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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the Fourth Quarter and Full Year 2022. 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 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 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 the 5G market and industry trends, the role the Company is expected to play in the 5G transformation, sales opportunities, sales cycles, visibility, leads, pipeline and backlog, the expected impact of currency rates, the Company’s market position, cash position, potential and expected growth, including scalable and profitable growth, and momentum in 2023 and thereafter, levels of recurring revenues and gross profit from such activity, its expectations with respect to research and development and sales and marketing expenses, as well as grants from the Israel Innovation Authority, the Company’s expectations with respect to its relationships with Rakuten and AT&T, its ability to handle future growth and meet demand, its expectation to continue enhancing its software solutions and demand for its solutions, deployment of its 5G solutions in cloud environments and the potential benefits to its clients, its ability to capitalize on the emerging 5G opportunities and win more market share with new and existing customers, the potential of the Company’s vision and the use of artificial intelligence in its products, 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 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.

Eyal Harari: Thanks, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2022 earnings call. The fourth quarter was a solid finish to a record year as we expanded our install base with multiple top-tier mobile operators. During 2022, we delivered record revenue each quarter, representing a third successive year of growth. Fourth quarter revenues were $12.3 million and full year revenues were $46.1 million, a 14% year-over-year growth, and we reached an inflection point for the Company, delivering a profitable year on a non-GAAP basis while generating a positive cash flow of $7 million, ending the year with a record level of cash and on a non-GAAP basis, a net income of $2.9 million.

We also had an encouraging start to 2023 by announcing that we had secured another North American contract for our solutions. This exciting news continues the positive momentum since the beginning of 2022. This additional win brings us over $50 million in new contracts over the last 12-month period. The new multi-year contracts secured during 2022 on top of our current agreements provide good visibility and a strong backlog for 2023 and beyond. As the business grows, we carefully manage our expenses and believe we can maintain scalable, profitable growth. We delivered a record-breaking year despite the current economic headwinds. We believe this positive momentum will continue into 2023 and expect an even more robust growth year in 2023. Based on our current visibility, we are providing full-year 2023 revenue guide of $50 million to $53million.

Turning to our customer activities. In 2022, we announced the renewal of our contracts with AT&T and Rakuten. These are important milestones as they remain key strategic accounts with whom we have strong relationships and partnerships. We continue to innovate and provide software enhancements to ensure excellent customer experiences and offer an advanced assurance solution that provides intelligent insights in a cloud-native solution. We also announced in 2022 that Rakuten Symphony selected our cloud assurance technology as its service assurance solution that will be globally available in their Symworld marketplace. The 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 deploy and roll out 5G rapidly. Being part of this could open significant opportunities for RADCOM in the future. Turning to the new contracts. In 2022 we secured multiple new contracts, including DISH in the US and a European mobile operator. Thanks to solid execution by our teams, we have made good progress in these accounts, which began to be reflected in fourth-quarter revenues. Most revenues will be recognized during 2023 and beyond. As these networks advance, we believe there could be further opportunities to expand with these operators. For example, DISH has previously stated that the enterprise could generate significant new revenue streams. This is where our cloud assurance technology can help.

DISH can offer enterprise customers our assurance solution to monitor these private networks to ensure service quality and certify SLAs. The operators can sell premium services and value-added packages, including service assurance that runs over their 5G cloud across multiple market verticals. For the new North American contract we announced last month, we provide real-time insights into the network as the operator maintains its 4G network while expanding 5G coverage nationwide. With our recent wins and positive customer feedback, we remain confident that our product offerings align with market needs, are best-in-class, and will increase our market share by winning opportunities as the 5G transformation continues. In 2022, our multi-year contracts provided recurring revenue that accounted for approximately 70% of our revenue.

Our software-centric business offers a robust business model that delivers high gross margins and significant recurring revenues while providing customers with great value and predictable long-term pricing. Our team executed exceptionally well in 2022. Even though we extended our customer install base, our customer support headcount remained approximately the same throughout the year. This is a testament to the professionalism of our employees and the scalability of our innovative software. Our solutions can be quickly deployed in the operator’s cloud network and rapidly roll out new customer features. This agility and operational efficiency drove our financial performance this year while simultaneously delivering on the customer’s expectations and requirements.

As a software-focused company, we maintained a high gross margin this year, 73%. This helps our operational efficiency and improves our profitability KPIs. I’m incredibly proud of the management team and our employees, and I thank everyone for their continued hard work and dedication. In 2023, we plan on gradually increasing our sales and marketing teams to take advantage of the strong demand for cloud assurance technology reflected in our pipeline. Operators continue to roll out 5G and invest in their networks, and we believe that the 5G market remains strong while still only being at the early stages. The complexity of these networks requires automated assurance solutions to optimize performance and provide the cornerstone to building networks with extensive automation.

