Radcom Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the REDCOM Limited Resolved Conference Call for the first quarter of 2026. All participants are present in a listen-only mode. Following management's follow-up 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.redcom.com later today. On the call are Benny Epstein, Redcom's CEO, and Hotcoin, Redcom'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 Redcom's website at www.redcom.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 company's statements about its momentum, strategic direction and goals, market position and trajectory, future execution and delivery of value to customers and stakeholders, expansion within its existing customer base and expansion of its footprint, development of and enhancing strategic partnership and expected benefits and revenues, from collaboration, the success of new technologies, including AI, to, among other things, enhance automation and efficiencies pipeline, opportunities and customer engagement, and the timing thereof, the launch and inception of Redcom's newer and its integration into agentic AI ecosystems, demand for its products and solutions, and the ability to address new customer segments and expand its market reach trends in the market, the expected benefits of its AI-driven assurance and other solutions, its expectations with respect to research and development and sales and marketing expenses, expectations regarding the growth of 5G and AI and related spending, and its full year 2026 revenue guidance, 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 this forward-looking statement, are outlined in today's press release and the company's FTC 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 non-cash stock-based compensation that has been expensed in accordance with AST Topic 718, financial income expenses related to acquisitions and amortization of intangible assets related to acquisitions, non-GAAP results provide information helpful in assessing REDCOM's core operation performance and evaluating and comparing the results of operations consistently from period to period. A presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with the generally expected accounting principles. Investors are encouraged to review the reconciliations of gap-to-non-gap financial measures included in the quarter-ending release available on our website, www.redcom.com. Now I would like to turn over the call to Benny. Please go ahead.

