Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the Third 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 at www.radcom.com 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 have not downloaded yet, you may do so through the link on the Investors section of RADCOM's website at www.radcom.com/investor/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 its continued investment in technology and R&D, the expected transition to, and rollout of 5G networks and other market trends, the Company's market position, cash position, expected gross margins and potential growth. The Company's expectations with respect to its contract with Rakuten and continued relationship with AT&T. The potential of RADCOM’s each product, the Company's expectations regarding the impact of COVID-19, and its revenue guidance. 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 users’ overall understanding of the Company's financial performance. By excluding certain non-cash stock-based compensation expenses, non-GAAP results provide information that is useful in assessing RADCOM's core operating performance and in evaluating and comparing 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, 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 so through the link on the Investors section of RADCOM's website at www.radcom.com/investor/relations. 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 third quarter results for 2020. We are pleased with the results as we continue to execute against our full-year growth plans in the third quarter, which was highlighted by increased revenue and an improved bottom-line. As you may have seen, total revenue for the third quarter of 2020 was $9.8 million. Based on our solid visibility and focused execution, we expect 2020 to be a growth year and reiterate our full year 2020 revenue guidance of $35 million to $38 million. We continue to strengthen our position as the leading 5G assurance provider in the third quarter while meeting our financial goals. We believe the R&D investment we made and continue to make over the last few years and our current customer engagements will continue RADCOM's growth in the years to come. Last week, we announced the 5G assurance contract win that is one of the industry's first standalone 5G assurance contracts. This is in addition to a multi-year agreement with Rakuten Mobile to assure their 5G network with our 5G assurance and analytics solution, RADCOM ACE, launched in August. Rakuten has selected our solution for its non-standalone 5G service launched in September, and its standalone 5G service launch is expected to occur in 2021. Our automated cloud-native assurance solution will be a critical component of the Rakuten communication platform. Our solution will help Rakuten identify service issues in real time and troubleshoot them, which is essential for smoothly transitioning Rakuten's customers to the new 5G network and onboarding new customers. These selections represent a significant milestone along our 5G journey. It is also an acknowledgment of RADCOM's leadership as a 5G assurance vendor, and it's the result of our focused investment in R&D and product innovation. Additionally, we continue to support Rakuten's existing 4G network needs to deliver top-quality services to their customers. At the end of September, just six months after its full-scale commercial launch of the world's first fully virtualized mobile 4G network, Rakuten launched its 5G mobile service. We're excited to continue our partnership as Rakuten expands its coverage. In the U.S., we continue to deliver cutting-edge software releases for AT&T and provide support for the initial evolution of its cloud network that backs its nationwide 5G rollout. Last month, Ookla ranked AT&T number one for offering the fastest nationwide 5G network as it continued its emphasis on high-quality network to deliver connectivity to businesses and consumers alike. Our collaboration with world-leading customers, such as Rakuten and AT&T, provides us with invaluable experience and knowledge that can prove to be vital as operators transition to 5G. Currently, we are involved in multiple 5G opportunities and trials at various stages with selected customers. The expertise we have built along with our continuous technology enhancements positions us well for the evolving market. The telecom industry has been robust throughout the third quarter as connectivity returned following global lockdowns. Businesses and families continue to rely heavily on high-quality network performance for managing day-to-day life, even as restrictions eased. As a result, our customers' needs were as crucial as ever. We are very proud of our team for how they have continued supporting our customers, despite the challenges of the COVID-19 social distancing restrictions. While we focus on delivering on our customer commitments, we also ensured our employees, vendors, and customers' health and safety. With working from home and virtual interactions becoming the new norm, we believe technology trends that rely on 5G are a priority for more and more operators. 