Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the First Quarter of 2024. [Operator Instructions] 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 Hilik Itman, RADCOM's Interim 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 its momentum growth, future profitability, expected levels of gross margin, its ability to drive the business forward in 2024 and beyond, its full year 2024 revenue guidance, opportunities to expand sales with new logos for 5G and in the cloud and GenAI ecosystem, its pipeline, its leadership and innovation in artificial intelligence and as a cloud assurance vendor, the potential benefits of its Software-as-a-Service solution, the ability of RADCOM ACE on Amazon Web Services to allow operators to achieve higher levels of automation and insight, future investments by operators in their network and 5G, its expectations with respect to research and development and sales and marketing expenses and headcount as well as grants from the Israel Innovations Authority and the company's expectations with respect to its relationship with Rakuten, AT&T and DISH. 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 of 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 that have been expensed in accordance with the ASC Topic 718, financial income (expenses), acquisitions-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 and 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 Hilik. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us for our first quarter 2024 earnings call. My name is Hilik Itman. Before being appointed by the Board of Interim CEO, I served as RADCOM Chief Operating Officer since 2020. I was responsible for the product development and Customer Success teams. Before becoming COO, I served as Vice President of R&D from 2015 to 2020. During this time, I led the product transition [ from ] software to [ virtualization ] and finally to the cloud, including all the additional AI powered capabilities and automation features provided to our customers as part of our solution offering. I want to thank the Board for trusting me to lead the business as Interim CEO. Since a [ few ] in the role, I've worked closely with the management team to ensure business continuity and that our positive momentum and profitable goals continue. The mandate is clear and we are laser focused on leveraging market opportunities to expand ourselves with new levels for 5G. Turning to the first quarter results. We continued our strong positive momentum for 2023 into the first quarter of 2024 with record first quarter revenue that increased by 17.5% year-over-year and then [ 10 ] consecutive goals quarter. We achieved our highest level of cash levels and in the quarter with $85.3 million. We continued our profitability strategy and achieved positive income on the GAAP and non-GAAP basis. We [ had an encouraging ] start [ to ] 2024 by renewing our multiyear contract with one of our key strategic customer, Rakuten Mobile. We continue to extend our collaboration, strengthen our partnership with this innovative operator. The contract extension included advanced AI-powered analytics for its private cloud, enabling Rakuten Mobile to drive more automated network operations for its…

Thank you, Hilik, and good morning, everyone. To review our financial performance, while the slides contain GAAP and non-GAAP results, I will mainly refer to non-GAAP numbers, excluding stock-based compensation, acquisition-related expenses and amortization of intangible assets related to acquisition. Now please turn to Slide 8 for the financial highlights. First quarter revenue grew by 17.5%, reaching a new record of $14.1 million. This represents a nineteenth consecutive quarter of year-over-year revenue growth and an increase from $12 million in the first quarter of 2023. At the same time, we continue to manage and control our expenses while investing strategically and efficiently in increasing our investment in sales and marketing. This resulted in non-GAAP net income of $2.8 million for the quarter. Our gross margin on non-GAAP basis in the first quarter of 2024 was 74%. Note that our gross margin can vary slightly from quarter-to-quarter, 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 2024 on a non-GAAP basis were $4 million, a decrease of $168,000 compared to the first quarter of 2023. With the market evolving rapidly, our continued investment in research and development to extend our technological leadership within this space is [ vital ]. This is a key enabler for our future business. We will continue to invest strategically in R&D and maintain similar expenses as in 2023 to enhance our RADCOM ACE solution, increase our 5G capabilities, expand our AI driving insights and seamlessly integrate our solution into the cloud. Excluding any impact from exchange rates, our R&D expenses in the next quarter will remain at a similar level with a slight increase. During the quarter, we received a grant of $209,000 from the Israel Innovation Authority compared…

[Operator Instructions] The first question is from Alex Henderson of Needham & Company.

It's a nice quarter and certainly, a great start for 2024. I wanted to address the linearity implied by the large beat in 1Q versus only taking the low end of the guidance up. Was the first quarter a little of a lumpy quarter in terms of a lump into the quarter? And hence, we should anticipate a more moderate result in the upcoming quarters in terms of the year-over-year growth rate?

