Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the Third Quarter of 2022. All participants are present in a listen-only mode. Following management's formal presentation, instructions for the question-and-answer session will be given. As a reminder, this conference is being recorded and will be available for a replay on the Company's website at www.radcom.com later today. On the call are Eyal Harari, RADCOM's CEO, and Hadar Rahav, RADCOM's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you still need to download it, you may do so through the link in 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 full-year 2022 revenue guidance, visibility and expected growth in 2023 and beyond, expectations regarding the enterprise market for telecom operators, including trends in the market and the effect of general economic conditions, continued investment in and benefits from research and development, its expectation to gain further interest from operators and play an important role in facilitating the transition to 5G, its expectations about its pipeline and momentum, further demand for its products and growth, levels of expenses and keeping them below revenues, the potential for additional multi-year contracts, engagements and expansion of opportunities, the Company's expectations with respect to its relationships with Rakuten and potential grants from the Israeli Innovation Authority. The Company does not undertake to update forward-looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward-looking statements, are outlined in the presentation and the Company's SEC 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 expenses, non-GAAP results provide information helpful in assessing RADCOM's core operating performance and evaluating and comparing the results of operations consistently from period-to-period. The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures included in the quarter's earnings release, available on our website. Now I would like to turn over the call to Eyal. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us for our third quarter 2022 earnings call. We achieved record revenues in the third quarter, reaching $12 million, representing a thirteenth consecutive quarter of year-over-year growth, double-digit growth of 17% compared to the third quarter of 2021. At the same time, we manage our expenses while investing in the business strategically and efficiently, resulting in a non-GAAP net income for the quarter of $1 million, a four-year high. We are proud of our best-in-class cloud assurance portfolio that enables operators to manage their networks with advanced AI-driven analytics that provides automated, actionable insights to save engineers' manual labor and help quickly resolve network degradations to ensure great customer experiences. We've built a resilient software-centric business with a strong business model that delivers high gross margins and over 70% recurring revenues from the beginning of the year while offering our customers a forecastable, long-term pricing structure and great value. Our multi-year contract wins have improved a strong backlog, driving consistent results and giving us good visibility into 2023 and beyond. Turning to the pipeline. We continue to see strong demand for our advanced cloud assurance technology reflected in our healthy pipeline of opportunities as we manage multiple customer engagements at different stages of the sales cycle with a healthy mix of new logos and a current installed base, with most opportunities focused on 5G. We see good momentum for the 5G market and believe it will be a catalyst for growth as the market ramps up, creating more sales engagements that can lead to additional multi-year contracts and increased market share. Recently, we have been hearing concerns from technology companies regarding the macro economy’s negative impact on the market. We believe the telecom market is robust, as we saw during the more difficult periods of the COVID pandemic. We continue to monitor the situation closely and will adapt as necessary. We believe our position as a best-in-class assurance provider for cloud-native 5G networks and our cloud expertise and knowledge will continue to drive positive returns. We are glad to report that demand looks strong, and we have a solid pipeline of opportunities that has the potential to increase our market share. With the positive market trends and our healthy pipeline, we're confident in the growth outlook of our business. As a software-focused company, we are very agile and can handle future growth prospects, scale, and meet more demand while continuing to deliver on our current customer commitments. We are happy that the new customers are enjoying our RADCOM ACE software as we deploy it in their networks, and operator teams utilize its capabilities to smartly monitor service quality. We are progressing positively as we continue integrating our software into the cloud environment. As a 5G and cloud assurance leader, we are happy to be engaged with the teams, work closely with them and offer our expertise to help them as they roll out 5G. With our existing teams, our software can scale seamlessly to many customers, which drives our financial performance and operational efficiency while at the same time delivering on the customer’s expectations and requirements. We are receiving positive feedback and are proud of our employees who are dedicated and committed to delivering on our customer success as we can continue to deploy our solutions and deliver new cutting-edge software releases. Legacy assurance solutions are limited and not flexible. While competitors take weeks or months to deploy, we implement our cloud-based solutions in days or hours. Our software is the critical source of truth for engineers who need to make quick data-driven decisions affecting millions of subscribers across their entire network stack and all service offerings. We can adapt quickly and deliver features to customers. As we move forward and deploy our software to new customers like DISH, we see the value of our analytics through all stages of the deployment to ensure a smooth network rollout and deliver great customer experiences. Turning to Rakuten in Japan and Rakuten Symphony. During the third quarter, we announced the renewal of our initial contract with Rakuten Mobile. With this agreement, we continue our successful partnership with this innovative operator, providing advanced cloud-native assurance solutions for their network in Japan. At the beginning of the quarter, we announced that Rakuten Symphony made RADCOM ACE available in the Symworld marketplace. This integration of RADCOM ACE into Rakuten Symphony streamlines network operations and helps teams understand what is happening in their network and where there are customer-affecting issues. It also provides built-in workflows and unified data analytics to enable more operators to rapidly deploy and roll out 5G with the Symphony platform. Being part of this cloud open significant opportunities for RADCOM in the future. Turning to our product innovation. We continue our commitment to delivering best-in-class solutions as we enhance our software with more automation and intelligence AI-based capabilities to bring value and expand use cases for our customers as 5G technology moves forward. I am excited to announce that we recently received industry recognition as two of our products were named finalists in telecom-focused award programs that recognize the industry's top companies for their outstanding achievements in next-generation communications technology, strategies, and innovation. The AI/ML-based solution announced last year for automatic detection of network anomalies and automation in network operation teams was named a finalist in the Outstanding Use Case in the Service Provider AI category in the Leading Lights 2022 awards. In addition, RADCOM ACE was named as a finalist in the Most Innovative Cloud Offering category in the Glotel 2022 awards program. We invest strategically in R&D to enhance our solutions, increase our 5G capabilities, expand our AI-driven insights, and seamlessly integrate our solution into the cloud. All these capabilities align with market needs and have already borne fruit, as reflected by our recent wins. To summarize, I am happy with our performance in the third quarter and across the first nine months of 2022. Revenues are up year-over-year by double-digits, and we significantly improved our bottom line. We've built a software-centric company with a strong business model that delivers high gross margins. Our team has a proven ability to provide best-in-class solutions to some of the most innovative operators in the world. We are working hard to deliver on our customer commitments while continuing to invest strategically in our innovative software to boost features and capabilities. With these new wins and our ongoing sales engagements, we have good visibility, which led us to increase revenue guidance twice during the year's first nine months. To conclude, we are optimistic about our ability to deliver a third consecutive growth year in 2022 and continue this trajectory into 2023. Accordingly, we are reiterating our 2022 revenue guidance of $45 million to $48 million. With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial results in detail.