5G is expected not only to increase network speed and performance, but it is also likely to unlock new applications for telemedicine, remote machinery, virtual reality, and countless other applications. As you roll out a multi-stage process, it operates by choosing the network equipment provider first, then evaluating 5G assurance solutions as the technology continues to roll out. We consider these 5G contracts with Rakuten Mobile and other current customer engagements and trials to be good signs that the 5G market is evolving. It supports our view that some operators are already moving beyond the initial step of selecting the network providers to choose assurance vendors. We believe this gradual market shift will spur opportunities for us, and we are well-positioned to capitalize on this with our innovative solution, RADCOM ACE. Based on the latest 5G market status reports from the GSA, at the beginning of October, there were already over 100 5G networks worldwide. This compares to 60 5G networks at the beginning of 2020. The same 5G report states that overall, more than 397 operators are currently investing in 5G. This includes trials, acquisition of licenses, and network planning. So we are encouraged by the industry's advancement in 5G. Some operators have been waiting for more 5G devices to be commercially available before launching 5G services. We saw in the third quarter that the number of commercially available devices almost doubled. In October, Apple had the virtual event under the slogan 'Hi, Speed,' in which they highlighted the benefits that 5G has to offer. The introduction of mainstream technology adoption, we believe that Apple's entrance into the 5G market sends a strong signal that the 5G revolution is underway and evolving. We expect initial 5G investment and solution evaluations for early adopters to ramp up into 2021. So far, the customer feedback we have received for the RADCOM ACE has been very positive. RADCOM ACE is fully cloud-native, designed for the new 5G network architecture and is built with AI and machine learning capabilities to deliver automatic real-time insights for operators to ensure a superior 5G customer experience. We believe that RADCOM ACE is the most advanced solution for automated assurance and we aim to differentiate it by its capabilities, which position us very well to capture market share as more operators transition to 5G and select their assurance vendor. 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. This quarter, we continued to grow revenue with healthy gross margins and benefits from COVID-19 related lower expenses, which ultimately improved our bottom line. 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 third quarter of 2020 with revenues of $9.8 million, an increase from $9.4 million in the third quarter of 2019. On a GAAP and non-GAAP basis, our gross margin was 76% in the third quarter of 2020. We expect full-year non-GAAP gross margin to be at a similar level as the previous year. Please note that our gross margin can fluctuate depending on the product mix. Our gross R&D expenses for the third quarter of 2020 on a non-GAAP basis were $4.6 million, a slight increase of $100,000 compared to the third quarter of 2019. During the quarter, we received grants from the Israel Innovation Authority for $478,000. Sales and marketing expenses for the third quarter of 2020 were $2.3 million on a non-GAAP basis compared to $2.6 million in the third quarter of 2019. The decrease is mainly related to a reduction in travel expenses due to COVID-19. G&A expenses for the third quarter of 2020 on a non-GAAP basis were $798,000 compared to $812,000 in the third quarter of 2019. Operating income on a non-GAAP basis for the third quarter of 2020 was $239,000 compared to an operating loss of $1.2 million for the third quarter of 2019. Net income for the third quarter of 2020 on a non-GAAP basis was $246,000 or net income of $0.02 per diluted share, compared to a net loss of $988,000 or a net loss of $0.07 per diluted share for the third quarter of 2019. On a non-GAAP basis, as you can see on Slide 5, our net loss for the third quarter of 2020 was $442,000 with a net loss of $0.03 per diluted share. This compares to a net loss of $4.7 million or a net loss of $0.12 per diluted share for the third quarter of 2019. At the end of the third quarter of 2020, our headcount was 278. Turning to the balance sheet. As you can see on Slide 9, our cash, cash equivalents, and short-term bank deposits at the end of the third quarter of 2020 were $65 million. We believe that our strong balance sheet provides us with the flexibility to execute the opportunities ahead of us and adapt to the ongoing global uncertainty. That ends our prepared remarks. I will now turn back the call to the operator for your questions.

