Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the First Quarter of 2020. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded and will be available for replay on the company's website later today. On the call are Eyal Harari, RADCOM's CEO; and Amir Hai, RADCOM's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you are not dialed in yet, you may do so to the RADCOM's Investors section of RADCOM's website. 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 its investment in technology and R&D, the expected transition to the rollout of 5G networks and customer level of investments in their networks. The company's market position and leadership, the company's execution of its commitment to existing and future customers, and the resiliency of the telecom market. Company's expectations to be well positioned to handle uncertainties and other impacts to the COVID-19, its revenue guidance and anticipated gross margins. 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 in the company's SEC filings. In this conference call, management will be referring 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 that is as well in assessing RADCOM's core operating performance and in evaluating and comparing our results of operations consistently from period to period. The presentation of this additional information is not meant to be considered as 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, which are included in the quarter's earnings release, which is available on our website. I would like to repeat the information about the presentation. If you have not downloaded yet, you may do it through the link on the Investors section of RADCOM's website. Now I'd like to turn over the call to Eyal. Please go ahead.

Thank you operator, and thank you all for joining us today. Earlier this morning we issued a press release stating our first quarter results for 2020. We are pleased with our continued progress this quarter as we advanced our virtualized technology and delivered on our customer commitments. We played an important role in Rakuten Mobile's commercial launch of its greenfield fully-virtualized network in Japan last month despite the state of COVID-19. As you may have seen, total revenue was $8.3 million for the first quarter, which was in line with our expectations with little impact from COVID-19. The global pandemic has highlighted the importance of telecom networks in today's world for maintaining mission-critical communication services, from first responders to keeping businesses running through videoconferencing. We expect the telecom industry to show resilience throughout the pandemic. We are continuing to deliver to existing customers, continuing to market to potential customers, and we continue to be well positioned with a competitive 5G product offering. There is uncertainty due to COVID-19 and the economic situation, which could affect sales cycles. However, we believe that we are in a good position given our strong balance sheet and multi-year contracts with industry-leading customers. We continue to see a flow of new RFP activities, and our ability to pursue this new business has not been significantly interrupted. Based on our current visibility and the expectations regarding COVID-19 impact, we reaffirm our 2020 revenue guidance of $35 million to $38 million. In these challenging times, our top priority has been the health and welfare of our employees. We adhere to the local and regional guidelines on safe distancing policies and provided our entire global workforce with the ability to work from home with minimal interaction. We have suspended all work-related travel and moved all customer interactions to virtual communication. These steps have already been taken; we have completed the transition to social distancing and are well-equipped to continue our product development and support our customers without interruption. I would like to express my gratitude to all RADCOM employees for their ability to meet and handle the challenges that COVID-19 has presented, as well as the extra efforts that demonstrate their commitment to the company and in supporting our customers throughout these trying times. With higher network traffic volumes and usage, our customers are relying on our solutions to ensure end-to-end service performance. For social distancing and remote working, connectivity has become even more critical, and operators are playing an even more essential role in enabling this connectivity. For businesses that now rely on latency-sensitive videoconferencing applications, such as Zoom and WebEx to run the company, operators need to monitor and optimize these services as network traffic increases. The service quality can suffer, and so using the assurance solutions has become even more essential to pinpoint and resolve issues to ensure an excellent customer experience. During this quarter, we worked closely with Rakuten Mobile to help prepare them for their commercial launch by identifying any network or service issues. For a greenfield network deploying a new innovative cloud-native technology, using our virtualized solution has been essential in ironing out issues before launch. We continue to support Rakuten Mobile as they launched the world's first fully virtualized mobile network in April that adopted a 5G architecture from the ground up. They are now the fourth largest mobile operator in Japan. I'm proud of the significant role we played in Rakuten Mobile's commercial launch. This is a strong vote of confidence in our technology and further cements our position as the leading advanced virtualized assurance vendor for operators building new virtualized platforms for the launch of 5G. Our virtualized solutions and expertise will be more important as more and more operators transition to 5G. RADCOM's virtualization expertise, timely support, and innovative offerings helped Rakuten Mobile launch this new virtualized network and ensures the delivery of a superior customer experience. We believe our continued work with them is a statement of our market leadership and advanced solutions. Rakuten Mobile's cost-saving network architecture allows for a substantial reduction in capital investment, which enables them to pass on these savings to customers through a simple and affordable service plan. They aim to offer customers comprehensive communication services combining flexible service plans and cutting-edge technology. Rakuten plans to perfect its cloud connectivity platform in Japan and then take the same platform to other markets worldwide. Our customers continue to invest in the advancement of their networks. AT&T stated in the last earnings call that it would continue investing in critical growth areas and expects nationwide 5G coverage this summer. Our cutting-edge software and support play an important role as AT&T continues to move forward with its network virtualization to prepare for the expected nationwide rollout of 5G. Although there is a higher degree of uncertainty regarding global sales, we are encouraged by our customers' continued investments toward network enhancements and utilization. Turning to our activities during the quarter, we continue to execute according to our plans. We remain focused on enhancing our 5G solutions by investing in research and development, and continue to work closely with customers to innovate and meet current needs. We still believe that the 5G revolution has begun as more operators start to launch commercial 5G services, and we are positioning RADCOM to benefit from this technological transformation. We are engaged in multiple opportunities for 5G and have already released software that supports assuring stand-alone 5G networks. Still, 5G will require operators to deploy an entirely new network. This means operators will need a new service assurance solution to monitor mission-critical services, using a dynamic cloud-native network, which creates a unique opportunity for RADCOM. We have significantly invested in our cloud-making solution and continue to deepen our expertise to offer operators a seamless transition to 5G. So far, 73 operators in 41 countries have launched 5G services, which is an increase of 10 operators over the last month or so. Although the next stage of 5G standards has been postponed for three months until June 2020 due to COVID-19, most operators are moving forward with their network roadmap as planned. Looking at the rest of 2020, we still expect growth here. We plan to continue to invest in R&D to support our customers' needs as they transition to 5G, and we expect the rollout of 5G to spur the adoption of our innovative solutions. With that, I would like to turn the call over to Amir Hai, our CFO, who will discuss the financial results in detail. Amir, please go ahead.

