"Long-term investors believe in Radcom"

Eyal Harari, Yaron Ravkaie / Photo: Eyal Izhar, Globes

Outgoing CEO Yaron Ravkaie and his replacement Eyal Harari are sure that, as 5G becomes reality, Radcom's technological superiority will win out.

With the publication of Radcom's third quarter reports, the company announced a change at the top: Yaron Ravkaie will resign at the end of the year after four years as CEO and join the board of directors. He will be replaced by veteran Radcom executive Eyal Harari, currently the company's COO. If things go according to plan, Harari will lead the company when it reaps the fruits of its investment in the transition to virtualization and its focus on the largest customers in the telecom market in recent years. If you ask Ravakie and Harari, Radcom has plenty of room for growth, and they are very optimistic that it will happen.

Radcom, part of the Zisapel brothers' Rad group, provides solutions for monitoring and insights in communications networks. The company's market cap on Nasdaq is $136 million.

Ravkaie has had a hard time recently. Radcom's share price plummeted 29% in a single day in September 2018, when investors believed that a typhoon in the Philippines would affect one of Radcom's leading customers. That did not happen, but Radcom, which wanted to be transparent with investors, held a conference call in which Ravkaie talked about a slowdown in the market for software-based network functions virtualization (NFV) solutions, a market regarded by the company as a growth engine.

What's happening now in the NFV market? "What characterized the slowness in the market now explains some of its recovery," Ravkaie says. "The reason for the slowdown a year ago was that many companies started NFV ventures and made some progress, but there was no massive introduction of these networks. One reason was that this was complicated. AT&T (a large Radcom customer, S.H.-V.) had the necessary financial soundness and fortitude on the part of its managers. For others, however, switching to a network entirely based on the cloud was tough. Like everything in technology, things mature, and it's easier now. Today, our large customer in the Philippines is switching its network to NFV. Had you asked me two years ago, I would have said that it wouldn't be able to do that.

"A second reason for the delays was 5G. A race began in the US and several places in the Far East, with early deployment, and that threw the world into a panic, with companies deciding to concentrate their efforts in this area," Ravkaie explains. "Where's the connection? 5G is only on virtual infrastructure. So companies were stuck, because they didn't build this infrastructure, and the result was slowdown. There is now initial movement. I can't say that it will translate into 20 projects next year, but there is definitely movement. Keep in mind that the challenge in the telecom market is that sales turnovers are very long. We'd really like it for things to happen within weeks, but sometimes it takes years."

One of Radcom's most conspicuous features is that, even though it is not a huge company, it has tier-1 customers, among them AT&T, Globe Telecom, and Japanese company Rakuten, which became a Radcom customer last year. Ravkaie says that this was one of the tasks he has assumed since become the company's CEO: to take a company that had already invented a large proportion of the technology and give it the "DNA of mega-scale orientation" in order to serve the big customers. For this purpose, management was reinforced, R&D was expanded, activity in the US grew, and Ravkaie says that the spirit of a startup was preserved. "This is what led to our great achievement in gaining Rakuten, the Amazon and Booking.com of Japan and the Far East, as a customer," he declares.

"Now they will also be a carrier. We see that communications operators are under great pressure. As consumers, we pay less, and that affects the results. Along comes Rakuten and from nothing builds a different network, something we haven't seen for a long time. Everything is  automated, and the idea is to enter Japan and other countries as a strategic operator. They can become an 'as a service' operator. They manage the network, and we know everything done on the network, and build the user experience. They make all of the decisions about how to manage the network with our system. This a very exciting place to be - at the cutting edge of technology," Ravkaie says.

"We want this dependence on a few large customers"

"Globes": At the same time, you are dependent on large customers - 80% of your revenue in 2018 came from two customers.

Ravkaie: "Yes, and we want this dependence. If we have ten $1 million projects a year, it will give us $10 million. If we have four $15 million projects, that's $60 million. That's the math. It's true that the company is dependent on just four customers, but this scale is what gives us all a living. Successful companies in this sector focus on tier-1. Companies with fewer than a million subscribers don't even call us, and if they do, we sometimes give them a miss."

Despite the impressive customers, Radcom is not making a profit. When will that change?

"We're now drawing up the plan for next year, and we're thinking about investing a lot back into the company. In my model, we make a profit if revenue is over $50 million. It can also happen at $45 million. We're approaching a point at which there are enough projects with repeat revenue, like Rakuten. It's similar to software as a service."

"5G - A test, but also an opportunity"

You previously talked about acquisitions. Is that still relevant?

"Yes. We have $68 million in the bank, some of it because tier-1 customers want to see a strong balance sheet. The idea, however, is also to use some of the cash to expedite things that we're working on for 5G and beyond. We're looking at possibilities, and it could happen."

The share price has not yet returned to its level before last year's plunge.

"It's recovering, A stock can tumble in a day, but recovery takes more time. In the end, our narrative is very strong, and we see that long-term investors believe in the company. We'll manage the company carefully, and the share price will eventually reflect this journey. From a perspective of many years, Radcom is a company that has doubled itself, and Eyal will take the company and try to double it again. Keep in mind, though, that there will be a bad quarter sometimes - you can't have only good quarters."

From what you say, you're resigning before the breakthrough, and the beneficiary with be Eyal Harari, who is replacing you.

"The company is very stable now. From quarters with $4.5 million average revenue in 2015, our annual pace now according to the forecasts is $33-34 million, and we anticipate growth next year. This is the time to pass the baton to Eyal, who worked closely with me. He'll take the company forward, and I'll go on contributing to it."

Harari: "We've built unique technology and infrastructure here. We believe that our technological advantage is so great that when things do happen, they'll happen very quickly. 5G is a test for Radcom, but also its opportunity. Four to five years ago, we were the first player in the market with virtualization, and now also, we're not sitting and waiting; we're thinking about how to reinvent our market, so we're investing a lot in technology. I'm an optimist by nature, and I believe we have plenty of room to grow. I have big dreams, and I'm here to achieve them."

Published by Globes, Israel business news - en.globes.co.il - on November 27, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eyal Harari, Yaron Ravkaie / Photo: Eyal Izhar, Globes
Eyal Harari, Yaron Ravkaie / Photo: Eyal Izhar, Globes
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