As a reminder, this conference is being recorded and will be available for replay on the company's website at www.radcom.com from August 12th, 2019. On the call is Yaron Ravkaie, RADCOM CEO, and Amir Hai, RADCOM CFO. By now, we assume that you have seen the second quarter results press release, which was issued earlier today. It is available on all the major financial newsfeeds. 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 a link on the investor section of RADCOM's website at www.radcom.com/investor-relations. If you have any trouble, please send Mark Rolston an email at markr@radcom.com and he will send it to you right away. Before we begin, I would like to review the safe harbor provision.
Forward-looking statements in this conference call involve a number of risks and uncertainties, including, but not limited to, company statements about its 2019 revenue and other performance guidance, including statements about anticipated growth margins, statements about the company's strategy, leadership position, potential sales, pipeline, opportunities, sales cycle or long-term prospects, statements about continued investment in research and development, and statements about the future of NFV industry trends, including 5G deployment and future plans of industry participants and customers such as AT&T and Rakuten Mobile and their success in penetrating and disrupting the market. The company does not undertake to update forward-looking statements. The full safe harbors provisions, including risks that 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 that is useful in assessing RADCOM's core operating performance and in evaluating and comparing our 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, which are included in the quarter's earnings release, which is available on our website. I would like to repeat the information about the presentation. If you have not downloaded it yet, you may do so through a link on the investor section of RADCOM's website at www.radcom.com/investor-relations.
If you have any trouble, send Mark an email at markr@radcom.com, and he will send it to you directly. Now, I would like to turn over the call to Yaron. Please go ahead.
Thank you, operator, and thank you all for joining us today. We are very pleased to have signed a multi-year contract with Rakuten Mobile this quarter, presenting a unique and unparalleled opportunity to be part of the world's first end-to-end fully virtualized mobile network. Rakuten is a global leader with over 70 e-commerce, fintech, and content services and more than 1 billion members worldwide. With Rakuten Mobile, they are launching a fourth mobile network in Japan in October. Our second quarter results already reflect revenue from the Rakuten engagement. With this greenfield network, Rakuten aims to disrupt the mobile industry in Japan by building an innovative, highly automated network that has no legacy limitations or baggage. This cloud-native platform will enable Rakuten to deliver a customer-centric experience to their subscribers, making plans more affordable and allowing Rakuten to automate their operations.
Rakuten is taking an end-to-end cloud-based approach that does not include specialized hardware and is 5G-ready from launch. This cloud approach produces dramatic savings in comparison to other operators due to much lower investment costs. From the outset, Rakuten can take full advantage of the newest and most innovative technology that is 5G-ready without the need to migrate old infrastructure. Rakuten chose RADCOM because of our deep NFV expertise, our ongoing work in partnership with AT&T, and our advanced cloud-native 5G-ready technology, which allows operators to assure the customer experience in a highly dynamic virtualized environment from the network edge to the core. Our solution is tightly integrated into Rakuten's cloud to enhance the end-to-end user experience they deliver to their customers while reducing operational costs. RADCOM is a crucial partner in Rakuten's move into disrupting the mobile market in Japan.
Rakuten aims to revolutionize the way a mobile network is operated by focusing on end-to-end customer-centric indicators rather than just network performance indicators, thus radically improving the overall customer experience. Our business model with Rakuten is recurring in nature, which allows RADCOM to provide, on an ongoing basis, innovative technology to support Rakuten's mobile launch and ongoing business needs. Rakuten is a company that innovates rapidly and expects us to do the same. This rapid pace was demonstrated in the short sales cycle in which this contract was completed. As we continue to work with Rakuten, we'll be utilizing all the advantages of a cutting-edge virtual network with very high levels of automation, including machine learning and artificial intelligence capabilities. This agreement adds another anchor client to our roster, which includes AT&T, Globe, and other top-tier operators.
As we announced in the last quarter with our three-year contract with AT&T, we continue to integrate our solution into their cloud platform to assure the customer experience for their current and future mobile services. AT&T continues to aggressively move forward with their transition to NFV and the transformation of its network into a software-centric platform. They are turning their network gear into software applications to provide a dynamic platform for the future innovation and the rollout of 5G to both business and consumers. AT&T has been recognized as the fastest wireless network in recent months. They have accelerated their 5G and fiber build-outs with the introduction of their FirstNet. They now offer 5G service in parts of 19 cities in the United States, expected to become the standard throughout the U.S. by 2020.
