self-organizing networks in a virtualized environment versus the more compartmentalized features that might be in some other peoples’ offerings. For instance, when I look into your product offering in your virtualized probes, to the extent that you are doing a piece of the puzzle, are you integrating into a larger overlay that is doing some of the orchestration functionality? How do you layout the competitive balance between those two alternatives?

So I'll try to answer that. I hope I'm going to answer it correctly, because I'm not sure why use the word competitive because I think I would use the word ecosystem. A typical deployment of NFV can have many flavors because of the fact that best of breed approaches are basically being evaluated both in redeployments as well as labs. Now when you go in to like a best of breed deployment, then the operator will choose an orchestrator. They will choose various components like let's take for example an EPC, the Evolved Packet Core, and they will basically start to connect additional components straight to their start and one piece of the stack will be the service assurance piece, which is a significant piece of the stack. When the best way to deploy it is to have that service assurance stack, which in this case, when selecting RADCOM is our MaveriQ product, hooked up into this orchestrator. We work with several orchestrators and now we will have a real-world mega implementation integrated within an orchestrator, and that's an important piece. So I think this is how - everything basically gets connected and many, many interfaces happen within this virtualized environment.

All right, so if were to just press it a little bit further on it, so there are other competitors in the space, can you outline who you run up against generically? Obviously the question was asked on the last conference call, but it was targeted to a specific customer. Can you just talk more generically, about who you see as your primary competition in winning this business?

In the traditional business, we see - there is a big company called NetScout that has traditionally has a large portion of the service assurance market and the probe market. And then there is several smaller companies that basically similar in nature to us. That's pretty much how the market looks like and I'll be happy to spend some more time with you offline to really walk you through this landscape.

Okay. One last question and I’ll free the floor. The win that you’ve had here, it sounds like you're going to go through a pilot and then a test bed deployment and then full end deployment which is not an unusual scenario for a large tier-1. Is there any go, no-go decision points in that process, or are you locked in through the entire framework based on the framed agreement that you come up with?

So I can't give the specific deals, but the - the specific details, but the end result is reluctant for the transformation.

Perfect. That's what I was looking for. Thanks.

The next question is from Amit Dayal of Rodman & Renshaw. Please go ahead.

Thank you. Hi, Yaron, Uri. Just talking about the higher expenses you anticipate to build out all the infrastructure you need to service NFV customers, et cetera, can you give us a sense of how much higher some of these expenses are going to be relative to 2015?

We want - and I'm using the word, want, and I'll explain in a minute. We want to increase our R&D around 50% higher than we have. Of course it's going to come in line with the increase in top line revenues and things like that, and I'm saying that the word, we want, because it's an aggressive growth plan which if it takes us, let's say more than a year, then I wouldn't be surprised. So there is some contingencies in this plan. So there is some range here.

Understood. And on the sales and marketing side, are we also looking at a similar increase - a similar percentage increase?

No, we will have a modestly increase in sales and marketing. We've made a modest increase also in 2015, and also that helped us secure the business get the large deals that we've mentioned and initiate other deals, and we are also encouraging channel sales so we can work with partners and leverage the ecosystem and undo everything by ourselves.

You mentioned you could potentially more than double your cash balance by mid-2016 relative to where we ended the year 2015. Could you walk us through what the drivers behind that are, like is it coming aggressively from that top line that treat us down, or you are improving collections et cetera, just some sense of how we double our cash situation almost in the next six months?

Yes, okay, so I appreciate the question. What I wanted to do is to give you a very positive indicator into show you that basically through the top line growth, we translated into cash. The reason why I chose cash is because I'm still being four weeks into the job and being with a very large win that impacts the financials of the company, just recent just like several weeks ago, we are still compiling it. So I don't want to translate it into forward-looking revenues but I did want to give you a strong indicator to show you that we really believe in the growth to come.

That's great. So can we then infer that you probably will see year-over-year growth in the first quarter of 2016?

Yes.

