Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the fourth quarter and full year 2022. All participants are present in 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 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 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 5G market and industry trends, the role the company is expected to play in the 5G transformation, sales, opportunities, sales cycles, visibility, leads, pipeline, and backlog, the expected impact of currency rates, the company's market position, cash position, potential and expected growth, including scalable and profitable growth and momentum in 2023 and thereafter, levels of recurring revenues and gross profit from such activity, its expectations with respect to research and development and sales and marketing expenses, as well as grants from the Israel Innovation Authority, Company's expectations with respect to its relationships with Rakuten and AT&T, its ability to handle future growth and meet demand, its expectation to continue enhancing its software solutions and demand for its solutions, deployment of its 5G solutions in cloud environments, and the potential benefits of its clients, its ability to capitalize on the emerging 5G opportunities, and win more market share with new and existing customers, the potential of the company's vision, and the use of artificial intelligence in its products 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 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 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 the call over to Eyal. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2022 earnings call. The fourth quarter was a solid finish to a record year as we expanded our install base with multiple top-tier mobile operators. During 2022, we delivered record revenue each quarter, representing a third successive year of growth. Fourth quarter revenue were $12.3 million, and full year revenues were $46.1 million, a 14% year-over-year growth, and we reached an inflection point for the company, delivering a profitable year on a non-GAAP basis while generating a positive cash flow of $7 million. Ending the year with a record level of cash and a non-GAAP basis a net income of $2.9 million. We also had an encouraging start to 2023 by announcing that we had secured another North American contract for our solutions. This exciting news continues the positive momentum since the beginning of 2022. These additional wins bring us over $50 million in new contracts over the last 12 months period. The new multi-year contracts secured during 2022 on top of our current agreements provide good visibility and strong backlog for 2023 and beyond. As business grows, we carefully manage our expenses and believe we can maintain scalable, profitable growth. We delivered a record-breaking year despite the current economic headwind. We believe this positive momentum will continue into 2023 and expect an even more robust growth year in 2023. Based on our account visibility, we are providing full year 2023 revenue guide of $50 to $53 million. Turning to our customer activities. In 2022, we announced the renewal of our contracts with AT&T and Rakuten. These are important milestones as they remain key strategic accounts with whom we have a strong relationship and partnership. We continue to innovate and provide software enhancements to ensure excellent customer experience and offer an advanced assurance solution that provides intelligence insight in a cloud-native solution. We also announced in 2022 that Rakuten Symphony selected our cloud assurance technology as its service assurance solution that will be globally available in their SeaWorld marketplace. The integration of RADCOM ACE into Rakuten Symphony streamlines network operations and helps teams understand what is happening in their network and where are the customer affecting issues. It also provides built-in workflows and unified data analytics to enable more operators to deploy and roll out 5G rapidly. Being part of this could open significant opportunities for RADCOM in the future. Turning to the new contracts. In 2022, we secured multiple new contracts, including DISH in the US and a European mobile operator. Thanks to solid execution by our teams, we have made good progress in these accounts, which began to reflect in fourth quarter revenues. Most revenues will be recognized during 2023 and beyond. As these networks advance, we believe there could be further opportunities to expand with these operators. For example, DISH has previously stated that the enterprise could generate significant new revenue streams. 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. The operators can sell premium services and value-added packages, including service assurance that run over their 5G cloud across multiple market verticals. For the new North America contract we announced last month, we provide real-time insights into the network as the operator maintains its 4G network while expanding 5G coverage nationwide. With our recent win and positive customer feedback, we remain confident that our product offering align with the market needs, are best in class, and will increase our market share by winning opportunities as the 5G transformation continues. In 2022, our multi-year contracts provided recurring revenue that accounted for approximately 70% of our revenue. Our software-centric business offers a robust business model that delivers high gross margin and significant recurring revenue while providing customers with great value and predictable long-term pricing. Our team executed exceptionally well in 2022. Even though we extended our customer install base, our customer support headcount remained approximately the same through the year. This is a testament to the professionalism of our employees and the scalability of our innovative software. Our solutions can be quickly deployed in the operator's cloud network and rapidly roll out new customer features. The agility and operational efficiency drove our financial performance this year, while simultaneously delivering on the customer's expectations and requirements. As a software-focused company, we maintained a high gross margin this year, 73%, This helps our operational efficiency and improve our profitability KPIs. I am incredibly proud of the management team and our employees, and I thank everyone for their continued hard work and dedication. In 2023, we plan on gradually increasing our sales and marketing teams to take advantage of the strong demand for cloud assurance technology reflected in our pipeline. Operators continue to roll out 5G and invest in their networks, and we believe that 5G market remains strong while still only being at the early stages. The complexity of these networks requires automated assurance solution to optimize performance and provide the cornerstone to building networks with extensive automation. With the uncertainty around the macro economy, some operators may take longer to roll out their 5G network than others. Still, the market direction is clear, and we believe our position as best-in-class insurance provider for 5G will continue to drive positive returns. With this transition to 5G in the cloud, operators want to become more efficient and reduce their CAPEX and OPEX spending. This is also an opportunity for us, as I will elaborate on later. Our long-term vision is to