RADCOM Ltd. (RDCM) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd., Second Quarter 2016 Results Conference Call. All participants are 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, August 3, 2016. With us on line today is Yaron Ravkaie, RADCOM’s CEO. I would now like to hand over the call to Ms. Noga Fisher. Ms. Fisher, would you like to begin?

Yes. Thank you, Akira. Hello, everyone. With me today are RADCOM’s CEO, Yaron Ravkaie; and CFO, Ran Vered. 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 e-mail at markr@radcom.com and he will send it to you right away. Before we begin, I would like to review the Safe Harbor provision. 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. The full Safe Harbor provisions are set forth in the presentation. 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 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 at www.radcom.com/investor-relations or send an e-mail to markr@radcom.com. I’ll turn the call now over to Yaron. Go ahead, please.

Thank you, Noga, and thank you all for joining us today. I hope you have our presentation in front of you and I’ll begin with slide 4. As you can see our results for the quarter were very strong. Revenue of $7.2 million, which is up nearly 50% year-over-year; and $2 million in non-GAAP net profit. We continue our growth path with exciting opportunities on the horizon. As I assume you’ve seen AT&T announced yesterday that they are using our MaveriQ product suite as the basis for the service assurance component of their new NFV network. This is the top-tier carrier that we announced last quarter. Their selection of us showed that we are at the cutting edge of the technology. We continued to move forward in the implementation and to expand and extend our product. In fact, AT&T is now placed an expansion order for a new product of the MaveriQ suite that is critical for making the service assurance step work in the highly automated NFV environment. In addition, we are engaged with leading top-tier carriers, some that have announced their NFV plans and some that haven’t. They are coming to us because they consider us to be the top leaders in the space and we are entering into a number of proof-of-concept processes. We believe that these activities will materialize into new deals. But please remember as I’ve said in the past that the sales cycle for these types of deal is not short. These carriers are looking for comprehensive solutions for big transformation project and they move carefully before making the commitment. We believe that the strong endorsement of AT&T, the clear NFV leader in the company that collaborates with many carriers will be extremely helpful in promoting our engagements in the quarters ahead. As to state of the NFV market, during the quarter we met with many of the carrier CTOs and feel that many transformations will either begin or move from lab to implementation during the next 24 months. This is exactly the moment when carriers focus on their service assurance step because it is the critical component for assuring the success of network transformation. That’s exactly the problem that we saw for AT&T, the solution that we built MaveriQ to provide. After many hours of workshops and meetings with key carriers, we feel strongly that our hybrid strategy that is a virtual NFV service assurance solution that can run in a hybrid world of both physical and virtualized network element is correct. Being a first mover in this space and participating in the most aggressive transformation today, allows us to help carrier solve their service assurance challenge, as they introduced many new moving parts into their networks. They also see that the existing equipment based probes cannot solve the problem that they are realizing, that they need to move to a V-Probe based NFV solution for their service assurance to assure a successful transformation. In parallel, we continue to also to focus on the rest of the world in our existing business. During the quarter, we were very pleased to receive the third and last tranche of the large framework contract we signed last year with an APAC operator. As to our organization, we continue to scale up our workforce and to build up our management team. We’re pleased to welcome Ran Vered, as our new CFO; Harel Givon as our new Chief Business Officer; Keren Rubanenko as our new VP, Professional Services; and Michal Fridman as our new Head of Marketing. These are all successful professionals who have come to RADCOM from other successful positions for the growth opportunity. We also continue to work to strengthen our positioning within NFV ecosystem. We have publicly announced partnerships with Amdocs and HP in the past. And in the AT&T announcement, there was a reference to ECOMP, AT&T’s orchestrator. Since we’re integrated into the orchestration logic, and AT&T’s OpenDoc ECOMP is open source; and since Amdocs has an active program partnering with AT&T to help carriers implement ECOMP, this can become an additional accelerator for us. We also remain very active in R&D. During the quarter, we released several new modules and significant new software releases. Today, a carrier that implements the MaveriQ suites will experience a very unique innovative and advanced platform that solves many of their challenges. They will enjoy all the investments that we’ve put into the product so far; the comprehensive real world experience that we have gained from our projects with AT&T. As a last note, we’re pleased to carry out a successful share offering during the quarter, bringing our cash balance to $46.5 million. This sets us on a healthy financial footing that will allow us to move aggressively on all fronts to engage top-tier carriers and to win large and complex deals. So that’s it for the second quarter. We’re proud of our progress, focused on execution and excited by our prospects. With that, I’ll stop and turn the call over to Ran Vered, our new CFO to discuss the financial results. Ran, please.