With the uncertainties around the macro economy, some operators may take longer to roll out their 5G network than others. Still, the market direction is clear, and we believe our position as a best-in-class assurance provider for 5G will continue to drive positive returns. With this transition to 5G and the cloud, operators want to become more efficient and reduce their CapEx/OpEx spending. This is also an opportunity for us, as I will elaborate on later. Our long-term vision is to help telecom operators become more autonomous. To achieve this goal, networks must be software-driven, more intelligent, and more automated. This is what our solution enables through AI and automation making the operators’ network more intelligent and automated through AI-powered analytics.

Our solution analyzes massive amounts of network data and provides insights that drive automated network operations. I mentioned that operators are under pressure to reduce CapEx and OpEx spending. This is another area where our innovative software and advanced AI can help. Our solution enables operators to save costs by automating their network operations and automatically finding places to optimize that prevent revenue leakage and customer churn. In addition, as we have a cloud-based solution, operators reduce CapEx spending on assurance hardware. In other words, our solutions empower operators to do more with less and improve their services. These benefits can help operators navigate the current economic headwinds. So, although there is uncertainty around the macro economy, we are well-positioned to win more business through our ability to help operators save costs and optimize.

Our solutions were born in the cloud and designed for telecom operators. This helps us remain focused as we enhance our solutions, increase our 5G capabilities, and expand our AI-driven insights. AI has been in the news recently, with ChatGPT going mainstream. This type of AI is called Generative AI, which creates new content, such as images, text, and videos. Generative AI has three models of working. One of those models is called GAN for short. This AI model generates synthetic data as an alternative to real network data. We use this AI technology to train and improve our solutions for advanced 5G use cases, develop our AI models, and offer our customers new use cases. Later this month, we will showcase our latest product innovations, AI capabilities, and exciting new use cases at the Mobile World Congress in Barcelona, Spain, the leading telecom industry event.

We will hold many meetings with customers, top-tier operators, and partners. The event is expected to draw around 80,000 visitors as it ramps up after a couple of years of being a primarily virtual event due to COVID limitations. Turning to the pipeline. We continue to see strong demand for our advanced cloud assurance technology reflected in our sales pipeline 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 stimulate growth as it ramps up, creating more sales engagements that can lead to additional multi-year contracts and increased market share. Our solid financial results and new contracts demonstrate our strategy’s effectiveness, and the unique market position in supporting telecom operators as they roll out 5G.

Also, our recent wins provide a growing stream of recurring revenues and improve an already strong backlog, providing us with long-term visibility into 2023 and beyond. We believe this solid footing will drive consistent financial results in the future and continued improvements to the bottom line. Despite the economic headwinds, we also believe that the 5G market will drive additional demand for our solutions, increase our business and lead to further wins in the future. As a result, all the foundations are in place for a strong 2023 and a fourth consecutive year of revenue growth. Based on our current visibility, our 2023 revenue guidance is $50 million to $53 million. With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial results in detail.

Hadar Rahav: 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 will refer mainly to non-GAAP numbers, excluding share-based compensation. We ended the fourth quarter of 2022 with $12.3 million in revenue and a new record quarter, an increase from $11.2 million in the fourth quarter of 2021. Gross Margin. Our gross margin in the fourth quarter of 2022 on a non-GAAP basis was 73%. Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.7 million, a decrease of $60,000 compared to the fourth quarter of 2021. We received a grant of $160,000 from the Israel Innovation Authority during the quarter, compared to a grant of $194,000 in the fourth quarter of last year.

Our net R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.5 million, similar to the fourth quarter of 2021. Sales and marketing expenses for the fourth quarter of 2022 were $2.9 million on a non-GAAP basis, an increase of $347,000 compared to the fourth quarter of 2021. G&A expenses for the fourth quarter of 2022 on a non-GAAP basis were $942,000, an increase of $105,000 compared to the fourth quarter of 2021. Operating income on a non-GAAP basis for the fourth quarter of 2022 was $608,000 compared to an operating loss of $158,000 for the fourth quarter of 2021. Net Income for the fourth quarter of 2022 on a non-GAAP basis was $1,320,000 or a net Income of $0.09 per diluted share compared to a net loss of $237,000 or a net loss of $0.02 per diluted share for the fourth quarter of 2021.