Okay, awesome. The margins in the fourth quarter were really lower, obviously that is reflective of maybe some of the smaller revenues you saw because of the efforts on the North American side. Should we anticipate margins to also bounce back? I think Uri walked us through a little bit on that side, but in the third quarter, you came in at almost 82% to 83% gross margins. Will we start tracking towards that right away, or will that take a little bit more time?

I will be more conservative a little bit. We will be in levels that we used to be on 2015. It depends on the process of the project and so on, but it will not be like Q4 2015 for sure.

Understood. And just…

Just back to your previous question, the year-over-year growth. If you're going to try to forecast our Q1 2016 compared to 2015, I don't want to be as accurate on that specific quarter in comparison. I am very confident and when we look at the full-year, again when you compare it to 2015, there will be growth. I’m a little bit worried about the quarter by quarter fluctuations, so don't want to go into it. I'm much more comfortable when you look at like first half compared to first half these type of thing. So I want to caution not to catch me on the specific Q. Okay?

Understood. Thank you for the classification. And just one final question. In the context of opportunities that you would have pursued in the fourth quarter in lieu of the North American opportunity, had that North American opportunity not been on the table, are any of those deals or customers that may be have been missed in the fourth quarter, are they still opportunities that you can capitalize on in 2016?

The answer is some, yes.

Okay. Understood. Thank you.

You’re welcome.

The next is from Mike Arnold [ph]. Please go ahead.

Hi Yaron. Hi Uri. Last week I’m not sure if you guys saw the article, but the New York Times ran a nice piece on AT&T's plans to virtualize 75% of their networks due to competition from Google and other web scale players. Do you think the competitive spread to Google and other tier-1 operators will move more quickly on NFV adoption, and then web scale players like Google potentially use cases for MaveriQ? Thank you.

Hi Mike [ph], thanks for the question. It’s Yaron. So it's a short question but a very broad subject. I’ll answer it in two-folds. One, operators - a d I talk in my career in my 17 years in the operator business, I've been talking to many of them over the years, all the time when you ask them who they lose sleep in the morning, they do lose sleep because of the Google, the Apple et cetera, the Amazon maybe to some extent. So these players do keep them awake. I did read the article that you mentioned. I would say that being agile is very important to the operators and NFV gives them the agility. The other thing is data explosion. When you look at the challenges that the operators have that today’s data is much more than yesterday’s data that they need to crunch and process at a high quality and deliver a stable product to their customers, and tomorrow's data, it continues to grow and it continues to grow exponentially. So just think about the amount of network elements that they need to basically rollout, and you see that if you do the math, if they don't move to NFV, then they have a problem, right, that the ARPU in this marketplace is challenging. The revenues per subscriber continue to go down because of competition. Some of it may be fueled also and maybe future fueled by Googles of the world and they must be aggressive on their cost structure. NFV lets them be very aggressive on that, and our stack is part of that NFV allows them to make sure that they have - when everything explodes, the data explodes and the stress on the network continues to grow, that they have a stable and high-quality product that they give to their customers. And it’s part - it's very important to do it as part of the NFV. Whether how can we - the second portion, if I understood correctly of your question, can be translate MaveriQ and deploy into a Google if I understood correctly. The answer is maybe, okay. We don't have any concrete plans to attack that side of the market. We are very centric on service providers. It's huge opportunity for us. If you want to do the math, just think if for a company like us, if we go and win two to three large enough deals of let's say $50 million and above subscriber type carriers in the coming two years, reality is going to be so much different than a very positive 2016, that I need to keep company focused at least for the next coming years on this specific market.

Okay, excellent. Thank you.

The next question is from Josh Goldberg of G2 Investment Partners. Please go ahead.