Thank you, Yaron. I’m very excited to join RADCOM at the beginning of new growth phase. I look forward to meeting each of you in person. In the meantime, please feel to contact me directly with any questions you might have. Since we have the financial results beginning on slide 6, I’ll just go over to the highlights. Trying to understand the result, I’ll be referring mainly to non-GAAP numbers, which exclude share based compensation and inventory write-off. Revenues for the quarter were $7.2 million, up 49% year-over-year and up 10% sequentially compared to the first quarter. This is a new level for RADCOM, demonstrating that we have entered into a period of growth and increased visibility; based on large multi-year projects we define milestones. Our gross margin for the quarter was 70.7% on a non-GAAP basis, down somewhat from 75.1% in the second quarter of 2015 and from 74.4% for the first quarter of 2016. This reflects all hardware components of some of the older projects which we’re recognizing. In general we expected the gross margin will continue to fluctuate depending upon the mix of each quarter’s revenues. On the long-term basis, we expect the gross margin to be at higher levels the long-term contract us – with us based on the NFV software license model. As you can see on Slide 7, our gross R&D for the quarter on a non-GAAP basis was $1.6 million, up 22% from the last quarter, and virtually the same as the third quarter. In addition, we received $766,000 from the office of the chief scientist during the period, reducing net R&D for the quarter to just $808,000. In general, we’re on track in ramping our R&D capabilities to support our customers and to widen the gap between us and our competitors. Sales and marketing expenses for the quarter totaled $1.7 million on a non-GAAP basis, up 20% compared with the second quarter of 2015 and 13% from last quarter, due to accruals, commissions and the addition of new staffs. In general, we expect this line items will continue to increase gradually over the time, as we built up the sales and marketing organization. G&A expenses for the quarter totaled $1 million compared to $469,000 in the second quarter of 2015 and $639,000 in the previous quarter. The increase was mostly related to the expenses of our share offering and some expenses from management overlap. Going forward, we expect G&A expenses to moderate. Operating profit on a non-GAAP basis for the quarter was $1.5 million compared with $627,000 for the second quarter of 2015. We also posted $447,000 in financial income for the quarter of $0.04 per diluted share, primarily due to changes in the Brazilian real and gains from our deposits. Net income for the quarter on a non-GAAP basis was $2 million or $0.20 per diluted share. The results including $0.8 million or $0.07 per diluted share benefits related to grants from the office of the chief scientist, as well as $0.04 per share from foreign exchange, I just mentioned. During Q2 of 2015, grants from the office of the chief scientist were approximately $200,000 or $0.02 of diluted share and foreign exchange will be material. Turning to the balance sheet. As you see on Slide 8, our cash and cash equivalents as of the end of the quarter was $46.5 million, five times their level at the end of 2015. This reflects the $80 million upward payment which received from AT&T and a $21.6 million was raised from our successful share offering during the quarter. We delivered this place, the company on solid footing for addressing the big Tier 1 opportunity. Now turning to guidance. We are reiterating our full year revenue guidance of $28 million to $29.5 million, up to 60% below the deal, due to the timing of the progress of our projects with AT&T, the APAC operator and others. As a reminder, we view and manage our business on an annual basis, because our quarterly results and fluctuate due to the timing of implementation milestones. In terms of profitability, while we’re not providing specific EPS guidance, we do expect profitability for the second half of the year to be below the first half, due to expenses associated with on boarding customers and the mix of other with these deals. With that, let me turn it back to Yaron.

Thank you, Ran. In summary the second quarter was one of the strongest in the company’s history. With NFV tailwinds that are back, we are fully engaged to materialize significant growth, to continue and innovate, be a first mover and how carriers unlock the full potential of NFV, as we support them and assuring a successful accelerated transformation. With that, we would be happy to take your questions. Operator.

Thank you. [Operator Instructions] The first question is from Dmitry Netis of William Blair. Please go ahead.

Yaron and Ran, nice quarter guys.

Thank you.

Thank you.

So couple of questions, as you look at the revenue line, how much of that was legacy product or let’s just say non-AT&T related product then. How much was AT&T sort of in that mix.

Around – I would say, two-thirds AT&T, around the third non-AT&T.

Okay. And of the – one-third that’s non-AT&T how much was hardware versus software?

I think it’s little hard to the way that we account for it to say and do you have anything want to say about it or….

It’s little bit hard to say but I need to say it’s roughly a 25% to 32% of this was with components of hardware.

