The typhoon that hit the Philippines in recent days also sent the share price of Israel technology company Radcom (Nasdaq: RDCM) into a tailspin. Radcom's share price plunged 29% on Monday following the storm, because one of the company's main customers, Globe Telecom, comes from the Philippines. Globe Telecom contributed 12% of Radcom's revenue in 2017, and renewal of a contract late last year increased Radcom's revenue from Global Telecom to $3.6 million in the second quarter, 34% of its total revenue.
Following the share's collapse on a large trading turnover, Radcom's management invited investors and analysts to a conference call on Tuesday, just before the beginning of Yom Kippur. In the call, Radcom CEO Yaron Ravkaie tried to sound reassuring, saying that the company was unaware of any effect from the typhoon on its business.
Radcom's share proceeded to rebound 14.3% the same day, but reversed direction again yesterday, losing 10.4%, bringing its fall in the past three trading days to 27% and slicing $65 million off its market cap, which is now $174 million.
Radcom, part of the Rad group controlled by Zohar and Yehuda Zisapel, provides solutions for monitoring and assessing traffic on communications networks. The leading loser on paper from the precipitous drop in the company's value is company cofounder and director Zohar Zisapel, whose holdings lost $14.1 million in value.
Another important shareholder is the Yelin Lapidot investment house, which had a 12.9% stake in Radcom as of its most recent report. Yelin Lapidot's holding has lost $8.2 million in value. With a 9.2% holding, Raging Capital Management lost $6 million on its stake in recent days.
Ravkaie said in the conference call, "We do not know of any effect (of the typhoon) on our business, and we are in contact with our customers about any possible effect."
Ravkaie told "Globes" that the company did not know what caused the steep decline in its share price on Monday, and had asked its investor relations firm and its bankers to find out what the cause was. The reasons suggested were the typhoon and rumors about a bid to acquire a company supposedly made by Radcom. In the conference call, Ravkaie said that the company had nothing to report at the moment, but noted that it was looking for acquisition opportunities.
"Globes": What have you heard so far from the customer in the Philippines?
Ravkaie: "We're in touch with them. Right now, we don't think that there's any impact. Manila was not severely hit. At the same time, I want to be careful and not to say that this is behind us, because we could suddenly get a phone call next week or later. In my opinion, there's not much chance of that; the customer is reliable."
What are you looking for in mergers and acquisitions?
"Part of our strategy is to grow through acquisitions. We're looking at companies and we're in touch with companies, but there's nothing that's very ready, and when there is, we'll announce it. Our first priority is complementary technology with synergy to our technology, but also specific activity, not just technology."
Radcom had $71.4 million in cash as of the end of the first half of 2018, after raising $29 million a year ago at $20.30 per share, compared with its current $12.60 share price.
The company said in its conference call that while the future of NFV, a software-based solution, was more promising than ever, there had recently been a slowdown in the transition to NFV, which could have an effect on Radcom. At this stage, there is no change in the company's $43-47 million revenue guidance for the year, 16-26% more than in 2017, but it is assessing the effects of this development.
Ravkaie said today, "Everyone expects us to announce deals, and there is tension until we do. The sales cycle in our sector is a long one; it can take 9-18 months. We're not a company with hundreds of sales processes at any given moment. We're in the telecoms market, and we focus on the large customers in the market. Telecommunications carriers are making this transition gradually.
"We see in Israel and worldwide that ARPU is falling, and our technology helps the carriers. For example, AT&T said that we're one of their successes, because they use our technology to cut the cost of their network, but not every customer has deep pockets like AT&T. Investors who have been with us for a long time understand this."
Ravakaie added that the company would finish the quarter, assess the situation, and inform investors, possibly before publication of its next financial results.
Are you optimistic about Radcom?
"Yes, definitely. When we're in this journey with communications giant AT&T, it's a different world. We have good relations with them. We're working on plans going beyond 2020. A customer like this always takes care to be in the forefront of technology, and our company has all of the engineering know-how and investment to be there always.
"It's clear to me that a company our size is bound to have setbacks, but we always keep our finger on the pulse for adopting the right strategy. The company is healthy, we have a strong balance sheet, and I've no doubt that Radcom will continue its forward march."
Published by Globes [online], Israel business news - www.globes-online.com - on September 20, 2018
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