Hi Yaron, congratulations on the call and best of luck this year. I guess you mentioned that you're going to grow your R&D about 50%, and you thought that would be similar to your revenue growth. I know you're not going to give guidance until probably little later this year as get more comfortable, but are you comfortable at least saying that you should grow north of 40%? I know you said that it's going to be a record year for the company, and I think 2014 you did roughly around $24 million, so it seems like you're going to have a record year this year and 50% increase from the $18 million gets to about $27 million. Is there a concern that that's a little aggressive or you feel at least comfortable saying that?

At the end, you see the cash position that I'm predicting and I think the 40% is a watermark, okay. I'm actually going to try to beat that watermark. In the previous calls, people have been modeling in things like that. You need to give me a little bit more time. I'm four weeks into the job. Mobile World Congress coming up next week. The pace that we are running is very fast which is keeping me very excited, and I see that in the last - in these four weeks that I’m in the job that everything is moving in the right direction. And bear with me a little bit if the 40% is very accurate or we can beat it or something like that, but it’s a watermark that you can relate to.

Okay, great. I guess obviously some other companies in this space have talked about NFV. On the Amdocs call they mentioned, Telefónica, Vodafone, Verizon, Singapore Telecom, Bell Canada and you’ve also mentioned some on your slide deck today. In aggregate, are these companies represent 8x the size of any tier-1 carrier in the U.S.? If you even win a third of those deals, not even all of them, not even half of them one or two kind of thing, just a third of those deals, your revenue growth or your revenue will be like you said hundreds of millions of dollars. And assuming a good margin profile because of where your revenues are and where your margins are, you get to a number on earnings that's quite attractive. I think the earnings power of company is north of $2 and even $3 a share. Obviously we are a big shareholder and we believe in the company. I just feel like with all the cash that you're going to generate in the next sort of, year and a half, looks impossible, obviously with everything else. Your stock is trading at 4.5x earnings, and if I look at other things that have this type of explosive growth, nothing trades at that level. So I guess I'm just sort of reaching out to anyone on the phone who is either director of the company or an executive of the company or an employee take a second mortgage out in your house from Ra'anana or in Tel Aviv and buy the stock. I mean I don't really see that many opportunities in technology where such an open-ended opportunity exposes itself. And I just wanted you, if you can, just not to agree that there is hundreds of millions of dollars of revenue ahead, but if you are successful in your pursuit of some of these mega tier-1 carriers which is your hope, are we that far off from some of them those are put together?

I think you put an aggressive model in place. Maybe I'll answer it from two angles. One, I joined the company to make the journey that you outlined, okay. So now can we make it in two years, five years, three years? It's an aggressive number. I don't think you're often compiling our three, five something like that mega deals can impact RADCOM. It will impact RADCOM very significantly. We’re there. This is where we want to take the company.

Okay, great. And obviously the idea that you’ll generate cash in the first half of the year, you will be able to recognize some revenue from your mega deal in the first half as well?

Yes, and I think as touched on it in the script, we are on the ground delivering. So absolutely.

Just a thought that this is one-time order, not really defining moment in your business, can you just give comfort to people that this was a full vetting out process and I wonder you think will lay the seeds for even future growth in the future?

Okay. So maybe...

Say that this might have been just one-off kind of thing.

All right, so let me - so I’ll spend a couple of minutes on it. The company in 2015 put a huge amount of energy. You see it a little bit from the distraction from a regular business to participate in the biggest NFV implementation that's happening in the world. You can say the most aggressive one, the first one, there is a lot of words to use and I want to give everybody the sense that it's very big. In order to reach this level of participation, this is not - you don't sit next to the fax machine and get a purchase order. This is why we needed to devote many resources to real - and these are not sales resources, these are like a lot of companies resources to make sure that we participate heavily in the entire process. I'm not going to go into any specifics. It's not - it's one I don't think it's that important for the specific to too specific but it is - it's a very thorough process. Beyond being a very thorough process, this process and our participation to the level of almost like an initial implementation I would say, and the transition from a prospect to a contract was - to some extent was a seamless transition. So you can envision that we had boots on the ground, now we have maybe some more boots on the ground but this is the process that we are going - that we've gone through. So I think there is the way I translated, there is overall joint commitment to us to deliver on our - what's needed from us so for our clients to be successful for the specific mega client, and I think there is understanding and a lot of support from this mega client be successful that it's an aggressive move in the marketplace. We are one of several participants in a large project and this is very much what's happening.

