Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the third quarter 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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded and will be available for a 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 investor section of Radcom's website at www.radcom.com slash investor dash 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 the outlook for the fourth quarter of 2021, its ability to deliver another growth year in 2021, and the increase of this trend in 2022, the optimization of 5G services on the AWS cloud and Amazon EKS for on-premises implementations resulting from the integration with AWS, launching of the Rakuten 5G standalone network, the company's sales pipeline, momentum, sales cycles, demand for its products and new requests, and potential expansion of opportunities, the company's continued investment in technology and R&D, expectations regarding the 5G and AI market sizes and trends in industry, investments, demand and spending, the company's cash position, potential and expected growth, the company's expectations with respect to its relationships with Rakuten and AT&T, the potential for additional grants from the Israel Innovation Authority, the potential for additional technology integrations, 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 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.

Thanks, operator. Good morning, everyone, and thank you for joining us for the third quarter 2021 earnings call. Earlier this morning, we issued a press release stating our third quarter results. We started the second half of the year with solid financial results. Total revenue was $10.2 billion, which represents a ninth consecutive quarter of year-over-year revenue growth. As a result, we maintained our positive outlook for the fourth quarter and are optimistic about our overall ability to deliver another growth year in 2021. Moreover, with our kind visibility, we believe this trend will continue in 2022. We continued to invest strategically in R&D and advanced our cloud-native technology as we announced our new innovative AI solution as part of Radcom ACE in August. This solution automatically analyze millions of data sessions in real time. As a result, it can reveal underlying faults in 5G networks that otherwise would likely go unidentified for more extended periods and affect service quality. We received positive feedback from current and potential customers on our new AI solution and continue to engage in several ongoing opportunities for this new offering. Additionally, light reading an independent digital media platform providing analysis and insight for the global communication, networking, and service industry, named RadCom as a finalist in the 5G core product category during the quarter in their annual Leading Light Awards. Our AI solution uses the latest advance in artificial intelligence to help rapidly evaluate new telecom deployment scenarios and assist in fast, near real-time analytics. We are excited about the potential of this solution and believe it can provide real value to operators as they transition to more automated processes for managing their networks. Furthermore, we believe this investment will play dividends in the form of top-line growth as 5G assurance requirement and AI continues to be adopted by more and more operators. In October, the analyst company Analysis Mason published their automated assurance market forecast for the next few years. They cover operator spending on telecom-specific automated assurance solutions. Analysis Mason stated in their report that the two main drivers for the expected acceleration in the assurance spending are the need for AI ML-driven automation for 5G and cloud solutions, which is aligned with our R&D investment. As mentioned in previous quarters, standalone 5G networks are built on cloud technology. As a result, we continue seeing many collaborations between telecom operators and public cloud providers. Therefore, we continue working with technology partners to integrate RadcomAce with public cloud providers, helping operators ensure service quality and deliver a superior customer experience for 5G delivered over the public cloud. In August, we announced our integration with one of the leading cloud providers, Amazon Web Services. This integration enables telecom operators to use AWS Cloud and Amazon Managed Kubernetes Services, along with RADCOM ACE, to simplify 5G rollouts and smartly manage network services more automatically on AWS Cloud. This has received positive feedback from potential customers, and we already have several ongoing opportunities for Adcom ACE on AWS. This announcement followed our press release in the first quarter of 2021, covering our integration with Microsoft Azure. In addition, we continue to look into additional integrations to offer our advanced cloud native assurance technology to more operators. One of the latest 5G trends we see in the market is more greenfield operators entering to the telecom space. A greenfield operator will build its network from scratch As seen in Japan with Rakuten, Winfield operators wield significant advantage over traditional operators. They can deploy the most advanced technology and are not held back by legacy networks. They are in essence pure 5G and cloud native from the start. With demand for connectivity and data consumption soaring, 5G opens new window of opportunities for companies other than the traditional mobile operators to benefit from this surge in consumer demand and enter new verticals. In the US, DISH, the television and satellite provider, is deploying a Greenfield 5G network that they plan will serve 70% of the US population by June 2023. In Europe, Germany One-on-One is rolling out a Greenfield network expected to be Europe's first fully virtualized mobile network. Additional Greenfield operators are emerging in the market and planning their 5G rollouts. These processes Take time. But automated assurance solutions are vital for operators deploying cloud-native technologies to monitor the entire network lifecycle and ensure ongoing service quality. Furthermore, as Rakuten has demonstrated, these greenfield operators tend to choose vendors based on innovation, forward-looking solutions, rather than legacy ones. So this is undoubtedly a market segment that is of interest to us. Turning to our install base. AT&T continues to be a significant customer for us, with whom we continue to maintain strong relationships. Our business has been solid, and this year we expect to increase revenue compared to 2020. In addition, we continue providing AT&T with ongoing software releases to monitor service quality and ensure a positive customer experience. In their most recent earnings call, AT&T stated that they had attained historical subscriber growth rate and customer satisfaction across the board with lower churn and higher net promoter score, NPS, which