Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the fourth 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 .radcom.com later today. On the call are Benny Epstein, 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 have not downloaded it yet, you may do so through the link in the investors section of RADCOM's website at .radcom.com slash investor dash relations. Before we begin, I would like to review the Safe Harbor provision. This conference call will contain forward-looking statements. Forward-looking statements in the conference call involve several risks and uncertainties, including but not limited to the company's statements about its innovation, expanding its business, leading the company into a new phase of growth and success, its expectation to drive sustainable, profitable growth while enhancing shareholder value, its expectations regarding collaborations with key strategic operators, exploiting opportunities, including in offering its solution to mid-tier operators, its expectation to introduce new product offerings to a broader audience, and the productization of RADCOM ACE backlog, its investment in R&D to enhance its leadership in 5G assurance and network intelligence, the expected benefits of its AI-driven assurance solutions, the expected synergies from the continual acquisition, the potential in its collaboration with ServiceNow to drive additional business, its expectations regarding the dollar-shekel ratio, its expectations with respect to research and development and sales and marketing expenses, grants from the Israel Innovation Authority, and its full year 2025 revenue guidance and future growth and profitability. 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 today's press release 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 and non-cash stock-based expenses, financial income expenses, acquisition-related expenses, and amortization of intangible assets related to acquisitions. 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 Benny. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to RADCOM's fourth quarter and full year 2024 earnings call. We appreciate you taking the time to join us today. I'm excited to lead RADCOM, a company transforming the assurance market for 5G. Working closely with our talented team, I'm focused on driving innovation, expanding our business, and leading the company into exciting new phase of growth and success. Both organic initiatives and strategic expansion opportunities will fuel this journey. I believe that our strategy can drive sustainable and profitable growth while enhancing shareholder value. Later in the call, I will share more details on this strategy and some opportunities we can unlock to grow the business. Turning to the results on slide seven, 2024 was a record-breaking year for RADCOM, driven by exceptional team execution and remarkable achievements. We exceeded the meat point of our full year revenue guidance, marking our fifth consecutive year of growth while significantly enhancing profitability. Earning per share surged by over 75% on a gap basis, and we achieved the highest cash and short-term deposit balances in the company's history, $94.7 million, all while remaining completely debt-free. Our record-breaking performance showcases the strength of our cloud and Gen. AI-based assurance solution, which telecom operators need to enhance efficiency and provide exceptional customer experiences. These achievements would not have been possible without our team's outstanding execution and unwavering commitment to meeting our customer evolving needs. Thanks to their dedication, we closed 2024 stronger than ever, reinforcing competitive position in the market. As shown on slide eight, we announced earlier this year that we secured a new multi-year contract with Norlis, the owner of Tele of Denmark. After extensive selection process involving numerous competitors, we replaced incumbent assurance vendor, reinforcing our position as trusted partner for disruptive telcos. This will highlight the growing value of our intelligent assurance enhanced by Gen. AI in improving telecom operators. As a reminder, Norlis selected RATCOM ACE to monitor customer experiences across its 5G and 4G networks. Our solution provides -to-end network analytics across Denmark, from the run to the core, delivering vendor agnostic insights that enable engineers to make informed decisions to optimize network performance and quality. Turning to our install base, we believe our collaborations with key strategic operators will continue to bear fruit as we introduce new cutting-edge AI and Gen. AI-based capabilities to support network management and improve customer satisfaction. As published and noted on slide nine, in the Oregon customer satisfaction survey of mobile carriers, Rakuten Mobile again claimed to top spot for the second year. Also, Hummel-Lauts' latest NYC audit report states that Boost Mobile has been recognized as the best, most reliable network in New York City. We're happy that these customers continue to receive industry recognition and delighted that we can contribute to their success. With multi-year contracts in place and ongoing development of innovative AI and automation-driven capabilities, we believe our business remains strong. We look forward to drive even more success as we help our customers enhance operational efficiency and elevate customer experiences. With that, I'm thrilled to share that we recently received a certificate of appreciation from Rakuten Mobile for our contribution to enhancing their network quality. Turning to the telecom market, operators are increasingly deploying standalone 5G networks as they transition to more capable, modern cloud networks. These networks will support more automation, leading to a greater efficiency and cost reductions. We remain laser-focused on innovation, generative AI, and automation, consistently investing in research and development to enhance our leadership in 5G assurance and assist telecom operators as they transition to standalone 5G. See slide 10. As operators increasingly transition to standalone 5G, we see significant potential in offering our intelligent assurance solution to mid-tier operators. To seize this opportunity, we are productizing our industry-leading 5G assurance solution, RATCOM ACE, into scalable, flexible package designed to meet needs to operators of all sizes. This approach will enable us to introduce new product offerings to a broader audience, ranging from full-scale deployments to mid-tier implementation to limited-scope lab environments. We will soon provide further updates on productization of RATCOM ACE. Please turn to slide 11. As our recent press release noted, we are collaborating with ServiceNow to drive additional business. Our solution integrates with ServiceNow to automate service and complain resolution for telecom operators. This collaboration leverages AIOps to drive network efficiencies and enhance customer satisfaction with combined service management and service assurance solutions. RATCOM's integration with ServiceNow is expected to help ServiceNow customers create -in-class subscriber experiences while reducing network engineering time and effort. The seamless integration of continuous core technology acquired in May 2023 has significantly enhanced our integration with ServiceNow by including -the-art radio analytics, reinforcing our leadership in network intelligence. The synergies from this acquisition remain promising. As a reminder, integrating continuous technology was pivotal in securing a seven-figure multi-year deal in the third quarter of 2024 with a leading North American operators for RATCOMs and enhanced mobility experience analytics solution. Turn to slide 12. I noted that AIOps is increasingly leveraged to drive network efficiencies and enhance customer satisfaction with telecom operators. AIOps integrates AI and analytics into standard network operations. However, before fully embracing AI, operators must ensure that they have the right databases and analytical frameworks. This is where RATCOM comes in. With years of experience in telecom industry, we analyze network data from the end-user perspective, providing a strong data foundation for AI-driven automation. Leveraging this foundation, we use AI to improve automation and service quality, providing more intelligent network operations, deeper customer insights, and more efficient automation. Turn to slide 13. In brief, we continue actively showcasing our offering to existing and potential customers at key industry events as part of our -to-market efforts. We will also participate in the Mobile World Congress in Barcelona in early March. We will showcase a demo with ServiceNow and Amazon Web Services. We will present the integration of our innovation solution with ServiceNow leveraging AIOps to provide ticket validation and prioritizing the significantly reduced the time and effort network engineers spent investigating and resolving technical issues and complaints. We will also attend the NVIDIA GTC AI Conference in March, where we look forward to engaging directly with telecom operators and partners. This event presents a valuable opportunity to foster new technology partnerships and drive sales growth. See slide 14. I'm thrilled to share that the company has received notable industry recognition. We were recently named the winner of the first Network Innovation Award for Best Network Test and Measurement Solution. This award celebrates our solution's innovative approach to collecting real-time subscriber insights, utilizing advanced artificial intelligence, and enhanced operators' understanding of the customer experience. It also significantly reduced environmental impact on improved efficiency of engineering teams. To summarize, see slide 15. 2024 was a record-breaking year for RATCOM, marking the continuation of five years of strong growth momentum. Our robust sales marketing efforts highlight the increasing demand of our solutions. We remain focused on expanding our business, which we were expected to achieve by acquiring profitable customers and operating it efficiently. With our strong backlog, RATCOM is well positioned to achieve six consecutive years of revenue growth in 2025. We anticipate full year 2025 revenue growth of 12% to 15%, with a midpoint of $69.2 million, representing a .5% increase compared to 2024. With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial result in detail.

