Ladies and gentlemen, thank you for standing by. Welcome to the Radcom Limited Results Conference Call for the Q2 of 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. 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 Amir Hai, 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 its visibility into the second half of twenty twenty one, its sales pipeline, momentum, demand for its products and new requests and potential expansion of opportunities.
The company's continued investment in technology and R and D expectation regarding the 5 gs market size and trends in industry investments and spending, the company's expectations with respect to the digital trend in telecom, the company's market position, cash position, potential and expected growth, the company's expectation with respect to its relationships with Rakuten and AT and T, its potential expansion with a top tier LATAM operator, the potential for additional grants from the Israel Innovation Authority, the potential for additional partnerships with top cloud providers in the future 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 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 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 the 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 over the call to Eyal. Please go ahead.
Thank you, operator, and thank you all for joining us today. Earlier this morning, we issued a press release stating our Q2 2021 results. We are pleased with the results. We delivered another solid quarter as we continue to execute the company's strategy and invest in our advanced 5 gs cloud technology as we engage in a significant higher number of sales opportunities. Total revenue for the Q2 of 2021 was $9,800,000 representing an 8th consecutive quarter of year over year revenue growth.
Additionally, we secured several meaningful orders from our existing customer base during the quarter, increasing our visibility into the second half of twenty twenty one. We made progress with the initial deployment at the top tier LatAm operator that we announced in May. This order covers the operator's 4 gs network with the expectation of expanding to their 5 gs network in the future. This win was achieved based on our innovative technology and the advanced capabilities of Rasco MACE, which we believe provides significant value to operators as 5 gs ready automated assurance platform. We are pleased with our progress as we remain focused on delivering on our commitments and expanding this relationship.
We continue to invest strategically in R and D, announcing last week our enriched AI driven insights. We introduced a new innovative AI solution as part of Rackham Ace. The solution automatically analyze millions of data sessions in real time and can reveal underlying network faults that otherwise would be unlikely to be identified quickly in 5 gs networks. This solution helps operator overcome the challenges of operating complex multi vendor networks and ensures the quality of services. I'm proud of our team worldwide for their dedication and commitment to advancing our cloud technology and delivering on our customer commitments.
Even with the ongoing impact of the pandemic, the telecom industry is moving forward. There has been a massive culture shift towards the digital, and more and more people are adopting new technologies and communication tools. As a result, operator worldwide are leveraging their existing networks or building new networks to keep pace with this trend. We believe that this trend will positively impact the future of our business. We see a ramp up in 5 gs activity from new network infrastructure contracts to partnerships between telecom operators and large scale cloud providers, creating a favorable environment for our solutions.
As mentioned before, 5 gs has multiple phases. In the first phase, competitor handsets connect to both 5 gs and 4 gs radios, joining the subscriber to the same existing 4 gs network. This is known as non standalone 5 gs. Today, we are still at this stage of 5 gs. The second phase is known as standalone 5 gs.
Operators will deploy an entirely new network core in this network environment and need new assurance solutions to monitor more advanced services like network slicing and edge deployments. There are early signs of stand alone 5 gs opportunities, but a critical mass is still at the early stage of this transition. We expect to see some early adopters begin the multistage process of choosing their assurance solutions during 2021 and beyond. Over the next 5 years, operators are projected to invest more than $1,100,000,000 in their networks. According to a report from GSMA Intelligence, about 80% of that will be for 5 gs.
We are already noticing new 5 gs use cases, such as edge computing, network slicing and private networks, evolving as operators request them in the tender process. We are well equipped to handle these new requests due to our solutions cloud native architecture that delivers automation and advanced 5 gs capabilities. As one of the industry's 1st standalone 5 gs assurance contracts, Radnor continues to provide Rakuten Mobile with critical service assurance for delivering next generation mobile experiences. In May, Rakuten Mobile announced that it has achieved 80% population coverage for its network rollout in Japan. Rakuten also plan to launch its standalone 5 gs services in 2021, so it has already started deploying its standalone network, which Radcom 8 intelligently monitors.
During the Q2, industry analyst, Anadis Mason, published a case study about Radcom innovative deployments at Radcom Mobile, stating the importance of our solution in supporting their journey as they are building the world's 1st fully virtualized end to end network. Presscon solution provides end to end service and subscriber visibility, all in a cloud native environment. Our solution also enables the use of artificial intelligence for automation, which was one of Rakuten mobile critical requirements. We are delighted with the progress in our partnership with Rakuten. We have developed our solution using the latest cloud based deployment processes to provide state of the art software releases as the network continually evolves.
