Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited results conference call for the first quarter of 2023. All participants are presently in a 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 radcom.com later today. On the call are Eyal Harari, RADCOM's CEO, and Hadar Rahab, 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 radcom.com backslash investor dash relations. Before we begin, I would like to review the Safe Harbor provisions. 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 2023 revenue guidance, as well as revenue from its business with AT&T, levels of gross margin, operating expenses and headcounts, expected growth in 2023 and beyond, expectations regarding the enterprise market for telecom operators, including trends in the market and the 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, the potential to leverage continuous technology and products to the benefit of RADCOM with Vodafone and other customers, its expectations about its pipeline, opportunities, leadership position, and momentum, further demand for its products and growth, the company's expectations with respect to its relationships with AT&T, 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 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 our first quarter 2023 earnings call. We continued our strong momentum from 2022 into the first quarter of 2023 with revenue increase of 13% compared to the same quarter last year, a 15 consecutive quarter of year-over-year growth. Our solid performance and careful expense management improved all of our profitability KPIs. We also introduced some new product use cases built using advanced AI for 5G. This quarter, we significantly improve our profitability, tripling our non-GAAP net income compared to the first quarter of 2022 and achieving a 15% non-GAAP net margin. In addition, we are happy to report that our GAAP profitability reached a four-year high driven by solid team execution and increased revenues. We also add an encouraging start to 2023 by securing a new logo in North America. Our solution will smartly collect, process, and analyze traffic in high automated way across both 5G and 4G networks, which helps the operator deliver high-quality service nationwide while proactively ensuring great customer experiences. This exciting news continues the positive momentum since the beginning of 2022. 5G networks continue to roll out with telecom operator investing in infrastructure and new technology while ensuring the seamless transition for some customer so they receive top quality services. At the same time, operators must be efficient and keep the cost at a reasonable level. Operators can use our innovative assurance technology to manage the network through actionable insight to ensure excellent customer experiences while saving OPEX and driving automation. This is our added value, which is why operators turn to our solutions. We continue to develop our AI-driven use cases to push our vision of autonomous networks. that will help operators deliver great user experience, save cost, and monetize their services. During the first quarter, we announced that we partnered with Rakuten Mobile to offer the telecom industry's first network data analytics function, NWDAF, in production. RADCOM NWDAF is complementary product line to RADCOM ACE and part of our long-term vision of helping enable autonomous networks. The overall NWDAF market is at its very earliest stages, so the product will not generate revenue in the short term. However, it is an important investment for the future, as it is a native network function deployed in an operator's network and not an add-on. It uses the advanced AI to enhance the customer experience and drive closed-loop automation. This partnership with Rakuten demonstrates our market leadership and innovation in AI, automation, and 5G. AT&T remains a key strategic customer, and we believe our business will remain strong. Last year, we announced that AT&T renewed its multiple-year assurance contract with RADCOMM as we continue to expand our relationship by providing additional value and cutting-gauge software releases. We expect revenue from AT&T in 2023 to remain at a similar level to last year, with the potential for further growth. Turning to our product innovation, we continue our commitment to deliver innovative solutions as we enhance our software with additional automation and intelligence AI-based capabilities to bring the value and expand use cases for our customers as 5G technology moves forward. During the quarter, we announced RADCOM Virtualized Network Operations Center, or VNOC. This new use case is powered by extensive AI and enhanced with our Talco domain knowledge to digitalize the network operations center for 5G. The VNOC helps operator transition from manual operations to automatically detect anomalies and performing root cause analysis. This enable operators to solve customer affecting issues and drastically improve resolution times, making network teams more efficient while saving costs and improving the customer experience. We also advanced our cloud expertise, announcing tighter integration of RADCOM ACE with Amazon Web Services, AWS, so operators can gain complete assurance lifecycle management on AWS to drive network automation. These provide operators adopting the public cloud with extensive operational agility that saves OPEX and enhance the user experience on AWS. We believe our integration into the cloud providers will help generate additional opportunities. In February, our sales team attended the Mobile World Congress in Barcelona, Spain. The leading telecom industry event with an audience of almost 90,000 people from 202 countries. We were excited to once again engage in face-to-face meetings with customers, top-tier operators, and partners. we had many positive meetings, including interest in our new mobility experience offering acquired from Continual. We believe that some of these meetings could lead to new sales opportunities. As we covered in the recent blog post on the event, we saw evidence of our belief that automated assurance will be vital for 5G network operations. Operators must make their network more intelligent, dynamic, and autonomous to deliver quality 5G services. So, strong themes were the transition to the cloud, network