Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the Second Quarter of 2024. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [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 5G and launches, demand for the Company’s products and services, sales opportunities, sales cycles, and pipeline, momentum, maintaining and increasing profitability and growth, its ability to provide value to customers and shareholders, the Company's expected growth, its expectations with respect to expenses and headcount, as well as grants from the Israel Innovation Authority, the Company's expectations with respect to its relationships with its customers, the potential of the Company’s long term vision and the use of artificial intelligence in its products, levels of gross margin, the Company’s revenue guidance, and the search for a permanent chief executive officer. 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 Hilik. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us for our second-quarter 2024 earnings call. Before diving into our results, I want to provide an update on the CEO search process. The board has engaged a top executive recruitment firm and established a committee to appoint the next CEO. Significant progress has been made, and the committee is now in the advanced stages of candidate selection. The committee has evaluated candidates from Israel and abroad, especially the US, who has the necessary leadership qualities, and experience to drive RADCOM's next phase of growth and success. I have full confidence in the Board’s ability to appoint the right candidate. Hopefully, this process will be finalized soon. As the company’s COO, I’ll continue focusing on R&D, product innovation, and customer success when a permanent CEO has been appointed. Then, I will be able to invest more time in driving innovation and taking the company to the next level of our growth journey alongside the new CEO. Now, turning to the results. I'm excited to share our strong performance and execution in this quarter. Our results highlight the benefits of our customers’ trust and our ability to deliver value through our carrier-grade and innovative solutions. We achieved solid growth momentum in both our top and bottom-lines. We reached record quarterly revenues of $14.8 million, up 20% from the second quarter of 2023. We generated a positive cash flow, hitting a new record of $86.1 million dollars in cash, cash equivalents, and bank deposits. We achieved record half-year revenue and profitability for the first six months of 2024. Since the start of the year, we have secured over $50 million in new contracts, including several seven-digit contracts across various geographic markets, while maintaining significant recurring revenues. This shows the demand for our…

Thank you, Hilik, and everyone, for joining us today. Now, let’s turn to the results. While the slides contain GAAP and non-GAAP results to review our financial performance, I will mainly refer to non-GAAP numbers, excluding stock-based compensation, acquisition-related expenses, and amortization of intangible assets related to acquisitions. As noted earlier in the call, since the beginning of the year, we have secured over $50 million in new contracts, including several 7-digit contracts across various geographic markets. Most of these revenues will be recognized in 2025 and beyond. This influx of contracts underscores the robust demand for our leading solutions and positions us well to capitalize on the industry transition to 5G, significantly boosting our revenue. Now please turn to Slide 5 for the financial highlights. Second-quarter revenue grew by 20%, reaching a new record of $14.8 million. Our positive start to the year is driven by strong team execution, which has led to good financial performance, revenue and profitable growth, and measurable improvements to our bottom line. Non-GAAP net income for the second quarter was $3.1 million, and the non-GAAP net margin was 21%, which grew by 4% compared to the second quarter of 2023. GAAP net income for the second quarter doubled to $1.7 million, and EPS was up by 120% compared to the second quarter of 2023. Our gross margin on a non-GAAP basis in the second quarter of 2024 grew to 75%. Note that our gross margin can vary slightly from quarter to quarter, depending on the revenue mix. We expect that the third quarter will remain at a similar level. Regarding R&D investment, the company’s strategy is to continue investing at a similar level as in 2023 to enhance our RADCOM ACE solution, increase our 5G capabilities, expand our AI-driven insights, and seamlessly integrate our…

Thank you. Ladies and Gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Bhatia Arjun of William Blair. Please go ahead.

Yes. Hey guys. Sorry to mute. Congrats on the momentum and the strong execution here. Look, it sounds like you're getting some pretty good adoption from 5G contracts. I think you cited $50 million in these top 5G contract sings from start of the year. What is driving that in your view? Is it just where we are in the 5G cycle and build out? Or is there some other catalysts that you think is driving momentum with some of these contracts here?

