Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the third quarter of 2022. All participants are present in the listen-only mode. Following management's formal presentation, instructions for the question and answer session will be given. 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 Ahav, Radcom's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you still need to download it, 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 its full year 2022 revenue guidance, visibility, and expected growth in 2023 and beyond, expectations regarding the enterprise market for telecom operators, including trends in the market and effect of general economic conditions, continued investment in 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, engagements, and expansion of opportunities, the company's expectations with respect to its relationships with Rakuten, 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 filings. In this conference call, management will refer 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 RATCOM'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 third quarter 2022 earnings call. We achieved record revenues in the third quarter, reaching $12 million, representing the 13th consecutive quarter of year-over-year growth, double-digit growth of 17% compared to the third quarter of 2021. At the same time, we managed our expenses while investing in the business strategically, and efficiently, resulting in a non-GapNet income for the quarter of one million, a four-year high. We are proud of our best-in-class cloud assurance portfolio that enables operators to manage their networks with advanced AI-driven analytics that provides automated, actionable insights to save engineering manual labor and help quickly resolve network degradations to assure great customer experience. We have built a resilient software-centric business with strong business model that delivers high gross margin and over 70% recurring revenue from the beginning of the year, while offering our customer forecastable long-term pricing structure and great value. Our multi-year contract wins have improved the strong backlog, driving consistent result and giving us good visibility into 2023 and beyond. Turning to the pipeline, we continue to see strong demand for our advanced cloud assurance technology reflected in our healthy pipeline of opportunities as we manage multiple customer engagements at different stages of the sales cycle with healthy mix of new logos and the current install base with most opportunities focused on 5G. We see good momentum for the 5G market and believe it will be a catalyst for growth as the market ramps up, creating more sales engagements that can lead to additional multi-year contracts and increase market share. Recently, we have been hearing concerns from technology companies regarding the macro economy's negative impact on the market. We believe the telecom market is robust as we saw during the more difficult periods of the COVID pandemic. We continue to monitor the situation closely and will adapt as necessary. We believe our position as the best in class assurance provider for cloud 95G networks and our cloud expertise and knowledge will continue to drive positive returns. We are glad to report that the demand looks strong and we have a solid pipeline of opportunities that has the potential to increase our market share. With the positive market trends and our healthy pipeline, we are confident in the growth outlook of our business. As a software-focused company, we are very agile and can handle future growth prospects, scale, and meet more demand while continuing to deliver on our current customer commitments. We are happy that the new customers are enjoying our RADCOM-A software as we deploy it in their networks and operator teams utilize its capabilities to smartly monitor risk quality. We are progressing positively and we continue integrating our software into the cloud environment. As a 5G and cloud assurance leader, we are happy to be engaged with the teams, work closely with them, and offer our expertise to help them as they roll out 5G. With our existing teams, our software can scale seamlessly to many customers, which drives our financial performance and operational efficiencies, while at the same time delivering on the customer's expectations and requirements. We are receiving positive feedback and are proud of our employees who are dedicated and committed to delivering on our customer success as we can continue to deploy our solutions and deliver new cutting-edge software releases. Legacy assurance solutions are limited and not flexible. While competitor takes weeks or months to deploy, we implement our cloud-based solutions in days or hours. Our software is the critical source of truth for engineers who need to make quick data-driven decisions affecting millions of subscribers across their entire network stack and all service offering. We can adapt quickly and deliver features to customers. As we move forward and deploy our software to new customers like Dish, we see the value of our analytics through all stages of deployment to ensure a smooth network rollout and deliver great customer experiences. Turning to Rakuten in Japan and Rakuten Symphony. During the third quarter, we announced the renewal of our initial contract with Rakuten Mobile. With this agreement, we continue our successful partnership with this innovative operator, providing advanced cloud native assurance solution for their network in Japan. At the beginning of the quarter, we announced that Rakuten Symphony made RADCOM ACE available in the Simworld marketplace. This integration