Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the First Quarter of 2023. All participants are presently in a listen-only mode. Following management's formal presentation, instructions for the question-and-answer session will be given. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded and will be available for a replay on the Company's website at 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. 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 2023 revenue guidance, as well as revenue from its business with AT&T, levels of gross margin, operating expenses and headcounts, 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, the potential to leverage Continual’s technology and products to the benefit of RADCOM with Vodafone and other customers, its expectations about its pipeline, opportunities, leadership position and momentum, further demand for its products and growth, the Company's expectations with respect to its relationships with AT&T, 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 first quarter 2023 earnings call. We continued our strong momentum from 2022 into the first quarter of 2023 with a revenue increase of 13%, compared to the same quarter last year, a 15th consecutive quarter of year-over-year growth. Our solid performance and careful expense management improved all our profitability KPIs. We also introduced some new product use cases built using advanced AI for 5G. This quarter we significantly improved our profitability, tripling our non-GAAP net income, compared to the first quarter of 2022 and achieving a 15% non-GAAP net margin. In addition, we are happy to report that our GAAP profitability reached a four-year high, driven by solid team execution and increased revenues. We also had an encouraging start to 2023 by securing a new logo in North America. Our solution will smartly collect, process, and analyze traffic in a highly automated way across both 5G and 4G networks, which helps the operator deliver high-quality services nationwide, while proactively ensuring great customer experiences. This exciting news continues the positive momentum since the beginning of 2022. 5G networks continue to roll out with telecom operators investing in infrastructure and new technology, while ensuring the seamless transition for some customers, so they receive top-quality services. At the same time, operators must be efficient and keep the costs at a reasonable level. Operators can use our innovative assurance technology to manage the network through actionable insights to ensure excellent customer experiences, while saving operating expenses and driving automation. This is our added value, which is why operators turn to our solutions. We continue to develop our AI-driven use cases to push our vision of autonomous networks that will help operators deliver great user experiences, save costs, and monetize their services. During the first quarter, we announced that we partnered with Rakuten Mobile to offer the telecom industry’s first Network Data Analytics Function, NWDAF in production. RADCOM NWDAF is a complementary product line to RADCOM ACE and part of our long-term vision of helping enable autonomous networks. The overall NWDAF market is at its very earliest stages, so the product will not generate revenue in the short term. However, it is an important investment for the future as it is a native network function deployed in an operator’s network and not an add-on. It uses advanced AI to enhance the customer experience and drive closed-loop automation. This partnership with Rakuten demonstrates our market leadership and innovation in AI, automation, and 5G. AT&T remains a key strategic customer, and we believe our business will remain strong. Last year, we announced that AT&T renewed its multiple-year assurance contract with RADCOM as we continue to expand our relationship by providing additional value and cutting-edge software releases. We expect revenue from AT&T in 2023 to remain at a similar level to last year, with the potential for further growth. Turning to our product innovation. We continue our commitment to delivering innovative solutions as we enhance our software with additional automation and AI-based capabilities to bring value and expand use cases for our customers as 5G technology moves forward. During the quarter, we announced RADCOM’s Virtualized Network Operations Center or vNOC. This new use case is powered by extensive AI and enhanced with our telco domain knowledge to digitalize the network operations center for 5G. The vNOC helps operators transition from manual operations to automatically detecting anomalies and performing root cause analysis. This enables operators to solve customer-affecting issues and drastically improve resolution times, making network teams more efficient, while saving costs and improving the customer experience. We also advanced our cloud expertise, announcing tighter integration of RADCOM ACE with Amazon Web Services, so operators can gain complete assurance lifecycle management on AWS to drive network automation. This provides operators adopting the public cloud with extensive operational agility that saves operating expenses and enhances the user experience on AWS. We believe our integration into the cloud providers will help generate additional opportunities. In February, our sales team attended the Mobile World Congress in Barcelona, Spain, the leading telecom industry event, with an audience of almost 90,000 people from 202 countries. We were excited to once again engage in face-to-face meetings with customers, top-tier operators, and partners. We had many positive meetings, including interest in our new mobility experience offering acquired from Continual. We believe that some of these meetings could lead to new sales opportunities. As we covered in a recent blog post on the event, we saw evidence of our belief that automated assurance will be vital for 5G network operations. Operators must make their network more intelligent, dynamic, and autonomous to deliver quality 5G services. So, strong themes were the transition to the cloud, network automation, and the importance of AI. All these are areas of interest for RADCOM, and the 5G