Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the second quarter of 2022. All participants are present in the 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 Hadar Rahav, 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 slash investor dash relations. Before we begin, I would like to review the Safe Harbor provision. Forward-looking statements The conference call involved several risks and uncertainties, including but not limited to the company's statements about its full-year 2022 revenue guidance, expected growth in 2023, expectations regarding the enterprise market for telecom operators, continued investment and benefits from research and development, its expectation to gain further interest from operators and play an important role in facilitating the transition to 5G, its expectations about its pipeline and momentum, further demand for its products and growth, levels of expenses and keeping them below revenues, the potential for additional multi-year contracts, engagement and expansion of opportunities, the company's expectations with respect to its relationships with Rakuten and AT&T and potential grants from the Israeli Innovation Authority. 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 filing. 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 REDCOM'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 our second quarter 2022 earnings call. We achieved another strong quarter with solid financial results. Also, as recently announced, we won two new 5G assurance contracts and extended our multi-year agreement with AT&T. Total revenue for the second quarter was $11.1 million, representing a 12th consecutive quarter of year-over-year revenue growth, up 14% compared to the second quarter of 2021. I am pleased with the strong demand for our innovative solutions as we win new customers' logos and expand business with our install base. The 5G market is ramping up, reflected in the momentum of our business. In the first six months of 2022, revenue grew by over 15% compared to the first six months of 2021. With the growth in our business and the efficient management of costs We have generated over $3 million in cash since the beginning of 2022, resulting in cash and short-term deposits reaching $73.1 million, a four-year high. Since the beginning of the year, we have been at a break-even point, and we believe the positive momentum will continue into the year's second half. As we announced in May, this selected RADCOM to monitor America's first 5G smart network. It started its nationwide rollout in May, launching in Las Vegas. After a month of testing, this 5G network is made available to the public in over 120 U.S. cities, covering 20% of the U.S. population. We feel proud to be this assurance partner as they roll out their 5G network. DISH chose RADCOM ACE to monitor their standalone 5G network, the first fully deployed on the public cloud. RADCOM was selected because DISH wanted a best-in-class assurance solution that seamlessly integrates into the cloud and provides network-wide visibility. Our previous R&D investment with partners like AWS to integrate RADCOM ACE with the public cloud providers have grown fruits. Our integration with AWS enables DISH to use AWS Cloud along with RADCOM ACE to simplify 5G rollouts and smartly manage the network services more automatically. As DISH move forward with its nationwide rollout, it is expected to have more flexibility and capabilities to be leveraged to generate new revenue. In a recent analyst day hosted by DISH, They stated that the enterprise would be a significant opportunity for retaining new revenue streams with its smart 5G cloud platform. DISH can offer enterprise customers different flavors of private networks for advanced 5G connectivity and services. This is where our cloud assurance technology can help. DISH can offer enterprise customers our assurance solution to monitor these private networks to ensure service quality and certify SLAs. As a result, they could provide service assurance as a service as part of their managed service to the enterprise. We believe the enterprise market for telecom operators has much potential, with operators taking their 5G cloud and selling premium services for new revenue across multiple verticals. We also announced a new multi-year 5G assurance contract with the European Mobile Network. This new order covers assurance for this European operator's 5G network. REDCOM ACE will enable the operator to monitor its end-to-end 5G network performance and provide end-to-end visibility that helps the operator make real-time data-driven decisions and proactively improve its network performance, ensuring top quality services are delivered to its customers. We are excited about these new wins and the progress we are making in integrating our assurance solution into these networks. Like with DISH, we continue seeing lots of collaboration between telecom operators and public cloud providers like Amazon Web Services. For example, Telefonica Brazil recently validated AWS as an option for their 5G SA core. Telefonica wants to increase automation and drive new revenue with cloud-based 5G platforms. The ease of use and speed which operators can roll out new network and services with these public cloud providers continues to gain traction. Reflected in recent cloud providers' earnings resulted in analyst expectations. We believe that our integration into several cloud providers will continue to generate additional opportunities. In addition, we will continue working with technology partners to integrate RADCOM ACE with other platforms to help operators manage the complexity of launching 5G and ensuring the customer's experience. Last month, we announced RADCOM ACE integration into another cloud platform. Rakuten Symphony selected our cloud assurance technology as its service assurance solution that will be globally available in the SimWorld marketplace. Rakuten Symphony is a business dedicated to selling the Rakuten communication platform and managed services to telecom operators worldwide. SimWorld provides the single platform which includes all the application, cloud, and