Thank you, Benny, and good morning, everyone. I will mainly focus on our non-GAP results during this call, unless otherwise stated. A reconciliation of -to-GAP measures is included in today's presentation in slide three. Additionally, all comparisons are on an -over-ear basis, unless otherwise noted. Now, please turn to slide 17 for other financial highlights. We are pleased with how our team closed the year as we grow profitably. We concluded the fourth quarter of 2024 with a record revenue of $16.3 million, up .1% -over-year. Our gross margin for the fourth quarter of 2024 was 75%. Please keep in mind that our gross margin may vary based on the revenue mix. Our gross R&D expenses for the fourth quarter of 2024 were $4.3 million, up .9% -over-year. This reflects our focus on innovation and portfolio expansion. We received a grant of $130,000 from the Israel Innovation Authority during the quarter, compared to $190,000 in the same quarter last year. All innovation programs approved by the Israel Innovation Authority are near in completion. In the first quarter, we received an additional grant of $100,000. However, beyond this period, there was no clear visibility regarding future grants. The company has submitted new proposals, which are still in the approval phase. Our net R&D expenses for the fourth quarter of 2024 were $4.1 million, an increase of $426,000, compared to the fourth quarter of 2023. We continue to actively promote our offerings to existing and prospective customers, which resulted in $4.1 million in sales and marketing expenses for the fourth quarter of 2024, and an increase of $776,000 from the fourth quarter of 2023. G&E expenses for the fourth quarter of 2024 were $1.2 million, an increase of $191,000 from the fourth quarter of 2023. Operating income for the fourth quarter of 2024 was $2.9 million, 18% of revenue, and an increase of $179,000 from the fourth quarter of 2023. Due to a low interest rate, which reduced financial income and higher tax expenses resulting from the use of accumulated losses, net income for the fourth quarter of 2024 remained steady at $3.8 million, unchanged from the same period in 2023. On a gas basis, as shown on slide 21, our net income for the fourth quarter of 2024 was $2.2 million, a decrease of $344,000, compared to the fourth quarter of 2023. In the end of the fourth quarter of 2024, our income was $307,000. Now let's turn to slide 22 with the full-e results. Consistent with our full-year guidance, we ended 2024 with record revenue of $61 million, up .2% from 2023. Our gross margin was 75% in 2024, compared to 74% in 2023. Our gross R&D expenses in 2024 were $16.6 million, a decrease of $273,000, compared to 2023. In 2025, we plan to increase our investment in R&D to develop additional automation and GNI-based capabilities and support our strategic partnerships and productization plans. We received a cumulative grant from the Israel Innovation Authority of $684,000 during the year. To support our gross sales and marketing expenses in 2024, we are $15.7 million, compared to $12.7 million in 2023. As telecom operators continue to invest in 5G during 2025, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities and expand our coverage in locative regions. GNI expenses for 2024 were $4.8 million, an increase of $929,000, compared to the entire year of 2023. Operating income grew .9% in 2024, reaching an all-time high of $9.5 million, or 16% of revenue, compared to an operating income of $5.7 million, or 11% in 2023. Net income for 2024 was a record of $13.5 million, representing 22% of revenue, or 83 cents per diluted share, compared to a net income of $10.2 million, or 20% of revenue, or a net income of 67 cents per diluted share in 2023. On a GAT basis, as you can see on slide 21, our net income for 2024 was another record at $7 million, or 11% of revenue, or 43 cents per diluted share, compared to $3.7 million, or 7% of revenue, or 24 cents per diluted share in 2023. In 2025, we believe the dollar-shake ratio will stabilize at the current levels and doesn't require hedging. Turning to the balance sheet, as shown on slide 23, our cash equivalents and short-term bank deposits as of December 31, 2024, totalled $94.7 million. Thanks to our strong results, we generated a positive cash flow of $12.5 million, ending 2024 with our highest cash balance. That concludes our prepared remarks. Thank you, and I will now turn the call back to the operator for your questions.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Arjun Bhatia of William Blair. Please go ahead.

