Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the second quarter of 2024. All participants are present in a 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 Hilek Itman, Radcom's interim 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 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 5G and launches, demand for the company's products and services, sales opportunities, sales cycles and pipeline, momentum, maintaining and increasing profitability and growth, its ability to provide value to customers and shareholders, the company's expected growth, its expectations with respect to expenses and headcount, as well as grants from the Israel Innovation Authority, the company's expectations with respect to its relationships with its customers, the potential of the company's long-term vision, and the use of artificial intelligence in its products, levels of gross margin, the company's revenue guidance, and the search for a permanent chief executive officer. 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 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, including in the quarter's earnings release available on our website. Now I would like to turn over the call to Healy. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining us for our second quarter 2024 earnings call. Before I'm diving into our results, I want to provide an update on the CEO search process. The board has engaged a top executive recruitment firm and established a committee to appoint the next CEO. Significant progress has been made and the committee is now in the advanced stage of candidate selection. The committee has evaluated candidates from Israel and abroad, especially the U.S., with the necessary leadership qualities and experience to drive RADCOM's next phase of growth and success. I am fully confident in the Board's ability to appoint the right candidate. Hopefully this process will be finalized soon. As the company's COO, I will continue focusing on R&D, product innovation, and customer success. Then I will be able to invest more time in driving innovation and taking the company to the next level of growth journey alongside the new CEO. Now, turning to the results. I'm excited to share our strong performance and execution in this quarter. Our results highlighted the benefit of our customers' trust and our ability to deliver value to our career-grade and innovative solutions. We achieved solid growth momentum in both our top and bottom lines. We reached record quarterly revenues of $14.8 million, up 20% from the second quarter of 2023. We generate a positive cash flow, hitting a new record of $86.1 million in cash, cash equivalents, and bank deposits. We achieved record half-year revenue and profitability for the first six months of 2024. Since the start of the year, we have secured over $50 million in new contracts, including several seven-digit contracts across various geographic markets, while maintaining significant recurring revenues. This shows the demand for our leading solutions and boosts our revenues as operators transition to 5G. Our entire organization remains committed to delivering profitable growth, increasing our market share, and driving ongoing technology innovation as we look to provide long-term value to our customers and shareholders. Turning to the telecom market, customer interest and sale activities are noticeably increasing in the US and other regions. This upturn is evident in the number of opportunities our teams are currently pursuing and the 5G tenders issued by operators. As the interim CEO, my primary focus is driving existing sales activities. In this role, I provide executive-level support for our sales efforts and spirit future innovations. I have a heightened interest in automated assurance and intelligence analytics to several key factors. First, most U.S. operators are progressing in their transition to 5G standalone networks. requiring the adoption of cloud-based automated assurance and intelligence analytics solutions. Additionally, as legacy assurance systems age or reach the end of life, operators must replace outdated equipment as part of the natural upgrade cycle. Additionally, some competitors have not developed a cloud-native automated assurance and intelligence analytics solution, which requires significant R&D investment, an investment that RADCOM has made. This process leads operators to conduct SARA due diligence evaluating the available options in the market to identify new best-in-class automated assurance and intelligence analytics solutions. Given these market factors, we see significant opportunities to increase our market share in the U.S. and other regions, driving sustainable and continuing growth while delivering more value to our shareholders. Adapting a cloud architecture is part of operators' transition to more efficient and dynamic software-centric network operations. We continue to see increasing cloud adoption, with operators replacing legacy with modern cloud-based networks. Our solutions help operators manage this transition efficiently and with customer-centric focus by gathering all the analytics across the cloud networks. In the previous calls, we mentioned the importance of GenAI and that all the leading public cloud providers or hyperscalers are emerging as having a pivotal role in the Gen AI ecosystem. During the second quarter, we announced that RADCOM NetTalk, our Gen AI application, was now available on AWS. Although Gen AI is in the innovation stage, customers see our innovation and thought leadership in this space, which can be a door opener that leads to sales opportunities. As demonstrated in our support for Gen AI on AWS, and the contract win to offer our solution as a SaaS in the US, we continue engaging with operators and the cloud-based ecosystem. As a reminder, we offer potential customer integration with all the leading public cloud providers, Amazon Web Services, Microsoft Azure, and Google Cloud. And we believe our integration into cloud providers will help generate additional opportunities. Turn into the