How do I mean, its standard server type hardware, but its hardware…

Obviously it’s like an appliance right. We’ve software loaded and you ship it as an appliance.

Yes.

Exactly.

Okay, 22% or 25%.

I say 25 to 30.

Got it, thank you. All right. And let’s maybe touch on the margin as well. So I don’t think – well I guess your explanation was the decline in margin was due to some of the older projects that you recognizing revenue on? So I’d imagine that’s the one-third of that component in revenue right that’s dragging it. So is that the last tranche you received from APAC customer, was it something else in there? So give us a little bit of color on the decline this quarter end, is it going to snap back to kind of the Q1 level? Is it going to be under that level going as we go through the back half of the year? How should we think about the gross margin there?

I will start. And then Ran can help me finding some help. First of all, when we look at the big picture view and we look at like the AT&T project and future projects there will be 100% software with no appliance and there will be the type – these types of projects will be at the upper 70s range. They can sometimes reach maybe 80% but they’ll be somewhere between 75% and 80% gross margin. That’s how we look at the business. Now every time that you will see in the coming quarters anything like below 75% it means that it has – were like basically recognizing or executing a project, that includes a significant enough, I would say appliance component to it. So that’s the big picture. And that’s why in the past we – I mentioned we always look at the business. Long-term is up or above the 75% maybe even toward 80% long-term gross margins, but it will fluctuate. Specifically, in the coming quarters it’s still how to say I expect its to fluctuate and we don’t expect it to reach the 80% to be at the highly that we saw in past because we see more of the components of their client components hitting us in Q3 and Q4.

Was there an appliance component with AT&T or is that pure software?

No, that’s pure software.

Okay. So it’s got to be the other third of that revenue then? Okay.

Yes. And just think about it also when you look at multi-year view of our business there is higher probability that the new money or new revenue streams will come from NFV type projects. And in a NFV type project, like in AT&T there isn’t a hardware component because it’s running on the cloud right. So it’s all software and those come generally with higher gross margins like I mentioned earlier.

I understood. And then on the product expansion and maintenance expansion with AT&T do you mind giving us some sort of a dollar value associated with that? Is something you can quantify?

I will quantify the product expansion and I’ll two things the upper end of seven-digit. And I’m not disclosing the numbers primarily because of competitive reasons that we need to launch this product and be successful with it – with other carriers. And I would also say that’s – the main impact of the revenue from this product will be next year.

Okay. And how long does that take? Is that a three-year type of contract product expansion contract one-year with – how do you account for that?

The number that I gave you will primarily multi-year as next year but I expect – as the AT&T have a very active program. I expect things to materialize around it, they need changes in expansions and expansion that weren’t contracted. So that’s not in the number.

Okay.

It doesn’t mean that there won’t be a number associated with it in 2018.

Okay.

Even a higher number in 2017, we’re just in 2016 now.

Okay, okay. And then you said that MaveriQ have some new modules being released as we speak with this quarter. What are those modules do you able to connect? Give us a little sense of what those products are or additions to products are, and what you think - which operators are requesting these products. Where do you think that will wind up eventually?

Great. So I’m going to sound a little cryptic primarily for completive reasons.

Okay.

We launched an additional product, soft launched it, okay. So we didn’t come in and announce it publicly yet, but we’re starting to actively market it. And this is the expansion also that I’m touching on that AT&T I’ve contracted for, so it’s not coming as a product in vacuum, it’s actually already installed in AT&T. And I think one of the most important things to understand about this product is that it’s a very important component of an NFV implementation, it’s adjacent to where we’re implementing the service assurance and it’s critical to make an NFV implementation work, also to deliver that – it’s very cutting edge. Now I’m going to pause here, but what I do promise is that at the right opportunity we will fully and really [ph], but the reason is we a need couple of quarters maybe competitive advantage now in the marketplace because it’s really very innovative product.

Okay. All right. And I guess one last one and then I want to be sensitive to other people on call. Can you give us an update on the some of the Tier 1 trials you had last quarter? Has that number improved? Stayed about the same? I believe it was somewhere in the four or five kind of trials – number of trials range. So any update there would be helpful.

