Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the Fourth Quarter and Full Year 2021. All participants are present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions].
As a reminder, this conference is being recorded and will be available for replay on the company's website at www.radcom.com, later today. On the call are Eyal Harari, RADCOM's CEO; and Hadar Rahav, RADCOM's CFO. Please note that management has prepared a presentation for your reference that will be used during the call.
If you have not downloaded it yet, you may do so through the link in the Investors section of RADCOM's website at www.radcom.com/investor-relations. Before we begin, I would like to review the safe harbor provision.
Forward-looking statements in the conference call involve several risks and uncertainties, including, but not limited to, the company's statements about the 5G market and industry trends and expected increase in stand-alone 5G launches, the role the company is expected to play in the 5G transformation, sales opportunities, sales cycles and pipeline, the expected impact of currency rates, the company's market position, cash position, potential and expected growth in 2022 and thereafter, its expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel Innovation Authority, the company's expectations with respect to its relationships with Rakuten and AT&T, the potential of the RADCOM ACE product and the integration with Microsoft Azure and AWS, its expectation to continue enhancing its software solutions and demand for its solutions, deployment of its 5G solutions in multiple cloud environments and the potential benefits to its clients, its ability to capitalize on the emerging 5G opportunities and win more market share, the potential of the company's long-term vision and the use of artificial intelligence in its products, its expectation that greenfield operators will choose vendors based on innovation and its revenue guidance.
The company does not undertake to update forward-looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward-looking statements are outlined in the presentation and the company's SEC filings.
In this conference call, management will refer to certain non-GAAP financial measures, which are provided to enhance the user's overall understanding of the company's financial performance by excluding certain noncash stock-based compensation expenses.
Non-GAAP results provide information helpful in assessing RADCOM's core operating performance and evaluating and comparing the results of operations consistently from period to period.
The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles.
Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures included in the quarter's earnings release available on our website. Now I would like to turn the call over to Eyal. Please go ahead..
Thanks, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2021 earnings call. Q4 represented a strong finish to a good fiscal year. We achieved our highest ever quarterly and full year revenue results, ending the year at the higher end of our projected annual guidance.
Total revenue for the fourth quarter was $11.2 million, which represents a 10th consecutive quarter of year-over-year revenue growth. Full year 2021 revenues grew to $14.3 million, which represented a 7% year-over-year growth and the new all-time full year record for the company.
In fiscal 2021, 70% of our revenue was recurring, which reflects our strategy to procure multiyear contracts, which provide us good visibility into 2022.
Our consistent results throughout the year came from the solid execution of these contracts, our team's ability to remain agile in an ever-changing environment and the value we bring to our customers. I am proud of our achievements in fiscal 2021. A lot of credit belongs to our global teams and our experienced leadership.
Despite the global pandemic, our teams executed exceptionally well to meet the needs of our customers and to execute our growth strategy. While we delivered our highest ever quarterly and full year revenue results, I believe that we can deliver an even stronger growth year in 2022. Let me start by reviewing some of our 2021 achievements.
In 2021, we continued to strategically invest in research and development to extend our technological leadership within the 5G assurance space, which we believe to be a key enabler for our future business. We announced the release of a new AI solution as part of the RADCOM ACE portfolio.
We believe that the AI-driven analytics will be offered considerable benefits to operators for the future network automation and will be critical as part of an automated assurance solution as 5G evolves. I will expand on this later in my remarks.
I wish to take this opportunity to thank all of RADCOM employees as they help us to meet our business commitments and support our customers during 2021. Working in hybrid mode requires a new operating model that spans people, places and processes.
We quickly adjusted our mode of operations to the new way of remote working, empowering teams with the ability to work effectively to support our customers and to collaborate utilizing cloud-based applications and virtual conferencing. Turning to the business. AT&T remains a key strategic customer for us.