Thank you, Eyal, and good morning, everyone. To help you understand the results, I will refer mainly to non-GAAP numbers, which exclude share-based compensation. Now please turn to Slide 8 for our financial highlights. We achieved record revenues in the third quarter, reaching $12 million, representing a thirteenth consecutive quarter of year-over-year revenue growth and an increase from $10.2 million in the third quarter of 2021. Double-digit growth of 17%. This resulted in non-GAAP net income for the quarter of $1 million, a four-year high. At the same time, we continue to manage our expenses while investing in the business strategically and efficiently. Our gross margin in the third quarter of 2022 on a non-GAAP basis was 73%. Please note that our gross margin can fluctuate depending on the revenue mix. We expect that Q4 will remain at a similar level. Our gross R&D expenses for the third quarter of 2022 on a non-GAAP basis were $4.6 million, an increase of $150,000 compared to the third quarter of 2021. We received a grant of $187,000 from the Israel Innovation Authority during the quarter, compared to $205,000 in the third quarter of last year. As a result, our net R&D expenses for the third quarter of 2022 on a non-GAAP basis were $4.5 million, compared to $4.3 million in the third quarter of 2021. We expect the Israel Innovation Authority grant in the fourth quarter to be at a similar level as in the third quarter. Sales and marketing expenses for the third quarter of 2022 were $2.8 million on a non-GAAP basis, an increase of $596,000 compared to the third quarter of 2021. The increase in sales and marketing was aligned with the growth in backlog and the good progress we made delivering on our customer commitments. We expect sales and marketing to remain at a similar level in the fourth quarter. G&A expenses for the third quarter of 2022 were $958,000 on a non-GAAP basis, an increase of $181,000 compared to the third quarter of 2021. Operating income on a non-GAAP basis for the third quarter of 2022 was $545,000 compared to an operating loss of $200,000 for the third quarter of 2021. Net income for the third quarter of 2022 on a non-GAAP basis was $963,000 or a net income of $0.06 per diluted share compared to a net loss of $333,000 or a net loss of $0.02 per diluted share for the third quarter of 2021. The positive net income was due to the increase in revenue and the favorable impact of changes in foreign exchange rates. On a GAAP basis, as you can see on Slide 7, our net loss for the third quarter of 2022 was $389,000 or a net loss of $0.03 per diluted share. This compares to a net loss of $1,069,000, or a net loss of $0.08 per diluted share, for the third quarter of 2021. At the end of the third quarter of 2022, our headcount was 289. Turning to the balance sheet. As you can see on Slide 11, our cash, cash equivalents, and short-term bank deposits as of September 30, 2022, were $70.8 million. That ends our prepared remarks. I will now turn the call back to the operator for your questions.