So, I would say, to give it to point, say, one, that we progressed with all the engagements, and I would say that the number of carriers that we’ve engaged is around nine now, okay. Now it doesn’t mean that nine deals will materialize in two months, but what it does mean is that there is a lot of interest to understand what they are doing. And I actually expect this interest even to increase. It would be interesting to answer this question, next quarter – two quarter results because of the AT&T announcement. What we are learning from all the engagements is that positioning the technology that we’re showing, the problem that we’re solving, the deep dives that we’re showing them, and the proof-of-concept that we’re initiating, it’s exactly what they were looking for. And everybody’s – the main response is – no, this is very exciting and we want to understand more and we want to progress more. And now, for us, the next coming quarters is going to change some of these into deals, and again I can’t really comment on when it’s going to happen, and on exactly when is the next order is going to come in, because everything is so new, so it’s hard to predict. And because as of the end of the day, big solutions in the telecom’s environment, so it does take time to – AdvoCare to make a decision of what exact technology they are going to put in their network because it’s so critical to their success.

Great. Thank you. I’ll jump back in the queue. Keep up the good work guys.

Thanks, Dmitry.

Thanks.

If there are any additional questions guys – next question is from Noah Steinberg of G2 Investment Partners. Noah, please go ahead.

Hi, it’s actually Josh Goldberg for Noah Steinberg.

How are you, Josh?

Good, good. I just have a few questions. I guess, first, your comment about Tier 1’s improving or going through proof-of-concepts and adding – you think about nine at this point. I think a good takeaway for us to understand is that it sounds to me that the first four or five areas you were working with have all decided to move forward this quarter. And in that decision moving forward, they’ve included you in moving forward with them. That doesn’t mean that you’ve won the contract that at least because investors are confident that you’re proceeding with each one of them and none of them could kick you out or have [indiscernible] some tender to ensure as we’re going forward, just wondering if you can comment a little more on that.

I would – here’s what I will say. Every engagement that we have till now, whether it’s already a proof-of-concept or deep dive or our plan may for proof-of-concept; the feedback that we’re getting from the customers is that the technology is unique. They want to – the kind of feedback is that this is really doing what you’re saying its doing. This is exactly what we need and we’d want to progress with it. And I don’t want to disclose more unlike specifics of which the carriers are, the specifics of the problem that where solved in carriers, also primarily because of competitive reasons. We need now to be very focused on taking as much as we can at the market and we’ve just hit the ground running from – primarily this quarter with the addition also of the executives that had gone onboard. I’m very excited from this type of feedback, this is what I try to also to relay in script earlier, because for me it’s a very strong affirmation that we have the right product at the right timing. And I would say that we heard – this is also I think surprising – positively surprising me, zero negative feedback like – I didn’t hear like there is another product that does that or we actually don’t need that and go away. So that’s the color and the comments that I can share.

Okay. And then regarding the idea or the expansion of AT&T, obviously it seems like they’re very pleased with what you are doing with them. And having a press release like that from the company, not from you, sort of from the customers, clearly a sign of their confidence in your product so far. Do you believe that there will be additional products, not just this other product that you have there, that’s running side by side with the other products now based on what you hearing from them that you can sell-in to them? And increase sort of your trustable market inside AT&T?

So a couple of angles here. First, I do want to spend, say, a couple of sentences on the release itself. It’s non-trivial and it’s very unique, and I think everyone on the call can try and Google, they were search themselves with AT&T and goal and do such an announcement, and basically they did the announcement, it’s not that we have to call them or something like that. So if you go today to the AT&T newsroom and you follow the link that we shared with the announcement that we’ve done. And they – it’s primarily two reasons; they have got that cutting edge technology. It’s important for them to recognize us, as with this cutting edge technology. It’s also important for them that – we succeed because they are the first that we succeed in implementing it with additional carriers which means they will be – I can’t say – I can’t really commit on their behalf, but I’m sure that they will – from my perspective, that they will be actively supporting us and they’re already sharing this with the carrier that do the work and this will have a very positive impact on us. And if we already hit the ground running in the last quarter, and I can tell you that I still have work to do on adjusting the salesforce and really covering the carriers that we want to do in an optimum way. So for a company our size, we have a lot of work to do on execution, but we’re already engaged with them in carriers. This is just going to propel all these things forward. Now specifically can we enhance the business sale with the AT&T? It’s a – we’re doing all the right things for a very positive long-term relationship with this carrier. Now in the past when I did this type of things, I took $30 million business into $1.2 billion business for another company. So can we do it into what extent? I’m very positive that we execute correctly that with my specific knowledge of this carrier, with the way that the company’s being behaved till now, the feedback that we’re getting that we’d be able to do a lot of stuff with them, but I can’t give any specifics on what exact opportunities exist.