And in 2021, we continued our solid business relationship. We received orders for additional analytics and network integrations, and we also have a significant backlog that provides a good visibility into 2022. We continue to innovate and deliver our best-in-class software to AT&T.
Our cutting-edge cloud technology is embedded into AT&T's network and monitors the service quality, allowing them to optimize performance and troubleshoot network degradations. In 2022, we expect to continue providing AT&T with advanced software enhancement and providing premium customer support.
We are working closely with Rakuten and other strategic customers to support their 4G network rollout in Japan, which in February reached 96% population coverage. We announced during the year that we started monitor Rakuten's stand-alone 5G services in preparation for the launch of the 5G network.
Having secured one of the industry's first 5G stand-alone assurance contract with Rakuten, we believe that this work will continue helping our products mature and provide valuable experience for us when we help more operators implement standalone 5G as they look to our assurance expertise.
In addition, as RADCOM is Rakuten's service assurance vendor of choice, we are integrated into Rakuten Symphony, a business dedicated to selling the Rakuten communication platform and managed services to telecom operators worldwide. We believe this platform integration would open significant opportunities for us in the future.
While our focus remains on the 5G market, we continued in 2021 to see demand for our 4G and VoLTE assurance solutions, winning additional orders from our installed base for RADCOM ACE, including the previously announced expansion with a top-tier LATAM operator and other key accounts.
In 2021, we also announced the integration of RADCOM ACE with 2 hyperscalers, Microsoft Azure and Amazon Web Services. We expect 5G to be deployed in multi-cloud environments.
And so with these ecosystem partners, operators can simply rollout by using the public cloud along with RADCOM ACE to smartly manage and optimize 5G network services more automatically. As 5G gains traction, we expect this solutions integration to help us serve a wider range of customers for the rollout of more advanced 5G services.
Turning to the telecom industry and the state of 5G. Our estimates last year that the 5G market momentum will continue during 2021 were largely laid out and the market continues to scale and expand globally. The GSA identifies 20 operators that are launching 5G stand-alone networks with most being limited in scope.
While the criticalness is still at the early stage of 5G, 2 5G networks will be launched over the next few years. Assurance vendor selection is expected to occur at the later stages of the rollout. So the market is gaining momentum. We are only on the cusp of this transition.
As 5G advances, we see new greenfield 5G networks being built in the telecom space. These new networks can be built by established telecom operators investing in 5G or newcomers to the telecom market. They build a network from scratch and deploy the most advanced technology. They are, in essence, pure 5G and cloud-native from the start.
For these operators like Rakuten, automated assurance solutions are vital to monitor the network lifecycle and ensure ongoing service quality from land to full commercial launch.
With our R&D investments and the product strategy focus on automated assurance for 5G and cloud-native networks, we believe that we have competitive advantage in this emerging green market and demand for our best-in-class solutions will grow.
As I mentioned earlier, Rakuten is one of the operators already testing and planning their stand-alone network, and we are already monitoring these services, which provide us with an invaluable experience.
This makes us one of the only service assurance providers that is conducting real-life 5G monitoring, and we expect this will serve as a favorable factor when more operators choose their assurance solutions in 2022 and beyond.
The current 5G momentum is reflected in our pipeline, which was increased by double digits from the beginning of '21 as more operators are planning and transitioning to 5G. Our pipeline consists of a good mix of opportunities from our current installed base as well as new logos.
These opportunities also include several engagements with potential multiyear contracts. Our long-term vision is based on helping telecom operators become more autonomous. Telecom operators needs to modernize, reduce OpEx and deploy new services to generate new revenue streams.
To achieve these goals, networks needs to be software-based, smarter and more automated. This means the operator needs to make data-driven decisions in real time. So operators need to collect and analyze network data and instead of viewing analysis, use AI to gain insight into the network and pinpoint issues automatically.
We believe that we will be a key player in this industry transition and have already started this journey with some of our customers where we are considered as the operators trusted insurance adviser. 5G and the cloud are expected to be business neighbor that can be leveraged to realize this transformation in this industry transition.