pipeline. We see positive market momentum that can drive growth, increase sales engagement, and lead to additional multi-year contracts. The more robust demand for cloud-based automated assurance and intelligence analytics technology is reflected in our increased pipeline as we engage with multiple prospects across various sales cycle stages. While this sales process can take time and are unpredictable, We believe our solutions align with operators' needs, drive a unique value, and address critical network challenges. These set the stage for future business growth. In today's telecom microeconomic landscape, operators seek solutions that help them reduce significant costs while ensuring a seamless transition to 5G cloud network infrastructure and technologies. These are essential use cases for assurance and network analytics. These present a significant opportunity for Radcom And we believe our position as an innovative automated assurance and intelligence analytics provider will continue to drive positive returns. Turn into our install base. AT&T and Dish remain key strategic customers, and we believe our business with these operators will remain strong. We continue to provide software enhancement and new releases to help them manage their network. In the second quarter, we were selected to provide a SaaS service assurance solution on AWS in the U.S. for an existing customer. Deploying RADCU MACE on AWS will enable this operator to achieve high level of automation and flexibility when using their automated assurance and intelligence analytics solution to gain real-time insight and analytics into the network. This allows the operator to adapt quickly to network capacity changes, ensuring excellent customer experience, and delivering top-quality services. We also announced that our collaboration with Rakuten Mobile in Japan has been extended to our strong long-term performance and support, so business with Rakuten Mobile remains robust following the renewal of our multi-year contract. We have achieved high satisfaction level within our install base by offering a robust and innovative product and focusing on customer requirements and needs, driving growth and recurring revenue. We continue to invest in sales and marketing to capitalize on the rising demand on our solutions. We have expanded our sales team to seize these opportunities by recognizing significant growth potential in our pipeline. We expanded our sales channels during the quarter, particularly in Europe and South America, by strengthening our partnership with local agencies and distributors. This approach allows us to address potential sales activities and effectively meet growing demand. Our combined indirect and direct sales teams ensure an increased presence on the ground from a sales perspective. We are also actively participating in numerous industry events worldwide. where the sales team's engagement creates interest in our automated and intelligence analytics. Our executive team frequently speaks at this event, further enhancing interest in our solution and solidifying our thought leadership in the 5G assurance and analytics space. This interaction has led to many promising discussions, including significant interest in our new generative AI applications, which can translate into future sales opportunities. We believe we have a differentiated solution aligned with key market trends and are well positioned to address telecom operators' needs. We continue to enhance our software with additional automation, intelligence, and AI-based capabilities to add value and expand our customer use cases. We announced generative AI application support for AWS, 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 telco space. We know how to analyze data and deliver valuable insight to the telcom operators. So we approach all our product innovation from this unique perspective, starting from a foundation of good data and telco domain knowledge. We will continue creating value for our customers and shareholders by building upon our strategic position as the leading automated assurance and intelligence analytic platform for 5G and the cloud. Innovating technologies empower our solution through significant product investment made over the years. We continue investing in R&D because we believe it is a crucial enabler for future businesses. We serve as operator smart co-pilot to help navigate 5G network complexity. This means continually evolving our automated assurance and intelligence analytics solution, adding new AI-powered capabilities and use cases to maintain our 5G assurance leadership. I'm excited to announce that the company received industry recognition. We were recently named finalists for the 2024 Leading Light Award. This telecom-focused program recognized the industry's top companies' achievements in the next-generation communication technology and innovation during the year. To summarize, Our strong results demonstrate that our team is executing effectively. Our performance in the second quarter and the consistent achievement across multiple quarters position us for a successful 2024. Our business strategy yielded positive outcomes. As evident by our profitable growth and consistent positive cash flow, our momentum remains strong, and we believe the best is yet to come. as we aim to elevate the company's evolution and enhance shareholder value. We are experiencing increasing demand for our innovative assurance and analytic solutions across multiple regions. This growing interest is evident in our expanding sales pipeline, which is the potential to drive future growth. Our R&D team is continuously innovating and supporting our customers' needs. Therefore, we remain confident we can deliver a fifth consecutive year of revenue growth and increase profitability. This gives us the confidence to raise our 2024 revenue guidance to a range of $58 million to $61 million, up from the previous range of $57 million to $60 million. With that, I would like to turn the call over to Adar Rav, our CFO, who will discuss the financial results in detail.