Okay, great. Thanks so much.

The next question is Josh Seide of Maxim Group. Please go ahead.

Hi, thanks for taking the question. Just two quick ones from me. Have you yet added partners other than Amdocs, and can you just talk about your plans there a bit?

We have several partners. The public ones are HP, Nokia, Amdocs who are public participants in their NFV plans and were being actively marketed. And there is also the potential maybe to add more channel partners, so we are always exploring that. But these are - if you guys know these names, they are very serious companies that have also made very strong commitments to NFV and put a lot of their R&D dollars and corporate effort into NFV.

Great. And can you also talk about the number of direct salesmen that you have in your plans to hire?

I won't give an accurate number. It's all the time a little bit changing, but I think I touched on it before when I was asked about increasing our sales expenses. We are going to do some moderate increase, just some alignment, not anything huge, I don't believe - so I believe that we are sized correctly to deal with the additional several NFV in regular, regular meaning voice-over-LTE, IMS, those type of transformations to tackle them, and we don't need to growth there, and we are on the ground and we need to leverage our channel partners and that's how everything ties together.

Great. Thank you.

Next question is from Daniel Amir of Ladenburg. Please go ahead.

Good. Thanks a lot. I have a question more on the macro front. Do you see - I mean, assuming that you see a slowdown on the macro front with telecom providers, do you think the NFV would not - would be immune to that just because of the growing trends that are needed in this space, or if this could potentially slowdown your growth if that would occur? Thanks.

So first of all, I would say I don't see a slowdown in the regular side of the business, maybe we had a slowdown. I don't think the market has slowed down. And of course as you will follow it, we also follow it as well. And the reason is that I'm coming to this conclusion and again I'm not looking at a specific quarter, I’m may be looking at 24 months upcoming view is when you look - let's take for example LTE, when you look at the adoption of LTE worldwide by the mobile operators, it’s still not adopted heavily. So maybe in North America has adopted it heavily, maybe West Europe has adopted it heavily. There is still huge amount of, I mean if you count subscribers, huge amounts of subscribers in the world that are still not on the LTE. And when you move to LTE, usually it dries an increase in your service assurance stack, it will drive increased demand for our type of solutions. And we see these things in the market. We are active in that in America. We are active in Asia-Pacific, and we see good activities in those markets. And when I look at - and I'm not sure I fully followed the second piece, but I don't think NFV is going to cannibalize it. NFV will help, and it will be its own by market. There is a question-mark, I've touched on it and you can go back to the presentation and see some announces that we've quoted at what pace carriers will migrate to NFV. Now again these are predictions. We’ve vetted and this is - we've vetted on NFV. This is why we’ve moved. 2.5 years ago, we were the first ones to bet on it to fully software and we've virtualized everything ahead of the market because we believe that the carriers will move sooner than later, but I knowing the carriers they’ll do it, they'll start to move, but they'll do it gradually. They won't move in a flash cut where they moved their entire networks, and we'll see different behaviors. We'll see some that may be are more aggressive, some that are more conservative. This will drive demand for us because they will need as they start to move. They will need a new software probe. They will need a new service assurance stack, but they'll need something they can operate in bridge all the entire world and we know how to do that. That's exactly the strongest and one of our strongest capabilities of the product and we believe that it's a huge differentiator and we’ll have big great advantage in the competition also with this.

If I may add, one of the advantage that we have with the MaveriQ is that even if there must be a slowdown in the market, which I don't think personally will happen, even if there will be, then we can still support, we can - the MaveriQ can do the work also for the current technology and which will allow those telecom providers to move to NFV later on, so we are arrived in the right spot and we can support both scenarios quite easily. It's not supposed to affect us.