help telecom operators become more autonomous. To achieve this goal, networks must be software-driven, more intelligent, and more automated. This is what our solution enables through AI and automation, making the operator's network more intelligent and automated through AI-powered analytics. Our solution analyzes massive amounts of network data and provides insight that drive automated network operation. I mentioned that operators are under pressure to reduce CapEx and OpEx spending. This is another area where our innovative software and advanced AI can help. Our solution enables operators to save costs by automating their network operations and automatically finding places to optimize that prevent revenue leakage and customer churn. In addition, As we have a cloud-based solution, operators reduce cap expanding on assurance hardware. In other words, our solution empowers operators to do more with less and improve the services. These benefits can help operators navigate the current economics headwind. So, although there is uncertainty around the macroeconomy, we are well positioned to win more business, so our ability to help operators save costs and optimize. Our solution was born in the cloud and designed for telecom operators. This helped us remain focused as we enhance our solution, increase our 5G capabilities, and expand our AI-driven insights. AI has been in the news recently with chat GPT going mainstream. This type of AI is called generative AI, which creates new content such as images, text, and videos. Generative AI has three models of working. One of those models is called GAN for short. This AI model generates synthetic data as an alternative to real network data. We use this AI technology to train and improve our solutions for advanced 5G use cases, develop our AI models, and offer our customers new use cases. Later this month, we will showcase our latest product innovation, AI capabilities, and exciting new use cases at the Mobile World Congress in Barcelona, Spain, the leading telecom industry event. We will hold many meetings with customers, top-tier operators, and partners. The event is expected to draw around 80,000 visitors as it's ramped up after a couple of years of being primarily a virtual event due to COVID limitations. Turning to the pipeline, we continue to see strong demand for our advanced cloud assurance technology reflected in our sales pipeline as we manage multiple customer engagement at different stages of the sales cycle with healthy mix of new logos and current install base with most opportunities focused on 5G. We see good momentum for the 5G market and believe it will stimulate growth as it ramps up. creating more sales engagement that can lead to additional multi-year contracts and increased market share. Our solid financial results and new contracts demonstrate our strategy's effectiveness and the unique market position in supporting telecom operators as they roll out 5G. Also, our recent wins provide a growing stream of recurring revenue and improve our already strong backlog providing us with long-term visibility into 2023 and beyond. We believe this solid footing will drive consistent financial results in the future and continued improvement to the bottom line. Despite the economic headwinds, we also believe that the 5G market will drive additional demand for our solutions, increase our business, and lead to further wins in the future. As a result, all the foundations are in place for a strong 2023 and a fourth successive year of revenue growth. Based on our current feasibility, our 2023 revenue guidance is $50 million to $53 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, Yael, and good morning, everyone. Please turn to slide 8 for our financial highlights. While the slides contain GAAP and non-GAAP results, I will refer many to non-GAAP numbers, excluding share-based compensation. We ended the fourth quarter of 2022 with $12.3 million in revenue and a new record quarter, an increase from $11.2 million in the fourth quarter of 2021. Our gross margin in the fourth quarter of 2022 on a non-GAAP basis was 73%. Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.7 million, a decrease of $60,000 compared to the fourth quarter of 2021. We received a grant of $160,000 from the Israel Innovation Authority during the quarter, compared to a grant of $194,000 in the fourth quarter of last year. Our net R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.5 million, similar to the fourth quarter of 2021. Sales and marketing expenses for the fourth quarter of 2022 were $2.9 million on a non-GAAP basis, an increase of $347,000 compared to the fourth quarter of 2021. G&A expenses for the fourth quarter of 2022 on a non-GAAP basis were $942,000, an increase of $105,000 compared to the fourth quarter of 2021. Operating income on a non-GAAP basis for the fourth quarter of 2022 was $608,000 compared to an operating loss of $158,000 for the fourth quarter of 2021. Net income for the fourth quarter of 2022 on a non-GAAP basis was $1,320,000 or a net income of $0.09 per diluted share compared to a net loss of $237,000, or a net loss of 2 cents per diluted share for the fourth quarter of 2021. On a gay basis, as you can see on slide 7, our net loss for the fourth quarter of 2022 was $0.03 million, or a net loss of 0 cents per diluted share, compared to a net loss of $1.4 million, or a net loss of 10 cents per diluted share for the fourth quarter of 2021. At the end of the fourth quarter of 2022, our outcome was 284. Now let's turn to the full year results. We ended 2022 with revenue of $46.1 million, an increase of 14% from $40.3 million in 2021. On a non-GAAP basis, our gross margin was 73% in 2022 compared to 72% in 2021. Our gross R&D expenses for 2022 on a non-GAAP basis were $19.0 million, which was approximately the same in 2021. In 2023, we plan on investing in R&D at approximately the same level as in 2022. we received a cumulative grant from the Israel Innovation Authority for $762,000 during the year. In 2023, we expect grants from the Israel Innovation Authority to be lower by 50% compared to 2022. Sales and marketing expenses for 2022 were $10.9 million on a non-GAAP basis compared to $9.5 million in 2021. In 2023, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for 2022 on a non-GAAP basis were $3.6 million, an increase of $301,000 compared to the entire year of 2021. Operating income on a non-GAAP basis for 2022 was $1.1 million compared to an operating loss of $2.1 million for 2021. Net income for 2022 on a non-GAAP basis was $2.9 million or a net income of 19 cents per diluted share compared to a net loss of $1.9 million or a net loss of 13 cents per diluted share for 2021. On a GAAP basis, as you can see on slide 7, our net loss for 2022 was $2.3 million, or a net loss of 16 cents per diluted share, compared to a net loss of $5.3 million, or a net loss of 37 cents per diluted share for 2021. The increased share-based compensation expenses negatively impacted GAAP net loss in 2022 compared to 2021. In 2023, we believe that the dollar-shekel ratio will stabilize at the current levels and will not require hedging. Turning to the balance sheet, as you can see on slide 11, our cash, cash equivalents, and short-term bank deposits as of December 31, 2022, for $77.7 million. That ends our prepared remarks. I will turn the call back to the operator for your questions.