RADCOM continues to be a key partner to AT&T, providing them ongoing software releases into their cloud to continually support their journey to virtualization and now 5G. Through our continued work with AT&T and the scale of their network and the amount of traffic they are putting on their virtual technology, coupled with Rakuten's very advanced architecture and fast-paced deployment, we are executing some of the most exciting projects in the industry and continue to gain unparalleled expertise and industry attention. We believe this will have a halo effect on the marketplace. Operators have been very interested in what AT&T does, and now with Rakuten, there has been an intense level of interest around their strategy and their technology lineup for executing a very aggressive, fully virtualized approach. Rakuten chose the best vendors in each space, and this is another significant proof of our technology and expertise.
As Amir will discuss in detail, revenues for the second quarter were $8.5 million. Considering the relationship with AT&T and the execution of this significant contract with Rakuten and market conditions, we're increasing our revenue guidance to be between $30 million and $33 million. With that, I'll turn the call over to Amir Hai, CFO, to discuss the financial results in detail. Amir, please go ahead.
Thank you, Yaron, and good morning, everyone. Please turn to slide six for our financial highlights. To help you understand the results, I will be referring mainly to non-GAAP numbers, which exclude share-based compensation. Revenues for the quarter were $8.5 million, down by 20% year-over-year. As a reminder, our quarterly revenue can become lumpy due to specific project milestones. Our gross margin for the quarter was 75.6% on a non-GAAP basis. Note that our gross margin can fluctuate depending upon the level of revenues and revenues mix. Our gross R&D for the quarter on a non-GAAP basis increased to $4.4 million from $3.5 million in the second quarter of 2018. This increase relates to headcount growth to support our continual investment in R&D to maintain and extend our technological leadership and capabilities.
Also, during the second quarter, we received $412,000 from the Israel Innovation Authority, compared to $754,000 in the second quarter of 2018. As a result, our R&D for the quarter was $4 million, an increase from $2.8 million in the comparable period last year. Sales and marketing expenses for the quarter were $2.4 million on a non-GAAP basis, a decrease from $2.9 million in the second quarter of 2018. G&A expenses for the quarter on a non-GAAP basis totaled $754,000 compared to $799,000 in the second quarter of 2018. Operating loss on a non-GAAP basis for the quarter was $715,000, compared with an operating profit of $1.4 million for the second quarter of 2018.
Net loss for the quarter on a non-GAAP basis was $411,000, or a loss per share of $0.03 per diluted share, compared to a net income of $1.4 million, or $0.10 per diluted share for the same period last year. On a GAAP basis, as you can see on slide five, we reported a net loss for the quarter of $0.9 million, or a loss per share of $0.07 per diluted share, compared to a profit of $757,000 or $0.05 per diluted share last year.
At the end of the second quarter of 2019, our headcount was 245. We expect our headcount to remain around the current level in the near term. Turning to the balance sheet. As you can see on slide nine, our cash and cash equivalents and short-term bank deposits at the end of the quarter were $58.6 million. We believe that our healthy cash balance places us on a solid footing to execute on the opportunities in front of us. That ends our prepared remarks. Yaron and I will turn it back to the operator and take your questions.
Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Alex Henderson of Needham & Company. Please go ahead.
Thanks, guys. Sorry, there seems to be some static on my line. I don't know whether that's me or the conference call, but I was hoping you could give us a little bit of a commentary around the 10% customers and to what extent the Rakuten deal is driven by users post-launch as opposed to initial spend to build the network and how that contract is set up a little bit. Could you start off with 10% customers, please?
10% customers, you mean customers that are?
Above 10
above 10% of our revenue mix?
Yep.
We don't disclose specific customers. We're under NDAs with them. AT&T, which we have been updating, continue to be stable, active. We're continuing to give them comprehensive releases, and we've signed in the beginning of the year a long-term agreement with them, which we gave some color on. Others we haven't disclosed, but basically, there's positive activity with all of them, and I don't think there's anything problematic with any one of them.
Well, yeah, just asking how many 10% customers you had. Not asking for the revenues per customer per se, just generically, is it the vast majority of revenues coming from two companies or is it coming from three or four or five companies? Can you give us a sense of it?
