Noga Fisher - IR David Ripstein - President and Chief Executive Officer Gilad Yehudai - Chief Financial Officer.

Analysts:.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. First quarter 2014 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, April 23, 2014. I would now like to hand over the call to Ms. Noga Fisher. Ms.

Fisher, would you like to begin?.

Yes, thank you, Rachel, and thank you all for joining us. With me today are RADCOM'S CEO, David Ripstein and CFO, Gilad Yehudai. Also in the room is Uri Birenberg who will begin serving as RADCOM’S new CFO in several weeks. By now we assume that you have seen the earnings press release which was issued earlier today.

It is available on all the major financial news feeds. Before we begin I'd 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. 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.

Now I would like to turn the call over to David. Go ahead, please. .

Thank you, Noga and thank you all for joining us today. The first quarter was a very good start for what we believe would be a good year for RADCOM. Our sales were $5.5 million, up 20% from last year. Net profit totaled $250,000 up 33% from the fourth quarter reflecting the increase in our gross margin which rose from 61% to 68%.

Collections, the best measurement of customer satisfaction were up, helping us achieve positive cash flow. And perhaps most important our bookings were strong giving us visibility in 2014. So we feel very well positioned to generate additional growth in the year ahead.

The main driver of this momentum is our transition from being a hardware company to a software company, and strong market acceptance of our MaveriQ the new software-based solution for LTE and 3G networks. Although we only released MaveriQ officially in February we have already installed several systems for Tier 1 operators.

We have recently announced another multimillion dollar sale with a new customer, and existing customers are also ordering it. This is because MaveriQ is totally unique in the market; the right product at the right time. I’d like to spend a few minutes explaining why MaveriQ is creating such a market buzz.

First of all, it is an industrial strength system designed from the ground up to handle the massive traffic created by video streaming and big data, also super high capacity processing power and advanced analytics. This is exactly what operators need today to track down their challenging problems and to keep networks up and running.

In addition, MaveriQ is the industry’s first software based box system, a solution designed for NFV or virtualisation. In NFV functions are moved into software in order to make the network more flexible and scalable, enabling operators to transition to standard servers for all of their applications.

Operators are very excited to see such a powerful service assurance solution that is ready for NFV. They see that they can install it initially on standard hardware and then continue to use it as they transition to virtualized architecture.

So we are offering the operator an easy-to-deploy method for increasing service availability while reducing CapEx and OpEx. This is proving to be a very powerful sale proposition. As I said we have already installed a number of systems and we are addressing some very significant opportunities.

We believe this is empowered to be a strong new growth driver for many quarters ahead. From a business model perspective our transition from a hardware company to a software company is just as significant. In the short time that we have been selling MaveriQ our gross margin has gone up to 68% compared to 62% for all of 2013.

Several old lower margin projects that we are still working on held the margin down and you can expect to see it continue to rise as we finish them. That is why we continue to project a gross margin of above 75% over time although it will probably fluctuate from quarter-to-quarter.

You will also see our inventory continues to decrease over time as a percent of sales. And our revenue recognition cycle should continue to improve. Given the momentum of the NFV concept and our significant technology lead over the competition we believe we are positioned for growth. So we are optimistic as we look to the future.

I'd like to end my portion of the call with a goodbye and thanks to Gilad, our CFO of the past three years. He has been a dedicated team player and we appreciate his talent and judgment. We wish him well as he pursues a new opportunity in the life science sector.

At the same time we welcome Uri Birenberg, a CPA with 10 years' experience as a VP Finance, Business Strategy and Business Development Manager at SunGard, HP and Ernst and Young. Uri is currently carrying out a hand over process with Gilad and will take over officially on May 18th.

In summary, we have reported a good beginning of 2014 and are positioned for future growth. We are very excited about initial market reception of MaveriQ and believe that it will become a powerful new growth driver.

Our transition from a hardware company to a software company is improving our margins and revenue recognition and you can expect to see more improvement in the future. With the right product at the right time, a strong backlog and also a strong pipeline of opportunities, we are confident and continue executing our plan.

We look forward to reporting continued good results as we move through 2014. With that I will stop and turn the call over to Gilad to discuss the financial results.

Gilad, please?.

Thank you, David, and hello everyone. Since you have the press release before you, I will just go over the highlights. To give you a better understanding of our results I will be referring to non-GAAP results, which exclude share based compensation for all periods.

Revenues for the quarter were $5.5 million, up 20% compared with the first quarter of 2013. Compared with the fourth quarter they were down slightly by 4%. This is in line with our growth plans and the normal seasonality of our industry. So we are on track for achieving additional growth in 2014.

Gross margin for the quarter was 68% a significant improvement compared to previous year. We expect the completion of older, lower margin projects and the shift towards software-based products to continue driving the margin to above 75%.

This is due to reduced cost of goods and an accelerated deployment cycle which is enabling us to reduce all related expenses. Operating expenses for the quarter were up by 7%, compared with the first quarter of 2013. This increase was due to three factors; the strengthening of the shekel compared to the dollar.

This increased our Israel based expenses which includes all of our R& D and most of our administrative expenses as expressed in dollar terms. The second factor is our yearly grant from Israel Chief Scientist which was lower this quarter than it was for the first quarter last year.

So far two out of three applications that we made for the year have been approved and the third will be reviewed in the fourth quarter. Last year we were in a similar situation with an application that was not approved in the first quarter and then was approved in the fourth quarter. So this is likely to happen again this year.

The third factor is the higher commissions connected with the higher sales. In general the current level of expenses is right for supporting the business and our growth plans. As the sales and gross margins continue to increase the company will move back into operating profit.

We recorded $206,000 in financial income for the quarter compared with financial expense for Q1 last year. This is related primarily to the strengthening of the Brazilian real compared to the dollar.

With increased revenues, a higher gross margin, a reasonable level of expenses and financial income we generated net profit of $248,000 for the first quarter or $0.3 per share. This is up 33% from the fourth quarter demonstrating the importance of the higher gross margin on the bottom line.

Turning to the balance sheet all parameters are in line with our plan. Our collections in the quarter were the highest that they have been in several years, $6.4 million. This contributed to the quarter’s positive cash flow.

In addition our inventories are lower, demonstrating the production efficiency that we began to achieve through the transition to software based products. On a personal note I would like to say that it was a pleasure to be part of the RADCOM team during the past three years and to wish them well in the future.

The company has made a lot of progress over this time and is positioned for strong growth ahead. Uri can move into his new position knowing that the company is in good shape with a bright future. Back to you, David..

Thank you, Gilad. So that's it for the first quarter. As always thanks for your ongoing support. With that we would be happy to take your questions.

Operator?.

Thank you. (Operator Instructions). There are no questions at this time. Mr. Ripstein, would you like to make your concluding statement..

Thank you, Noga, thank you, Gilad, thank you, Uri and to you all for participating in the conference call..

Thank you. This concludes the RADCOM Ltd. first quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect..