Radcom Ltd.

today. On the call are Hewitt Hichman,

Good morning everyone and thank you for joining us for our first quarter 2024 earnings call. My name is Chiri Kitman. Before being appointed by the board as interim CEO, I served as RADCOM chief operating officer since 2020. I was responsible for the product development and customer success teams. Before becoming COO, I served as vice president of R&D from 2015 to 2020. During this time, I led the product transition from software to virtualization and finally to the cloud, including all the additional AI-powered capabilities and automation features provided to our customers as part of our solution offering. I want to thank the board for trusting me to lead the business as interim CEO. Since assuming the role, I've worked closely with the management team to ensure business continuity and that our positive momentum and profitable growth continue. The mandate is clear, and we are later focused on leveraging market opportunities to expand our sales with new logos for 5G. Turning to the first quarter results. We continued our strong positive momentum for 2023 into the first quarter of 2024, with record first quarter revenue that increased by 70.5% year-over-year. and 19 consecutive growth quarter. We achieved our highest ever cash level, ending the quarter with $85.3 million. We continued our profitability strategy and achieved positive income on a gap and a non-gap basis. We had an encouraging start to 2024 by renewing our multi-year contract with one of our key strategic customers, Rakuten Mobile. We continue to extend our collaboration and strengthen our partnership with this innovative operator. The contract extension includes advanced AI-powered analytics for its private cloud, enabling Rakuten Mobile to drive more automated network operations for its nationwide rollout. The partnership with Rakuten demonstrates our market leadership and innovation in AI, automation, the telecom network cloud, and 5G. In addition, we announced that a U.S. telecom operator extended its contract to use RadComAce. In this contract, The value we offer is that our solution will run on AWS as a SaaS. It is also available on other cloud platforms. Deploying RADCOME ACE on AWS will enable this operator to achieve a higher level of automation and gain real-time insight into the network. Operators rely on Assurance to navigate a smooth transition to 5G and the cloud. And our goal is to be the leading Assurance provider for this transition. Hence, we want to offer telecom operators the ability to choose whatever cloud provider or deployed model they want, and use our innovative assurance technology to manage their network transformation. SAS is a popular cloud computing offering that delivers a turnkey solution. Operators can access our cloud-based assurance software quickly and gain its benefit, as it has already been installed and configured. It also offers cost savings as operators don't need to invest in additional infrastructure. Furthermore, operators can scale their solution usage up and down based on specific needs. Offering SaaS provides customers with flexible options that can generate more sales opportunities for us in the future. This project reinforced the importance of our strategic journey to become a leading cloud assurance vendor and offer operators flexible SaaS options for deploying assurance in the cloud. Turn in to our customers and sales pipeline. We continue to provide innovative software enhancement and new releases to our install-based customers to help them manage their network, deliver more automation, and save operational costs. AT&T and DISH remain key strategic customers, and we believe our business will remain strong. In addition, as I noted previously, Our business with Rakuten Mobile remains strong following the renewal of our multi-year contract. Our pipeline is healthy based on our Radcom ACE product line and includes a good mix of new and existing customers. We see significant growth potential in our pipeline and have increased our sales team to ensure we fully capitalize on the growth opportunities ahead of us. We continue to work within the 5G cloud ecosystem for private, public, and hybrid networks. In the public cloud, we offer potential customers integration with all three leading public cloud providers. Our investments in the cloud ecosystem are being fruit, and we believe our integration with cloud providers will help generate additional opportunities. In previous calls, we mentioned the importance of Gen AI and that all the leading public cloud providers or hyperscalers are emerging as having a pivotal role in a Gen AI ecosystem. We see an opportunity to use our unique Telco Centrics Assurance skillset to help operators manage their network as they partner with hyperscalers entering the Telco space to facilitate operators' smooth transition to the cloud. Last year, we announced our position as one of the first assurance vendors to harness the power of GenAI for real-time management of 5G networks, RADCOM network. Our team continues to work on embedding GenAI technology into our solutions to enable innovation that helps operators manage their networks more dynamically and efficiently through AI and automation. As part of this effort, we announced the integration of our GenAI application with AWS. Although GenAI is in the innovation stage, customers see our innovation and thought leadership in this space, which can be a door opener that leads to other sales opportunities. We continue to engage with Operator Global through our sales and marketing activities, including direct meetings, tender processes, and conferences. operators are continuing to invest in their networks and roll out 5G. In the current macroeconomic landscape, operators are looking for innovative solutions to help them reduce costs while seeking additional revenue to use their significant investment in 5G. In addition, operators must ensure that subscribers enjoy top-quality services in this highly competitive market, a critical use case for assurance. This is an opportunity for Radcom. Operators can use our solution to ensure service quality while driving operational efficiency and generating revenue through service like private networks for enterprise customers. Radcom continues to be engaged in multiple opportunities for our innovative solution at different stage of maturity. We continue to enhance our software with additional automation. intelligence and AI-based capabilities and integration into the cloud to add value and expand our customers' use cases. The North Star that guides our product roadmap is to make networks more intelligent and autonomous through AI-powered analytics. We will continue innovating to help operators become more efficient and increase revenues for 5G. We announced generative AI applications support for Amazon Web Services so operators can roll out new services fast on AWS while improving operational efficiencies using Radcom ACE enhanced by generative AI. Radcom is a company with many years of expertise in the telco space. We know how to analyze data and deliver viable insight into the telecom operators. So we approach all our product innovation from this unique perspective, starting from a foundation of a good data and telco domain knowledge. By building Gen-AI products on top of this solid foundation, we are leveraging our know-how to provide innovative solutions that enable operators to use natural language to tap into the wealth of data Radcomace produces, helping operators work faster and more cost-effectively. To summarize, based on our good visibility into 2024, overall market opportunity and unique market position, supporting telecom operators as they roll out 5G and optimize costs. We remain well positioned to drive the business forward in 2024. Our multi-year contract also provides a strong backlog, driving consistent results and giving us good visibility. We are confident in delivering the fifth consecutive year of revenue growth, increasing our profitability, and continuing the last four years of growth momentum. This gives us the confidence to raise the lower end our 2024 revenue guidance to $57 million to $60 million. With that, I would like to turn the call over to Azar Ahav, our CFO, who will discuss the financial results in detail.

Thank you, Chilik, and good morning, everyone. To review our financial performance, while the slides contain GAAP and non-GAAP results, I will mainly refer to non-GAAP numbers, excluding stock-based compensation, acquisition-related expenses, and amortization of intangible assets related to acquisition. Now please turn to slide 8 for our financial highlights. First quarter revenue grew by 17.5%, reaching a new record of $14.1 million. This represents a 19th consecutive quarter of year-over-year revenue growth and an increase from $12 million in the first quarter of 2023. At the same time, we continue to manage and control our expenses while investing strategically and efficiently in increasing our investment in sales and marketing. This resulted in a non-GAAP net income of $2.8 million for the quarter. Our gross margin on an NGAP basis in the first quarter of 2024 was 74%. Note that our gross margin can vary slightly from quarter to quarter 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 2024 on a non-debt basis were $4 million, a decrease of $168,000 compared to the first quarter of 2023. With the market evolving rapidly, our continued investment in research and development to extend our technological leadership within this space is vital. This is a key enabler for our future business. We will continue to invest strategically in R&D and maintain similar expenses as in 2023 to enhance our RATCOM-A solution, increase our 5G capabilities, expand our AI-driven insights, and seamlessly integrate our solution into the cloud. Excluding any impact from exchange rates, our R&D expenses in the next quarter will remain at a similar level with a slight increase. During the quarter, we received a grant of $209,000 from the Israel Innovation Authority compared to $262,000 in the first quarter of last year. As a result, on an NGAP basis, our R&D expenses for the first quarter of 2024 were $3.8 million compared to $4 million in the first quarter of 2023. We expect the Israel Innovation Authority grant to remain at a similar level in the second quarter. As announced in previous calls, we continue strategically investing in sales and marketing to expand our business and capture more opportunities in the 5G market. Towards the end of 2023, we made an incremental investment in sales and marketing. In the first quarter of 2024, sales and marketing expenses reached $3.8 million on a non-GAAP basis, an increase of $747,000 compared to the first quarter of 2023. In the following quarters, we expect a gradual increase in sales and marketing expenses to support an increase in pipeline of opportunities. G&A expenses for the first quarter of 2024 were $1.2 million on a non-GAAP basis, an increase of $210,000 from the first quarter of 2023. Thanks to increased revenue and careful expense management, operating income on an NGAP basis for the first quarter of 2024 was $1.7 million compared to $800,000 for the first quarter of 2023. Net income on an NGAP basis for the first quarter of 2024 was $2.8 million or $0.08 per diluted share compared to $1.8 million, or $0.12 per diluted share, for the first quarter of 2023. On a gap basis, as you can see on slide 8, our net income for the first quarter of 2024 was $762,000, or $0.05 per diluted share. This compared to a net income of $621,000, or a net income of per diluted share for the first quarter of 2023. At the end of the first quarter of 2024, our ad count was 296, the same as the previous quarter. We expect our ad count to remain similar in the second quarter. Turning to the balance sheet, as shown on slide 11, our cash, cash equivalents, and short-term bank deposits were $85.3 million as of March 31, 2024. That ends our prepared remarks. I will now turn the call back to the operator for your questions.