So, I think that the momentum now is positive. It's not that it's not as expected three years ago in the 5G. But in this -- at least in the last six or 10 months, we see changing in the momentum, and there is much more opportunity of 5G transition. I think that it's related that -- as I said, is also in the previous last quarter, trend is nobody can stop it, stop this trend. The 5G is happening, and it's connecting very tight to cloud transition also. And RADCOM is well-positioned with our product and technology and experience. So, we're not [indiscernible] for the last year from to address these requirements. So, this is the momentum that I see.

I would add…

Yes. Go ahead, sorry.

I would add that, in general, we are still confident in the market evolving into 5G. And we still see a demand for our very products. And as we executed well this quarter, we are expecting our board journey to continue. And we do still see that the strategy is strategic to top operators, and they are still focusing we do 5G programs, and they continue to spend to evolve into 5G standalone. And by that, creating the demand for other products. I think that operators, we can divide them into two growth -- those who are excited, I will base and the autonomous solutions that will invest more strategically in the transition to 5G. Both more conservative, we invest less in the beginning to increase the investment in mobile space. And we as from definitely support this two models as we believe in a long-term relationship and it all depends on the customer level of confidence and the 5G strategy.

That's very helpful. Thanks, Hadar. And then one if I can on AWS, it sounds like you had one existing customer transition to your SaaS solution. When you think out over the next couple of years, is this something you anticipate that most operators and most of your customers will shift to the SaaS model -- your SaaS model over time. And as that happens, how are your economics, whether it's pricing or gross margins different or SaaS versus your kind of original offering?

Focusing that most of the operator will do the transition to cloud. Part of them will do it on private, part of them are going to do that on public cloud. And then the option of staff is valid for us and I think it's a big opportunity for the company to implement our product in more operator with SaaS because the advantage is clear of SaaS deployment. So yes, I think that it will happen. We saw it this year and we have an engagement with more customer in this area. So it's very positive.

And is there -- maybe just one is for Hadar, but is there anything that we should think about just from an economics perspective, margin impact from more SaaS adoption? Or is it too early to tell at this point?

Yes. So the advantage is very clear on SaaS because it's the installation, it's much more easy and the technology options are more advanced in this area. It's very attractive for -- mainly for medium and small customers' that they don't need to buy some equipment or rent with the cloud providers. So economical perspective is very attractive because it will be -- help us to get much more operators compared to cost solution or public cloud or compared to private cloud or cost solution.

And I would like to add that the SaaS model may improve our gross margin, the more operator's transition to this model. The SaaS model is a win-win situation. On the one hand, the operator, take course and doesn't need to invest additional cost on the infrastructure and for RADCOM, the marginal cost will decrease while the revenue will increase, but they will improve our gross margin.

All right. That's very helpful. Thank you.

Thank you, Arjun, for your question. The next question is from Alex Henderson. Please go ahead.

Thanks. So, you've obviously produced some very strong numbers over an extended period here. And there is obviously also some lumpiness in this business, which can have an impact in any given quarter. So, as I'm looking forward into the September quarter, seasonally, that's a little bit softer quarter. Should we anticipate that the business is a little bit more skewed to the December quarter and that the September quarter might be down here sequentially from the June quarter? Or should we assume that the 14.8% is at least attainable again in the September quarter here?

So I will take it. Alex, we are very excited with the results. And obviously, our consistent execution is driving the order growth. We did better than expected, and we are encouraged by our momentum and see a long runway of growth. We expect this trend to continue and remain on pace to meet our guidance. And actually, we have a very good visibility for 2024. And this is why we increased our guidance. And if you look on the guidance, you see that we are likely to have a higher second half of the year. And if you look on the higher range of our guidance, this could be around 18% year-over-year revenue growth, which is the full attrition to what we deliver in 2023. I believe that this growth will be reflected in each of the next two quarters. And that we will see a linear work. So this is in terms of the revenue. And if no change in the ForEx, we expect a similar trend on the bottom-line. As we said in the call, we would like to maintain a similar level of R&D expenses and expect a gradual increase in sales and marketing. So as I said, except any false impact of profit, we believe that our profit -- and our profit as a percentage from revenue will be improved.

