Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the Fourth Quarter and Full Year 2023 Results. 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 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 have not downloaded it yet, you may do so through the link in the investor's deck on 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 full year 2024 revenue guidance, the 5G market and industry trends, expected increases in standalone 5G launches, the role the company is expected to play in the 5G transformation, expected increases in sales activities and opportunities, its pipeline, the expected impact of currency rates, the company's market position, cash position, potential and expected growth in profitability in 2024 and thereafter, its expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel Innovations Authority, the company's expectations with respect to its relationships with Rakuten, DISH, AT&T and Vodafone, its expectation to continue enhancing its software solutions and demand for its solutions, the role of its 5G solutions and cloud developments, its ability to capitalize on 5G opportunities, win more market share and the potential of the company's use of artificial intelligence and its products. 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 noncash stock-based compensation expenses, financial income expenses, acquisition-related expenses, and amortization of intangible assets related to acquisitions. 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 fourth quarter and full year 2023 earnings call. You may have seen that earlier today, we announced the CEO transition. I will be stepping down as the CEO and Guy Shemesh will succeed me. I wish Guy and the RADCOM team success in the coming years. RADCOM was my home for over 20 years in various leadership positions. RADCOM is close to my heart, and I will remain in an advisory role to ensure a smooth transition and to help ensure the company's continued success. Let me start with the financial results and the business updates and then I will discuss the transition in my summary. 2023 marked an exceptional and record year for RADCOM, extending the momentum of the last four years of growth. We achieved a revenue milestone of $51.6 million, representing 12% growth year-over-year, a fourth consecutive growth year. In the fourth quarter, revenue was $14 million, representing a year-over-year growth of 14%, while our net margin reached a record level. We continued our path to sustained profitability, achieving the record net income of $10.2 million on a non-GAAP basis or $3.7 million on a GAAP basis for 2023. Our finances strengthened due to the positive cash flow that reached a record level of cash and cash equivalents totaling $82.2 million with no debt. We crossed the $50 million annual revenue threshold and scaled to a midsized software company. In 2023, our team executed well while delivering a record year, laying the foundations for the robust 2024 and beyond. I am proud of our employees and thank them for their dedication and commitment to delivering on our customer success and growth strategy during the year. Our strong results highlight the importance of our industry-leading solutions in this growing 5G market. Looking at 2024, thanks to our strong execution and current visibility, we are confident in delivering a fifth consecutive year of revenue growth and increasing our profitable growth metrics. Our full year 2024 revenue guidance is $56 million to $60 million. Since the October 7 attack and the resulting situation, our operation in Israel and globally have continued without interruption. We are closely monitoring the situation. Our Israel office is fully operational and running normally. At the same time, our business continuity plan is active, so we are prepared for any changes to the current situation. As demonstrated in the fourth quarter of 2023, our team works diligently to fulfill our customer obligations, grow the business and drive the company forward. For our customers, we continue to provide software enhancement and to introduce new innovative software releases to assist them in managing their networks and ensuring great customer experiences. In 2023, we secured several new orders from our existing customer base, increasing our overall revenue from existing customers compared to 2022. AT&T, DISH, and Rakuten remain key strategic customers. We believe our business with them will remain strong. We expect revenue from these customers in 2024 to stay at a similar level to last year with potential for further growth. Due to the continual acquisition, we added Vodafone as a new customer in 2023. Vodafone is a British multinational operator operating in 21 countries, which provides a potential growth area for more business in the future. During 2024, we will expand our focus on our sales activities to meet the expected 5G standalone monitoring demand with our leading 5G assurance solutions. Operators rely on assurance to navigate the transition to 5G and enhanced operational efficiency. As they adopt next-generation cloud technology to optimize cost and roll out 5G, the current macroeconomic landscape presents a new opportunity for RADCOM, a leading global cloud-native assurance solution. We continue to enhance our software with additional automation, analytics, intelligence, and AI-based capabilities to bring value and expand use cases for our customers as the adoption of 5G technology progresses. We also rolled out RADCOM Virtual Drive Test, a product we acquired as part of the continual acquisition to help operators improve the customer experience while reducing costs. These product initiatives have already gained traction with potential customers and could lead to additional business. As I mentioned, our product strategy is making networks more intelligent and autonomous through AI-powered analytics to save costs, improve the customer experience, and drive operational efficiencies. Recently, we announced our position as one of the first assurance vendors to harness the power of generative artificial intelligence for real-time and efficient management of 5G networks. We are approaching this from the unique perspective of a company with years of expertise in the telco space and an advanced AI-powered analytics point of view. These applications enable operators to adopt the power of generative AI and trusted data to manage their network operations faster and cost-effectively. Executives and engineers can use natural language to tap into the wealth of data RADCOM ACE produces as it analyzes service quality. Operators can talk with their network and leverage the rich insights through RADCOM Gen AI applications using customized large language models. Generative AI will be a hot topic in 2024, and we will be showcasing our RADCOM NetTalk use cases, which we'll continue to develop throughout the year, starting at the Mobile World Congress at the end of February in Barcelona. Our market-leading solutions thoughtfully align with the operator's needs, which drives revenue, reduces operational costs, and provides unique technology to address critical network challenges. We are confident that our unique innovative offering will drive sustained growth. Our pipeline continues to be healthy with a good mix of opportunities from our current installed base and new customers. In 2024, we will expand and focus on our sales activities, which we believe will lead to additional contracts and increased market share. To summarize, 2023 was an exceptional record year for RADCOM, continuing the last four years of growth momentum. We believe our strong sales and marketing engagement shows that the demand for our solutions is robust. Our multiyear contracts also provide a strong backlog, driving consistent results and providing good visibility into 2024 and beyond. Therefore, we are confident in delivering a fifth consecutive year of revenue growth, further increasing our profitability, and continuing the positive momentum in 2024.

