RADCOM LTD. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; quarterly results are not clearly provided. Financial statements are prepared under U.S. GAAP and audited, with an unqualified opinion.
Business context and financial performance
RADCOM supplies network service-assurance and network-intelligence software to communications service providers, including solutions for virtualized (NFV) and conventional networks. Its portfolio includes MaveriQ and, launched in February 2018, Network Visibility. The company reported one operating segment.
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $37.2 million | $29.5 million |
| Gross profit / gross margin | $26.7 million / 71.8% | $20.5 million / 69.6% |
| Operating income / margin | $2.6 million / 7.0% | $1.1 million / 3.8% |
| Net income / diluted EPS | $2.9 million / $0.23 | $1.9 million / $0.18 |
| Cash from (used in) operating activities | ($10.6 million) | $9.5 million |
| Cash, cash equivalents and short-term deposits | $62.6 million | $42.9 million |
| Working capital | $74.8 million | $38.9 million |
| Total assets / shareholders’ equity | $91.9 million / $76.4 million | $54.6 million / $40.1 million |
Revenue grew approximately 26%. Project revenue rose $8.6 million, primarily from expansion and execution of the Amdocs engagement connected with AT&T; product and related-services revenue fell $1.2 million, partly offset by higher warranty and support revenue. MaveriQ revenue was $33.4 million, versus $28.8 million. The filing attributes improved gross margin to product mix and lower hardware and inventory-write-off costs. R&D and sales and marketing expenses rose to $9.0 million net and $11.0 million, respectively.
Cash, liquidity, debt and capital
Operating cash flow turned negative mainly because trade receivables increased $15.9 million; year-end receivables were $20.3 million, up from $4.4 million. Investing activities used $40.8 million, including a $40.0 million short-term bank deposit and $0.8 million of equipment purchases. Financing provided $31.1 million, including $30.2 million net proceeds from an October 2017 share offering. Cash and cash equivalents alone declined to $22.6 million from $42.9 million, while the new short-term deposit was $40.0 million.
The balance sheet lists no borrowings; the filing does not provide a separate debt metric. Management said existing resources and operating cash flows should cover expected liquidity needs for at least 12 months, while retaining the option to raise capital or reduce discretionary spending. Contractual obligations totaled $3.9 million, including $3.1 million of operating leases. No cash dividends have been paid, and none are expected in the foreseeable future.
Material changes, outlook and risks
- Customer concentration: The two largest customers accounted for approximately 78% of 2017 revenue (79% in 2016). The AT&T-related engagement contributed $24.5 million, or 66%; the Philippines customer contributed $4.5 million, or 12%.
- Cash conversion and collections: The sharp receivables increase drove the operating cash outflow despite higher earnings. Management noted that growth may require further working-capital investment and longer customer payment terms.
- Market outlook: Management expects NFV adoption and interest in NFV-capable service assurance to gain momentum in 2018 and beyond, and plans continued investment in NFV and cloud-based offerings. No numerical revenue or earnings guidance is provided.
- Execution and competition: Large CSP projects have lengthy sales and acceptance cycles, and delays, cancellations, cost overruns or customer acceptance timing can affect revenue and margins. Competition, customer bargaining power, pricing pressure and uncertain NFV adoption are material risks.
- Related parties: Amdocs-related revenue was $24.6 million in 2017. A controlling shareholder/director also served as an Amdocs director. The company also leases premises from affiliates of principal shareholders; review the disclosed relationships and approvals.
- Contingencies and obligations: The company reports an approximately $45.8 million contingent IIA royalty liability, payable in relation to revenue from grant-supported products, and a disputed historical royalty-calculation matter. It also reports a $376,000 contingent BIRD royalty obligation, conditional on relevant product sales.
- Other notable items: Share-based compensation was $2.2 million. The company adopted ASC 606 on January 1, 2018 using the modified retrospective method; the estimated opening adjustment reduces accumulated deficit by about $337,000. Currency exposure, especially NIS costs against U.S.-dollar revenue, is not hedged. Management and the auditor reported effective internal controls over financial reporting as of year-end.
Investor verification checklist
- Verify collection timing and credit quality of the $20.3 million receivables balance, including the $14.3 million related-party receivable balance.
- Review the terms, remaining scope and economics of the AT&T/Amdocs engagement and assess dependence on the two largest customers.
- Confirm how the IIA royalty contingency and historical calculation dispute are recorded, and under what circumstances royalties become payable.
- Assess whether reported project margins, revenue-recognition estimates and customer acceptance milestones are sustainable under ASC 606.
- Track NFV deployments, Network Visibility commercialization, customer diversification, share-based compensation and potential future capital needs.