Hey, guys. Thank you. This is Alinda Lee here for Arjun. Congrats on a great Q4. Ben, can you give us more color on the Norlis deal and what that represents for the progress made in the geographic market expansion efforts moving forward?

Sure. Absolutely. Thank you for the question. Norlis is very important for us because it's introducing us to a market in Europe and customer profile that is exactly what we're looking for. It's the first time that we're going to run to core portfolio offering efficiencies with general capabilities. I hope that it will follow with additional wings in Europe that we're currently working on and will open up a mid-tier market for us that's currently maybe with something in common. It's definitely breaking all the 5G domain in general and allowing us to get into those type of customer profiles. We're looking forward to more of those wings coming up.

Awesome. Another question. With the -to-market efforts, how do you feel about the current sale capacity? Any plans to expand?

Sorry, I couldn't get to the second part. -to-market for which part? In general?

Yes. Just general -to-market efforts. How do you feel about the current sale capacity? Are you looking to expand? Just different things like that. Thank you.

Yes, absolutely. We're looking to expand. We're also looking to expand our partnerships. As announced, ServiceNow and more partners will follow and we'll announce more in the coming weeks. We will demonstrate this also in the MWC in Barcelona in a couple of weeks. This is one step's -to-market approach. We're also trying to fit our product offerings into mid-tier, as I mentioned earlier, and together with the partnership and the mid-tier offering, we believe that we can expand significantly to new customer base.

Awesome. Thank you.

Thank

you.

The next question is from Ryan Koontz of Needham and Company. Please go ahead.

Hi, this is Jeff Hobson on for Ryan Koontz. First and foremost, very sorry for your loss, Benny. I know you and your family are in our thoughts and in our prayers. But secondly, congrats on the great quarter. You've had two years of really impressive operating leverage and now you're talking about continuing to invest in R&D and sales for this year. How are you thinking about driving more operating leverage versus investing back in the business?

First of all, thank you, Jeff, for the personal note. I appreciate it. What we feel, generally speaking, and I can elaborate a little bit more, that the more we grow is to keep the same level of growth and profitability while investing in R&D, introducing new capabilities with JNI and other partners. But the notion is that we will keep the same level of profitability on our personal side while investing in R&D moving forward. I hope I answered your question.

Awesome, thank you. Maybe one more. You've been driving great free cash flow and have record cash. Are you guys thinking of exploring any acquisitions or are there any particular segments of the market that you find interesting right now?

We are looking at different options. We're not in a hurry when it comes to M&A in general, but carefully we're looking at how to expand our addressable market with areas that are closer to ours. But again, we're evaluating and taking our time. Once we find the right candidate, we'll pursue acquisitions, but we're looking at it very carefully as we speak.

Awesome, thank you. Actually, if I could sneak one more in. Benny, I know you've just been in for probably just over two months now, but what do you think your initial focus is going to be on RATCOM for driving this continued growth? Sure.

I'm sorry if I'm repeating, but I think introducing partners and leveraging on big companies such as ServiceNow and others, that we will announce very, very soon, I think will help us to expand, also to go together with, for example, ServiceNow will allow us to go and penetrate into areas that are outside of the network center, going into the care domain, will also help us to expand our addressable market. We believe that we can bring a lot of value when it comes to customer experience and can help our customers to improve those domains. And I think we see the award that our customers and ourselves awarded in the last quarter. The plan is to continue to push for a better customer experience through our unique data set that can bring with Gen.AI and other platforms like ServiceNow, a better customer

experience. Awesome. Thank you very much and congrats again. Thank you.

This concludes the question and answer session and RADCOM's fourth quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.