In addition, we are testing new features without affecting live services, which provides Rakuten Mobile the confidence to roll out rapid changes in its network. As noted in the case study, RASM solution is currently being integrated into Rakuten's communication platform, RTP, the cloud platform on which Rakuten Mobile's network is built. This platform packages and markets Rakuten's innovative network architecture to other operators worldwide, and it's already gaining momentum. For example, this month, Germany's 1 on 1 contracted Rakuten to help build its new mobile network. In addition, 1 on 1 will have access to Rakuten's communication platform.
Together with Rakuten, 1 on 1 will create Europe's 1st fully virtualized mobile network with high performance and expensive automation and agility to exploit the full potential of 5 gs. As mentioned in previous quarters, standalone 5 gs network are built on cloud native technology. As a result, we continue seeing lots of collaboration between telecom operators and public cloud providers. For example, in June, Microsoft announced it was acquiring AT and T's Carrier Grade Network Cloud Platform Technology, which AT and T's 5 gs core network runs on. In addition, AT and T recently committed to using Microsoft at the edge of its network to support network workloads at a scaled level for efficiency.
As a reminder, we announced in March that Radcom Ace was fully integrated with Microsoft Azure. We continue to engage with additional cloud providers to expand the availability of our solution to more public cloud ecosystem as we expect operators to deploy in multi cloud environments. AT and T continues to be a key strategic customer for us. As a leading network provider, AT and T frequently emphasized customer experience as a key priority to their success. Our cutting edge software is embedded in their network cloud and monitors the customer experience as they continue evolving their underlying network infrastructure to the cloud.
We continue to deliver new capabilities and captive edge software releases to AT and T as we support the evolution of its cloud network. Given that Tracom is working with leading operators in deploying our cloud native technology, we are gaining invaluable hands on experience monitoring these networks. In addition, it serves as a testament to our ability to innovate and build out new capabilities and increase our technological leadership and cloud expertise with telecom operators. Earlier, I mentioned the growth in our pipeline. To give some color, we are currently engaged with a significant higher number of sales opportunities, with some reaching the proof of concept stage.
From the beginning of the year, we have seen the number of opportunities increase by double digit percentage with a significant number of these being new logos. To summarize, we secured several significant orders this quarter and even thought the 5 gs transition is only at the early stages of the journey, momentum is building. As a result, we expect the demand for next generation assurance solution to increase. We are reiterating our full year 2021 revenue guidance of $39,000,000 to $41,000,000 based on our current visibility. With that, I would like to turn the call over to Amir Hay, our CFO, who will discuss the financial results in detail.
Omid, please go ahead.
Thank you, Eyal, and good morning, everyone. Now please turn to Slide 7 for our financial highlights. To help you understand the results, I will be referring mainly to non GAAP numbers, which exclude share based compensation. We ended the Q2 of 2021 with $9,800,000 in revenue, increasing from $9,200,000 in the Q2 of 2020. Our gross margin in the Q2 of 2021 on a non GAAP basis was 75%.
Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R and D expenses for the Q2 of 2021 on a non GAAP basis were $4,900,000 an increase of $400,000 compared to the Q2 of 2020. This increase is mainly related to negative exchange rate between the U. S. Dollar and the Israeli new shekels and then increase in our headcount as part of our product investment.
We received a grant of $70,000 from the Israel Innovation Authority during the quarter compared to a grant of $572,000 in the Q2 of last year. In addition, we are engaged in ongoing discussions with the Israel Innovation Authority to approve additional development plans. Therefore, we will have a clear visibility for 2021 during the next quarter. As a result, our net R and D expenses for the Q2 of 2021 on a longer basis were $4,800,000 compared to $3,900,000 in the Q2 of 2020. Sales and marketing expenses for the Q2 of 2021 were $2,300,000 on an non GAAP basis, a slight increase of $100,000 for the Q2 of 2020.
G and A expenses for the Q2 of 2021 on an non GAAP basis were $841,000 approximately the same as the Q2 of 2020. Operating loss on a non GAAP basis for the Q2 of 2021 was $646,000 compared to an operating income of $102,000 for the Q2 of 2020. Net loss for the Q2 of 2021 on a non GAAP basis was $304,000 or net loss of $0.02 per diluted share compared to a net income of $231,000 or net income of $0.02 per diluted share for the Q2 of 2020. On a GAAP basis, as you can see on Slide 6, our net loss for the Q2 of 2021 was $1,100,000 or a net loss of $0.08 per diluted share compared to a net loss of $200,000 or a net loss of $0.01 per diluted share for the Q2 of 2020. At the end of the Q2 of 2021, our headcount was $280,000,000 Turning to the balance sheet.