Thank you, Eyal, and good morning, everyone. Now please turn to slide 6 for our financial highlights. To help you understand the results, I will be referring mainly to non-GAAP numbers, which exclude share-based compensation. We ended the first quarter of 2020 with revenues of $8.3 million, an increase from $6 million in the third quarter of 2019. Our gross margin of 63% was impacted by an increased level of power purchases related to a multiyear contract with one of our customers. We expect full-year gross margin levels to be similar to the previous year. Operating expenses for the first quarter of 2020 on a non-GAAP basis were $7.8 million compared to $7.1 million for the first quarter of 2019, which resulted in an operating loss of $2.5 million on a non-GAAP basis. Our gross R&D expenses for the first quarter of 2020 on a non-GAAP basis were $4.6 million, an increase compared to $4.5 million in the first quarter of 2019. Additionally, we did not receive any grants from the Israel Innovation Authority during the period, so our net R&D expenses for the quarter were the same as the gross amount. We want to point out that in the second quarter of 2020, the Israel Innovation Authority approved an annual grant of approximately $1.3 million. Sales and marketing expenses for the first quarter of 2020 were $2.3 million on a non-GAAP basis, the same as the first quarter of 2019. G&A expenses for the first quarter of 2020 on a non-GAAP basis were $838,000 compared to $710,000 in the first quarter of 2019. Operating loss on a non-GAAP basis for the first quarter of 2020 was $2.5 million compared to an operating loss of $2.8 million in the first quarter of 2019. Net loss for the first quarter of 2020 on a non-GAAP basis was $2.4 million or a net loss of $0.17 per diluted share compared to a net loss of $2.7 million or a net loss of $0.20 per diluted share for the first quarter of 2019. On a GAAP basis, as you can see on Slide 5, we reported a net loss for the first quarter of 2020 of $2.9 million or a net loss of $0.21 per diluted share compared to a net loss of $3.1 million or a net loss of $0.23 per diluted share in the first quarter of 2019. At the end of the first quarter of 2020, our headcount was 264. Turning to the balance sheet, our cash, cash equivalents, and short-term bank deposits at the end of the first quarter of 2020 was $63.3 million. We believe that our strong balance sheet provides us solid footing to execute the opportunities ahead of us and overcome the current global uncertainty. Let’s end our prepared remarks. 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. The first question is from Alex Henderson of Needham Company. Please go ahead.