Thank you. The first question is from Alex Henderson of Needham and Company. Please go ahead.

First off, congratulations. Very nice quarter pretty much across the board. I wanted to ask a couple of questions. One relative to the COVID situation. Obviously, there's been a lot of delays at most companies that are dealing with service providers as a result of the inability to fully get into the labs and to meet with the right people and service providers across the globe. However, it does sound like there's been some progress on that. I was wondering if you'd give us your sense of how challenging it was to execute in that environment and whether that's starting to improve and therefore starting to free up some of the opportunities that are obviously in front of you.

Hey, Alex, good morning. I think that we are now already starting to get used to this new normal. While definitely, COVID-19 has added some restrictions and travel is very limited, we really adapted the company for working remotely. I think that as a software company focused on virtualized technology, we are well-equipped to conduct a lot of the activities with customers, definitely conference sessions, video sessions, and also drive engagement through remote connectivity. It doesn't require everyone in our customer community to adjust to this new environment. But we see also some benefits as it allows us to have a bigger reach to more customers because now everyone is just a click away. You can have more engagements, more sessions. Yes, they are different. It's not like onsite meetings and in some areas, there's some difficulties, but overall, I think we are very proud of the team in the overall execution. As you can see, the results are quite positive.

Looking at the pipeline of activity that you've pulled in and obviously a good success with Rakuten and AT&T, is it reasonable to think at this point that you will expect some additional contracts to help drive continued growth in '21? Any thoughts on the shape of the curve there, or conversely, is the slowdown from COVID diminishing the rate of acceleration?

No. So I think the market, and we see there are lots of activities with existing and new customers exploring our newly launched RADCOM ACE, our new cloud-native 5G assurance solution. And as I pointed, the feedback we are getting is very positive. We have seen an increased number of operators that are starting to invest in 5G, while as I mentioned before, most of them are in the initial stages. But we are very encouraged by the industry moving forward and investing more and more in 5G. The best example I believe is most of you probably saw the Apple event with the launch of the new iPhone 12. I think I mentioned it a few months ago that many of us use an iPhone for connectivity until Apple supports 5G. For many of us, it won't be relevant. Now the iPhone -- the new iPhones are coming and the demand from the customers for 5G will increase. I believe this will drive forward the operators' investment into 5G. So we are definitely seeing more opportunities that could arise in the next months and COVID-19 adds complexity, but it's not that the market is not moving forward. It is definitely moving slower, but there are many indications of the continued investment in this space.

If I could just delve into Rakuten for a moment. Obviously, it's a big improvement there, but they've had some issues with their network, which has decelerated the rate of deployment because, I think, it's a little bit of an overly aggressive strategy causing some issues on their deployment. Are we now past all of that and are we seeing things accelerate?

So we are now getting into Rakuten's configuration and specifics. I think the one thing you cannot say about Rakuten is that they’re not accelerating. Rakuten just launched their 5G network last month. This is only six months after the commercial launch of the 4G network. I think this is record speed for any operator. They are continuing to pursue innovation and we are working with them on multiple tracks. This contract is a great sign, probably one of the first operators to commit to the 5G standard on assurance, which is the 5G longer term that they are expecting to launch in June 2021. So activities are running high with Rakuten, and they are continuing to invest full throttle and they’re fully committed to 5G. We are really active with them, both on the current 4G agreement and the new 5G implementation that is starting with their network that was just launched on the non-standalone track and activities to ensure they are launching a high-quality network for the standalone in mid-2021.

One last question, then I'll cede the floor. The competitive landscape, it's been a while brewing to get to these 5G deployments. Have any of the competitors managed to step up their game, or do you still have the commanding lead that you've had for the last several years?

So the overall message we get from our existing customers and new opportunities is that they appreciate our technology. I think the depth of our virtualization expertise is evident. While you look at 5G virtualization as a consensus, because no one is implementing using proprietary technologies for new 5G builds, I believe that before, if we were working in a niche market in 4G, for 5G this is the central stage. Most 5G networks will be based on virtualization, and our technology advantage is appreciated by our customers in the market. We believe that we are very well positioned in this space. We haven't seen anything significant from competitors so far, but I'm sure competitors are also eyeing the 5G opportunity, as most carriers today are in a stage that they are starting to look into assurance solutions. They will be looking at their 5G networks. Some early adopters, like Rakuten, are already closing agreements. Some will take a couple of months, but 5G is where everyone is targeting. So competition is watching this space as well, but we believe our technology gives us a strong potential that will position us very well for those opportunities.