automation, and the importance of AI. All these are areas of interest for RADCOM, and the 5G market remains promising while still in its early stages. The complexity of these new 5G network architectures requires automated assurance solution to provide the cornerstone to building network with extensive automation. We also hear this from our customers. Now, I would like to provide more color on Continual. In February, we entered into a definitive agreement to acquire Continual. After satisfying customer and transaction-specific laws and conditions, and regulatory approvals, we completed the acquisition in May. Continual focus on telco network analytics, specializing in mobility insights. These insights enable the operator to understand the movement of their customer and how to improve service quality and coverage with a particular focus on the radio network and 5G. These mobility experience insights use AI technology and our cloud base. So they fit into our product philosophy and solution architecture while adding value to our current offering. It will offer a differentiator from our competitors with continual unique, innovative location-based technology. A modular add-on solution is possible entry point into new accounts and an additional upsell opportunity into our installed base. In addition, It brings us new logos like Vodafone and offers us opportunities to expand into different areas. Finally, it adds further talent and telco domain knowledge to our team. We believe that adding continual advanced mobility experience analytics and intellectual property will enrich our 5G assurance solution and create new opportunities for RADCOM. We see that new figures from GSMA Intelligence published during the Mobile World Congress, shows that 5G connections are expected to double over the next two years, expedited by technological innovation and new network deployments in more than 30 countries in 2023 alone. As operators invest heavily in 5G, they seek new revenue streams to regain their investment and streamline network operation through cost savings. This trend is even more critical with the uncertainties around the macro economy. So we believe our position as an advanced automated assurance provider for 5G will continue to drive positive returns. Our pipeline continues to be healthy with good mix of opportunities from our current install base and new customer. In 2023, we are gradually increasing our sales and marketing team to accelerate goals. 5G is moving forward, but rollout takes time. We are laser focused on our business strategy and the 5G market. We believe our position as a leading assurance provider for cloud-native 5G networks and our cloud expertise and knowledge will continue to drive the growth of our business. To summarize, We have continued our strong momentum from 2022 into the first quarter of 2023. Our solid financial results demonstrate our successful strategy, execution, and unique market position in supporting Talco's operator as they roll out 5G. We believe this solid track record will drive consistent financial results in the future and continued improvements to the bottom line. we have a solid foundation in place for a strong 2023 and for a successive year of revenue growth. With that, I would like to turn the call over to Adar Ahav, 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 excluding share-based compensations. Now please turn to slide 8 for our financial highlights. We achieved record revenues in the first quarter, reaching $12 million, representing a 15-consecutive quarter of year-over-year revenue growth and an increase from $10.6 million in the first quarter of 2022. First quarter revenue grew by double digits with year-over-year growth of 13%. This resulted in non-GAAP net income for the quarter of $1.8 million, a five-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 first quarter of 2023 on a non-GAAP basis was 73%. Please note that our gross margin may fluctuate depending on the revenue mix. We expect that the second quarter will remain at a similar level. Our gross R&D expenses for the first quarter of 2023 on a non-GAAP basis were $4.2 million, a decrease of $724,000 compared to the first quarter of 2022. We received a grant of $262,000 from the Israel Innovation Authority during the quarter compared to $218,000 in the first quarter of last year. As a result, our net R&D expenses for the first quarter of 2023 on a non-GAAP basis were $4 million, compared to $4.7 million in the first quarter of 2022. We expect the Israel Innovation Authority grant in the second quarter to be about $150,000. Sales and marketing expenses for the first quarter of 2023 were $3 million on a non-GAE basis, an increase of $407,000 compared to the first quarter of 2022. G&A expenses for the first quarter of 2023 were $964,000 on a non-GAE basis, an increase of $139,000 compared to the first quarter of 2022. Operating income on a non-GAAP basis for the first quarter of 2023 was $833,000 compared to an operating loss of $274,000 for the first quarter of 2022. The increased revenue and favorable FX drove this growth. Net income for the first quarter of 2023 on a non-GAAP basis was $1.8 million, or a net income of 12 cents per diluted share, compared to a net income of $614,000, or a net income of 4 cents per diluted share for the first quarter of 2022. On a GAAP basis, as you can see on slide 7, our net income for the first quarter of 2023 was $621,000 or a net income of 4 cents per diluted share. This compares to a net loss of $592,000 or a net loss of 4 cents per diluted share for the first quarter of 2022. At the end of the first quarter of 2023, our account was 277. we expect our ad count to grow to approximately 300 in the second quarter. This increase includes additional sales and marketing employees and onboarding of the continual team. We expect the continual teams onboarding to slightly increase our operating expenses while helping to improve our top line as we integrate the solution upsell to our current install base and sell to new customers as a unique product differentiator. Turning to the balance sheet, as shown on slide 11, our cash equivalents and short-term bank deposits as of March 31, 2023, were $77.9 million. That ends our prepared remarks. I will now turn the call back to the operator for your questions.