Thank you, Chilik and everyone for joining us today. Now let's turn to the results. While the slides contain GAAP and non-GAAP results to review our financial performance, I will mainly refer to non-GAAP numbers excluding stock-based compensation, acquisition-related expenses, and amortization of intangible assets related to acquisitions. As noted earlier in the call, since the beginning of the year, we have secured over $50 million in new contracts, including several seven-digit contracts across various geographic markets. Most of these revenues will be recognized in 2025 and beyond. This influx of contracts underscores the robust demand for our leading solutions and positions us well to capitalize on the industry transition to 5G, significantly boosting our revenues. Now please turn to slide 5 for the financial highlights. Second quarter revenue grew by 20%, reaching a new record of $14.8 million. Our positive start to the year is driven by strong team execution which has led to good financial performance, revenue and profitable growth and measurable improvements to our bottom line. Non-GAAP net income for the second quarter was $3.1 million and the non-GAAP net margin was 21% which grew by 4% compared to the second quarter of 2023. GAAP net income for the second quarter doubled to $1.7 million and EPS was up by 120% compared to the second quarter of 2023. Our gross margin on a non-GAAP basis in the second quarter of 2024 grew to 75%. Note that our gross margin can vary slightly from quarter to quarter depending on the revenue mix. We expect that the third quarter will remain at a similar level. Regarding R&D investment, the company's strategy is to continue investing at a similar level 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. Our investment in research and development is vital to extending our technological leadership. This is a key enabler for our future business. We believe that R&D as a percentage of revenue will decrease along with revenue increase. On a non-GAAP basis, our gross R&D expenses for the second quarter of 2024 were $4.1 million. Excluding any impact from exchange rates, we expect that our R&D expenses will remain similar in the next quarter. During the quarter, we received a grant of $180,000 from the Israel Innovation Authority, the same as in 2023. We expect the Israel Innovation Authority grant to remain at a similar level in the third quarter. As Chilik mentioned, the transition to 5G presents attractive growth opportunities. We are excited about this potential and will continue to invest incrementally in sales and marketing, mainly by expanding the global sales team. Additionally, in the last quarter, we expanded our sales channels by partnering with new local agents and distributors allowing us to capture more opportunities. In the second quarter of 2024, sales and marketing expenses reached $3.8 million on a non-GAAP basis and an increase of 27% compared to the second quarter of 2023. In the following quarters, we expect a gradual increase in sales and marketing expenses to support an increasing pipeline of opportunities. G&A expenses for the second quarter of 2024 were $1.2 million on a non-GAAP basis, an increase of $230,000 from the second quarter of 2023. This increase was mainly due to spatial expenses in court for the CEO's search, turning to the company's profitability. Due to higher revenues and careful expenses management, operating profit on a non-GAAP basis reached $2.3 million, growing by 170% or $1.4 million from the second quarter of 2023. Our non-GAAP operating margin was 15.4%, doubling our operating margin in the second quarter of 2023. Net income on a non-GAAP basis was $3.1 million, growing approximately 50% by more than $1 million compared to the second quarter of 2023. Diluted EPS for the second quarter was 20 cents, growing 7 cents from the second quarter of 2023. As shown in slide 7, our gap net income for the second quarter of 2024 was $1.7 million. Diluted EPS was 11 cents, growing 6 cents from the second quarter of 2023. Turning to the balance sheet. As shown on slide 11, we continued generating cash and ended the second quarter with $86.1 million in cash, cash equivalents, and short-term bank deposits. Our ad count was 307 at the end of the second quarter of 2024. We expect our ad count to remain similar in the third quarter. That ends our prepared remarks. I will now turn the call back to the operator for your questions.