Okay. So as you saw, we raised the lower end of our revenue guidance, and we updated the guidance to $57 million to $60 million, which means that we are likely to have a higher second half of the year in terms of the revenue. And if no change in the [ ForEx ], we expect a similar trend on the bottom line. As announced in the previous calls, we continue strategically investing in certain marketing to make sure we have clear visibility and enough boots on the ground to capture more opportunities in the 5G market. So part of the revenue increase will be used for sales investment, but most of it will go down to the bottom line.

So in the second quarter relative to the first quarter, it's fairly stable sequentially, I assume?

Yes.

Looking at the pipeline, you obviously had some nice news on Rakuten. The deal with Rakuten does sound like it's an expansion, not just a renewal. Can you talk about the size of [ upsell ], how that's going?

So the renewal of the contract is going...

Yes. So can you talk about the upsell to your larger partners, not just Rakuten, [ AT&T ], DISH as well as any others that you want to mention or put together? What is the large cohort of the top Tier 1s look like in terms of ability to upsell in '24 and to that matter into '25?

So about the contract with the Rakuten, the renewal is in the same way as the previous one, but it is a few opportunities for extension around the AI products and services. We have -- we exist with our existing customers, different opportunities in our pipeline, and we believe that some of them will be executed in the second half of 2024.

If I were to look at the pipeline, I think you said it was evenly split between both new customers and existing customers. Is that how you're expecting the incremental growth to play out? Or is it more due to new customers driving the upside to the revenue?

No, both, also from existing and from new customers. The -- our pipeline is including mix of opportunities from existing and from new customers.

So evenly split between the 2? Or is there a bias to one type versus the other?

No. It's 50-50.

Okay. Just in terms of the new products, I think you guys have had a fair amount of new technology announcements and new product announcements. Can you just talk a little bit about whether that's something that's starting to [ metastasize ] into the revenue streams?

I can talk about the technology side of this product. Actually, the GenAI now is bringing to the table a new very dramatic opportunities, I mean, technology-wise, and we are actually [indiscernible] a lot of information. And our product is based on a lot of knowledge in the telecom, especially in cellular fields and the combination between the 2 of these spaces, I mean, the information that we capture and analyze the [ sale ] in our customers and the GenAI capabilities in understanding a lot of information and knowledge base bring a lot of significant capabilities for us. And we believe it will bring a lot of opportunities in the future and even now with the engagement that we have with customers in this area.

The next question is from Arjun Bhatia of William Blair.

Very nice job on [ the ] start of the year. Maybe actually to continue on that last point, like when you think about all the new capabilities and all the innovation that you've added into the platform, obviously, you're doing a lot with AI, with analytics, et cetera, [ rising ]. How do you think your pricing strategy might evolve as you look at your existing customers? Obviously, it's sticky and you want to capture the value, so just talk about whether you think there is pricing power over time and how you maybe intend to use that as a lever?

So...

No, it's [ generalized ] -- Okay, yes, [indiscernible]...

I will [ first ] refer to the test model. So if you look at the test model for example, so it's a win-win situation. On the one hand it's the savings cost for the operator and the operator saving infrastructure. And so as for RADCOM it's more operators will switch to the SaaS model. The marginal cost will decrease, and we will improve our cost [indiscernible]. So this is from the financial effect. Hilik, do you want to add anything?

No, no. It's okay.

Got it. And then -- so I guess the other piece is just, as you're making more sales and marketing investments, can you just help us understand a little bit about how those are, how you're executing on those? I mean is that mostly new sales reps that you're hiring to go after new telco accounts that you don't have as a pipeline conversion? I assume a lot of this I think we touched on this a little bit last quarter that it's following the 5G ramp, and that's kind of where you're really focusing. But how is that -- how is kind of execution on that front going and where are the new reps kind of been targeted?