The majority of the revenue is coming from AT&T. Rakuten now becomes a major revenue provider. There's a carrier in Asia Pacific, which we've disclosed in the past, that's another revenue provider. There's a couple of mid-size ones, and then there's a longer tail.
I see. Relative to the Rakuten transaction, I assumed that there was some upfront investment there to build the network before they actually have revenues if they're kicking off the launch in October. Did you get some CapEx-related revenues, and then it flips to a subscription basis on the number of people who sign up? Or how does the contract work? Could you give some clarity on it?
Yes. The contract, can't disclose it accurately, but it's a double-digit multi-year contract. The relationship, it's an ongoing quarterly relationship that is, again, meaningful, and it's not dependent on them acquiring subscribers. It's pretty stable based on just a long-term relationship in the work and the technology work. All this contract has also the potential of upside as two things might occur. One is some additional work that they'll ask us to do, and the second thing, if they launch outside of Japan, which there are discussions and chatter about that, then there will be, in the second scenario, significant upside.
Yaron, I thought I heard you say it was a subscription transaction on the prepared remarks. Am I incorrect in hearing that?
No, I thought that's what I said. Did I say something different?
Well, if it's subscription, what is the subscription based on? Usually, that's-
Subscription to the software. They subscribe. They don't have a perpetual license.
I see. It's a recurring fixed dollar amount.
Yes.
I see. Okay, thanks. Can you talk about your pipeline a little bit? I mean, Rakuten's a great deal, what do you got going on in the rest of the pipeline?
We have an active pipeline, and there are several things that are in the works with some ability to mature even this year. I can't disclose much more than that. There's several opportunities. Some of them are at a maturity level that we would expect something to happen this year.
Okay. If you were to look out into 2020, do you think that there is enough visibility in the pipeline to get back to a double-digit growth trajectory, or do you think that the AT&T is fairly flat, the Rakuten is pretty well as it subscribed as is, therefore, it needs additional contracts to provide growth? How do we think about the longer-term impact?
First of all, we haven't gone through the planning for next year yet, and it's only August. I would say at this stage, we will have growth next year, I think, primarily because AT&T is stable, and Rakuten we're only recognizing part of the year. That's inherent in that. That's going to generate growth, assuming the other parts of the business are stable. You couple that with several wins, I'm not sure we'll reach double digits, but I think we will be able to demonstrate growth next year. If this Rakuten halo effect that I'm talking about will pick up, we might see acceleration on that, but it's too early to say, and it's also a little bit too early to say at what pace can they launch. What type of upside can we get on Rakuten.
Okay. One more question, if I could. On the gross margin side, quite a bit of difference between the two quarters. Should we be using kind of the midpoint between the two quarters or the average for the half? Looking out into the back half, how do we think about GM next year?
Well, I think at the end of the day, you can average it. We are going to have, I think, if you're looking at you doing the math and you're looking at our guidance and looking what we did now, we are going to have a bit of a more loaded tail end for the second part of the year. We do have some deliverables that are part of formal contracts that are not 100% software. We do deliver servers as part of them, so there will be fluctuations in the next two quarters. We haven't been measuring it quarter by quarter and updating it quarter by quarter. On an annual basis, I think you can average them.
Something around 73-ish kind of for the year then? Is that kind of the way you're thinking of it?
It's between 70-75. This is the range. If that 73 is okay, 72 and a half, anyway.
All right. Okay, great. Thanks. I'll cede the floor.
The next question is from Bhavan Suri of William Blair. Please go ahead.
Hey, gents. Let me echo my congrats on the earnings call. I guess I just want to go back there for one second. Two questions there. One, your company suggested they might be aggressively building out the new mobile network. I guess if you were to think about their growth plans, which you may or may not have insight to, but you've got some sense of where they need delivery. Do you think that that sort of low double-digit contract length is something that's a 2-3-year plan, or is that more like a 5-10-year plan, or do you think that that could be double, triple, where it could be in long-term, five, 10 years?
I'm not sure I understand the question, but the contract that we signed with Rakuten is for Japan.
For this specific contract, we know to predict for the next several years, the revenues. There's upside opportunities on that, like I said, in two dimensions. What are you asking beyond that?