Thank you, Operator, and good morning, everyone. Please turn to slide 7. The first quarter marked a strong start to 2026. We sustained financial and operating momentum. We delivered revenue of $18.6 million, representing 12% year-over-year growth and extending the positive trajectory we have built over the past several quarters. Profitability also straightened, with non-GAAP operating income increasing to $3.7 million and operating margin expanding to 20.1%, up from 19% in the first quarter of 2025. This performance reflects our operating discipline and our ability to efficiently convert top-line growth into higher profitability while investing in innovation and long-term initiatives. Based on our current visibility, we are reaffirming our full year 2026 revenue guidance of 8% to 12% year-over-year growth. Now to slide 8. From an execution standpoint, we delivered financially and continue to strengthen our position within evolving AI-native telecom ecosystem. During the quarter, we signed a multi-year renewal with one of our Tier 1 customers, expanding the deployment of RASCOM ACE into additional AI-driven use cases focused on automated data-driven network operations. The extended scope includes enhanced automation capabilities designed to improve service assurance workflows. assert issue identification and resolution, and provide deeper real-time network insights across increasingly complex 5G environments. This renewal not only confirms the strategic nature of our relationship with this operator, but also reflects growing confidence in the measurable value we deliver. Lower operating costs, faster issue resolution, and stronger service quality in 5G networks. During the quarter, we also launched RATCOM Neura, our AI agent suite designed specifically for agentic telephone ecosystems. Neura represents an important milestone in our AI strategy and product roadmap. This suite turns real-time network and subscriber data into autonomous intelligence that identifies issues, analyzes user behavior, and automates workflows across assurance, network operations, and customer care. Neura integrates directly with existing service management systems, including ServiceNow, letting operators embed telecom intelligence into their broader IT and support environment. As we broaden our strategic offering, our AI strategy is receiving positive feedback from operators, ecosystem partners, and industry publications. Last quarter, our predictive complaint resolution agents received the Best AI ML Innovation Award at the Global Connectivity Award in London. highlighting growing industry recognition for our AI native assurance capabilities. Turn to slide 9. In March, we launched our second certified connector on the ServiceNow store, RADCOM Network Case Validation and Verification, which extends deeper network intelligence directly into service management workflows. The solution lets operators detect, validate, prioritize, and resolve network issues faster without leaving the ServiceNow platform. cutting manual work and improving efficiency. These releases demonstrate our ability to rapidly translate our AI roadmap into deployable capabilities that operators can implement today. AI is reshaping how operators run their networks, and the value it delivers will be defined by the quality of the data it receives. In telecom, the data that matters most is the data that reveals the real subscriber experience on the live network. That is precisely what RASCOM produces. We capture data, accelerate it, and transform it into subscriber-level insights that drive the AI use cases our customers need to deliver real-time benefits and fuel network automation. If data is the new oil, RASCOM operates the refinery, the point where raw telecom data becomes the subscriber-level intelligence that AI use cases actually need. Turn to slide 10. This is also the value we bring to our work with key ecosystem partners, including NVIDIA, ServiceNow, AWS, and leading global system integrators such as Infosys, with whom we have recently partnered to develop telco-specific AI agents and network use cases. These partnerships are increasingly important as operators seek AI solutions built specifically for telecom environments rather than on globalized AI platforms that lack telephone domain expertise. For us, these partnerships amplify our reach, putting our technology in front of operators we might not have reached directly, carried by a trusted implementation partner. The right partner relationships don't just expand our reach, but they accelerate the sales cycle and lower the barrier to adoption. Turn to slide 11. This partner leverage model is also why we can scale the pipeline efficiently. by extending our reach through trusted system integrators and ecosystem partners rather than through proportional growth in direct sales and marketing investment. Rathcom has spent more than three decades in SAC-T1 operator networks, generating intelligence from live subscriber and service data. The edge cases, protocol expertise, and operational workflows that emerge only at scale. It's what general-purpose AI can't replicate. A useful analogy is that of a fluent speaker versus a native speaker. General-purpose AI applied to telecom may understand the language, but it lacks the context to understand edge cases and service-impacting events. Combining AI with telecom native expertise and product innovation is what turns automation into real customer outcome, and that is what we bring. Turn to slide 12. Beyond AI capabilities, our technology also stands out for operators focused on lowering a total cost of ownership. During the quarter, ACG Research, a leading telecom research firm, independently reviewed our total cost of ownership against competing solutions. It found that Rathom can lower an operator's total cost of ownership by up to 70%, even when run on the same hardware as competing solutions. These savings come from our patented cloud distributed architecture, which requires fewer servers, use less data center space, consume less power, and handle large-scale network data sets more efficiently. Exact savings vary by deployment, workload, and network setup, but the cost advantage held up across every customer environment ACG reviewed. This combination of AI-native capabilities telecom domain expertise and cost efficiency is shaping conversation with operators globally and is driving activity across our pipeline. Growing our tier one footprint remains a top priority, and we are actively engaged in multiple sales opportunities, several of which are advancing through technical evaluation and proof of concept stages. Ultimately, adoption of next generation assurance moves at the pace of each operator's pace. checked by variety of variables from cloud maturity to AI readiness. That variability is why our pipeline is broad and multi-year by design and why our partner leverage model is built to meet operators wherever they are on that curve. Third to slide 13, alongside new opportunities, our install base remains an important validation of our strategy and technology. During the quarter, we advanced deployment work with one global following selection of Rastom Apes to monitor 4G and 5G services, supporting around 43 million subscribers. We also expanded our relationship with a leading European operator through Raccoon Symphony for our network visibility solution, thereby enhancing visibility and real-time insights across virtualized and cloud-native network environments. Both deployments are progressing well and further show how our solutions perform in large-scale production networks. We also continue to support AT&T and Rakuten Mobile, where our assurance solutions remain embedded in production networks supporting millions of subscribers. Here's slide 14. Stepping back, the broader market landscape is evolving in ways that align closely with our strength. According to a recent Omedia report, 5G core spending increased 83% in the fourth quarter of 2025 as operators accelerated 5G standalone deployments, expanded cloud-native architectures, and prioritized AI-driven efficiency initiatives. Operators are increasingly focused on automating their networks, improving subscriber experience, and lowering operating costs while managing rapidly growing data consumption and network complexity. We believe These industry priorities directly drive demand for cloud-native, AI-enabled service assurance and network intelligence solutions such as RACCOM-H and RACCOM-EURA. Looking ahead, the FIFA World Cup in June will push operators' networks to increase capacity with traffic levels as much as five times normal around event stadiums. High-density, high-stress events like this are where real-time assurance, subscriber analytics, and automated workflows matter most. and where solutions like Radcom ACE deliver the clearest value. Turn to slide 15. From a go-to-market perspective, we also remained highly active during the quarter. We participated in NVIDIA GTC, the TM Forum Tour Tokyo, and Mobile World Congress Barcelona, showcasing solutions in collaboration with ServiceNow AWS Infosys. Customer and partner responses to our AI agent capabilities and AI native assurance solutions were very encouraging, and we had productive meetings with operators and ecosystem partners that we believe can translate into additional sales opportunities over time. Turn to slide 16. Overall, this was a strong start to the year. Revenue grew 12%, operating margin extended to 20.1%, and we reaffirmed our full year guidance of 8% to 12% revenue growth. The market is moving toward AI-native operations, and Rathom produces the network and subscriber data that Telco AI needs to run on. We remain focused on disciplined execution, deepening our install base, growing our Tier 1 footprint, and advancing AI-driven assurance for autonomous networks. Looking ahead to the rest of 2026, we expect to expand the Neura HM suite with additional use cases across assurance, customer care, and network operations. and to continue translating our AI roadmap into deployable capabilities that our customer can run today. With that, I'll turn the call over to Holt.