market remains promising, while still in the early stages. The complexity of these new 5G network architectures requires automated assurance solutions to provide the cornerstone to building a network with extensive automation. We also hear this from our customers. Now I would like to provide more color on Continual. In February, we entered into a definitive agreement to acquire Continual. After satisfying customary and transaction-specific closing conditions and regulatory approvals, we completed the acquisition in May. Continual focuses on telco network analytics, specializing in mobility insights. These insights enable the operator to understand the movement of their customers and how to improve service quality and coverage, with a particular focus on the radio network and 5G. These mobility experience insights use AI technology and are cloud-based. So, they fit into our product philosophy and solution architecture, while adding value to our current offering. It will offer a differentiator from our competitors with Continual’s unique, innovative location-based technology. A modular add-on solution as a possible entry point into new accounts and additional upsell opportunities into our install base. In addition, it brings us new logos like Vodafone, and offers us opportunities to expand into different areas. Finally, it adds further talent and telco domain knowledge to our team. We believe that adding Continual’s advanced mobility experience analytics and intellectual property will enrich our 5G assurance solution and create new opportunities for RADCOM. We see that new figures from GSMA Intelligence published during the Mobile World Congress show that 5G connections are expected to double over the next two years, expedited by technological innovations and new network deployments in more than 30 countries in 2023 alone. As operators invest heavily in 5G, they seek new revenue streams to regain their investments and streamline network operations through cost savings. This trend is even more critical with the uncertainties around the macroeconomy. So, we believe our position as an advanced automated assurance provider for 5G will continue to drive positive returns. Our pipeline continues to be healthy, with a good mix of opportunities from our current installed base and new customers. In 2023, we are gradually increasing our sales and marketing teams to accelerate growth. 5G is moving forward, but rollouts take time. We are laser-focused on our business strategy and the 5G market. We believe our position as a leading assurance provider for cloud-native 5G networks and our cloud expertise and knowledge will continue to drive the growth of our business. To summarize, we have continued our strong momentum from 2022 into the first quarter of 2023. Our solid financial results demonstrate our successful strategy, execution, and unique market position in supporting telecom operators as they roll out 5G. We believe this solid track record will drive consistent financial results in the future and continued improvements to the bottom line. We have a solid foundation in place for a strong 2023 and a fourth successive year of revenue growth. 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 excluding share-based compensation. Now please turn to slide eight for our financial highlights. We achieved record revenues in the first quarter, reaching $12 million, representing a 15th consecutive quarter of year-over-year revenue growth and an increase from $10.6 million in the first quarter of 2022. First quarter revenue grew by double digits, with year-over-year growth of 13%. This resulted in non-GAAP net income for the quarter of $1.8 million, a five-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 first quarter of 2023 on a non-GAAP basis was 73%. Please note that our gross margin may fluctuate depending on the revenue mix. We expect that the second quarter will remain at a similar level. Our gross R&D expenses for the first quarter of 2023 on a non-GAAP basis were $4.2 million, a decrease of $724,000 compared to the first quarter of 2022. We received a grant of $262,000 from the Israel Innovation Authority during the quarter, compared to $218,000 in the first quarter of last year. As a result, our net R&D expenses for the first quarter of 2023 on a non-GAAP basis were $4 million, compared to $4.7 million in the first quarter of 2022. We expect the Israel Innovation Authority grant in the second quarter to be about $150,000. Sales and marketing expenses for the first quarter of 2023 were $3 million on a non-GAAP basis, an increase of $407,000 compared to the first quarter of 2022. G&A expenses for the first quarter of 2023 were $964,000 on a non-GAAP basis, an increase of $139,000 compared to the first quarter of 2022. Operating income on a non-GAAP basis for the first quarter of 2023 was $833,000, compared to an operating loss of $274,000 for the first quarter of 2022. The increased revenue and favorable FX drove this growth. Net income for the first quarter of 2023 on a non-GAAP basis was $1.8 million or a net income of $0.12 per diluted share, compared to a net income of $614,000 or a net income of $0.04 per diluted share for the first quarter of 2022. On a GAAP basis, our net income for the first quarter of 2023 was $621,000 or a net income of $0.04 per diluted share. This compares to a net loss of $592,000 or a net loss of $0.04 per diluted share for the first quarter of 2022. At the end of the first quarter of 2023, our headcount was 277. We expect our headcount to grow to approximately 300 in the second quarter. This increase includes additional sales and marketing employees and onboarding of the Continual team. We expect the Continual team’s onboarding to slightly increase our operating expenses while helping to improve our top line as we integrate the solutions, upsell to our current install base, and sell to new customers as a unique product differentiator. Turning to the balance sheet, our cash, cash equivalents, and short-term bank deposits as of March 31, 2023, were $77.9 million. That ends 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. First question is from Arjun Bhatia of William Blair. Please go ahead.