Okay. Thanks a lot.

The next question is from Sasha Karim of IPI. Please go ahead.

Thanks. I got a question on cash, in particularly your cash guidance in the first half is obviously very strong, and you’ve intimated that that’s because of revenue recognition rather than a huge prepayment in deferred revenue on balance sheet. So my question is, does that imply towards that this big contract is more of a recurring revenue stacks type contract, or is there a large license upfront which really can't extrapolate too much from the cash inflow in first half of the year?

I'm not going to disclose the specifics of the contract. We didn't disclose any big specifics on the contract also previously. We just said that we received an $18 million initial deal out of a bigger deal. There is - it's a large transformation, so it's not - I think when you're envisioning it, so I'm going to try to help you model it, right. So when you're envisioning it, envision something between 2.5 to three year evolution for the very significant portion of the transformation, okay. It doesn't mean that everything stops after three years, but envision that over the course of those three years, that number $18 million that we’ve disclosed is just an initial number out of something bigger, that's bigger than that. And I can't disclose the accurate numbers here. There is things that it depends on. There is - it’s more complicated just throwing other number out there, but it's much bigger than $18 million, okay.

Great. That helps. Could you just say more generally it’s NFV contracts that you had signed over the next few years, if you expect them to be over recurring revenue major for or mobilized in maybe these models?

I would expect it to be license and maintenance model, but the specific license and maintenance model can have a recurring nature to it, so some of our clients prefer to license it, I would say, gradually or something like that, that basically translates into multiyear programs and projects, which see some sort of a revenue straight across those several years. So I wouldn't expect - again it's hard to predict but I would expect more to be of that nature than peaks of just huge one-time recognitions of something.

Okay. Thanks very much. That helps.

[Operator Instructions] The next question is from George Marima [ph]. Please go ahead.

Hi good morning, Yaron. The first question I had was about your pipeline. In terms of your sort of, I guess, we call old fashion now kind of the LTE software piece and then the VoLTE pieces. What’s your pipeline for 2016 look like for that sort of software?

We see a similar pipeline that we've seen in the previous couple of years.

Okay. And on the NFV piece, are there any tier-ones in trials today with RADCOM, or is it all RFP?

No, it's not RFP. We expect to go into trials in the tail end of Q2 and into Q3. We are in the process of planning some trails with some clients.

Okay. And in your overall orchestration with you and your partners, is there a real-time billing piece as part of this?

No. It's maybe the clients have it, but are you asking if the clients or the carriers have a real-time benefits or RADCOM has a real-time benefit?

Both RADCOM or its ecosystem partners as part of your overall bundle.

So we don't have a real-time then billing piece. We are not a billing company. If you look at companies, one of our partners is Amdocs. They are a much larger company than we are. They have a full suite billing, OSS, BSS. They have all the components, real-time batch and things like that. So when they come to NFV transformations or any other transformations, they come with many components of their suite.

Is it fair to say on the different NFV architectures out there, I am aware of one called ONFV and then there is people using like NPM and APM kind of bring that together. From what I understand, these other solutions are a year or two or more away from actual real-world deployments. Is that an accurate description?

NFV real-world deployments are starting to happen now, okay. So we are engaged in one.

No, I know you are, but these other competing architectures seem like they are long way ways from actually being able to deploy. They are more just a standards today, yes?

So I don't want to explain you and start to quote standards here, but I’m happy to bring our head of product and take some of these questions, specific question offline. I am not - I don't feel I'm the expert on it.

Okay. That's all I have. Thank you.

The next question is a follow-up from Josh Goldberg. Please go ahead.

Yaron, if you could just give a sense, you’ve been now at the company four weeks, whether you've been seeing - what have you seen more excited about future of the company and what have you seen from customers or people that you worked for on Amdocs that gives you a level of confidence that this is a three to five year growth opportunity?

