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Radware and Radcom, both members of the Tel Aviv-based Rad Group of companies, have warned they will report losses for the first quarter as revenues came up short of expectations.
"We are disappointed in our first quarter sales, which reflect execution issues that we are now strongly focused on solving, together with the 'lumpiness' of our sales model, whose larger-than-average-sized deals increase the implications of the timing of each deal," said David Ripstein, who took over as Radcom's president and chief executive officer on April 1.
"We are currently evaluating our work plan for the US and the Far East with the goal of confirming our projections and guidance. If the need arises, we will update investors at the end of the month when we publish our full results," he said.
Based on preliminary data, Radcom, which develops, manufactures, markets and supports network test and service monitoring solutions for communications service providers and equipment vendors, said it expects first-quarter revenues to be approximately $3.4 million, significantly lower than the $5.1m. it reported for the first quarter of 2006, reflecting weakness in the company's execution of sales in the Far East and the US.
"At the same time, we see no change in the market opportunity, which we believe is large and growing, and we continue to believe strongly in our product advantage. We remain confident in our overall strategy and in the company's significant potential," Ripstein said.
Radcom's warning on Thursday came on the heels of Radware's announcement after US markets closed on Wednesday that it too would post a loss for the period rather than the break-even results it had forecast, on revenue of approximately $20m., which it said was slightly less than the previous guidance for revenue of $21m. to $22m.
"Revenues are expected to be flat compared to the first quarter of 2006," said Roy Zisapel, president and CEO of Radware, a provider of integrated application delivery solutions. "However, we expect to see renewed growth in the second half of 2007 based on the completion of a sales force restructuring in key territories and new introductions to our product portfolio."
The warning from Radware didn't surprise analysts, including RBC Capital Markets' Mark Sue, who downgraded the shares to "sector perform" from "outperform," lowered his estimates and cut his price target to $16 from $17 on Tuesday, citing greater seasonality and a continued sales force transition in North America.
"Radware has undergone several iterations of reorganization in North America and thus far we believe business dynamics in this region remain slow," he told clients in a note downgrading the stock.
In a report following the preannouncement, Sue said he believes North America was the main culprit for the warning but that the company may nevertheless see improving trends in the US during the second half as it ramps up its new salespeople efforts.
CIBC World Markets, Piper Jaffray & Co. and Merrill Lynch also told clients after the announcement that the weakness was largely expected and that they had already carried neutral recommendations on the shares, with Piper Jaffray rating them "market perform," CIBC "sector performer" and Merrill "neutral."
Radcom plans to publish its full results April 30, with Radware posting its numbers May 2.