Thank you, Eyal, and good morning, everyone. Now please turn to Slide 8 for our financial highlights. While the slides contain GAAP and non-GAAP results, I would refer mainly to non-GAAP numbers excluding share-based compensation, acquisition-related expenses, and amortization of intangible assets related to amortization and financial income expenses. We concluded the fourth quarter of 2023 with $14 million in revenue, marking a new record quarter and an increase from $12.3 million in the fourth quarter of 2022. Our gross margin on a non-GAAP basis in the fourth quarter of 2023 was 76%. Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2023 on a non-GAAP basis were $3.9 million, a decrease of $785,000 compared to the fourth quarter of 2022. We received a grant of $190,000 from the Israel Innovation Authority during the quarter compared to $160,000 in the fourth quarter of last year. Our net R&D expenses for the fourth quarter of 2023 on a non-GAAP basis were $3.7 million, a decrease of $815,000 compared to the fourth quarter of 2022. Sales and marketing expenses for the fourth quarter of 2023 were $3.3 million on a non-GAAP basis, an increase of $401,000 compared to the fourth quarter of 2022. G&A expenses for the fourth quarter of 2023 on a non-GAAP basis were $978,000, with no significant change from the fourth quarter of 2022. Operating income on a non-GAAP basis for the fourth quarter of 2023 was $2.7 million, 19% of revenue, compared to an operating income of $608,000, 5% of revenue for the fourth quarter of 2022. Net income for the fourth quarter of 2023 on a non-GAAP basis was a record of $3.8 million, 27% of revenue or a net income of $0.25 per diluted share compared to a net income of $1.3 million, 11% of revenue or a net income of $0.09 per diluted share for the fourth quarter of 2022. On a GAAP basis, as you can see on Slide 7, our net income for the fourth quarter of 2023 reached an all-time high of $2.6 million, 19% of revenue or a net income of $0.70 per diluted share compared to a net loss of $26,000 or a net loss of $0.00 per diluted share for the fourth quarter of 2022. At the end of the fourth quarter of 2023, our headcount was 295. Now let's turn to the full year results. We ended 2023 with revenue of $51.6 million, an increase of 12% from $46.1 million in 2022. On a non-GAAP basis, our gross margin was 74% in 2023 compared to 73% in 2022. Our gross R&D expenses for 2023 on a non-GAAP basis were $16.9 million, a decrease of $2.1 million compared to 2022. In 2024, we plan on investing in R&D at approximately the same level as in 2023. We received a cumulative grant from the Israel Innovation Authority for $736,000 during the year. In 2024, we expect grant from the Israel Innovation Authority to be at the same level as in 2023. Sales and marketing expenses in 2023 were $12.7 million on a non-GAAP basis compared to $10.9 million in 2022. In 2024, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for 2023 on a non-GAAP basis were $3.8 million, an increase of $268,000 compared to the entire year of 2022. Operating income on a non-GAAP basis for 2023 was also an all-time high of $5.7 million, 11% of revenue compared to an operating income of $1.1 million, 2% of revenue for 2022. Net income for 2023 on a non-GAAP basis was a record of $10.2 million, 20% of revenue or a net income of $0.67 per diluted share compared to a net income of $2.9 million, 6% of revenue or a net income of $0.19 per diluted share for 2022. On a GAAP basis, as you can see on Slide 7, our net income for 2023 was another record of $3.7 million, 7% of revenue or a net income of $0.24 per diluted share compared to a net loss of $2.3 million or a net loss of $0.16 per diluted share for 2022. In 2024, we believe the dollar-shekel ratio will stabilize at the current levels and not require hedging. Turning to the balance sheet, as shown on Slide 11, our cash, cash equivalents, and short-term bank deposits as of December 31, 2023, were $82.2 million. As was mentioned in the previous quarter in 2023, we completed a continual acquisition in the amount of $2.5 million. Thanks to our strong results, we generated a positive cash flow of $4.5 million, which led us to end the year with our highest level of cash.