As you can see on Slide 10, our cash, cash equivalents and short term bank deposits as of June 30, 2021 were $64,900,000 We believe that our strong balance sheet provide us with the flexibility to execute opportunities ahead of us and remain agile through a global uncertainty. That's end our prepared remarks. I will now turn the call back to the operator for questions. Thank
The first question is from Bhavan Suri of William Blair. Please go ahead. Good morning or good afternoon over there guys. Thanks for taking my question and nice job. Excited actually about the pipeline traction you're seeing.
I guess I'd love to get a little color into that pipeline growth. You said double digits. What regions and maybe what types of carriers? What tier? And specifically for the POCs, sort of
I know they're doing POCs, but
are these deals and size will make you drop your time in AT and T? Any color would be very helpful.
Good morning, Varun. Thank you. I think that overall, we see growth in that is driven from the 5 gs evolution. We see if you follow where 5 gs is evolving, these are the areas that we see more and more growth. And in general, the growth is coming from most of the regions.
This is because the technology is evolving now with in general and we see many of the operators, both in Americas, in Europe and in APAC, progressing into the next stages with 5 gs and starting to look into solutions of service assurance. As I pointed out, the growth is coming in double digit percentage and it's in the different stages of the opportunities. Some of them are early pipeline deals that will probably take some time, but we see also progress with more opportunities that are more mature. I'm not sharing the exact number of POCs, but some of them are in the POC stage. And in overall, we are very positive on the pipeline growth as we see it today.
We believe that this growth is reflecting the technology advantage we have and increasing the demand that is coming due to the initial investment into 5 gs. Got it. Got it.
That was helpful. I'd love to talk about the LatAm deal and how is that deployment going? I'm in touch with AT and T and others coming to Renault, but love to understand how the LatAm deal is going. And then I've got a question on sort of the COVID risk, but let's talk about LatAm first.
So as we announced in May, we got orders from this LatAm operator for the 4 gs network. We are in the last few months starting to implement the solutions. The implementation is going well. This is something that will be happening in the next few months and we are in a very good relationship with the customer and everything is going by plan. As indicated, this win is not only significant and sizable by itself, but moreover is a potential lead to a further expansion into 5 gs once this operator is going to turn its 5 gs network in the future.
This is something that is likely to happen probably next year. So we are very excited for this relationship with them.
No, that sounds really good. I guess, two quick questions. 1, you didn't increase full year guidance. I'd love for you to just provide some color on sort of how the POCs might sort of trend into revenue. Is that a calendar 'twenty two thing?
How should we think about it? Is that 12, 18 months out? How do these POCs typically, if you win them, turn into deployments that turn into revenue?
Yes. Most of we are now in August. So most of the POCs that are starting now are mainly to build the 2022 numbers and the visibility. This being said, we are working in the last year on some activities, some opportunities are already post POCs and can get closed earlier than that. But I'm mainly focused on 2022 numbers.
We mentioned that we have very good visibility into 2021 based on the orders we secured already. And we are looking on long term growth and continue to move business forward. Got it. Got it.
And one last one for me. And obviously, we're seeing some concerns around the delta variant at least here in the United States and other regions. As you look back, I mean, there was sort of a hiccup a little bit. People took a little more delay in some of the decision making when COVID originally happened. Are you seeing anything from your customers, any sort of hesitation or concern in terms of spending around Delta?
Or is it just sort of business as usual right now?
I think we this is obviously a discussion and concern on a personal level, but
not a
delay or something that would I see a significant business implications. We know telecom projects are always taking their time and overall it's looking that it progresses expected.
Great. Thanks for taking my questions guys and nice job. Thank you. The next question is from Michelle Waller of Needham and Company. Please go ahead.
Thanks. Hi, guys. This is Michelle on for Alex. I guess just for the first one, can you speak on the recently announced AT and T and Microsoft Azure deal and how you see that impacting the Assurance market over time
and maybe more specifically to your guys' business with AT and T? So
we see a general technology trend of the public cloud providers looking into telecom as a huge opportunity. The telecom workloads as of today are primarily based on either proprietary hardware or in the more modern cases on data centers that the telecom operators build for themselves. We are starting to see more and more investment from the cloud provider to try to take those workloads and implement the data center for the telcos either on-site or as a public cloud service, which will probably take some more time. In the specific announcement from Microsoft and AT and T ZIL, AT and T build their own network cloud technology in house, they sold their IP and intellectual property to Azure and build this collaboration. I believe in the short term, this is going to be not making a big difference, but in the longer term, the expectation and what I believe is that it shows the commitment of Microsoft Azure into the investment to the telecom.