I guess when you look at those dimensions and you look at the level of contracts, that's to drill into the contract, say that's for Japan, let's assume they expand. I'm assuming it's not for all the customers they might get in Japan. I'm trying to understand sort of the vectors of growth for them and then how you're tied to those vectors of growth.
In Japan, they gave us a meaningful contract. In Japan, our revenue is not dependent on their acquisition of customers. They pay what's in the contract no matter how many they acquire. As they potentially launch in other countries, there will be significant upside to this contract, which the way that you need to think about it when you model is if they go into a new country, there's an opportunity. Their strategy will be to copy-paste the stack. There will be an opportunity to basically do this type of deal for every country that they go to.
Got it. Okay. That's helpful. One more strategic one before we get into some of the more tactical things. You certainly said other carriers, other operators are looking at Rakuten. I guess a little more specifically, have other carriers said that this software-based approach makes sense, or are you seeing new carriers, new potential operators who say, "Hey, if Rakuten can do this in a software-based approach with a really small team, we can do this too on top of the existing infrastructure." Are those conversations happening? Is it still really early? Are people still sort of watching and wait and see yet? Is Rakuten, at this point, viewed somewhat as successful and other people are thinking about maybe in the next two, three, four years trying to copy it. How should we think about what the conversation is happening with people who are watching that model?
Look, I'll give you the color, okay? You can make the decision yourself because it's at the cutting edge. The color is there's a train of visits all the time into Rakuten, and all the industry is looking at what they're doing. That visitation train is comprised of both established carriers that are learning in order to innovate themselves as well as companies that are not carriers that as Rakuten might go into that business. Rakuten is going into that business. You see a combination. In my opinion, it's still a little early to say, okay, is now Amazon going to be a carrier, or Amazon-like companies, are they going to be a carrier? There's been speculation on that, your special speculation is as good as mine.
I think the major point here is that you see a company that hasn't been a carrier at a mega scale, okay? Rakuten is the Amazon of Japan. It's as big, as innovative, and you can read their materials. There's a lot of articles that say that they are more innovative than Amazon, and I want to make sure that I do them justice. The moment that they've now gone into this, it means several things. One is that they figured out probably an amazing business case. Two, they're utilizing technology. If you just do a Google search and you look at even YouTube publications that they put out, they're making a lot of their journey public. You see that they're going to leverage all of their assets in order to capitalize on this investment in mobile, and mobile will become another major asset here.
It's very, very interesting. On the technology side, it's a proof point, it's a major proof point that. Let's be accurate, they have a network that's up and running, but their launch is in October. As we follow that launch through the remainder of the year and as they scale up next year, I think there will be a lot of interest in the industry on how this is working and how this is going. I think we're going to see more and more and more innovation and things that will follow. We see them from Rakuten, and we'll see how together, I guess, how it affects the industry. This is definitely, I think, the most exciting thing that's happening in the industry from a sea change that we've seen for a while.
Got it. Got it. That's really helpful. I guess sales cycles will be my next question. Rakuten is an anomaly because obviously such a short sales cycle, but you've talked in the past about lengthening sales cycles and given your commentary about some wins this year, it feels like those are improving. Just some color on what you're seeing in sales cycles, and have they started to improve? Are they stable? Are they still very mixed? Just to get some understanding there. Thank you.
Rakuten was a short sales cycle, measured in months, somewhere around three months. I can't predict what's going to be like the telco sales cycle going forward. I'm seeing some increase in activity. I'm saying it carefully. I'm seeing some things that were in the pipeline that are maturing, it's still early to see will Rakuten or any other 5G or any other industry will create some shortening of the sales cycle. I mentioned before also, the fact that there were long sales cycles, which we experienced through the second part of 2018, we've talked about it, at the end of the day, it's creating some pinned-up demand. The older technology that these carriers are running is becoming obsolete, whoever has seven-year-old technology and also five-year technology starting to break, this entire industry go through a refresh cycle.
This should also, for the regular business, put some propellant into the mix. When you look at how can this affect us, we hope that, and I think in my mind, it makes a lot of sense that these carriers will go to the most advanced software and network architecture that they can the moment that they refresh. That should help us as well.