Perfect. Thank you for taking the question. Eyal, can you talk about some of the AI investments that you're making? What capabilities are you introducing into the platform? And as we kind of roll some of these features out, how do you think about monetizing them? Is that going to be included in the core platform or is that something that you can upsell as customers adopt that?

Hi, good morning. AI is a pivotal area of investment for us as part of the overall vision for creating autonomous network operations. The main driver for us is to see how we can turn many of our processes used today, expensive engineering teams, and implement leveraging AI capabilities to be done in a much more efficient way. In addition, it also adds a lot of improvements to the time to repair. If you need to do things manually, it always takes time and you have resource constraints. If we are able to do it with our AI capabilities, operators are able to identify and solve the efforts much faster. Looking at the business side, we are considering this in two ways. Definitely, this is added sales to our installed base. We are packaging it in different applications, creating different use cases on top of our main RADCOM ACE platform. But this is also a very key differentiator when we approach new customers and partners, as one of the key drivers for them is once we show them the improvement in network operation and efficiencies, which helps to justify the return on investment for replacing their own legacy tools. So it's a mix of upselling to the existing accounts and also enabling that improves our positioning with new customers.

Okay. That's helpful. And then on Continual congrats on closing the deal, what I’m trying to understand is what operators were doing to understand subscriber movement before Continual? Like is this a tool that they had in place to do this? Or is there something else that you think you'll replace or consolidate as you roll this out and cross-sell into the base?

So, the Continual growth line is actually letting the operators enhance their analytics. Networks, you always try to analyze them by geographies, by locations and this is a technology and concept that has been already in place for telecom. But the main complexity of mobile networks is that people are taking calls and sessions while they're on the move, and you can see them in different locations at different times, but it's very hard for you to identify the overall journey without a dedicated solution. So, it's actually a very innovative concept that as I mentioned, they are often in many cases blind otherwise or use more simplistic tools that show them only part of the time chart. The reason is it's very helpful for them to isolate the quality issues resulting specifically due to mobility, because it might be that while I'm making my call, I'm traveling across five states, each of which is providing good quality to the area, but while in transition, I actually get inferior quality. So operators today do not know how to differentiate that. By that, they are blind to the quality of experience of their subscribers; they tend to assume they are providing better service than they actually do, and this disconnect can make customers less satisfied and more likely to churn. Mobility is always most complex when we are in motion, perhaps in a car at higher speeds, or on trains, as this really challenges the technology. We feel this is a significant approach, and this is what we like about this company. It definitely has positioned us at the cutting-edge of offering new applications, so we are very excited about that.

Yes, definitely. That sounds very interesting. I appreciate the color. Last one for me, just when we're thinking about margins for the year, it looks like you're driving some upside here. How should we think about the leverage and the model throughout the course of this year? And how much room is there to improve the margin profile? It sounds like there's some investments going on in product and go to market, but just help us walk through the cadence for the year?

So we saw that this quarter, we executed better than even in our expectations, and we are very happy with the results. We hope to continue to overachieve and beat our expectations. We do have an increase in costs as we augmented the Continual team into our operational expenses. This is slightly offset by the weakening of the shekel compared to the U.S. dollar. Overall, we are looking to increase our operational expenses a bit. However, if all goes well and we continue to grow and win more accounts, we are looking to continue to see the trend of profitability moving favorably. Of course, we are still influenced by the rate of the shekel; if the rates remain similar, this is favorable for us as our R&D expense is heavily based on shekels.

Okay, got it. Thank you for taking my questions, guys.

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

Great, thanks. So I wanted to just get down into the addition to Continual and I assume some additional hiring that you're doing independent of that acquisition. By my math, it sounds like your expectation for headcount is up about 8.5% sequentially. Should we be considering that rise on average in your operating expenses? Can you give us a little sense of the split between R&D and sales and marketing in that cost addition?

Yes, Alex. Good morning. We are looking to enhance our headcount next quarter in the range of 8% to 9% primarily due to the addition of the Continual team, but also with continued investment in sales and marketing. While the Continual team will primarily be in R&D, we will also have additional investment into sales and marketing, so I would say that this will be around the same ratio for both R&D and sales and marketing, where G&A is going to stay about the same. Of course, this does not take into account any exchange rate effects.

So we should be expecting about a 10% increase in both sales and marketing and a very minor increase in G&A?

Again, that’s about 8% to 10%, correct.