measure customer experience scores. This was the highest NPS score that AT&T had ever received. We believe that assurance solutions are vital for monitoring quality and resolving any network issue quickly. During the quarter, we worked closely with Rakuten Mobile to help prepare for the commercial launch of their 5G standalone network expected later this year. In August, Rakuten covered a transition to standalone reporting their successful data testing with the Tokyo Institute of Technology and citing some advanced use cases enabled only by 5G standalone. We are excited about the possibilities 5G standalones open up and how our solution supports Rakuten as they advance their nationwide rollout. In previous calls, we mentioned our integration with the Rakuten Communication Platform, RCP, This platform is now part of Rakuten Symphony, launched in August and incorporated as a new organization dedicated to selling RCP and other network solutions and managed services to operators worldwide. Earlier in the call, I mentioned Germany 1&1 Grillfield operator. This is one of the first public announcements of an operator adopting Rakuten's platform. one-on-one contracted with Rakuten to help build its new mobile network and deploy Rakuten's communication platform. As Radcom is Rakuten's service assurance vendor of choice, being part of this platform can open up significant opportunities for us. Turning to the company and our corporate commitment. At Radcom, we believe that our commitments to the environment, as well as the social and corporate governance, are integral to the success of our business. Accordingly, our ESG initiatives are part of our day-to-day activities. We are committed to promoting the highest standards of ethical business conduct, which is why our board recently approved an update to our Code of Ethics that will be published soon on our website. With employee retention being key to our company's ability to run on all cylinders, we continue to prioritize the health and welfare of our employees during the ongoing pandemic. We adhere to the local and regional guidelines on safe distancing policies and provide our entire global workforce the ability to work remotely and maintain flexible hours. I am proud of our employees and thank them all for their ongoing dedication and commitment to supporting the company's customer commitments and growth strategy. We maintain our laser focus on retaining and nurturing top talent and creating culture of excellence. We pride ourselves on our cutting-edge approach to 5G assurance, and our commitment to retain key talents remains a critical component of this strategy. This quarter, to further catalyze this practice, we launched an employee retention program to support this objective. As I mentioned in the last quarter, our sales pipeline has increased by double-digit percentage since the beginning of 2021. We continue to work in a significant number of sales opportunities across multiple regions. This includes proof-of-concept demonstrations and several opportunities that have reached the advanced stage of the sales cycle. Our pipeline also consists of a good mix of new and existing logos. Even though sales cycles are difficult to predict, we believe that some of these opportunities will convert into new customer contracts in the short term. To wrap up, we believe that 5G is on an upward trajectory and yet still only in its early stages. As a result, we expect that the demand for 5G assurance solutions to increase. I am pleased with our performance for Q3 and the fiscal year to date. We expect year-over-year revenue growth in fiscal 2021, and due to our increased visibility and sales pipeline, things are looking favorable for 2022. We remain confident that our product offering are best in class, and we play an important role in the 5G transformations as the market ramp up and more opportunities evolve. We reiterate our full year 2021 revenue guidance of $39 million to $41 million based on our current feasibility. With that, I would like to turn the call over to Amir Chai, our CFO, who will discuss the financial results in detail. Amir, go ahead.

Thank you, Eyal, and good morning, everyone. Now please turn to slide 8 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 third quarter of 2021 with $10.2 million in revenue, increasing significantly from $9.8 million in the third quarter of 2020. We are pleased with our consistent growth trend, representing a non-consecutive quarter of year-over-year growth. Our growth margin in the third quarter of 2021 on an UNGA basis was 70%. Please note that our growth margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the third quarter of 2021 in the Nanga basis were $4.5 million, a slight decrease of $100,000 compared to the third quarter of 2020. We received a grant of $205,000 from the Israel Innovation Authority during the quarter, compared to a grant of $478,000 in the third quarter of last year. Following the Israel Innovation Authority discussions, we expect the Q4 grant to be between $100,000 to $200,000. As a result, our net R&D expenses for the third quarter of 2021 on an UNGA basis were $4.3 million, compared to $4.1 million in the third quarter of 2020. Earlier in the call, Eyal mentioned the launch of our employee retention program to retain and nurture top talent at RADCOM. We deeply appreciate the contribution of our employees in supporting our customer commitments and developing our innovative solutions. Therefore, as part of the retention program started in mid-October, we allocate RSU incentives to a significant number of employees. This will increase our stock-based compensation expenses annually by $2.7 million on a linear basis for the next two years. Sales and marketing expenses for the third quarter of 2021 were $2.2 million on an ONGAP basis, approximately the same at the third quarter of 2020. G&A expenses for the third quarter of 2021 on an ONGAP basis were $777,000, approximately the same at the third quarter of 2020. Operating loss on an ONGAP basis for the third quarter of 2021 was $200,000 compared to an operating income $239,000 for the third quarter 2020. Net loss for the third quarter of 2021 in a non-GAAP basis was $333,000 or a net loss of $0.02 per diluted share compared to a net income of $246,000 or a net income of $0.02 per diluted share for the third quarter of 2020. On a gap basis, as you can see on slide 7, our net loss for the third quarter of 2021 was $1.1 million, or a net loss of $0.08 per diluted share, compared to a net loss of $0.4 million, or a net loss of $0.03 per diluted share for the third quarter of 2020. At the end of the third quarter of 2021, our headcount was 278. Turning to the balance sheet, as you can see on slide 11, our cash cash equivalents and short-term bond deposits as of September 30, 2021 were $67 million. That ends our prepared remarks. I will now turn the call back over to the operator for your questions.