Our advanced solution integrates seamlessly into the operator's cloud, monitor 5G services and new smart algorithms as well as AI that functions as the operators eyes into the network and help make networks smarter and more automated.
We expect to continue enhancing our software solution in future years with extended automation and intelligence feasibility that will help operators in this transformation.
As part of this strategy, we are working on several high-focused programs within the framework of the Israel Innovation Authority and cooperating in several work groups with academic institutes and industry experts to push forward AI technology.
The release of our new AI-based RADCOM ACE solution was an important part of our forward-looking strategy and has received very positive feedback from our customers. To summarize, we achieved our highest ever quarterly and full year revenue results.
I'm very pleased with our performance for the fiscal year 2021 and things are looking favorable for us in 2022. We continue to receive industry-wide recognition as a cloud-based assurance provider and see interest in our innovative solutions.
Our cloud expertise gained through our customers' implementations is invaluable and we believe will become a key differentiator as the 5G market gains momentum. We believe the 5G ramp-up will continue in the coming years, and we expect the demand for 5G assurance solutions to increase.
As a result, we remain confident in our business strategy, the future of 5G, our innovative cloud-native offering and the role we expect to play in the 5G transformation. Based on our current visibility, our fiscal 2022 revenue guidance is $42 million to $45 million and believe we will deliver a third consecutive growth year.
With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial results in detail..
Thank you, Eyal, and good morning, everyone. Now please turn to Slide 8 for our financial highlights. To help you understand the results, I will refer mainly to non-GAAP numbers, which exclude share-based compensation. We ended the fourth quarter of 2021 with $11.2 million in revenue, 9% year-over-year growth in the new record quarter.
It is also a 10th consecutive quarter of year-over revenue growth and an increase from $10.2 million in the fourth quarter of 2020. Our gross margin in the fourth quarter of 2021 on a non-GAAP basis was 70%. Please know that our gross margin can fluctuate depending on the revenue mix.
Our gross R&D expenses for the fourth quarter of 2021 on a non-GAAP basis were $4.7 million, a slight increase of $110,000 compared to the fourth quarter of 2020. We received a grant of $194,000 from the Israel Innovation Authority during the quarter compared to a grant of $308,000 in the fourth quarter of last year.
As a result, our net R&D expenses for the fourth quarter of 2021 on a non-GAAP basis were $4.6 million compared to $4.3 million in the fourth quarter of 2020. Sales and marketing expenses for the fourth quarter of 2021 were $2.6 million on an non-GAAP basis, a slight increase of $256,000 compared to the fourth quarter of 2020.
G&A expenses for the fourth quarter of 2021 on a non-GAAP basis were $837,000, a slight increase of $89,000 compared to the fourth quarter of 2020. Operating growth on a non-GAAP basis for the fourth quarter of 2021 was $158,000 compared to an operating loss of $231,000 for the fourth quarter of 2020.
Net loss for the fourth quarter of 2021 on a non-GAAP basis was $237,000 or a net loss of $0.02 per diluted share compared to a net income of $85,000 or net income of $0.01 per diluted share for the fourth quarter of 2020.
On a GAAP basis, as you can see on Slide 7, our net loss for the fourth quarter of 2021 was $1.4 million or a net loss of $0.10 per diluted share compared to a net loss of $0.5 million or a net loss of $0.03 per diluted share for the fourth quarter of 2020. At the end of the fourth quarter of 2021, our headcount was 278.
Now let's turn to the full year results. We ended 2021 with revenues of $40.3 million, an increase of 7% from $37.6 million in the fiscal year 2020. On a GAAP basis and a non-GAAP basis, our gross margin was 72% in the fiscal year 2021 compared to a gross margin of 71% in 2020.
Our gross R&D expenses for the full year of 2021 on a non-GAAP basis were $19 million, an increase of $659,000 compared to the full year of 2020. We plan to continue investing in R&D during 2022 at approximately the same level as in 2021. We received a cumulative grant from the Israel Innovation Authority for $537,000 during the year.