Thank you. The first question is from Arjun Bhatia of William Blair. Please go ahead.

Perfect. Thank you and congrats guys on a good quarter. Eyal, I want to start with you. It sounds like you're adding a lot more features and capabilities until the offering telcos are still building up 5G. You're clearly seeing good growth and customers are seeing the ROI. How do you think about pricing power going forward in the model, both with some of the newer rollouts and even with your existing customer base as well?

Good morning. Yes. So we are continuously investing in our RADCOM 5G platform. We released our 5G solution a couple of years ago and since then we have continued enhancing our product. Last year, we added our AI-based detection capabilities, which are very important to support customers in their 5G journey. We are really focused now on making sure that we are creating additional evaluated capabilities and use cases in order to ensure that our customers are successful in their journey as they implement their 5G networks. We know that it's not simple, and it requires them not only to deal with 5G as new cloud technology, but also with integration to the cloud. So we are primarily focused on making sure the transformation is as smooth and efficient as possible. Those additional new capabilities are added, and some of them are used as differentiators when we are competing with new opportunities and some are becoming a possible upsell to existing customers that do not have those included. So overall, we are looking to continue to invest in our R&D, continue to create a lot of innovation, and we feel very comfortable with our offering to the market.

Okay. Understood. Very helpful. And then for Hadar, the margin that you generated this quarter that was great to see. When you look out ahead over the next several quarters, where do you see the most opportunity for leverage in operating expenses going forward? Like is this a good run rate of operating expenses that you did in Q3? Or could we see more increases as a percentage of revenue in some areas like R&D, for example?

Hi, good morning. So in the last two years, we saw that our gross margin was around 72%, 73%. And our operating expenses are around $8 million per quarter. We believe that we will keep a similar level of operating expenses with a slight increase in sales and marketing.

We didn't hear you for a moment. Please continue.

Okay. I said that we believe that we will keep a similar level of operating expenses around $8 million in the third quarter with some incremental increase in sales and marketing expenses.

She answered your question?

Yes. Eyal, you mentioned the strength in telecommunications and how they have continued to invest during COVID. Are you hearing any feedback from them about becoming more cautious regarding capital expenditure in the future, especially considering the changes in the economy? Do you see them starting to cut back?

So overall we see the telecom industry being robust, and we see the 5G business continues. But of course, the overall macroeconomic situation is affecting everyone, and everyone is a bit more cautious, which can create some delays for large investments. The positive thing is that most of the operators are already committed to 5G; many of them are already in multi-year long term plans that have already been initiated, and we continue to do so. There might be some slowdown; we don't know; we'll continue to monitor that. The good thing for us is that we are targeting the Tier 1s larger and more powerful operators that are looking at the long-term strategy as we see them finally considering 5G an important part of their strategy, and we have good visibility with them. So we are monitoring this cautiously and hoping that there will be no negative effects from the macro economy.

Okay, got it. Very helpful. Thank you for taking the questions.

The next question is from Alex Henderson of Needham & Company. Please go ahead.

Thanks. Let's just continue on that subject, that last question. So clearly in the 5G deployments, those are multi-year long term plans, but there are all other companies and customers you have that are more, call it, traditional still more in the 4G arena than using the technology in the older formats. Those seem like they could be more cyclical and more inclined to cut back. Can you talk to what portion of your business is tied to the 5G at this point and how much of it is what I would call traditional legacy customers?

So thank you, Alex. As I pointed out in my prepared remarks, most of our pipeline of opportunities is around 5G. Also, a big part of our existing business and the recent wins we had earlier this year are around 5G. What we see is that while there might be some delays in implementing nationwide coverage and investments with a large traffic spot from the traditional radio providers, where we play in the assurance space, which is more on a smaller scale, this does not involve heavy CapEx investments. In many ways, they need more tools as we provide a lot of automation and AI that allows them to do more with less. As they add more technology, they are not going to add more people to their operation. Sometimes they need to optimize, and adding tools like ours can help them continue to do what they need in a more efficient way. This could also drive the need for our services. There might be some operators that haven't started their journey for 5G yet; it might be delayed, but as mentioned, most of these providers are already committed to continuing with their plans.