Okay. Last question for me is just the DSO’s. I’ve only worked I think 15 years, 16 years in the business, but on DSO’s we’re very, very low, what seem to be like there was – I’d say a very front end loaded quarter. Are you confident that there was no need to rush and close anything at the end of the quarter, apart gives you a pretty good pipeline? And closed those deals in the third quarter? Thanks so much.

Thank you.

Thank you.

Thank you. The next question is from Alex Henderson of Needham & Company. Alex, please go ahead.

Thank you very much. It’s a great quarter to see these kinds of number, but the other side of the coin is obviously, sets up a very high bar for 2Q and you’re going into some pretty big expense ramps. Can you give us a little bit more clarity on some of those elements? I just don’t want people to get too far over their skis on the expectations for EPS in the back half. Can you talk a little bit about NRE number which was obviously a lot larger than forecast. What the headcount was at the end of the quarter? And what you think it’ll be at the end of the year? And a little bit about the R&D, also mean, and assuming [ph] the sales and marketing and G&A ramps, obviously you’re adding a lot of people here.

So I’ll give some generic color and hi, Alex, and I’ll turn it over to Ran to answer some of the specifics. And first I would say that the way I’m running the business, okay and this is what I want to share. The company now the full focus is to tap into this – execute on AT&T, stabilize our existing business and execute on our backlog. And of course last but of course not least is engage all these potential transformation projects and win additional top-tier deals. This is what the company is doing best of focus. Now we’re going to put the right level of expenses in order to do it. And as I mentioned the in the past and I think, I touched on it several times, the overall plan for the company is to execute, profitable growth, okay. We will have and I’m sure and I’m even taking a multi review because of the way that this business behaves and at the end of the day, it’s big projects that have milestones that fluctuate quarter-by-quarter. As we talked a little bit earlier, some of them were still having the backlog, some hardware components, storage and things like that. The profitability, the gross margin and bottom line will fluctuate. So that’s the way to overall look at the business and the way that we’re running it. We’re not going to – we won’t be stopping – pushing the brakes to improve the EPS by a couple of percent. We want everybody to understand that the main goal of the company is now to secure the deal. When we look of course at longer term view, we’re a software company. We will have several top-tier carriers and running on the same core products it’s going to generate very nice profitability and the aim is to get to that point as early as possible. Now for the exact – for some of these the specific questions on how these things will have – what will happen in the coming quarters, we’re not guiding on the portfolio for the next quarters, but the Ran is going to try to give you some colors to help you – to help all of us out.

Hi, Alex. Regarding the profitability few things that’s all to discuss. First is the gross margin and as we discussed earlier, as we’ve discussed earlier, we still have some deals on our backlog, that include hardware hence gross margin may be fluctuate, and maybe in Q3 and Q4 it will fluctuate and maybe somewhat down a bit. Regarding the ramp up of people we’re ramping up and we have plans to ramp up in he second half which are going to impact our expenses. But this is part of the plan. Part of the ramping up we have – our plans for ramping up, we’re not able to do it as fast we can, and this is why the impact on the second quarter is a little bit moderated. But you’re going to see this impact on the next quarter. I hope this answers your question.

Well, there’s a couple of specifics in there, that we didn’t cover. So what was the headcount at the end of the quarter?

We won’t be slow, it’s too sensitive.

Okay. Relative to the NRE number you did $1.6 million in NRE last year. Is it still going to be in that vicinity this year?

Can you come again Alex, we didn’t get you.

The NRE in the quarter was $756,000, it was $1.6 million last year. Is it still going to be around $1.6 million this year?

The NRE what is it?

The R&D offset?

Okay, sorry, yes. So it’s expected to be the same every year, roughly $1.5 million this year.

Okay. So that’s going to come down quite sharply in the back half of the year on a quarterly basis.

Exactly.

The R&D expense is it reasonable to think that that’s going to move up into the $2 million plus range as we move into the September quarter, on pre NRE?

Well I don’t wan to give exact numbers, but it’s going to increase in the next quarter, that’s for sure.

So similarly the sales and marketing ramp is it reasonable to think that that is going to come up quite sharply quarter-to-quarter in the September quarter, or is it more in the fourth quarter that we’ll see that ramp?

I won’t say sharply, but we are ramping up. We’re hiring – we just hired this marketing and we are ramping up our salesforce mainly in Europe and the U.S. and we’ll see this more through Q3 and even more in Q4.

Okay two more questions on line items. The interest income was quiet a bit above what were expecting, is there a currency benefit in there, or some other elements that’s causing that to jump up…

Yes.

Revert back into how much lower number in the upcoming quarter here?