Thanks. Just a couple of questions. So just to be clear, you're not expecting any additional hardware in the upcoming quarters? It's a little unusual to see that kind of hardware hits in the quarter that you have?

I will say...

Hi, Alex, good morning.

Good morning.

So we are – this hardware expense is always a matter of fluctuation of the product mix. As you recall, we discussed this in previous quarters. In some projects, we are providing the servers for the project, which creates an initial cost, mainly on the third stage of the project where we deploy the infrastructure. While our main focus is always to be our software and our virtualized offering, we sometimes need to provide the infrastructure for the operators to get an integrated solution. So we see those fluctuations in previous quarters as well. Looking forward, we continue to expect to be at a similar gross margin level on a yearly basis and continue with mainly software revenue.

Great. On the NRE, obviously, it's an important item for quarterly forecasting and it's very difficult to understand the timing of it. Not all that concerned about Q1. But could you give us some sense of why you think it's going to be heavily back half loaded, or do you think you'll be taking that 1.3 over the course of the year relatively evenly, or what's going on in the June quarter relative to that piece?

It's typically – you see the spread along the year from the previous year. It’s typically quite evenly distributed, although because of the later approval this year, there might be higher in the second quarter. Overall, this is a support on our R&D, which is part of all the investments that we do. You can take a look at our previous years; it happened to us before that the IAA approved the grant only in the second quarter, and then it creates some higher numbers typically in that quarter, then we evenly spread the rest.

Right. Can you remind us what you do relative to FX? And obviously, the shekel has been all over the map because of COVID; it plunged dramatically but then it recovered most of that plunge. So were you able to take advantage of that short window when it was under that much pressure, or was that just too short a period to be down there and therefore no real impact?

I can take that.

Can you take that?

Yes, I can take it. Basically, you're right; the fluctuation from the growth towards the sector was in the very short term. We do some hedging; it may be affected in Q2. So we're taking advantage, but not for the full year—it will be most effective in Q2.

I see. Okay. Going back to Rakuten, obviously a major deployment there; it was a little later than expected. Can you talk a little bit about how you expect that company's deployment to unfold and whether you think there's potential for add-on there over the short term, or whether it's really a much more longer-term scenario? What's the status there?

So I would start by stating that Rakuten is, first of all, a demonstration to our telecom industry of the power and maturity of the virtualized model technology. While there may be some questions about maturity and ability to execute a very ambitious plan, you can definitely admire their ability to launch during the peak of COVID-19 and still leverage the benefit of the virtual technology. I think this is the most important aspect as a company that is a big believer in cloud-native solutions. Our relationship with them represents a pivotal moment for the industry. More and more operators globally are gaining confidence from this successful launch to invest more in this technology, mainly as we look towards 5G. With regard to us, our focus is on a long-term relationship with Rakuten. As you recall, we have a multiyear contract with them, and we continue to support them in Japan. We heard Rakuten publicly announcing more vocally that they are continuing full speed ahead in their 5G efforts, which can create opportunities in the midterm, I would say. However, it's not something that will happen in the next quarter. But it's definitely something we are excited to partner with them moving forward. As we mentioned in the previous quarter, there is also a longer-term opportunity as Rakuten is now being very vocal about trying to take their expertise as they build their network into additional carriers globally. As we are the provider in Japan, this positions us to replicate that in other countries as they manage the implementation of the stack. So I would say there are definitely opportunities around the 5G aspect that we are excited to pursue with Rakuten. And there is a longer-term opportunity once Rakuten can replicate their success globally or decide to open additional greenfield networks in other countries.