of RADCOM ACE into Rakuten Symfony streamlines network operations and helps teams understand what is happening in their network and where there are customers affecting issues. It also provides built-in workflows and unified data analytics to enable more operators to rapidly deploy and roll out 5G with the Symfony platform. Being part of this cloud opens significant opportunities for RADCOM in the future. Turning to our product innovation. We continue our commitment to deliver best-in-class solutions as we enhance our software with more automation and intelligence AI-based capabilities to bring value and expand use cases for our customers as 5G technologies move forward. I am excited to announce that we recently received industry recognition as two of our products were named finalists in the Telecom Focus Award programs that recognize the industry's top companies for their outstanding achievements in the next generation communication technology, strategies, and innovation. The IML-based solution announced last year for automatic detection of network anomalies and Automation in Network Operation Teams, was named finalist in the Outstanding Use Case in the Service Provider AI category in the Leading Light 2022 Awards. In addition, Rasko Mase named as a finalist in the Most Innovative Cloud Offering category in the Glowtel 2022 Awards Program. We invest strategically in R&D to enhance our solutions, increase our 5G capabilities, expand our AI-driven insight, and seamlessly integrate our solution into the cloud. All these capabilities align with the market needs and have already bear fruit as reflected by our recent wins. To summarize, I'm happy with our performance in the third quarter and across the first nine months of 2022. Revenues are up year over year by double digits, and we significantly improved our bottom line. We have built a software-centered company with a strong business model that delivers high gross margins. Our team has a proven ability to provide best-in-class solutions to some of the most innovative operators in the world. We are working hard to deliver on our customers' commitments while continue to invest strategically in our innovative software to boost features and capabilities. With these new wins and our ongoing sales engagements, we have good visibility, which led us to increase revenue guidance twice during the year's first nine months. To conclude, we are optimistic about our ability to deliver a third consecutive Gulf Year in 2022 and continue this trajectory into 2023. Accordingly, we are reiterating our 2022 revenue guidance of $45 million to $48 million. 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. To help you understand the results, I will refer mainly to non-GAAP numbers, which exclude share-based compensation. Now please turn to slide 8 for our financial highlights. We achieved record revenue in the third quarter, reaching $12 million, representing a certain consecutive quarter of year-over-year revenue growth and an increase from $10.2 million in the third quarter of 2021, double-digit growth of 17%. This resulted in non-GAAP net income for the quarter of $1 million, a four-year high. At the same time, we continue to manage our expenses while investing in the business strategically and efficiently. Our gross margin in the third quarter of 2022 on an NGAP basis was 73%. Please note that our gross margin can fluctuate depending on the revenue mix. We expect that Q4 will remain at a similar level. Our gross R&D expenses for the third quarter of 2022 on an NGAP basis were $4.6 million, an increase of $150,000 compared to the third quarter of 2021. We received a grant of $187,000 from the Israel Innovation Authority during the quarter compared to $205,000 in the third quarter of last year. As a result, our net R&D expenses for the third quarter of 2022 on an on-guard basis were $4.5 million compared to $4.3 million in the third quarter of 2021. We expect the Israel Innovation Authority grant in the fourth quarter to be at a similar level as in the third quarter. Sales and marketing expenses for the third quarter of 2022 were $2.8 million on an UNGA basis, an increase of $596,000 compared to the third quarter of 2021. The increase in sales and marketing was aligned with the growth and backlog and the good progress we made delivering on our customer commitments. We expect sales and marketing to remain at a similar level in the fourth quarter. G&A expenses for the third quarter of 2022 were $958,000 on a non-GAAP basis, an increase of $181,000 compared to the third quarter of 2021. Operating income on a non-GAAP basis for the third quarter of 2022 was $545,000 compared to an operating loss of $200,000 for the third quarter of 2021. Net income for the third quarter of 2022 on a non-GAAP basis was $963,000 or net income of six cents per diluted share, compared to a net loss of $333,000, or a net loss of two cents per diluted share for the third quarter of 2021. The positive net income was due to the increase in revenue and the favorable impact of changes in foreign exchange rates. On a gap basis, as you can see on slide seven, our net loss for the third quarter of 2022 was $389,000, or a net loss of $0.03 per diluted share. This compares to a net loss of $1,069,000, or a net loss of $0.08 per diluted share for the third quarter of 2021. At the end of the third quarter of 2022, our ad count was 289. Turning to the balance sheet. As you can see on slide 11, our cash, cash equivalents, and short-term bank deposits as of September 30, 2022 were $70.8 million. That ends our prepared remarks. I will now turn the call back to the operator for your questions.