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 12, 2019. On the call over to the line is Yaron Ravvakai, Radcom's CEO and Amir Hai, Radcom's CFO. By now, we assume that you have seen the Q2 results press release, which was issued earlier today. It is available on all the major financial news feeds. 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 Investors section of Radcom's website at www.radcom.com/investor relations. If you have any trouble, please send Mark Wilson an email at markrradcom.com and we 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 gross 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 5 gs deployment and future plans of industry participants and customers such as AT and 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 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 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 Investors section of Radcom's website at www.radcom.com/investor relations. If you have any trouble, send Mark an email at markrradcom.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 multiyear contract with Rakuten Mobile this quarter, presenting a unique and unparalleled opportunity to be part of the world's 1st end to end fully virtualized mobile network. Rakuten is a global leader with over 70 e commerce, fintech and content services and more than 1,000,000,000 members worldwide. With Rakuten Mobile, they are launching a 4th mobile network in Japan in October. Our 2nd 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 5 gs ready from launch. This cloud approach produces dramatic savings in comparison to other operators due to much lower investment costs. Also, from the outset, Rakuten can take full advantage of the newest and most innovative technology that is 5 gs ready without the need to migrate old infrastructure.
Rakuten chose Radcom because of our deep NFV expertise, our ongoing work in partnership with AT and T and our advanced cloud native 5 gs ready technology, which allows operators to assure the customer experience in a highly dramatic virtualized environment from the network edge to the call. 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. RASCOM 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 RACOM 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 expect 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 and T, Globe and other top tier operators. As we announced in the last quarter with our 3 year contract with AT and T, we continue to integrate our solution into their cloud platform to assure the customer experience for their current and future mobile services.
AT and 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 5 gs to both business and consumers. AT and T has been recognized as the fastest wireless network in recent months. They have accelerated their 5 gs and fiber build outs with the introduction of their first responder platform. They now offer 5 gs service in part of 19 cities in the United States, expected to become the standard throughout the U.
S. By 2020. Broadcom continues to be a key partner to AT and T, providing them ongoing software releases into their cloud to continually support their journey to virtualization and now 5 gs. Through our continued work with AT and 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 and 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 Q2 were $8,500,000 Considering the relationship with AT and T and the execution of this significant contract with Rakuten and market conditions, we're increasing our revenue guidance to be between $30,000,000 $33,000,000 With that, I'll turn the call over to Amir Hayer, CFO, to discuss the financial results in detail. Amir, please go ahead.
Thank you, Yaron, and good morning, everyone. Please turn to Slide 6 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 $8,500,000 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 percent on a non GAAP basis. Note that our gross margin can fluctuate depending upon the level of revenues and revenues mix. Our gross R and D for the quarter on a non GAAP basis increased to $4,400,000 from $3,500,000 in the Q2 of 2018. This increase relates to headcount growth to support our continued investment in R and D to maintain and extend our technological leadership capabilities. Also during the Q2, we received $412,000 from the Israeli Innovation Authority compared to $754,000 in the Q2 of 2018.
As a result, our R and D for the quarter was $4,000,000 an increase from $2,800,000 in the comparable period last year. Sales and marketing expenses for the quarter were $2,400,000 on a non GAAP basis, a decrease from $2,800,000 sorry, a decrease from $2,900,000 in the Q2 of 2018. G and A expenses for the quarter on a non GAAP basis totaled $754,000 compared to $799,000 in the Q2 of 2018. Operating loss on a non GAAP basis for the quarter was $715,000 compared with an operating profit of $1,400,000 for the Q2 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 $1,400,000 or $0.10 per diluted share for the same period last year.
On a GAAP basis, as you can see on Slide 5, we reported a net loss for the quarter of $900,000 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 Q2 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 9, our cash and cash equivalents and short term bank deposits at the end of the quarter were $58,600,000 We believe that our healthy cash balance placed 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 The first question is from Alex Henderson of Needham and Company. Please go ahead.
Thanks guys. Sorry, there seems to be some static on my line. I don't know whether it's me or the conference call, but I was hoping you could give us a little bit of a commentary around 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. So could you start off with 10% customers, please?