If I could have the inclusion in the Rakuten architecture resulted in incoming calls from other vendors, other service providers that see that as an architecture for an open ran future, does that -- is that causing an influx of additional interest?

So it's – if you follow the news, you see more and more operators publicly backing virtual technology. I think the latest announcement from DISH in the U.S. was that they selected Mavenir for the virtual rent. This is the second greenfield operator that is betting on cloud-native technology, and we see other legacy operators also starting to increase their investments in virtual tech. So this is part of a global trend we have seen over the last few years coming together with 5G. I think 5G is widely accepted to be a cloud-native technology. I personally haven't heard anyone discussing 5G as a long-term strategy focused on appliance bases. Everyone in the telecom community is focusing on cloud-native architectures. All of these successful case studies make us more confident that this is the right direction. I don't think it's now a question of if, it's more a question of when—when the 5G implementation begins.

Yes. Well clearly that's the case. I guess the question is, has it translated into activity -- a pickup in activity is really what I was getting at.

So we don't share our pipeline of activity. But what I can say is that the level of interest in general in the industry regarding cloud-based technology is increasing. The interest in 5G solutions is also on the rise.

Ladies and gentlemen, it seems the caller has disconnected. We'll move on to the next question.

Hi, guys. Thanks for taking the questions. Congratulations on the solid results; good to see that. And obviously the guidance reiteration is really encouraging here. I would love to touch on the positive news from Rakuten launching their network commercially amid this challenging environment. You also mentioned some positive commentary out of AT&T. I would love to dig into the broader conversations that you're having with customers and their spending behaviors, both with existing customers and when you look at your pipeline as well as the trends that you're seeing in the current environment?

Good morning, Matt. So this is a question we are asked often. COVID-19 has created uncertainty on the global level. I would say that we feel privileged to be part of the telecom industry that has become critical in allowing remote connectivity. We know there is increased usage of networks, and traffic peaks are reaching new highs. The number of calls is achieving new records. I must admit, as part of the telecom industry, I feel proud of how we are serving the world during this COVID-19 situation while maintaining overall service quality. We believe that solutions like ours are vital for maintaining network integrity as traffic behavior changes and capacity increases. Now, there were many questions even before about the pace of 5G and whether COVID-19 would affect investment in that technology. While there is definitely uncertainty regarding the overall effect, our observations and reports indicate that investment in 5G continues. I find this to be very encouraging. We saw the press release from AT&T, and we saw the press release from Ericsson indicating demand for 5G; while there might be some short-term fluctuations, I see that the industry acknowledges the need for additional capacity, and they will continue to advance 5G. This is what we see as of today. Again, we are still in the early stages of understanding the full impact of COVID-19, so we are monitoring it closely to ensure that there are no short-term fluctuations we need to adjust for. But on the long term, we are still optimistic about delivering on 5G, and we as RADCOM continue to invest in our products and solutions geared towards this technological evolution. Overall, I would say the demand is still there, and there is no slowdown we see so far due to COVID-19. This is why we reaffirmed our guidance.

Right, right. Yes, it's very, very encouraging to see. And I guess the next question would be to dig into that guidance a little bit. Like you said, we reiterated the original range and obviously came in a little bit better on Q1. When you look at that full-year guidance, how much of that is based on revenue coming from existing customers versus the expectation of revenue from new customers, or I guess incremental expansions within the installed base as well? And have you done any scenario analysis around the potential impact of COVID and what that could look like, obviously in the context of still having a lot of uncertainty and dealing with that?