So we are following [ very carefully ] the evolution of 5G and primarily the projects and there on -- and as we announced in our previous call, [indiscernible] to the early adopters in the market in North America and in some advanced countries in Asia like Japan and South Korea. And there we focused in the last few years. In the last year, we started to see that more we can start to progress, mainly in Europe and you know that the Europe is [ always ] better. There are more operators in a small country. So we want to have enough coverage and to make sure we have enough boots on the ground [ let's say ], and telco we extended our investment in sales and marketing and the [indiscernible] team in order to make sure that we capture more and more opportunities and increase our market share. You may see this increase has already been reflected in the results of the first quarter. And we see an additional increase, a gradual increase in the second half of the year. Does that answer your question, Arjun?

Yes. Yes. Very helpful.

The next question is from Jeff Meyers from Cobia Capital.

Congratulations on a good start to the year. Kind of just wanted to ask about your cash position. It's your all-time high. What are your thoughts about that? Have you thought about the share buyback or tender offers, something along those lines?

So in the last 3 years, we generated about $15 million, and it gives us a very strong position in the market and the [ outset ] to engage and to take more risk. Last year we did our first M&A transaction, and we want to make sure that we have enough cash and sufficient level of cash to execute other relevant opportunities of M&A. Dividend or buyback is something that is being discussed. And the Board and the company may allocate a limited level of cash for this purpose. But we don't see it as the key -- the strategic use of our cash. We use our cash for stability, for increasing our market share, excuse me, and as I said, we want to maintain a sufficient level to engage and to make another M&A transaction.

Understood. I mean, I think you guys -- it seems like you have enough cash to do all 3 things, to maintain stability, do buyback and any acquisitions you might look at. But congratulations again.

The next question is a follow-up question from Alex Henderson of Needham & Company.

So listening to virtually every person who sells into the telecom space, it seems pretty clear that most of the telecom industry is under duress and cutting back on their budgets and spending. There's clearly been some challenges around the 5G core in terms of delivering a true multi-vendor modern API-driven micro service-based architecture. And so when I talk to virtually every other company in the category, they're telling you that we're kind of in telecom [ winter ] here and that the pace of adoption of 5G is going to be slower than originally expected, with challenges around delivering some of the advanced architecture, new features like network slicing and the [ like ] that were intended to monetize the 5G investments. So yes, I think it was obvious that AT&T had tried to go down the path of a multi-vendor and ended up with cutting out Nokia and going with Ericsson. So how does all of that affect you? Are you negatively impacted by it? Or are you alternatively -- and I think is the right answer -- The answer to the problem and actually amplified by those issues because you're the solution to get them to the next plateau?

Yes. Exactly. I think in order to understand the 5G evolution in the right context, that all the technology transition are derived from some [ valid ] and strong business. So actually, 5G is, I think, is the only way for transition to more than software-based and cloud-based networks for the telecom. So from what I see, and we saw that the telecom is -- keep going to the -- on the autonomous journey. And I think that the trend is already at the station. I know that there is some difficulties, but again, we are in the best position in this space. And we have a lot of things to bring to the table to help them with this journey, with the assurance and not -- and even with new aspects. So I think that we are in a good position and all this 5G transition and autonomous network position, I think it's going together and I don't see any way that it will not [ happen ] eventually. You have more questions about it?

Well, there's clearly a problem, right? I mean, I don't think there's any issue that anybody believes that the 5G core is working as expected. And AT&T was kind of at the center of that with the decision to go multi-vendor to standardize on Ericsson. So given the observation that this problem -- is the Rakuten says the RADCOM products, the key to solving those problems, and so instead of slowing investment, they're actually accelerating investment with you?

Yes, that is true. I think that the fact that we are dealing with this space, with all the 5G and cloud-native transitions, and we bring the platform that customers relying on with these transitions. So it's put us in a good position. We saw it in -- with all the customers that we are working with around all this 5G transition. In the newcomers, it's very significant that we are -- that they are relying on our technology because they reduce cost by reduced people and we are in the best position because we are -- with our platform you can manage your network more efficiently and more scalable manner. So yes, I think it's very helpful to work with us on this area.

Thank you. This concludes the RADCOM Ltd. First Quarter 2024 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.