As I mentioned at the start of my remarks, I'm stepping down after over four years as CEO and 20 years in various leadership roles within the company. It has been an honor to lead the incredible team at RADCOM. I am proud to have led the company to surpass the $50 million annual revenue threshold and scale the company up to a midsized company for the first time while achieving profitable growth. I'm leaving the company in a healthy situation with excellent visibility into 2024 for continued growth and increased profitability, while I move to my next challenge. RADCOM is in the hands of a capable and talented management team. I am confident that together, they will continue to lead the company, drive further growth and achieve new heights under Guy's leadership. Thank you to all the employees, customers, investors, and partners I worked with who have put their trust in the company, and I wish the Board, Guy, and RADCOM every success. That concludes our prepared remarks. I will turn the call back to the operator for your questions.

Thank you. Ladies and gentlemen, we will now start the question-and-answer session. The first question is from Arjun Bhatia of William Blair. Please go ahead.

Perfect. Thank you, guys. And, Eyal, congrats on the run, and it's been great working with you, best of luck in the next chapter here. If I can start off on AI. It seems like some exciting announcements are coming with NetTalk. But, Eyal, can you maybe just talk a little bit about how Generative AI makes RADCOM and assurance in general a little bit more strategic and raises its profile? What are you looking for as the key indicators that you're getting traction with customers at telcos and that these GenAI capabilities are resonating and adding value for your customer base?

Hi, good morning. Thank you, Arjun, for the kind words. GenAI is a big trend, not only for the telco industry but for all tech sectors. We are looking to see how we can leverage this disruptive advancement. We believe RADCOM is uniquely positioned as we collect a wealth of data from the network by monitoring the real customer experience of all subscribers using our services. We have been leveraging AI technology for the last three years, trying to create automation and efficiencies for the operators. With GenAI, we are attempting to take it to the next level. The idea is that we will become like a copilot for the operator, enabling the engineers to perform their tasks more efficiently and become better experts in their domain because we make available our solutions and the data it provides, along with industry standards and specs. By that, we empower the engineers, creating efficiencies for operators which allow them to work with more efficient teams and ultimately drive improvements in customer experience. This is where we are heading today. We are also looking at this strategically, and we believe that in the next three to five years, GenAI will evolve further and we will be able to perform even more sophisticated tasks as the technology matures. Ultimately, the goal is for GenAI to close the loop, analyzing network conditions and making adjustments to improve the network and enhance customer experience.

That's very helpful. And you talked about in your prepared remarks the pipeline and how you'll invest in sales and marketing. When we look at GenAI specifically and consider some of the early signs of success that you're having, do you anticipate that this will come through some of the customers that are earlier in the pipeline or primarily with your existing customer base?

The GenAI is now in an innovation stage. We are not anticipating revenue in 2024 directly from those investments. It is important for our customers to see our innovation and thought leadership in this space, along with our roadmap and vision. Consequently, the influence is mainly indirect. Our strong pipeline gives us good visibility into 2024, where we continue our growth journey and potentially accelerate based on our RADCOM ACE product line with both new and existing customers. I believe GenAI will contribute in the long term.

Got it. And then just touching on the pipeline. You mentioned that you're making incremental sales and marketing investments because you're seeing demand, which certainly makes a lot of sense. Can you give us a sense of where you're seeing traction in the pipeline and the incremental resources you're dedicating to sales and marketing? Is that to grow or convert existing customers? Just give us a sense for where you'll be directing those efforts in 2024.

Sure. We are closely monitoring the evolution of 5G, particularly the strategic 5G standalone. The early adopters in the market are in North America and some advanced Asian countries like Japan and South Korea, where we've focused for a few years. As we see additional regions progress, we are accelerating our sales investment. I believe 2024 is going to be pivotal for 5G SA technology, with increased efforts and progress in Europe. While Europe has more operators in smaller countries, we are beefing up our team to ensure good visibility and the capability to capture opportunities. We will continue to invest in our sales activities throughout the year to keep pace with 5G developments. Our customers are already known and their buying frequencies are evident, and we see their partnership announcements with network vendors. This is where our solutions become critical. We plan to increase our teams by 20% to 30% globally, focusing primarily on Europe while also scaling up teams in other markets where we see current opportunities and want to enhance our pipeline to support our multiyear growth plan.