Thank you, Benny, and good morning, everyone. As a reminder, unless otherwise noted, I will refer to non-DAF results. Reconciliations between GAAP and non-DAF measures are provided in our press release and presentation. Additionally, all comparisons are ear-over-ear unless otherwise noted. Please turn to slide 18 for our quarterly financial highlights. We grew revenue 12% year-over-year to $18.6 million and managed expenses effectively even as we increased strategic R&D investments, resulting in improved margins and profitability. Gross margin in the first quarter was 76.5%. Operating income reached $3.7 million and the operating margin was 20.1%. Net income was $4.7 million or $0.28 per diluted share, compared with $4.1 million or $0.25 per diluted share last year. As shown on slide 19, our gross R&D expenses for the first quarter totaled $5.1 million, up 19.7% year-over-year. This growth reflects our focus on strengthening collaboration, fostering innovation, and expanding our product portfolio. We plan to continue strategic R&D investments to deliver an advanced intelligent solution with a focus on agent-to-agent and multi-model workflow, while supporting our strategic partnership and productization efforts. Sales and marketing expenses for the first quarter totaled 4.3 million dollars. a 1.4% year-over-year increase. We continue to invest in our SEM capabilities to support pipeline growth and expansion in high-value regions. On the GAAP basis, as shown on slide 20, our net income for the first quarter of 2026 was $3.1 million, a 26.1% year-over-year increase. GAAP earnings per diluted share were $0.18 compared with $0.15 last year. We ended the first quarter of 2026 with 328 employees. Turning to the balance sheet on slide 23, we closed the quarter with $108.4 million in cash, cash equivalents and short-term bank deposits, reflecting a $1.5 million negative cash flow, mainly due to annual bonuses payment. Thank you, we will now pass the call back to the operator for any 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. Please stand by while we pull for your questions. The first question is from Arjun Bhatia of William Blair. Please go ahead.

Yeah, perfect. Thank you so much. Benny, you mentioned you're kind of talking to a lot of Tier 1 operators. You're engaged in sort of several opportunities at various stages. And so it sounds like the pipeline is strong. And I'm curious if you can just touch on where you are in these deals, when you expect they might convert. And, you know, is that growth opportunity 26%? or is it further out in 27 and 28?

Thanks for the question. I believe that at least, you know, part of it will translate into revenue in the second half of 2026.

Okay. Got it. Perfect. And then on your new AI offering, is that a new sort of monetization motion? Is it going to be like an add-on pricing or some premium pricing? How do you think about sort of layering that into your contracts with customers and prospects?

I believe it's the right, and it's the idea is to orchestrate different AI agents within the agentic ecosystem as a whole. And it will definitely be monetized based on the number of use cases, the agents, AI agents that you'll acquire from us. But it could be also part of a larger bundle and also part of a partnership play that we mentioned today, whether, you know, with Infosys or others. So it's very dependent on the requirements and very specific to customer pain points. I can put it like that.

Okay. That's perfect. Thank you. Thank you so much.

I repeat, if you have a question, please press star 1. If you wish to cancel your request, please press star 2. The next question is from Ryan Coons of Needham & Company. Please go ahead.

Great. Thanks for the question. I want to maybe ask about your partnerships here, your kind of ecosystem partners with ServiceNow and maybe AWS to a lesser degree, but can you update us maybe on your joint sales motion there and, you know, how that's playing out for you, you know, what's been working so far and maybe what you think about how that relationship evolves

the future absolutely thanks ryan um yeah the number of uh existing customer and new prospects that we are working together and we're actually extending some of the geographical reach due to that uh we're making good progress uh and as you know telco sales like it is a bit long but we are seeing good and positive response from our customers uh looking into it and also kind of extending extending you know their reach and their platforms with our capabilities bringing a lot of value to our end customers so definitely good good prospects and same here i do hope to to get something in production by the end of the year or early 2027. Great.

Thanks for that. Maybe a follow-up on a similar vein, but thinking about from a technological perspective, as you see 5G standalone cores, we're hearing a lot more about that momentum picking up out there. How does that affect your opportunities out there for your customer base with regards to

know the proliferation of standalone we see a lot of need to move to a cloud native architecture we see some struggle with our competitors and the ability to providing those abilities and i think with us uh we already know how to work with each and every cloud provider and also to support the private cloud solution so overall i think it's pushing the customer towards the more innovative and current technology-based solution versus legacy so definitely helping us combine with the neuron and the ai agent that we're putting into the into the ecosystem is definitely something that's promoting our business globally.

That's great, Benny. Appreciate the insights. Thank you so much.

There are no further questions at this time. This concludes the RETCOM LTD first quarter 2026 results conference call. Thank you for your participation. You may go ahead and disconnect.