In 2022, we expect grant from the Israel Innovation Authority to be higher than in 2021, but not as high as in 2020, approximately $900,000. Sales and marketing expenses for the full year of 2021 were $9.5 million on a non-GAAP basis compared to $9.2 million in 2020.
In 2022, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for the full year of 2021 on a non-GAAP basis were $3.3 million, a slight increase of $77,000 compared to the full year of 2020.
Operating loss on a non-GAAP basis for the full year of 2021 was $2.1 million compared to an operating loss of $2.4 million for the full year of 2020.
Net loss for the full year of 2021 on a non-GAAP basis was $1.9 million or a net loss of $0.13 per diluted share compared to a net loss of $1.8 million or a net loss of $0.13 per diluted share for the full year of 2020. Non-GAAP net flows was negatively impacted by the strengthening of the new Israeli Shekel during 2021.
On a GAAP basis, as you can see on Slide 7, our net loss for the full year of 2021 was $5.3 million or a net loss of $0.37 per diluted share compared to a net loss of $4 million or a net loss of $0.29 per diluted share for the full year of 2020.
GAAP net loss was negatively impacted by the strengthening of the new Israeli Shekel during 2021 and an increase in share-based compensation expenses in 2021 compared to 2020. In 2022, we believe that the dollar share ratio will stabilize at the current levels and will not require hedging. Turning to the balance sheet.
As you can see on Slide 11, our cash, cash equivalents, and short-term bank deposits as of December 31, 2021, was $70.6 million. That ends our prepared remarks. I will now turn the call back over to the operator for your questions..
[Operator Instructions]. The first question is from Bhavan Suri of William Blair..
It's [Kate Bruner] on for Bhavan. First off, just congrats on the quarter and a great year. I wanted to start out with some housekeeping items about the ongoing projects, specifically the project in Latin America.
Can you guys touch on just how this is progressing and the planned progression into '22?.
Overall, we are very pleased with our progress. We got this project awarded somewhere in the middle of 2021, and we continue with execution. This project in LATAM is very important to us, as you recall, the start of a multistage RFP that we got the initial stage while we are still looking forward to further expand this.
Our relationship with the customers are very well. Implementation is going very well and we look positive on this activity..
Okay. Awesome. With that, I also wanted to talk about the Rakuten partnership. I know you mentioned the possibility of international expansion with them.
I was just curious if there's anything in the direct pipeline on this, any new contracts expanded to different markets with them currently?.
So I mentioned in the past, Rakuten strategy is to go beyond the only Japan into international markets, and they are going very aggressively now and very actively with the Rakuten Symphony. And as you maybe saw in the news, they announced the [Symov], which is the Rakuten app store for telecom applications.
RADCOM is fully integrated into the Rakuten stack. We are a strategic partner of them and the issuance of choice. So any success of Rakuten and any pipeline we built put us in a very well position to get additional projects. This is, of course, not guaranteed. This is, of course, relates to the end customer requirements.
But definitely, there are opportunities and some of our pipeline includes also opportunities with Rakuten to expand into additional carriers globally..
Okay.
Last one, just as you look forward to the next 2 to 3 years, what do you see being like the main growth drivers of your operations? Is it focused on the 5G expansion? Is it kind of work through the early stages or more product expansion? Can you just add some color on that?.
Yes. So we are very focused on our strategy to look on partner operators as they transition to 5G and actually totally innovative network. Today, most of networks are built on a physical clients-based implementations. And while operators now move to 5G, they not only totally revise their network, but they are moving into cloud native.
This is exactly where RADCOM excels, put us in a very good position with our technology. We invested in the last 5 years, tons of R&D into virtualizing and perfect our software solutions. And now that operators are moving to 5G, and this is what I expect to see in the next 3 years.