On a GAAP basis, as you can see on Slide 7, our net loss for the fourth quarter of 2022 was $0.03 million, or a net loss of $0.0 per diluted share, compared to a net loss of $1.4 million, or a net loss of $0.10 per diluted share for the fourth quarter of 2021. At the end of the fourth quarter of 2022, our headcount was 284. Now let’s turn to the full year results. We ended 2022 with revenues of $46.1 million, an increase of 14% from $40.3 million in 2021. On a non-GAAP basis, our gross margin was 73% in 2022 compared to 72% in 2021. Our gross R&D expenses for 2022 on a non-GAAP basis were $19.0 million, which was approximately the same in 2021. In 2023, we plan on investing in R&D at approximately the same level as in 2022. We received a cumulative grant from the Israel Innovation Authority for $762,000 during the year.

In 2023, we expect grants from the Israel Innovation Authority to be about half. Sales and marketing expenses for 2022 were $10.9 million on a non-GAAP basis compared to $9.5 million in 2021. In 2023, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for 2022 on a non-GAAP basis were $3.6 million, an increase of $301,000 compared to the entire year of 2021. Operating Income on a non-GAAP basis for 2022 was $1.1 million, compared to an operating loss of $2.1 million for 2021. Net Income for 2022 on a non-GAAP basis was $2.9 million or a net income of $0.19 per diluted share, compared to a net loss of $1.9 million, or a net loss of $0.13 per diluted share for 2021. On a GAAP basis, as you can see on Slide 7, our net loss for 2022 was $2.3 million or a net loss of $0.16 per diluted share, compared to a net loss of $5.3 million or a net loss of $0.37 per diluted share for 2021.

The increased share-based compensation expenses negatively impacted GAAP net loss in 2022 compared to 2021. In 2023, we believe that the dollar/shekel ratio will stabilize at the current levels and will not require hedging. Turning to the balance sheet. As you can see on Slide 11, our cash, cash equivalents, and short-term bank deposits as of December 31, 2022, were $77.7 million. That ends our prepared remarks. I will turn the call back to the operator for your questions.

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

Alex Henderson: Great, thanks so much and congratulations on the great and consistent execution you guys really are delivering that the right mechanics in your business and it’s good to see. I was hoping we could talk a little bit about the commentary around sales and market putting what do you think your OpEx investment will look like over the course of 2023? I assume your gross margins will stay pretty much where they are, but I also would assume that it is a little bit more aggressively on the sales, just some guidance there?

Eyal Harari: So thank you Alex and yes we are finishing a great year with improvements on all of our KPIs. As pointed out, we are looking to keep our operation expense in similar levels in in general as we are seeing out ability to be efficient and continue to deliver on with our current team, even so we are growing with our customer base. We are keeping our R&D expense and technical staff in similar expense compared to 2022 and we are looking to gradually increase our sales and marketing as we see there is additional opportunities and we want to have better reach to more accounts as 5G is progressing.

Alex Henderson: Just so I can understand, I mean I would think that you have at least some wage inflation to deal with, is it the shekel that is offsetting, the weakness in the shekel over the last year offsetting the wage inflation is that how you are delivering stable OpEx or because it seems like ?

Eyal Harari: So yes, we do have some weakening of the shekel in terms of the dollar which allows us to optimize and beat our cost as our R&D main cost is in Israel and in shekels. We did also some optimization and cost savings activities to adjust our operational expense and this is why we are able to maintain similar leverage despite also the inflation and some salary adaptions we need to do.

Alex Henderson: One of the other variables is a little challenging for us to analyze externally is the change in cash generation in the company over the course of the year has raised your cash balances and the interest rate on your cash balances are going up. So can you give us some sense of where we ought to be in terms of the interest income over the course of 2023? It was up quite sharply quarter-to-quarter and I do not know whether that is a function of something unusual in the numbers, a translation just the rise of interest rates on your balances.

Eyal Harari: Hadar, can you take this?

Hadar Rahav: Yes sure. So we ended the last two years with consistent cash flow and believe that with the transition to profitability together with strong collection from our large customers and the expected interest on the bank deposit of course based on the we will continue to generate cash during 2023.

Alex Henderson: Well yes, I would assume so, but I guess my question is, in the interest income line should we be using 500K a quarter to roughly 2 million for the year similar to what you earned in 2022 or is there something in there that in 2022 that overstated that it should be down a little bit or interest income to go up? Can you give us some guidance on the interest line for 2023?

Hadar Rahav: Yes, I feel between 2 million to 3 million is let’s say on the bank deposit during the 2023.

Alex Henderson: Okay, so are there any offsets to that or is that just what we should be using?