Great. I'll cede the floor. Look forward to seeing you next week. I understand you have a very packed schedule, some support to that. Thanks.

Thank you, Alex.

The next question is from Matt Stotler of William Blair. Please go ahead.

Hey, good morning. Thank you for taking my questions. I guess first, we'll start off with maybe just asking Alex's Rakuten question a different way. So you've talked about moving pieces here. You're supporting the 4G network. Obviously, they had a limited 5G launch last month and are planning the standalone network in the middle of 2021. I would love to just get an update on how you're thinking about how this partnership, this progress is being reflected in numbers? How is this expected to be reflected going forward, given these moving pieces? And then on top of that, maybe an update on other adjacent opportunities with Rakuten from here?

So this deal is, as you pointed out, a very important milestone in the 5G space. But it is also a multi-million dollar deal that is going to be spread over a multi-year agreement. It cements our partnership with Rakuten and increases our visibility to 2021, as a significant part of the revenue is planned into 2021 onwards. There are additional opportunities as we continue to maintain a healthy relationship and we keep working with Rakuten on different innovations. But for sure, the 5G agreement is very strategic for us. It's one of the first, if not the first, contract for 5G automated assurance in our market. We see this not only as a multi-million dollar deal that is significant for us, but also as a partnership that will continue. First of all, it is a proof of our technology, and also that this will drive us to continue to innovate, invest in our product, and will help us also with other opportunities. As we all know, Rakuten is actively marketing their Rakuten Cloud Platform globally to different operators and projects around the world. As the assurance provider of choice, it gives us a leading position if those opportunities evolve. So there is currently the activity we are doing with Rakuten in Japan. The collaboration with Rakuten may lead to additional opportunities for us, but we are not expecting this in the very short-term. This may be a mid-term opportunity and depends on Rakuten's success in marketing their technology.

Right, right. That's helpful. And then just in terms of the broader setup of POCs that you guys have, can you just give us an update on the number of proof-of-concepts that you have in progress, are you seeing an increase in POCs and workshops at this point? Any other details that you can provide on how that pipeline is shaping up today?

So we are seeing, I would say, an overall increase in the 5G environment. It's an increase that is becoming because the 5G market is gaining momentum. We were waiting for the 5G to mature and for operators to take a more serious investment in this space. And I believe also that the time passed between operator investing in 4G and now is causing a shift, making operators more open to investing in the new assurance solutions. So the overall message is positive. I'm not sharing the exact numbers for competitive reasons. But the overall momentum is positive. We see the market is growing and we expect this to continue, while more and more operators will start to invest in the 5G network and subsequently require new 5G assurance solutions.

Right. That's super helpful. Just a couple more for me. Given where we are at the early stages of operators thinking about becoming more serious about investing in 5G adoption, how do you expect to ramp your hiring or your overall OpEx ahead of this, and how do you expect that to be reflected in the overall OpEx going forward?

So overall, as you could see in the last few quarters, we managed to keep our operating expenses at a similar level. We invested in our R&D ahead of the market because we were looking forward to this opportunity, and this is what you want to do when you believe that there is a strategic opportunity. So our R&D level is currently similar, as we could see in the last couple of quarters. We are now starting our open-end meetings for 2021 and budgeting. Please be patient for the next quarter when we can release our plans for 2021. But we are not looking to see a significant increase in R&D because we have a sizable technology group and that technology and product were already launched. So we are going to continue investing there, but it’s not that we are going to double up on something like that.

Yes. Understood. And then last question for me. Obviously, a lot of exciting new deals, new customers that are layering in for the foreseeable future. When you look at your existing contracts, any meaningful renewals that you would point out that are coming up in 2021? Or maybe thoughts on how much revenue is tied to upcoming renewals on the other side?

So at any given time, we are busy with renewals. Our contracts are typically for three to five years. We usually have multiple contracts with each customer, as we see now we have the contract for 4G with Rakuten and we have the contract for 5G. This is our normal process, and we are used to it. We are working closely with our customers to make sure they are satisfied with our services and appreciate our technology. You can say in general that in every given year, we have a portion that is required for renewals.