Got you. If I go to my last question really around renewals, you have two large renewals coming up in 2019, in addition to AT&T, obviously, which is renewed. Just an update on how those renewals are progressing and on what level we should expect those contracts to renew relative to existing levels?
Oh, in 2019, only AT&T was up. We've done it.
Okay. My mistake. I thought I had two others. Okay, that's helpful, guys. Thanks for taking my questions, and nice job on Rakuten.
Okay, thanks.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. The next question is from Josh Goldberg of G2 Investment Partners. Please go ahead.
Morning, Yaron. How are you?
Doing good.
Good. I had just one point to make that I wanted you to comment on, and then two questions. I guess the point I wanted to make was that the fact that you won AT&T and now Rakuten, I think analysts have a difficult time projecting quarterly numbers, and you're not a quarterly numbers business, you're a project-driven business. The fact that you won AT&T three and a half years ago, the biggest NFV rollout in the world, and then three and a half years later, your technology was validated by the most up-and-coming carrier in the world with no connections. You're an Israeli company, you sold into an American telecom, and as well into a Japanese telecom. One of our contacts in the industry said any person that wins part of the network business at Rakuten has the best technology in the world in that space.
The fact that you won that contract 3.5 years after your first one, I think validates how strong your business is. Looking at your company with a $50 million valuation and $50 million in cash, maybe people are worrying too much about the quarterly numbers, not looking at this bigger picture, that you've been able to win these things. I mean, Yaron, in some ways, you guys are like the New York Yankees. No matter how much you win, you just want more.
That's the feeling in the company. I can tell you that maybe the way that I would add to the comment, okay, is that we've just started with Rakuten. The pace of innovation that we're going to with AT&T, I touched on it a little bit in the remarks. With AT&T, AT&T chose our technology because it was the best out there. We went and started the journey with them and continued to journey with them, and we grew together in our domain. We created, I think, an unparalleled system and architecture with maturity, with automation, with capabilities that in our mind is second to none. This has been continuously validated by AT&T that also they all the time look at the industry.
Now, Rakuten, basically like you mentioned, has chosen the best of every area in order to go for the most cutting-edge best of breed approach that is a combination of the technology, and also the ability for a company to work with them and innovate. That combination is, I think, a huge achievement for the company in a very short space, okay. After doing well, they looked at the entire industry, and by the way, because of the fact that they're very innovative, they not only look directly at the probe and assurance industry. They looked at even the one or two circles beyond. When they saw our technology, it was downhill from there, okay. That both companies hit it off. We saw that our visions are aligned.
We saw that our view of the future is aligned, and then we said, "Okay, now we can really get deep here and continue this journey." This journey, when you look at the overall industry, and this is, I think, where investors are wanting to see what's next, the industry hasn't migrated to NFV yet. The change hasn't happened, and we've captured, I think, two amazing assets, partners. They're not assets, they're our partners in this journey. These are the ones that aggressively started. In our minds, it's definitely will have a halo effect. The world is starting to see it. I think the fact that Rakuten is starting from greenfield and doing everything even in a way that's, I would say, more risky than AT&T, and testing out all the new technologies.
They're even more relying on our technology because of making sure that everything works for them. More than that, I think they're going to very fast have an impact as big as AT&T had on the industry in maturing the technology so more and more operators can follow. Now, we'll see how the rest unveil. In RADCOM, we're also excited about how this is panning out and that we get to work with the best of the best.
I guess what I was trying to point out more was that three and a half years ago, you fired the first shot and every other company in your space, from Massachusetts to California, multi-billion dollar companies, had the ability to upgrade and develop product in the last three and a half years, and you've just invalidated again that you are the best product.
Yep.
That's a huge endorsement.
Yep.
Can you talk a little about your cash balance? I know people have talked about possibly buying another company, maybe adding on another feature. You're not burning that much cash. Maybe buying back the stock might be a good idea at these levels. Can you just talk a little about what your mindset is, realistically, in the next six months, if you're planning on using the cash for anything?
The cash will primarily be used to maintain a very healthy balance sheet as we continue to grow after the top tier operators of this industry. The industry basically looks like it gravitated toward direct relationship with the technology partners. If in the past, large companies would only do business with the Netcracker, with the Ericsson, Huawei, Nokia of the world, Cisco of the world, Rakuten now is another great example, like we talked, and others, I believe, will follow of doing business with companies our size. For that, they do want to make sure that we have the long-term viability, which I think we've been demonstrating very nicely, and that's where we're going to make sure that the optics of the balance sheet help us.