Second question kind of on the same general trajectory. There's been an extremely large amount of volatility around the yen, one of your anchor customers, Rakuten is based out of Japan. Does that have any impact on your business?

No.

And then relatively speaking, the R&D is expected to be fairly flat sequentially. I'm assuming in June to September, is the NRE also fairly flat?

We believe that in the third quarter, the NRE will be at a similar level. And I expect that on the first quarter, we will see decrease in the NRE due to conclusion of existing programs.

I see. And then just broadly speaking, I would assume that there is some upward bias to the OpEx as a total in the third quarter. Is it reasonable to think that you're fairly flat sequentially on the revenues and therefore, a little bit of upward bias that the EPS in the third quarter ought to be maybe a hair below the $0.20 number?

Yes.

Okay. Great. Wanted to go back to the commentary that you made on the call regarding end of life of competitive products in the field that are more appliance-based in nature. Obviously, the transition to 5G is a decision point for most companies. But is that causing an acceleration in that adoption rate that's meaningful? How large an EOL event is that for your competitors?

Yes. So, first of all, the end of life, it's not only related to 5G, but its most of the time is related. But also I want to emphasize that we see that also the -- our competitors' systems start to be end of life and connecting with the 5G is a real compelling event for transition to our system. And we see that a lot of customers and also Tier 1 customer that's struggling with the debt with all -- the service assurance platform. And it's true that they try to manage, but it's eventually -- it's not working for them. So sure, it will not work forever and not even for the next few years. So I think it's remarkably going to help us take more and more customers in logo.

I would think that the installed base of those appliance-based systems are multiples of your revenue in terms of your share has been fairly low in the historical 4G base that the magnitude of that upgrade cycle could be very substantial over the next two to three years. Is that a fair way to look at this transition?

Yeah, sure. So we've seen it. And again, our solution that is totally software-based, cloud native base is totally in line with this transition and address all the customer needs in this level, and I saw it by myself a few times during the last quarter, these are big customers.

Two last questions and I'll leave the floor. The $50 million in orders that you announced -- previously announced in the first half, do you think that the order rate in the back half of the year is likely to be similar? Or do you think that was a spike in wins and that there's more of a lull here short-term?

So Alex, as you know, during the second quarter, we renewed our eight-figure contract with Rakuten. And this is thanks to our strong incumbent relationship with them. And except Rakuten, we won a new deals, including 5G deals, the competitive interest that we secured then due to our strong silica performance, differentiated technology and established a relationship. We remain focused on a profitable growth, and we are going to continue to push the pedal on it, because we believe that we are uniquely positioned to do it better. And we are confident that our differentiated solution is aligned with the key technology trends and they're well positioned to address our customers' needs, but it's really out to predict what will be the level of bookings during the next -- second half of the year Q – Alex Henderson: So suffice to say, you've got a strengthening pipeline, but the exact closure dates are always difficult. I get it. Just wanted to go back to NetTalk for a moment -- what do you see is the trajectory of that business in terms of delivering incremental orders and backlog?

Yes. So first, I think the network is based on Gen Ai. And as you know, Gen Ai today is very -- there's a big hype around the Gen Ai – you see its not only in our areas – in all the areas of the industry today. And we think that we have unique value here, mainly the synthesis between our data and all the knowledge of network and new site that we synthesize together, I think that when we plan to new operator, de novo and also on current customer, they want to see our vision and our cost leadership. And I think that it's really advancing progressors in the sales because nobody will go and -- this new service assurance system without a new total leadership on AI and Gen AI, mainly because all the information transition that Telecom is going to -- mainly to cost money -- to save costs. So I think it will influence on our performance for sure today, it's helped us in the new logos engagement. So I see it very, very important for us. Q – Alex Henderson: Thanks

Thank you, Alex.

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