Okay. Perfect. Very helpful. I'll leave it there. Thank you, guys, and I appreciate you taking the questions.

Thank you, Arjun.

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

Thanks, Eyal. I'm a bit surprised that you're choosing to move on at such a young age. I find it hard to understand, but congratulations on your decision. Could you share some insights about the growth rate you've achieved? You've had double-digit growth in each of the past two years. Is it reasonable to expect that this growth can be sustained at the top line in 2024? You have mentioned the possibility of acceleration several times. Do you think that acceleration is likely to occur?

Thank you, Alex. Yes, as you saw from our guidance for the year, we are looking to continue at a minimum with double-digit growth. If you look at the higher range of our guidance, this could reflect further acceleration compared to what we do today. Our business model with over 70% recurring revenue supports our long-term growth. It's all based on execution, maintaining our run rate, evolving with our existing customers, and winning new logos. I believe 2024 is the year we will start to see more growth in 5G SA, as I previously mentioned. This is why we are increasing our sales and marketing efforts. The plan and trajectory are to continue this double-digit growth long-term. I’m personally optimistic that we can accelerate our growth, depending on operator adoption of 5G SA and our ability to execute well.

Given that backdrop of 10% growth, you're talking about a significant acceleration in spending around sales and marketing, if I'm reading it correctly, a 20% to 30% increase in the number of teams. Can you give us some sense of what you think the sales and marketing line is likely to do under that scenario? I mean, we're talking about compression in operating margins this year.

We are in the process of reallocating resources from R&D to sales and marketing. That increase is incremental. We will obtain some of the increase in the first part of the year, while some will come later in the year. In response to Arjun, this will depend on the development of 5G SA. This is a strong vote of confidence in our business, and we will adapt it to the pace of new 5G SA requests for proposals that we encounter. We want to ensure we don’t miss market opportunities, and we believe the next 18 to 24 months will be critical for capturing market share. We aim to bolster our presence in regions like Europe and specific countries where we find the best fit for our products.

I'm looking for some quantification of the strategy. Is it reasonable to think, given the commentary around sales and marketing expansion, that you're going to compress the operating margins in 2024?

No, we expect operating margins to improve as we grow significantly in revenue, and the overall increase in operational costs will be lower than revenue growth.

So if I'm talking about a 20% to 30% increase in the number of teams, what does that translate in terms of the sales and marketing expansion? How do I achieve a 20% to 30% increase in the number of teams without increasing costs similarly?

As mentioned, we will reduce R&D expenses to cover some of the growth in sales and marketing. Overall, sales and marketing are not the largest expenses for the company. Therefore, we're not looking to increase overall operational expenses by 20%. The increase in the sales and marketing teams will occur gradually. Over the year, we will have a minimal impact from this shift since not all will be immediate. Some will come later in the year.

Thank you.

The next question is from Charles Elliott of IPI. Please go ahead.

Thank you. Eyal, first, thanks very much for all you did for the shareholders over the last few years and good luck. In terms of your future, are you moving on to an equally active role? Or is it more of a Chairman's position or non-executive positions?

I'm going to support the company and Guy in this transition for the next period of time to ensure RADCOM's success. I will reveal my plans later, but no, I won't stay as Chairman or in the Board of RADCOM.

With your balance sheet so full of cash and the company now generating free cash flow, is it a prospect that RADCOM returns some free cash flow, returns more to investors through buybacks or through a dividend decrease? Or do you want to conserve your cash to get revenues well above $100 million in a few years and grow further from there?

It's more of the second. We believe that while we are generating cash and profits, over the last few years, these options allow us a strong market position, first and foremost with our customers. This allows us to engage and assume more risks in increasing our market share. We did our first M&A last year, and we believe there might be opportunities to further increase our strategic market position. We prefer to keep our options open for additional M&As that will foster further growth instead of dividend payout or buybacks.

Thank you. One final question. You mentioned Vodafone. Did it come through your acquisition of Continual? Or was it a kind of greenfield new customer win? Should we view this as comparable in size to your big customers now like Rakuten or AT&T, or is it significantly smaller at the moment?

At the moment, it is significantly smaller. Vodafone was a key customer for Continual, which allowed us to create great synergy. With the power of RADCOM's technology and product set, we see potential for further expansion. We are currently engaged with Vodafone as a certified vendor, allowing us better visibility into their requirements. Vodafone is a large enterprise with many operations primarily in Europe. We believe RADCOM's technology can enhance our relationship. It can scale to the size of Rakuten or even AT&T, but initially, we have only begun working with them. I believe this relationship could grow significantly in the near future. Thank you very much.

This concludes the RADCOM Ltd. fourth quarter and full year 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.