Thanks Josh. So first of all, I’ve shadow of the company for several weeks before if I look at like six, seven weeks, four weeks which I'm formally the CEO, I'm very excited. I would say that if you think about telecom and service providers, and I begin in [ph]. Some of you know my background. I’ve been in Amdocs for many years. Every several years something happens in the telecom industry which is like a sea change, which is a major change. And the last huge one that I participated in, which generated huge amounts of activity which was translated into project and revenues for many companies, I would say was the launch of the iPhone and afterwards the smartphone revolution. If you go back, there is many before that. I'm equating NFV to that type of revolution. And you look at public information like, I don't know, like interviews with John Donovan from AT&T and how they treat their network, you look at publications from others, some of them you mentioned, and you see that it’s coming together. Now the reason why I think it's going to be so transformation and I'm so excited about it and I see this thing materialize - now again it's not going to happen in days, take it several years because these are networks and it takes time to evolve, but I don't think there is really any choice but to go there. The pressure that these carriers are at, are at a point that they must innovate. Now they are doing so at the level that they went to the industry or the gorillas of the industry or the Ericssons of the world, the Nokias of the world, the Huaweis of the world and they’ve impacted the industry to a level where they are causing the industry to change. That's in my words, but I think you'll find it that I'm not the only one. It's a huge disruption. And it's a huge disruption and a huge change that's I think the excitement. Now again, it's not going to happen in weeks. It will take - it will be transformational, but if you look at disruptions that happened in industries, in overall industry, if you take period of three years or five years or something like that, networks will look completely different. And for those that don't believe, they look at what happened to datacenters six, seven years ago when people started to talk about cloud, every CIO would say I'm never going to put mission critical things on the cloud. Then there were the early-adopters and the ones that took some risks and worked with the industry, and today a huge portion of datacenters is cloud-based. This is what is going to happen also here in this market.

Josh, are you with us?

Okay, thanks. Thank you so much.

The next question is a follow-up from Mike Arnold [ph]. Please go ahead.

Hey, Yaron, I want to follow-up on the idea about being small is being an advantage in this new NFV architecture. Is it because that the gorillas you just mentioned, Ericsson of the world, NetScouts, the Nokias. Is it because they have a large sort of legacy business to protect but you guys are sort of an unencumbered, and therefore you have - you’ve been innovating sort of on the technology edge and therefore that's why you guys have the competitive advantage over some of the older players?

Hi Mike [ph]. I would say it's a very big piece, not the only piece. We have - we do have an install base and RADCOM has been around for 20 years, but can't like compare it to a large player’s huge install base in the need to protect it. That's one tool. It's much I think more different andthat's from our perspective that we don't have - today, we don't have any wait because most of our active client base, we've already migrated to the software to MaveriQ. And remember the NFV version of MaveriQ is basically the same version of MaveriQ that’s out there a year ago maybe with some additional configurations, things like that, but it's the same software. So we are basically already there with most of the - with the active part I would say with our large install base, and we don't have the wait going forward. Now the other piece that I think is very important when you look and I’ve rolled out several times in my career new technologies and new solutions and very big solutions. When you roll-out a solution, when you have the product working and we have it working in big implementations in software world but when you get to a mega deployment in NFV mode where everything is virtualized to different implementation, at the end of the day, we are going to go through a significant hardening. That hardening is going to give us a huge competitive advantage. Now when we go to the hardening, the way that R&D is buildup, we do it with tens of people. We do it almost as agile as a start-up company that can roll-out fast things, react to the marketplace, everybody here works in an agile mode. We can provide solutions to customers there to demand and to shifting demands in three to six weeks in the agility that we work. When you go to the companies that have bigger R&Ds that have also they need to protect their install base, they need to be sometimes backward compatible in a way that now they are only starting the journey. And if they are going to run with hundreds of engineers because of their size and because of their complexity, they are going to be much slower than we are.

Okay. Great. Thank you.

We have no further question at this time. Mr. Ravkaie, would you like to make your closing statement.

No, I think this is - basically I want to thank everybody and conclude there I think today's conference.