That's what I thought your answer would be. And so looking at the history of the company, you've had a number of periods where you've had very good margins up in the 74%, 75% range and some quarters where that's dipped down considerably lower towards the 70% level. My understanding is that the primary difference between higher margin quarters and lower margin quarters is the amount of traditional equipment that you're selling that seems to have lower margins. So if the mix is shifting to the higher margin 5G products and more towards straight software that's fairly frictionless to deploy, are we now in a peak period where the expansion in gross margins that occurred in 2020 to 2021 and now in another quarter, call it, 50 to 100 basis points in 2022? Where we can start talking about the longer-term gross margins up towards the 72% to 75% range as opposed to the 70% to 73% range that I think you've talked about historically?

Yes. Overall, we are seeing a trend of improved gross margin and getting closer to the 75% as we move more into 5G cloud implementations. As you mentioned, part of the revenue mix, some of the appliance base fluctuates a bit down the gross margin. But also when we implement new customers that have some one-time costs around third-party components and licenses adding to the costs, as most of the software has a very high gross margin. We sometimes see fluctuations in the gross margin, but what we see is that the overall trend is to have better gross margins, and that is closer to the 75% ranges as we continue to scale.

Yes. So as we look into the fourth quarter, it looks like there's some upside to our model on the gross margin. Is the 73% mark that we did in the September quarter the right level for the fourth quarter?

Again, as we see quarter-to-quarter, it can always fluctuate a bit because of the exact revenue mix, but this is a reasonable assumption.

So if that's the case, then you're really kind of at 73% here. And we've been modeling 71% to 73% out to 2023 through 2024, should I be taking that up to 73% and using that as the new benchmark?

As I said, it makes sense as a good assumption, yes.

Okay, perfect. I just wanted to be clear on it. Can you remind us that you don't hedge the shekel at all and your sales outside the U.S. are all in dollars, correct? I mean, outside globally.

Correct. We do not hedge, so we had some upside from that as the shekel was weakening compared to the dollar, and most of our customers internationally are based in the U.S. dollar. A significant part of our revenues is in dollars. So we don't have any significant impact from the foreign exchange.

The shekel has significantly declined towards the end of the quarter, experiencing a double-digit drop. This situation should positively impact our operational expenses for the full year. Are we planning to reinvest in those operational expenses? I believe the plan includes a slight increase in sales and marketing, but overall spending in dollar terms will remain relatively flat. Looking ahead to 2023, are we investing in local currency, which is why we can maintain flat expenses while also benefiting from some additional investment?

We are going to keep our R&D flat. We are still in the process of strategic planning, but we believe we are going to continue in the right direction for R&D levels. Of course, we are trying to take advantage of the improved dollar to shekel ratio to gain some efficiencies and maybe strengthen some areas. We do look into increasing sales and marketing to capture the market opportunity, and part of our plan is to make sure we have good coverage where the factory operators are more advanced. So we are looking to increase operations slightly in sales and marketing, but keeping the overall increase in operating expenses modest, while we focus on improving the bottom line.

I would like to revisit a question that was asked earlier about pricing. Is there any progress in the development cycle that would allow for upselling to existing contracts by adding additional features or capabilities that may not have been included in the current contracts with some customers? Are there opportunities for existing customers to purchase larger packaged products from us?

Definitely. We see opportunities for upselling by adding technology categories. This includes the add-on applications for additional use cases or product parts that may not necessarily be part of what customers are currently using. We are investing our R&D to create additional innovations. As I mentioned, it's essential for both upselling to our existing installed base, but it is also crucial to creating additional cutting-edge capabilities that will allow us to continue winning contracts and penetrate additional carriers.

One last question I don't see before. So as we look out into 2023, we've produced an average of double-digit growth over the last three years; you dipped a little bit low in 2021, but 14% plus in both 2021 and 2022. Is it reasonable to think that 2023 will be another double-digit growth rate? I realize that you haven't done your forecasting yet, and therefore we're not going to hold you to it. But it seems pretty plausible that given the momentum that you've got, that it's another double-digit year?

Yes. We are looking at good visibility for 2023. Many of our customer contracts are already lined up, and we see 2023 looking like another growth year, likely double digits. Again, it's still early, but we are viewing it positively and hoping to continue this momentum.

Thank you so much and congratulations on good execution and visibility.

Thank you, Alex.

This concludes the RADCOM Ltd. third quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.