Yes, so I would say that’s roughly 75% of interest and exchange rate, pushing through the Brazilian real that we’re having and one quarter is the interest on our deposits.

Okay and then the tax rate at zero was a little bit of a surprise, as well. Any sense of what we should be expecting in back half on quarterly basis, $50,000 to $100,000 per quarter or something in that range?

We are going to a have tax expenses in the next quarter of course we’re going to have some deals which we’re going to add tax on them. This will have an impact. I cannot – it may be in Q3 but, it may be in Q4, as well. So for now we don’t know whether it’s going to be either Q3 or in Q4 but we’re going to have the tax expense in the second half.

Is it reasonable to think taxes will be similar to last year for the full year?

I cannot tell at this moment.

Okay. Just a clarification on the gross margin comment, you said lower, I’m not sure whether you meant lower year-over-year or whether you meant lower versus the June quarter. I’m assuming that it kind snaps back into this 75% range still below that 80% threshold, but not as much mix of hardware in 3Q, 4Q? Is that correct, or is it, are you saying lower versus the June quarter.

It’s dependent on – keep in mind that our revenue recognition in some of the backlog – the backlog builds are dependent on guessing the HP impact. And this deals with other components, it’s – when we got the revenue, you got hold from the cost efficiency of the hardware. My comment was referring to the gross margins on the first part and not to the second quarter.

I’m sorry that last sentence I didn’t quite catch, could you repeat it please?

I said the gross margin what I’m referring to the comparison – in comparison to the first half.

So the gross margin in the back half will be less than it was in the first half.

Yes.

That’s what you’re saying.

Yes.

Okay, that’s helpful. Thank you. And just going back to the revenue line for a second, can you talk a little bit about what percentage of the revenues or whether there was service revenue in the mix there?

I think there is – keep me on a sum – there’s a small amount maybe of service revenues negligible.

Yes, it’s negligible.

All right. Thank you very much. I’ll cede the floor.

Thanks

Thanks, Alex.

[Operator Instructions] Next question is from Dmitry Netis of William Blair. Please go ahead.

All right. Thanks for allowing me to ask another follow-up. We’ll try to exhaust the full hour here, I’m just joking. But revenue line, as I look at the non-AT&T versus AT&T revenue, I just wanted to make sure do you guys still expect 18 million out of 18 this year, is that still the goal.

Roughly, yes.

Yes roughly speaking guess Dmitry.

Okay. So if I do the quick math, you had recognized so far in the first half about – call it $10.5 million, $10.6 million, which means you have above $6.5 million to $7 million to go in the second half, which would imply according to your reaffirmation of your guidance that the non-AT&T revenue component will sharply increase in the second half, somewhere in the kind of $8 million range. Just wanted to kind of run this value, make sure you can blast that and you have kind of good visibility that the non-AT&T revenue will be accelerating through the back half of the year.

So I think, it’s pretty accurate what you just mentioned that revenue from existing customers is within the guidance, most of it is contracted and in the backlog. So it’s all delivery in AT&T type work

How many customers do you have approximately in the quarter, excluding AT&T for example? Do you have a number?

There is a lots, but as you know I would say that 80% is coming from four customers, okay.

Okay, okay. And is the backlog visibility vis-à-vis the guidance you gave still kind of in that 80% range? You still have pretty good – sounds like you do have a good visibility there.

Yes.

Yes. We have pretty good visibility.

Okay, great. And maybe just sort of a high level big question there. What you guys are seeing from the competition? You have been in the market now with this big wind for more than six months, clearly, MaveriQ has been on the market for over a year, maybe touching two years now. Competitors are doing what you are doing or at least aspiring to come out with these virtual-probe solutions? Is there anything you are seeing out there that leads you to believe the competitions getting a little tougher or you still sort of maintaining that two years sort of lead on the product that you have? Any comment as to what you are seeing in the tranches from your customers as they feedback the competitive response to your MaveriQ product?

So I touched on it a little bit earlier and I will give it the perspective specifically you are asking. We are not seeing the competition with this type solution. So we maintain the view that we’re a far ahead. And the validation that we’re getting is not from searching or Googling it, from the customers themselves that we’re engaging in how we see and they see, what we’re offering. So I feel very good about where we’re at.

Okay, good. And then last question maybe to Ran. Now that you’re part of the team, what’s – just sort of if anything surprised you positively or negatively, what do you have sort of in store for you to as you go through kind of the financial systems at the company that you want to improve or already feel pretty happy about? Just given up – give us a perspective of what you’re learning so far and what you think you still left for you to accomplish, kind of near-term goals for you as the CFO coming in?