Most of them will require to revisit select vendors, while some of them may remain with the existing vendors, I believe that many will be open to you a better alternative as we believe we offer, and this is a great opportunity for us. We are in a position that we have the right technology.
There is the right market event, and we are still ahead of the market. And most of the operators, as I mentioned in my previous remarks, are still not in the stage they selected or select now. It will take time. We are only in the beginning.
But it's very exciting to see the strategy starts to work and we are able to show consecutive growth, while in the very early stage of the market, which might mean that we can do much, much better. So I'm very excited about the opportunity looking forward..
The next question is from Alex Henderson of Needham & Company..
So a couple of questions. First one, I wanted to talk a little bit about the penetration of the AI analytics today in terms of existing customers and more importantly, what's in your pipeline, to what extent the AI is included in the pipeline of opportunities for '22? And any calibration around that would be helpful..
So our AI is really kind of our secret sauce as many of our competitors are still busy to figure out how to build virtualized cloud-native solution and how to address 5G. We already invested heavily on that in the past, and we have very advanced capabilities there. This allows us to direct lots of our R&D resources towards the next stage AI.
I laid out my long-term vision. I believe this is going to be where we are going to invest more and more in the future. So today, we are already engaging with both new and existing customers for AI. We provide it in 2 flavors. Some of the AI capability goes into our, let's say, out-of-the-box solution in order for operators to really benefit from that.
But some of the more advanced or potential additional upsell, both on the existing discount and the new ones. I could say that there is still a lot to do with AI as we are collecting tons of data by monitoring in real time, each and every transaction of the customer. But we see that the potential is great.
The AI is getting really advanced now as a whole in the -- not only for telecom, but in many other verticals. But for the telecom that you have so many customers, millions of customers, and we need to create an efficient operation, this is probably the best way to go. And I see us playing an important role in this situation.
We have some initial customers that already implemented this and starting to see results that are replacing manual labors and actually providing better insights than before because it can provide the insight in a larger scale and in more real time as opposed to you will be trying to analyze the data and find anomalies..
So the question really is, obviously, the piece that's embedded in your existing core technology is -- that's going to be part and parcel of any transaction you do. But the upsell piece is an add-on sale.
Is the add-on sales in the existing pipeline? Are you -- do you believe that recent pipeline will be pulling that out on sale, and therefore, you get a higher revenue or service provider as a result? Or is that something that will happen after they've already deployed as an upsell to the existing installed base?.
It's mostly the second. When you're looking on the pipeline for the new accounts, usually, they're more focused today on the, let's say, basic. And this is already part of the out-of-the-box solution. I believe the opportunity is more on the longer term to further expand while we add more and more use cases into our AI capability..
The second question is on the cloud-based operating structure. Clearly, it's a cutting-edge capability. It's impressive that you're able to deliver on a micro service cloud node architecture. And it's certainly impressive that you have Microsoft and AWS engaged.
However, it's not clear to me how many service providers are as cutting edge as this technology would imply.
So I was wondering if you could talk a little bit about as you're looking at your pipeline and existing customers, to what extent the cloud-native capability is a critical element or it's something that's beyond their scope of ambition?.
So it depends on the customer type. And when we look on the customer that we are into, those that are most advanced with the 5G moving into 5G stand-alone. Many of them are -- it's very important for them to have a cloud-native application.
It's true, and I mentioned this in past quarters that the immigration into public cloud is something that's going to take time and it's a multiyear process as telecom today and mainly legacy providers are. Many of them are still using the appliances and physical solutions and some of them are in the first step of moving into virtualization.
I believe long term, we will see more and more activity from the hyperscalers and we see more and more partnerships forming between operators and hyperscalers. This being said, still today, you see only the cutting edge operator going to this technology. But this is exactly where we are into.
Our strategy is to stay in the cutting-edge implementations to partners, those that are most advanced with 5G and create the first-to-market solution there. I believe that in time more and more operators, as they mature, the 5G implementation, going more strategically, this will become a must.