operational data that telecom operators need to run their networks more efficiently and launch services fast. Making Radco Mace available in the Simworld marketplace with easy click and deploy access will increase our solution availability and comes with built-in workflows and unified data analytics to help more operators rapidly deploy and roll out 5G with Rakuten Symfony. We believe that being part of this platform will open significant opportunities for us in the future. We remain confident that our product offerings are best in class and will play an essential role in the 5G transformation as more opportunities evolve. We continue to enhance our software solution with expanded automation and intelligent AI-based capabilities to bring value to our customers as they roll out 5G and move to launch advanced services. In addition, we are working with the Israel Innovation Authority and the academic institutions to push cutting-edge technology forward with the telco space. Our solution automatically analyzes millions of user sessions in real time and reveals underlying faults that otherwise will be unlikely to be identified quickly in 5G networks. Furthermore, with the amount of data crisscrossing the network increasing monthly, our solution continually evolves to help operators overcome the challenges of operating complex network to ensure the quality of services. As we grow the business, we maintain our laser focus on retaining and nurturing top talent. Our employee retention efforts are bearing fruits as we have kept similar head counts since the beginning of the year. We place a high priority on creating a culture that fosters success for our employees. We aim to provide attractive career paths and promote internal talent. Our team is composed of talented people with unique knowledge and expertise, driving our success. I wish to take this opportunity to thank all of Radcom employees as they continue to help us meet our business commitments. The strong demand for Radcom ACE and the 5G market ramp up is reflected in the momentum of our business and our healthy pipeline opportunities. We are engaged with operators worldwide looking to provide their customers with exciting new 5G services and use our solution to make their network more intelligent and automated. As a result, we see the number of engagements, the level of engagement, and RADCOM win rates very positively. At the same time, we continue to manage our expenses while investing in the business strategically and efficiently. To summarize, I am pleased with our performance in the second quarter. Revenue are up, and our bottom line continues to improve. We see solid demand for our solutions and remain focused on executing our strategy as more operator transition to 5G and look for innovative assurance solution to support their network transformation. As a result, we remain confident in our business strategy and the role we expect to play in the 5G evolution. Thanks to the recent wins, our growing business in our install base and our ongoing sales engagement, we have good visibility and we are raising our revenue guidance to $45 million to $48 million, a second consecutive rise this year. We believe this accelerated momentum will continue into 2023 to deliver a fourth successive year of growth. With that, I would like to turn the call over to Ada Rav, our CFO, who will discuss the financial results in detail.

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 refer mainly to non-GAAP numbers, which exclude share-based compensation. We ended the second quarter of 2022 with $11.1 million in revenue, increasing from $9.8 million in the second quarter of 2021. At the same time, as we increased revenue by over 14%, we managed costs and maintained the same operational expenses as in the second quarter of 2021. This contributed to us reaching a break-even point and improving the bottom line. Our gross margin in the second quarter of 2022 on a non-GAAP basis was 72%, Please note that our gross margin can fluctuate depending on the revenue mix. We are pleased with our consistent growth trend and believe the positive momentum will continue into the year's second half. Our gross R&D expenses for the second quarter of 2022 on a non-GAAP basis were $4.7 million, a decrease of $196,000 compared to the second quarter of 2021. We received a grant of $197,000 from the Israel Innovation Authority during the quarter, compared to $70,000 in the second quarter of last year. As a result, our net R&D expenses for the second quarter of 2022 on a non-GAAP basis were $4.5 million compared to $4.8 million in the second quarter of 2021. We expect the Israel Innovation Authority grant in the third quarter to be a similar level as in the second quarter. Sales and marketing expenses for the second quarter of 2022 were $2.5 million on a non-GAAP basis, an increase of $221,000 compared to the second quarter of 2021. GNA expenses for the second quarter of 2022 on a non-GAAP basis were $841,000 as was in the second quarter of 2021. Operating income on a non-GAAP basis for the second quarter of 2022 was $176,000 compared to an operating loss of $646,000 for the second quarter of 2021. Net income for the second quarter of 2022 on a non-GAAP basis was $50,000, or a net income of less than a cent per diluted share compared to a net loss of $304,000 or a net loss of 2 cents per diluted share for the second quarter of 2021. The positive net income was due to the increase in revenue and the decrease in operating expenses offset by the unfavorable impact of change in foreign exchange rates. On a gap basis, as you can see on slide seven, our net loss for the second quarter of 2022 was $1.2 million or a net loss of 9 cents per diluted share compared to a net loss of $1.1 million or a net loss of $0.08 per diluted share for the second quarter of 2021. At the end of the second quarter of 2022, our rate count was 284. Turning to the balance sheet. As you can see on slide 11, our cash, cash equivalents, and short-term bank deposits as of June 30, 2022, were $73.1 million. That ends our prepared remarks. I will now turn the call back to the operator for your questions.