Yes. So the majority of our revenue is coming from existing customers, as stated before— we work with top-tier customers on multiyear contracts. During the quarter, we also secured additional orders from some of them, which increased our visibility for the year, giving us the confidence to reiterate our guidance despite the COVID-19 situation. As is usually the case, we are mainly counting on existing customers for different projects of which we have good visibility. There is some level that we based on winning new accounts, and we are also marketing our solution to new customers and this continues at full pace as we speak. While we have good visibility from existing customers and strong demand for our technology, we can confidently say that the $35 to $38 million guidance we provided is achievable as we see it today despite the uncertainties due to COVID-19. Everyone is trying to gauge the level of uncertainty. We all understand that the impacts of COVID-19 are not fully clear, but we assess it as best as we can as of today. Overall, we are positive and observe that demand remains strong, and our existing customers— tier 1 telcos with multiyear contracts— provide us with confidence. Our strong balance sheet is also very important in these times; it allows us to maintain our investments. I believe the most important aspect for RADCOM, as stated, is the long-term significance of 5G, where we believe demand will continually increase for our cloud-native technology. Even if we face some short-term fluctuations or slowdowns in some areas, we are still confident in the long-term story, and the industry continues to invest.

Right, absolutely. It's helpful. And to your point, we're all trying to gauge the near-term impact here, but the longer-term themes remain strong drivers moving forward, especially on the other side of this. So any impact from this is understandably temporary. Maybe next, we could just touch on any renewals that are in the pipeline for 2020. Obviously, a lot of the large customers that you've discussed, including several significant contracts closed in the past year or two. There's also the recent renewal of AT&T. So, in relation to contracts, there are many strong multiyear contracts with customers that account for a substantial amount of revenue. Any renewals in the pipeline for 2020 that we should be considering?

So, again, we don't review specifics about specific customers. But we are always engaged with our customers regarding both upsells and renewals throughout the year. This is true with all of our customers, and we believe maintaining strong relationships is essential—by consistently supporting them and ensuring they are satisfied with our service, software, and solutions. This is the only way to guarantee enduring business relationships. We have customers who have worked with us for many years now. You mentioned AT&T; we've been working with them for about five years. We are continuously engaging in discussions with them regarding renewals and expansions, but we do not share any specifics for obvious reasons, nor the exact status on each of the accounts.

Right. Okay. Maybe changing gears a little bit. You mentioned the continued commitment to investing in R&D, given that the long-term drivers remain intact. I would love to double-click on that a little bit and how you think about your investment priorities and overall spending in the uncertain environment, including areas where you continue to push forward and areas where you might be pulling back a little, given the savings realized from travel. Would love to discuss your perspectives on that.

Yes. When everything started, we had internal discussions to evaluate whether we should commit to our vision and plans and continue advancing, or if we should slow down and focus on short-term savings. Our decision is to continue investing primarily in R&D to progress our technology. I believe hesitation at this stage would be detrimental in the long run, as we anticipate significant advancements around 5G in the next three to five years. We want to ensure our technologies remain cutting-edge to provide the best solutions for our current and potential customers. Our market tends to choose the best technology, and we need to ensure we are leading. Of course, there are costs that we are able to minimize, primarily in travel and office expenses, due to restrictions on international travel and the shift to mostly remote work. Therefore, we are realizing savings in those areas. However, we remain committed to continuing our investment, and the fact that we can still reaffirm our guidance greatly boosts our confidence in maintaining this investment. We've observed many companies unable to reaffirm or needing to adjust their guidance. We are still in a strong position and, as mentioned, our balance sheet gives us significant confidence to maintain these investments.

Right. Absolutely. Just a couple more from me. One, I think it was something Alex touched on, but I would love to delve deeper into the opportunity with Rakuten. Obviously, the network is still fresh, having launched last month. How do you view the overall opportunity with that customer, specifically as they look to expand into more geographies, as well as how repeatable that opportunity might be? How do you see it overall for your business?