Obviously, you're not adding to your G&A from that acquisition. So I assume it's a little higher than the 8% number, primarily with the increase in those key lines.

Yes.

So based off of the strength of the quarter, should we be looking at any sequential growth or is it fairly stable on the top line sequentially as we go out with most of the increase in revenues remaining to get to your target in the back half of the year?

We see that we managed to exceed $12 million a quarter based on our recent wins. We aim to keep improving and add additional revenue quarter-over-quarter. However, it's challenging to forecast exact timing for additional upsides as we look to get more revenue from both existing and new customers. Overall, we intend to gradually continue with our plan and we are confident that this year will result in additional growth.

In the context of the U.S. wireless market, there has been a challenge around the open 5G core. Many of the service providers seem to be struggling with the mechanics of getting that to work. We've heard that there's going to be a pushout in the timing for them to move from 4.5G to 5G core. I can interpret that in two ways: one, that there could be a delay in spending on your products, but the other way would be that it significantly increases the need for your products as visibility and analytics are critical to solving the software challenges of transitioning to the open core. Can you provide your thoughts on this issue and how it might imply if there are delays in the shift to a fully standalone 5G?

First and foremost, it's evident today that all telco operators are in the process of implementing 5G, with specific focus on 5G core or 5G standalone being a strategic investment. This is vital as it's the foundation of our strategies, the company, and the products and technology we build towards telcos' transformation. This provides us an opportunity to replace legacy solutions, as it's a technological revolution, but it also requires operators to transition to the cloud. While there are factors complicating timing, such as the technology's complexity and the time required for network vendors to implement it, it takes longer than before. For us, this actually benefits us because the more complex the technology is, the more aligned our solutions become. We're helping operators manage this complexity effectively. We observe that customers who adopt our technology, like Rakuten and DISH, are progressing faster than others in the 5G space. Macroeconomic uncertainties are causing operators to pace their investments cautiously, which may delay specific projects. However, our robust business model allows us to work with leading carriers, maintain a multi-year outlook, and provide recurring revenue. Therefore, even in this environment of delays, we are achieving continuous growth and preparing for the journey ahead. Personally, I believe that advancements in 5G will continue—this is why we are increasing our investment in sales and marketing. We view this as a long-term journey rather than a quarterly event. The next two years will be crucial as more customers and operators adopt 5G technology. Thus, we maintain a belief in this space and continue investing accordingly. The timing is always a question, but we must work closely with operators to ensure we provide the right solutions when they're ready.

So, just going back to the point you made about timing—it seems that there may be some slowdown in the timing of the open cloud-based 5G core, but the complexity challenges amplify the need for your products. While that may be a detriment to vendors like Nokia or Ericsson, this could positively impact your company in that context, right? The other side of this is that international markets have generally adopted a less open, but still cloud-oriented 5G core, which is easier to implement. Are you seeing any acceleration or improved opportunities in the international market as a result of that dynamic?

Yes, we do believe there's increased adoption of cloud technology. At the Mobile World Congress, we observed that hyperscalers like Amazon, Google, and Microsoft were of prime focus for many telcos. This was especially evident among European carriers. We see increasing investment from all parties and the initiation of many telco projects moving into the cloud. This bodes well for us. Any investment towards cloud technology enhances our value proposition, which improves our differentiation. We believe this trend will assist us. 5G advancements are noticeable in Europe, Asia, and we've started to see signs in Latin America. We do not strictly focus on geography; rather, we prioritize markets with advanced 5G deployment. We carefully target so we can partner with as many early adopters as possible. We aim to continue innovating, developing unique capabilities, and raising the bar against any competition attempting to catch up.

Okay. Two more questions, fairly brief though. The Continual acquisition obviously has some nice incremental technology. I assume it is not included in your AT&T or Rakuten contracts. How do you see that technology being adopted by your existing customers? And what kind of uplift would there be to your revenues at individual clients if they did that? In other words, let’s say we're choosing a random number here: if we're selling $1 million to AT&T in a year and they adopted this, would that be $1.1 million or $1.2 million? What would the incremental uplift for that adoption look like?

We are still in the early stages of introducing this technology to our installed base. Overall, we see excitement about it. I would say while currently Continual was an early-stage startup and their revenue level is insignificant to our numbers at this stage, we see potential that this could grow and help to improve our top line significantly. I would estimate that this could grow up to 15% to 20% of our overall revenue if adoption goes well. However, this depends on how well we manage the introduction; this is just an initial sense. We are looking to continue and engage the market and will have more concrete figures in a couple of quarters as we analyze the outcomes by 2024.

Great. Thank you so much.

This concludes the RADCOM Limited first quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.