10% customers, you mean customers that are above 10% of our revenue mix?
Yes.
So we don't disclose specific customers who are under NDAs with them. AT and 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 like problematic with any one of them.
Well, yes, 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 to companies? Or is it coming from 3 or 4, 5 companies? Can you give us a sense of
The majority of the revenue is coming from AT and T. Rakuten now becomes a major revenue provider. There's a carrier in Asia Pacific, which we've disclosed in the past, it's another revenue provider. Then there's a couple of midsized ones, and then there's a longer tail.
And relative to the Rakuten transaction, I assume 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 is can't disclose it accurately, but it's a double digit multiyear contract. There is a component of a setup, but it's not huge. And 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 and the work and the technology work.
And all these contracts has also the potential of upside as two things might occur. 1 is some additional work that they'll ask us to do. And the second thing, if they launch outside of Japan, then which there are discussions and chatter about that, And then there will be in the 2nd 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, that's 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 like a perpetual license.
I see. So it's a recurring fixed dollar amount?
Yes.
I see. Okay. Thanks. Can you talk about your pipeline a little bit? I mean, RAKTAN is a great deal, but what do you got going on in the rest of the pipeline?
So we have an active pipeline. There are several things that are in the works that with some ability to mature even this year. I can't disclose much more than that. But there are several opportunities. Some of them are at maturity level that they'll be we expect something to happen this year.
Okay. If you were to look out into 2020, do you think that there's enough visibility in the pipeline to get back to a double digit growth trajectory? Or do you think that the AT and T is fairly flat, the Rakuten is pretty well subscribed as is. Therefore, it needs additional contracts to provide growth. How do we think about the longer term?
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 and T is stable and Akutan were only recognizing part of the year. So that's inherent in that that's going to generate growth assuming the other part 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 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 beyond what type of upside can we get on or accretive.
Okay. So 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 2 quarters or the average for the half looking out into the back half? How do we think about the next year?
So 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're 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 2nd part of the year. We do have some deliverables that are part of former 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. But on an annual basis, I think you can average them.
So 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 to 75, this is the range.
So it's at 73, okay, 72.5.
All right. Okay, great. Thanks. I'll see the floor.
The next question is from Bhavan Suri of William Blair. Please go ahead.
Hey, gents. Let me echo my congrats on that, Bhavan. I guess I just want to go back there for one second. I have 2 questions there. 1, your comments suggested they might be aggressively building up the new mobile network.
I guess if you were to think about their growth plans, which you may or may not have in place too, 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 to 3 year plan? Or is that more like a 5 to 10 year plan? Or do
you think that, that could be double, triple where
it could be in long term, 5, 10 years?
The contract that we so I'm not sure I understand the question, but the contract that we signed with Rakuten is for Japan. And we know to for this specific contract, we know to predict for the next several years the revenue. There's upside opportunities on that, like I said, in 2 dimensions. But what are you asking beyond that?
I guess, can you look at those dimensions and you look at the level of contracts? So that's the drill into the contract, say, that's for Japan, but let's assume they expand. I'm assuming that's not for all the customers that 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, we have they gave us a meaningful contract. In Japan, we have we're not dependent on their acquisition. Our revenue is not dependent on their acquisition of customers. So 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 it, if they go into like a new country, there is an opportunity their strategy will be to copy paste the stack, okay? Now so there will be an opportunity to basically do this type of deal for every country that they go to.
Got it. Got it. Okay. That's helpful. And then 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 Rocklatan 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? Or is Rocklatan at this point mute yet? Or is Rocket Town at this point viewed somewhat as
successful and other people are sort of thinking about maybe in the next 2, 3,
4 years trying to copy it? How should we think about sort of what the conversation is having with people who are sort of watching that moment?
Look, it's I'll give you the color, okay? You can make the information yourself because it's at the cutting edge. So the color is there is a train of visits all the time into Rakuten and all the industry is looking at what they're doing. And 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 are that as Rakuten might go into that business. Rakuten is going into that business.