So overall, I think it's going to be very important in the future..
So just to clarify, this is a requirement on the road map, but not something that don't necessarily will show up in initial orders for the next couple of years?.
For the advanced operators, it's mandatory requirement. For the ones that are a bit behind, this is maybe something they don't have today. So they want to see it in the shorter roadmap. It all depends on the operator's maturity to use those technologies.
So for example, Rakuten is, as we talked a lot about them in the past, Rakuten is a clearly a mandatory requirement. You cannot do any business probably with Rakuten, not regarding only our solution, if you are not fully cloud-native. If you go to operators that are still not with 5G, yes, they might say they can -- it's an enrollment requirement..
So going from what you're doing to -- what other people might be doing, have you seen any change in the competitive landscape over the course of 2021? What's going on with that scout? Have they realized that the refrigerator probes are not the way to go and seeing what you've done and tried to catch up? It's been -- you've been visible for quite a while.
I would assume that they're scrambling to respond.
So can you give a little bit of competitive landscape?.
Yes. I'm not sure. I'm mainly focused on what we do and what are the feedbacks we are hearing from our customers and prospects. Overall, across the board, we hear that everyone is excited on our technology. We don't hear that other competitors are as advanced as we are.
When they go into the details, they see and appreciate the investment we did into the technology. And we are keeping and investing and innovating. So we are very, very confident with the technology offering we have compared to the other markets. As I mentioned before, there are -- we are now playing in the prime market of the 5G.
All the competitors understand that telecom are moving to 5G. It's not something that any secret now. And everyone understand that they have to move the solution into cloud-native and exempted. It's only now the matter of how much time it will take them and how good they will do it.
I believe that with the 5 plus news that we are investing in this area, it will be very hard for them to catch up..
So have you seen any competitive bids where they're showing up? Or are you still pretty much the only game in town in most of the pipeline that you're looking at?.
So again, the message we are hearing is that we are the most advanced, and we are really -- that is mainly referring to road map and future commitments. But has really come with reference customers in a cloud-native environment in the cloud environment, not something that we are leading yet..
If I could shift gears a little bit to the income statement and cash position.
Clearly, there's a pretty high level of wage inflation and our head count is not going up a lot, but it does seem like there's a fair amount of wage inflation given roughly a 10% increase in revenues, do you expect that you'll be able to improve your operating margins? So to get close to breakeven by year-end, or should we anticipate slight losses throughout the year?.
So as you can see, this quarter that already reflects a lot of the inflation increase and Shekel to dollar ratio, we are around breakeven at $11 million quarterly. So with the guidance, if we meet the higher part of the guidance, we are really looking to see somewhere in the breakeven point. You should see something similar.
So yes, this is about the range. Overall, we are looking to, as Hadar mentioned before, we are looking to keep our R&D expecting similar levels and do some increase in the sales marketing. So if we are able to execute our growth, we are going to continue to decrease our loss and get into closer to profitability..
You only added a couple of people last year in terms of headcount.
So are you expecting a larger hold count increase in 2022?.
No, we are around the headcount we plan, maybe a slight increase, but we are overall around where we want to be and maybe grow a little bit on the sales and marketing, as I mentioned before, as we are looking to now expand into more and more territories and 5G advance, and we need to go after more opportunities and have more resources to address those sales forces..
And then on the cash flow side, it seems that you're actually going to generate a lot of cash in '22.
Is that correct?.
I'm not sure. We generated cash in 2021. I believe that it makes sense, but not something that we can be ensured as we are working with large projects and sometimes there could be fluctuations depends on the specific milestone and the exact payment date and -- sometimes we shift a few millions from year-to-year.
But overall, if you look on our current cash level, it's I think the highest in the last 3 years, and we are not burning cash. As the results improve and our revenue grows, this would only go and be even better..
This concludes the RADCOM Ltd. fourth quarter and full year 2021 results conference call. Thank you for your participation. You may go ahead and disconnect..