And this could be door opener into more opportunities as customer are implementing Microsoft Azure in their cloud environment. As I mentioned before, we have our integration with Azure that was announced in March. This is very important for us and the overall trend of more and more telco operators starting with class provider is part of the overall trend to move to visualization and cloudification, which is a growth driver into company like Radcom as we are excelling and the most advanced into the area of fully containerized application and this enables more potential for us. We see similar investment from Rakuten that are implementing their own cloud and Rakuten, they are experts on cloud platform as well and this is very exciting for us to see this technology evolution in the industry.
Great. Thanks. And so just as we look into the second half, I guess, you guys sound pretty upbeat and there doesn't seem to be anything that suggests really a deceleration. So as I look at the year over year growth comps that you guys are coming up against in the second half, I would think maybe September would be a higher growth opportunity compared to December quarter just because the comparable quarters on a year over year basis are easier. Is that fair to assume?
Or do you see it being more linear that the growth going into the second half?
Hi, Michel, it's Amir. Basically, we provide the annual guidance. So since the revenue can fluctuate between the quarters, it's kind of a project is implemented in and has some delays, so we cannot know exactly the time for that. But as we stated in the beginning, we believe that we will keep the we will be in the range from 39 to 41. And so this is our target.
Okay. And just one last one real quick on the Israeli government grants. It sounds like you guys are in discussions with them right now. I think you guys have said, and maybe correct me if I'm wrong, but for calendar 'twenty one, you had previously been expecting a similar amount from the government grants this year compared to last year. So when you're talking about going back to having discussions with the government over these grants, are you saying to re discuss the additional grants?
Or has the overall expectation for the year changed?
Yes. Basically, we gained around last year, we gained around $1,200,000 in grants. Right now, we started the post of 2021 grant in Q1. And at that time, there was a government transition and without any state budget approval. This creates kind of budget limitation.
So as of now, what you see in the P and L is about $70,000 to $75,000 per quarter this is secured. And for the other plans, we are still in discussions with these authorities. And we hope that we will make progress in the coming months. If we succeed to gain this plan, this will be paid retroactively from the beginning of the year.
Okay, great. Thanks. That's all for me. Thanks, guys.
Thank you.
The next question is from Sasha Karim of IPI. Please go ahead. Hi, Jens. First question from me. Is anybody else is there any other assurance provider currently engaging with Rapitan to be integrated in the RTP?
Or to the best of your knowledge, are you the only company doing that?
I don't want to refer into specific things about Rakuten. But overall, we are having a very good relationship with Rakuten. We just mentioned a few quarters ago, our expansion into 5 gs with them. And this is one of the first deals in the market for 5 gs standalone, it's not the first. We are now very busy to integrate our solution and deploy it into their live network as they are evolving with 5 gs.
This is targeted to get live by end of the year. And our relationship is very tight with them. And as you could indicate from the last analyst reports we had with them and testimonials we had with them, we are working very closely. They are very important customers, and we feel very comfortable about our relationship with them.
Thanks. Next question would be, are you expecting to recognize any significant revenue this year from the Tier 1 LatAm win? Or does that not begin probably until 2022?
The revenue is depends on the implementation of the project. This is something few months down the road, likely to happen more in the 2022 revenue year.
Got it. Thank you. And then my last one would just be on cloud opportunities. I think we've seen DISH gone through very strongly, maybe not so much the case for established telcos. Would you agree with the general thesis that greenfield operators are modeling to outsource their network to cloud and therefore, in theory, it should be a best opportunity for you if you're cloud native to software?
I believe the whole telecom industry as a whole is going into the public cloud architecture and solutions. Obviously, greenfield operators have less legacy and less limitations. Therefore, they can move faster and take more strategic decision earlier. While we see more of the other operators, one operators that are already established with networks also taking steps and there were many press releases by the different public cloud providers and partnership with operators like we mentioned AT and T and Azure, but there were others as well. This is a trend that is gaining a momentum and it's a very exciting momentum for us because all of our technology investments, a lot of our R and D investments, including our lately released AI framework capabilities on top of the RASCO Mi, this is all targeted and driven into such an environment.
And we believe this is great for favorable environment for us in the assurance space.
Great. Thank you very much.
Thank you.
There are no further questions at this time. This concludes the Radcom Ltd. 2nd quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.