So you see a combination. It's still in my opinion, it's still a little early to say, okay, is this going is now Amazon going to be a carrier or Amazon like companies, are they going to be a carrier? There has been speculation on that, but your 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, okay?
It's as big, as innovative, and you can read their material. 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. And the moment that they've now gone into this, it means several things. One is that they figured out probably an amazing business case.
2, they're utilizing technology. If you look at if you just like 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. So it's very, very interesting. On the technology side, it's a proof point, it's a major proof point that and let's be accurate, they're launching and they have a network that's up and running, but their launch is in October, okay?
So 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 and how this is working and how this is going. And I think we're going to see more and more and more innovation and things that will follow. We'll see them from Rakuten and we'll see how together, I guess, how it affects the industry. But this is definitely, I think, the most exciting thing that's happening in the industry from a fee change that we've seen for a while.
Got it. Got it. It's very helpful. I guess sales cycles will be a nice question. Rakuten is an anomaly because obviously it's 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.
Okay. So Appleton was a short sales cycle, measured in months, somewhere around 3 months. I can't predict what's going to be like the Telco sales cycle going forward, okay? It's not what I'm seeing is 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. But it's still early to see will Rakuten or any other 5 gs or any other industry will create some shortening of the sales cycle. As I mentioned before also, the fact that there were long sales cycles that we experienced through the 2nd part of 'eighteen and we've talked about it, at the end of the day, it's creating some pent up demand, okay? The older technology that these carriers are running is becoming obsolete. And whoever has like 7 year old technology and also 5 year technology starting to break and this entire industry go through a refresh cycle.
So this should also give some 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, that the most that they refer. So that should help us as well.
Got you. Got you. Got you. And then if I go to my last question really around renewals, you have 2 large renewals coming up in 2019, in addition to AT and T, obviously, which is renewed. Just an update on how those renewals are progressing and how we should from what level we should expect those contracts to renew relative to existing levels?
In 2019, only AT and T was up, and we've done it.
Okay. Okay, mine is big. I thought I had 2 others. Okay, that's helpful guys. Thanks for taking my questions, and nice job on Rocklatan.
Okay, thanks.
The next question is from Josh Goldberg of G2 Investment Partners. Please go ahead.
Good morning, everyone. How are you?
Doing good. Good. I had
a point 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 and T and now Recruitment, I think analysts have a difficult time projecting quarterly numbers. And you're not a quarterly numbers business. You're a project driven business. And the fact that you won AT and T 3.5 years ago, the biggest MFC rollout in the world, and then 3.5 years later, your technology was validated by the most up and coming carrier in the world with no connections.
This is not you're an Israeli company. You sold into an American telecom
and it's
all into a Japanese telecom. 1 of our contacts in the industry said, any person that wins part of the network business at recruiting has the best technology in the world in that space. And the fact that you won that contract 3.5 years after your first one, I think validates how strong your business is. And looking at your company with a $50,000,000 valuation and $50,000,000 of 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, in some ways, you guys are like the New York Yankees.
No matter how much you win, you just want more.
So that's the feeling in the company. I can tell you that maybe the way that I will add to the comment, okay, is that we've just started with Rakuten, okay? And the pace of innovation that we're going to with AT and T, I touched on it a little bit in the remarks. With AT and T, AT and T chose our technology because it was the best outdoor. Then we went and started the journey with them and continue to journey with them and we grew together in our domain.
And we created, I think, an unparalleled system and architecture with maturity, with automation, with capability that in our mind is second to none. And this has been continuously validated by AT and T that also they're not they all the time look at the industry. And 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. And that combination is, I think, a huge achievement for the company in a very short sales cycle. After or 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 probate assurances industry they looked at even the 1 or 2 circles beyond. And when they saw our technology, it was downhill from there, okay, that we 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.
And 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 NSV yet. So the change hasn't happened, and we've captured, I think, 2 amazing assets, partners, they're not assets, they're our partners in this journey. And these are the ones that aggressively started. And in our mind, it's definitely we'll have a halo effect.