Yes, I think the most interesting aspect is how Rakuten globalizes their business. Their success in one country could translate to expansion into various other significant opportunities. This requires, as I mentioned, Rakuten's ability to replicate their software stack into additional carriers in other countries. They are very vocal about this, and they are marketing their solutions across multiple countries. I think their launch is a pivotal event that has garnered attention, with everyone eager to see their successful execution. The more confidence they gain in Japan, the more visibility they acquire, increasing the likelihood they can replicate that success elsewhere. They may choose to replicate by establishing new operations in some countries or by offering their services to those countries. This could potentially turn into a channel for RADCOM since we are an integral part of their software stack. Any operators they manage to sell their offering to would be a potential opportunity for us to include our software in those implementations. You can imagine that this could open the door to many additional opportunities, although the scope of each deal would depend on the specific country and the scale of their network. Therefore, this creates a very interesting long-term opportunity.

Right. Absolutely. It's a very helpful perspective. Then last one, just a bit more about the gross margin. Obviously, we have seen the impact from hardware before—it was seen in Q3 of last year. So it's not surprising to see it again. Just for visibility, you clarified that for the full year, gross margins should remain similar to 2019. On a quarterly basis, as we look at that linearity of that line item, do you have any visibility into other hardware expenses potentially recurring in subsequent quarters here?

Not something specific we have today, but we continue to market and engage with customers showing interest in hardware; we are not hesitating to offer that as part of our software deals. We are promoting multiple deals and various RFPs, some of which may include integral components. The important point is that our company's model hasn't changed, and the overall number should remain consistent on a yearly basis. It's challenging to predict what will happen in specific quarters. As can be seen in previous years, hardware impacts do tend to come in specific quarters—it is not typical for every quarter to have such high numbers. However, fluctuations can occur.

Right. Right. That's helpful. Congrats again, and thank you for taking my questions.

Sure. Thank you.

The next question is from David Kreinberg of Globis Capital. Please go ahead.

Hi, good morning. Congratulations on the quarter.

Yes. Good morning, David.

Hi. Just had a question. You've mentioned a few times on the call about the long-term drivers remaining intact with 5G and the like. Whenever people or investors speak about long-term drivers staying intact, it sometimes raises concerns about potential short-term issues yet you are one of the few companies able to maintain their guidance in this environment. I just want to clarify; when you talk about long-term drivers remaining intact, you are not seeing any problems in the short run, is that correct?

Definitely. We are aware that many companies are unable to reiterate guidance, and we do that carefully with caveats. There is some level of uncertainty we are not entirely aware of given this scale of COVID-19 is uncharted territory. But the visibility we have for the year is strong, and a majority of the year's revenue is already in our backlog. It's in our hands to execute, so this allows us to reiterate our guidance. We don’t see any major impact so far. Obviously, things are becoming a bit more challenging, such as working remotely, and customer decisions might be taken more carefully. But on the long term, we believe that the drivers behind 5G will have a much bigger impact; any operators moving to 5G will require change, innovation, or replacement of their current assurance solutions. This potential is still ahead of us. The visibility we have for the year is high, and demand from operators still indicates consistent investment in 5G capacity, which we find very encouraging.

And on the 5G opportunity, do you see that primarily with your current customers, or do you see that also as an opportunity for you to penetrate new customers?

Definitely, our existing customers present the first opportunity—like any vendor in the industry. We work closely with our existing customers, and as I mentioned, we value these long-term relationships. Moreover, we are also looking to grow into new carriers. We believe there is substantial opportunity around 5G due to the necessity for operators to innovate in their service assurance solutions. Therefore, we are actively pursuing more accounts that will need to replace obsolete technology suitable for 4G, as the transition to 5G will necessitate change. We aim to market our solutions to all who are progressing with 5G to win new clients, so it's a mix of continued collaboration with existing customers (which guarantees short-term visibility) and the prospect of growth stemming from new customers.

Okay. Great, thank you. Keep up the good work.

Thank you, David.

Thank you. There are no further questions at this time. This concludes the RADCOM Ltd first quarter 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.