Got it. Thanks for taking my questions.

Thank you, Matt.

The next question is from Abba Horowitz of Old School Partners. Please go ahead.

Hi, good afternoon.

Good afternoon.

I was wondering if you could talk about the R&D first. At what point do you think that the R&D is going to stop that there'll be less of a need to invest in that forward R&D or as a percent of revenues, at least that the R&D will stop going up?

So I think that we are not going to stop the R&D investment. This is because we believe that in our space, innovation is always required. If you look at the last three quarters compared to last year, you see that the percentage of R&D has decreased, I think by about 4% or 5%. And this is mainly because of our revenue growth. We are maintaining about the same R&D investment while increasing the revenue. By that, the percentages are lower. As I mentioned to Matt, we are still working on our plans for next year, but I would say that we are looking to keep similar levels of R&D also next year, and maybe some more disclosure, but not anything significant while our revenue continues to grow. It means percentage-wise, it's going to be a bit lower.

Okay. Because I mean, what I see here is the R&D is your biggest expense. And clearly if you were to get some revenue growth here and keep that R&D somewhat steady on an absolute basis, you would actually be very profitable at that point because your gross margins are so high. And that's why I want to understand here is what can we expect for R&D next year? Will it be at the $4.5 million number per quarter? Is that what you're anticipating, or is it going to $6.5 million?

It's a bit too early because we are now just starting our work for next year. But as I pointed, I would say that a good estimate is that we will keep it at a similar level than this year. As you could see in previous quarters, it has remained about a similar size. The reason is that we don't see any slowdown, but because we started the investments two years ago or even more, as we planned for the 5G opportunity and to release our products on time, we needed to have motivated investments beforehand. This is something we are looking forward to paying off now that the 5G market is expected to have momentum. So I would say a good estimate is that we will keep it at similar levels, maybe with modest growth.

Okay. Okay, because I think -- just before you talked about it, it won't double. So I was wondering if it's not going to double, but it's just going to be up 20%, 30%, and you're really saying that it's going to be flattish for next year.

Yes.

Okay. Wonderful. Also, can you give us a sense of how you're seeing 2021 unfold in terms of new contracts? Is there anything in the pipeline that seems as though it’s almost done, or do you feel like it's more second half story in 2021? Are there deals that you're actually starting to see even now?

So we look forward to the end of the year and the first quarter of 2021 to see the first deals around 5G. We are pleased with the Rakuten agreement. We managed to finalize this in Q4, which is ahead of our expectations. We are continuing to engage both with our existing customers and new opportunities across multiple accounts. We see opportunities at different levels. It's really hard to estimate the timeline in the telecom space because the sales cycle is typically long, and it could shift between quarters. But there is a possibility that we could see additional contracts in the early part of 2021. However, some of them might delay to the latter part. We are maintaining a strong focus on Tier 1 customers and engagements. The overall trend is positive. There are more and more investments in 5G. The market for 5G services is growing, and we are well positioned there. So it's mainly a matter of time when we will be able to capture those opportunities.

Okay. Would you agree, though, that 2021 should be the breakout year for 5G for RADCOM?

So we are all hoping for that. We are looking and continue to invest with our customers and opportunities. It's still very early to determine that, but we are going to be fully focused on executing our opportunities, and we hope that the market's positive momentum and investment in 5G will continue, and customers will mature by 2021. If you look at the analysts, we are talking about a trend that is going to remain with us from 2021 to probably 2024 and '25, with ongoing investment in 5G. So it’s going to ramp up. For us, every contract, particularly multimillion ones, is significant. We don’t need to win numerous accounts to grow the company. But the opportunity won't end in 2021 as more operators will continue to invest also in 2022 and 2023, as it shifts from early adopters to the main market, and eventually to late adopters in less developed areas.

Okay. Okay. Fair enough. All right. Very good. Thank you guys. Thank you very much and congratulations on a really nice quarter.

Thank you, Abba.

Thank you.

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