We're already starting to see it. And 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 and T and testing out all the new technology. They're even more relying on our technology because of making sure that everything works for them. But more than that, I think they're going to very fast have an impact as big as AT and T has on the industry in maturing the technology so more and more operators can follow. Now it's we'll see how the rest unveil.
But 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 3.5 years ago, you fired the first shop and every other company in your space from Massachusetts to California, multibillion dollar companies had the ability to upgrade and develop product in the last 3.5 years and you've just invalidated again that you are the best product. That's a huge endorsement.
Yes.
Can you talk a little
bit about your cash balance? I know people have talked about possibly buying another company, maybe adding on another feature. We'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 6 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 is basically looks like it gravitated toward direct relationship with the technology partners. It's in the past, large companies would only do business with the NEX, with the Ericsson's, Huawei, Nokias of the world, Ciscos of the world. Rakutena now is another great example that 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 and T to help them get through the upgrade cycle and implement your solution?
Yes. We have like an A team on the ground there. Everything is happening very fast. Some of it is being built as we speak. But 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 like super exciting there. There is some activity, so it might change, but it's not it's nothing like earth shattering like a European Rakuten launching or something like that.
It sounds like you're a lot more comfortable today than you were even 6 months ago.
And the 6 months ago, we basically seen we have seen didn't have enough pipeline and we've seen a slowness in the industry. Now Akutan came in and shuffled all the cards, literally. So short sales cycle, strong contract, recurring in nature, provides very significant growth for the company, allows us to continue to run and innovate together with them and with AT and T and hopefully with others. They'll be a great reference. They're very vocal, and I think they'll have a great impact.
We have a follow-up question from Alex Henderson of Needham and Company. Please go ahead.
Yes. Just along the same lines of discussions, 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. They're spending, I would say, an NFV is under review. And the relationship is good, and our system is installed there. So we expect that as things start to pick up mid term, I would make the best estimate and we can see them contributing more to revenue. They're contributing a little bit to revenues now, but not so much.
But it's primarily due to them rethinking their rollout plans in NFV and 5 gs and a lot of change in the leadership of their company, etcetera.
So can you address this one conundrum for me? So as I understand it, you really can't roll out 5 gs without NFV virtualization, yet the market for NFV virtualization seems to stall, but the rollout of 5 gs seems to be getting plenty of press. So how do I reconcile those two data points?
So there's it's more complicated than just a sentence. So I'll explain it in a way that a lot of these short term 5 gs launches are done on 4 gs architecture. So when people say and you hear and you read articles that 5 gs depends on the NFV, it's more the midterm, longer term 5 gs. Primarily when they start to look at upgrading the core to a 5 gs core. That's the chatter about it is 2020 and beyond.
So no one introduced the pricing.
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 broadband, high bandwidth commitments to customers? What are the hurdles that require them to move off the 4 gs historical LTE backbone to a 5 gs architecture for their backbone as opposed to just simply putting 5 gs radios in the tower and leaving everything behind it as it had previously been?
No. It's a certain there are several things, okay? There's discussions around, like you mentioned, network slicing. There's discussions around stand alone 5 gs. So offerings that they're going to do like fixed broadband, the true mobile technology, so offer that to businesses.
They might do some of it short term, but when they look at longer term enrolling this out in scale, they will want to upgrade their core. And at the end of the day, the growth that they'll have on the 5 gs, they want to do on a modern core and not on the LP cores are becoming old cores. So they won't want to do expansions on their core. So as traffic grows on the mobile network, they'll do the growth on the next gen core. But 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 5 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 see the floor. The shekel is sitting, I think, 18 month highs. So could you remind me how you whether you guys hedge or whether that's something that's going to impact our OpEx over the next 6 months? How do we think about that?
Well, we're doing a short term hedge. We're doing hedge for 1 month, 2 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. So right now, I think when you look at the shekels rate compared to the dollars, it's 2% down from the average for the first half year of 2019 sorry, for 2019.
So I think that it will be at the same level. This will stay at the same level.
Okay. Thanks. There
are no further questions at this time. This concludes the Radcom Ltd. 2nd quarter 2019 results conference call.