Hadar Rahav: No this is the account financial income.

Alex Henderson: Yes the other two lines Hadar could you just a little guidance on is the NRE line, is that going to be as you are now getting a little larger, is that NRE line some of the government subsidies going to start coming down? We are assuming it is going to come down 150K for the year, is that right or is it going up or any thoughts on that?

Hadar Rahav: So Alex, can you repeat it?

Alex Henderson: Yes, the NRE, the subsidies you get from the government, the NRE line, any sense of whether that is going to go up, down, sideways for 2023?

Hadar Rahav: So currently the innovation concentrating in only companies in the and we believe in ground to going to 2023 it will be not only 50% from growth 2022 and it will be recognized given the trust .

Alex Henderson: And then tax line, any guidance on tax?

Hadar Rahav: Sorry?

Alex Henderson: The tax line and any guidance on the tax line?

Hadar Rahav: We guided the tax, will be on a similar with of course it was in 2022 because we believe that our large territory offset the expected profitability .

Alex Henderson: Okay thanks. Can you talk just a little bit about the pipeline? What the whiteness of what you are looking at is, is there a lot of transactions that are being slowed down as a result of the conditions in the marketplace and to what extent you think that you could have some news flow in the first half of the year or is it going to be mostly in the back half of the year, just some sense of timing of what you are chasing? Thanks.

Eyal Harari: So our timing is solid and we have a good mix of opportunities between our existing customers and new customers. We are monitoring like everyone the news and we see telecom operators continue to invest in 5G, but they are also looking how they need to adapt to the new macro economy. It’s very hard to predict in telecom and in RADCOM in specific when exactly these will happen. But I think most importantly is that we are starting 2023 with very good visibility into the year based on our good performance in 2022 which gives us the confidence that this would be another gold field. Any we have in our pipeline the mix of opportunities different stages, definitely some could still happen in the first half of the year as long as there is no unforeseen delay due to the macro economy, but is very hard to predict.

Alex Henderson: All right, thank you so much.

Eyal Harari: Thank you, Alex.

Faith Brunner: Hey guys it is Faith on for Arjun. Again, congrats on the quarter. I just wanted to talk a little bit now that you’ve breached that inflection point, what are the levers that you guys have at your disposal from both the top line perspective as well as margins that I know you touched on previously to kind of keep this level trending as you kind of go back towards historic net income numbers?

Eyal Harari: So, thank you Faith and good morning. I think to start with 2022 was a third consecutive year of growth and as you see our guidance, we are looking to continue growing also in 2023 in double digit levels. In the software company with the gross margins of 73% in 2022 and we are looking to have similar levels in 2023. A lot of the top line goes to the bottom line. I mentioned in my prepared remark and was asked in the previous questions, we are able to maintain our operational expense in controlled manner and we did not see a need to increase our operational teams despite these goals and additional customers that we work with. This is why we say that a significant part of the top line is inflated to the bottom line.

We see this trend in profitability KPI improving along the last three years along with growth. So as we are expecting to also grow this year working and executing with our existing and new customers we are expecting this to be improving also the profitability and continue to generate cash flow during 2023.

Faith Brunner: Okay great, thanks. And then I just want you to talk about RADCOM ACE for a second, we’ve been hearing a lot about it in your recent deals, can you just talk about how this solution brings customers to the table and how it is contributing to the overall pipeline?

Eyal Harari: So, RADCOM ACE is a solution that was born in the cloud for telecom operators as they transform into 5G. And like many of our competitors who are based on legacy and platforms that will build for the 4G networks and appliance base, we build ground up all our technology around and cloud native architectures. This allows us now to be focused not only on the infrastructure, but we are continuing to add more innovation into the value. Some of our other market players are busy today to ingrate or build cloud native solutions, this is something we already have for the last two years and we got endorsement from the recent wins, companies like DISH that are very advanced in the cloud may be the only operator that is fully cloud native utilizing AWS.

So this allows us to direct our R&D investment into creating additional edge. And as pointed out before, AI technology is amazing and we are trying to harness these great tools to allow additional value to our customers as they are required to optimize and save costs and by leveling this technology we are able to add a lot of machine based applications for automation and it is aligned with our long term strategy to help operators become more autonomous. So we are seeing great response from our customers and prospects about RADCOM ACE and we believe this is probably the best product out there for 5G assurance in the cloud.

Faith Brunner: Awesome, thanks for the color and again congrats on the year.

Eyal Harari: Thank you, Faith.

Operator: This concludes the RADCOM Ltd. fourth quarter and full year 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.