Have you been building out a team in Japan on the ground, like you did at AT&T, to help them get through the upgrade cycle and implement your solution?
Yeah. We have an A team on the ground there. Everything is happening very fast, some of it is being built as we speak. The model is built on some, I would say, lean presence on the ground there.
Okay. Any update on anything going on in Europe with some of the Tier 1 carriers? I know that things got delayed a little bit last year.
There's some activity in Europe, but at this stage, I would say Western Europe is slow. We might see some activity in Eastern Europe, but there's nothing super exciting there. There is some activity, so it might change, but there's nothing earth-shattering like a European Rakuten launching or something like that.
It sounds like it's a lot more comfortable today than you were even six months ago.
Six months ago, we've seen didn't have enough pipeline, and we've seen a slowness in the industry. Rakuten came in and shuffled all the cards, literally. Short sales cycle, strong contract, recurring in nature, provides a very significant player for the company, allows us to continue to run and innovate together with them and with AT&T and hopefully with others. They'll be a great reference. They're very vocal, and I think they'll have a great impact.
As a long-term investor, thanks for all your hard work. Thank you so much.
Thanks, Josh.
We have a follow-up question from Alex Henderson of Needham & Company. Please go ahead.
Yeah, just along the same lines of discussion. You had some discussion around a U.S. Tier 1 service provider that was out last year that seems to have stalled a little bit. Can you remind us where that is and what's going on with that second customer in the U.S.?
They're stalled. Their spend, I would say, on NFV is under review, and the relationship is good, and our system is installed there. We expect that as things start to pick up, mid-term, I would make the best estimate, then we can see them contributing more to revenues. They're contributing a little bit to revenues now, but not so much. It's primarily due to them rethinking their rollout plans in NFV and 5G and a lot of change in the leadership of their company, et cetera.
Can you address this one conundrum for me? As I understand it, you really can't roll out 5G without NFV virtualization, yet the market for NFV virtualization seems to have stalled, but the rollout of 5G seems to be getting plenty of press. How do I reconcile those two data points?
It's more complicated than just a sentence. I'll explain it in a way that a lot of these short-term 5G launches are done on a 4G architecture. When people say, and you hear, and you read articles that 5G depends on NFV, it's more the midterm, longer term 5G. Primarily when they start to look at upgrading the core to a 5G core. The chatter about it is 2020 and beyond. No one needs to boost the 5G.
What does it take to get to that point? Is it that they have to be doing network slicing, or they have to do high bandwidth commitments to customers? What are the hurdles that require them to move off the 4G historical LTE backbone to a 5G architecture for their backbone, as opposed to just simply putting 5G radios in the tower and leaving everything behind it as it had previously been?
No, there's several things. Okay. There's discussions around, like you mentioned, network slicing. There's discussions around standalone 5G, so offerings that they're going to do, like fixed broadband through mobile technology, so offer that to businesses. They might do some of it short-term, but when they look at longer-term, and rolling this out in scale, they will want to upgrade their core. At the end of the day, the growth that they'll have on the 5G, they'd want to do on a modern core, not on the LTE cores are becoming old cores, so they won't want to do expansions on their core. As traffic grows on the mobile network, they'll do the growth on a next-gen core. The industry needs to mature that next-gen core. There is a race that's happening.
I don't think it's a long-term, five years out race, but it's something that's going to impact more next year and the year after.
One last question, then I'll cede the floor. The shekel is hitting, I think, 18-month highs. Could you remind me whether you guys hedge or whether that's something that's going to impact your OpEx over the next six months? How do we think about that?
Well, we're doing a short-term hedge. We're doing hedge for one month, two months ahead. For longer term, we don't have the policy to hedge for this longer term. When you look historically and we analyze if we hedge or not hedge, I think the effect was the same. Right now, I think when you look at the shekel rate compared to the U.S. dollar, it's 2% down from the average for the first half-year for 2019. I think this will stay the same way.
Great. Thanks.
Thank you.
There are no further questions at this time. This concludes the RADCOM Ltd second quarter 2019 results conference call.