Yes. Thanks, Dmitry for the question. So we’re all in the process, just two months here, that’s deep in the process of transforming the IT infrastructure to Tier 1 Company I would say. And we expect to see the results in beginning of 2017 of this new financial system. And there also – I will say things then handling on their procedural size of things that they were into improve and they also supporting the better of the business. Because I think in the end, it’s very important that they will provide and that of course – supports the business and we’ll actually involve in sporting gears by being more involved in the pricing in the business models and stuff like this.

Okay. So I guess, where there any drastic changes to the financial systems? Is that what you’re implying?

We’ll upgrade 10-year old systems to fully modern systems, part of our move – as we move in this company now is in big growth area and we invested in tons of infrastructure just to give you a feel of what we’re doing on the day-by-day in the last – from the beginning of the year, but we’ve researched a very high level of various finance cloud environment to support the entire R&D cycle of NFV. So we actually have now a full, very advanced by the way OpenStack cloud year running like 15 MaveriQ environments on a fully automated all the time processing and things like that one. What Ran alluded is that now we’re doing some investments, luckily enough, it’s not a very expensive today, making sure that the financial systems, the European systems things like that that the company is running on and we’re modernized in the last several years or going through a modernization under Ran’s leadership now.

All right, very good.

We have a good positive effect on us. So we can make sure that our proposals are better managed, things like that.

Make sense, make sense. Okay. Thank you very much.

Thank you.

The next question is from Noah Steinberg of G2 Investment Partners. Please go ahead.

Hey guys. I just wanted to ask over again. I just wanted to kind of cover back to some of the comments from some of the analysts they were bothered about, to concerns about the visibility, and the about the orders, and everything else. I think everyone should just take a step back; your stock was $14.90 during the year, today – after mid-day, today, whatever, it’s $15, hasn’t moved much. You obviously made tremendous progress. You’ve increased your visibility with AT&T, you have added from four or five to nine tier one carriers, you’ve added additional products. I just want you as if you can – as you have now been at the company’s six month year on, can you really talk about that explain how positive you are about the company’s future now versus where you were maybe just six months ago? And I know there’s going to be changes quarter-to-quarter and you’ve always talked about that that something’s of your projects that you’ve been in, you will have a great quarter and maybe one quarter might be only $0.14 instead of $0.20 et cetera. But you are on the track of really explosives of growth over the last couple – over the next couple of years? And I just want you if you can just to talk about that little bit more. Thanks.

Okay, Josh. Let me take an interesting angle and also try to give it an angle that I haven’t talked about before. In the last quarter, so there is a reason why I joined the company, I mentioned that before. When in the last quarter I was able to get very strong talent into the company, say, I touched in the script on the leadership that we have now. By the way I’m not gone, so you’d see things happen in the next months to come. And my other very strong indication, in addition to my feeling, in addition to the customer feedback that I mention, the fact that that we don’t have – we don’t see the competitors, we see the carriers starting to move there. Last week, we had a carrier – one of the large groups. The head of their NFV program spend hours with us, intel of these in RADCOM rolling deep into the strategy, going deep and explaining their strategy, explaining how they would like to do business with very innovate companies and partner and things like co-creation of cutting edge stuff. That’s not something that the company ever did, okay. Everything that we have been doing in the first two quarters are new cutting edge stuff for the company. And the last affirmation that I am sharing is that’s a very strong confirmation is that I’m able to recruits top-tier talent now. People want to work and strong people want to work in a company that’s going be super successful, and bet their future on a successful company. And that’s the type of management that we have now and it’s not only to the management, it is the middle level management and I’m show it to the additional people that I bring along. So I wake up in the morning, I couldn’t hope for a better position of where the company is at. And we said in the beginning at the year, 2016 will be execution, we call it even like a bridge year for the company. What that does that mean, we moved the company from – a company that had an innovative product, but worked in the emerging market to a company now that has the best and it’s doing the best most comprehensive implementation in the marketplace. We got confirmation from that yesterday the timing by the way is not coincidental they signed and it’s time that it’s show everyone that the partnership between us is very strong. Okay, that’s why they signed it. When we wanted to, the AT&T, I talk about. When you want to search about it – how AT&T endorsed partners – try to search it yourself. There you won’t find these type of announcement and if you will find, it’s very, very specific ones and very rare. Okay, and I can tell you maybe a little bit have to do with some of my relationships. But that’s the cherry on top. They really believe in what we’re doing and how we’re transitioning the company. Now that we have all the additional people we’re engaged with many carriers. We’re not hearing anything negative. I don’t see any of the competitors around us and the only thing that I need from everyone is a little bit of patience to continue to execute, because we’re guessed up here in the company. But we also understand that it’s going to take time to secure the next one. Not because we’re slow but because this is how the markets works. And this is how carriers that follow what AT&T are doing in work. And I have been in this business for many, many, many years I’ve never seen a company that sold to AT&T at the level that we did – not succeed to beyond. Okay, it always happen to the next deals come, okay, it’s more of matter of – okay, when do they come and with which carrier. How do we execute on everything. And the last but not least, when I go to sleep and what keeps me awake at night is not – when and how the next deal will come in. What happens if nine deals come in at once, that’s what’s keeping me awake at night. And then when I wake up in the morning. I think that’s a rich men’s problem and we’ll find a way to execute, we’ve a very strong balance sheet. We’ve done it on purpose. We ran out to the market and some of you asked me in different sessions. Why did we do the offering when we did it, we did it because we’re now pedal to the metal. We need a strong balance sheet to engage the top tier carriers. And now when we’re engaging the these top tier carriers we have the flexibility, we can go with the partner a lot of them want to go directly by the way we can go direct. We’re perceived as a very strong company, with a strong balance sheet executing the most innovative and most comprehensive energy transformation. For any CEO in this space, I don’t think there can be a better situation of where we are at.

Thank you. Next question is from George Marima of Private Investor. Please go ahead.

Hi, thanks for taking my question, Yaron. Couple of questions, last week one of your main partners Amdocs announced actually with AT&T that they will serve as AT&T’s integrator for their ECOMP platform for NFV. It also has some recent wins with NFV. Is it reasonable to assume since your key partner with Amdocs, that you generally will go along for the ride with Amdocs wins?

Yes. I think that’s why I mentioned it in the script. And you can also see in the publication of the AT&T announcements or not. They refer to ECOMP and they referred it to the integration of MaveriQs to ECOMP. It’s a good and strong integration and in the future when you guys see me, I’ll be happy to explain more technical terms who’s interested exactly what it means, but the not sale version is that, it’s a highly automated type of integration and think of the V-Probe as the eyes for ECOMP. So ECOMP’s can’t really do a lot without the eyes that feeds it, and now that we are far long in between implementation the straightforward approach will be to replicate it, now exactly who will adapt ECOMP variations of ECOMP things that that yet to be seen its I think Amdocs and the AT&T with ECOMP and selling if you know in the marketplace I’m sure they were facing the same type of market that we are facing a long enough sales cycle we need to go through proof-of-concepts and things like that.

Okay. And then one more question about this new product. On the business model for this, is this the same type of model where you sell a license for – you said a high seven figure amount or is that a one-time license revenue type opportunity or is this sort of a ramp up as customers like the end user, AT&T’s end users use this product the revenue increases or is the business model is same or different down this product. And is this product so I’m not confused this product that you’ve announced today with AT&T thing is that there would be Threat Intellect product or is that a different new products coming later?

What is the last piece of the question, what was it?

I probably heard something about Threat Intellect is that if I hear that right?

No.

No, no.

Maybe I’m confused but so I will explain, first of all the product itself is an additional product in the MaveriQ suite it’s our intellectual property fully licensed model its very cutting-edge and by the way we are doing some asset stuff to protect the IP. The business model are already similar to MaveriQ and the NFV it will be a licensed model, customers can buy the incremental items and we will offer it as they grow the volumes are something similar to the use of the traffic within the network that’s they pay incrementally but we also operate as an enterprise license. And specifically here is license that’s an enterprise license. And they are with an enterprise that gives a very nice benefit to the carrier and its fits the NFV model and that’s exactly what the carriers are looking for as they implement NFV to get a license and they deal with their data explosion and not have their network cost it slowly. And the cost is also very good because they pay us a very nice amount of money.

Okay. Thank you.

Thank you.

I think that all we have time for today, can operator can we wrap it up?

Yes, we can.

Thank you.

Mr. Ravkaie, would you like to make your concluding statement?

Just I think very exciting quarter I’ve touched on it already enough very exciting times ahead of the company. And I look forward to and continuing discussion with most of you on the call and meeting you all for the quarters ahead and for this joint journey, very exciting time. We are all very happy here. A lot of buzz and positive in this and the RADCOM quarter was worldwide. Thank you very much.

Thank you. This concludes the RADCOM Limited second quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect.