Q4 2023 RADCOM Ltd Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the rack Com Limited 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.

For operator assistance during the conference. Please press Star Zero as a reminder, this conference is being recorded and will be available for replay on the company's website at www Dot Rad Com Dot com later today on.

On the call are y'all, Harare, Rad Com, CEO and Dara hub right Tom'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 <unk> Com's website at Www Dot Rad Com Dot com slash Investor Dash relations.

Before we begin I would like to review the safe Harbor provision or forward looking statements in the conference call involve several risks and uncertainties, including but not limited to.

The company's statements about full year 2020 for revenue guidance, the <unk> market and industry trends and expected increase in Standalone five G launches the role the company is expected to play in the <unk> transformation expected increases in sales activities and opportunities.

It's pipeline the expected impact of currency rates, the company's market position cash position potential unexpected growth in profitability in 2024, and thereafter, it's expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel.

All innovations authority, the companys expectations with respect to its relationship with Rakuten dish AT&T in Vodafone, it's expectation to continue enhancing our software solutions and demand for its solutions.

The role of its five G solutions and cloud developments its ability to capitalize on <unk> opportunities and 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.

<unk> risks that could cause actual results to differ from these forward looking statements are outlined in the presentation and the company's SEC filings and 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 rack com's core operating performance and the valley.

Waiting 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 general 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 a Yao. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining us for our fourth quarter and full year went to 23 earnings call.

You may have seen that earlier today, we announced the C O transfusion.

I will be stepping down as CEO and geisha mesh will succeed me.

We should guy and direct them to success in the coming years.

That was my home for over 20 years in various leadership positions.

That comes 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 <unk>.

The financial results and the business updates and then I will discuss the transfusion in my summary.

'twenty two 'twenty three marked an exceptional in record you for radical extending the momentum of the last four years of growth.

We achieved a revenue milestone of 51 6 million, representing 12% gross evil a fourth consecutive goldfield.

In the fourth quarter revenue was 14 million, representing a year over year gross or 14%, while our net margin reached a record level.

We continued our path to sustained profitability achieving record net income.

$10.2 million on a non-GAAP basis, or a $3 7 million on a GAAP basis for 2023.

I will finances strength is due to the positive cash flow that reached a record level of cash and cash equivalents totaling $82 $2 million with no deaths.

We crossed the 50 million annual revenue thresholds and scale to meet says software company.

In 'twenty, two 'twenty three our team executed well, while delivering a record year laying the foundations for the robust 'twenty 'twenty four and beyond I am proud of our employees and thank them for their dedication and commitment to delivering on our customer success and go strategy Julien.

Our strong results highlight the importance of our industry leading solutions in this goal in sight two markets.

Looking at 'twenty 'twenty four thanks to our strong execution and current visibility we are confident in delivering our fifth consecutive year of revenue growth and increasing our positive bill growth metrics.

Our full year's went to 20 full revenue guidance is $56 million to $60 million.

Since the October 7th attack and the resulting situation our operation in Israel and globally has continued without interruption.

Closely monitoring the situation, our Israel office is fully operational and running normally at.

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 customers' obligations glow the business and drive the company forward.

So our customers, we continue to provide software enhancement and seem to reduce new innovation software.

He says to assist them in managing their networks and ensuring great customer experiences.

'twenty to 'twenty three we secured several new orders from our existing customer base, increasing overall revenue from existing customers compared to 'twenty to 'twenty two.

Atheism deep dish and Rakuten remain key strategic customers, we believe our business with them we remained strong.

We expect revenue from these customers in 2020 full two status 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 potential growth area for more business in the future.

During 2020 full we will expand our focus on our sales activities to meet the expected 50, standalone monitoring demand with our leading folks you assurance solutions.

Operators rely on assurance to navigate the transfusion two five G and enhance operational efficiency as they adopt next generation cloud technology to optimize cost and rollout five G. The current macroeconomics landscape present, the opportunity for <unk>, a leading global cloud native assurance solution.

We can continue to enhance our software with additional automation analytics and intelligence and AI based capabilities to bring value and explained use cases for our customers is the adoption of the folks you technology progress.

We also rolled out throughout computer will drive test a product we acquired as part of the continual acquisition to help operators improve the customer experience, whether you'd Houston 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 intelligence and autonomous so AI powered analytics to save costs and 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 ogn AI for real time and efficient management of Iot networks.

Rod comb snapback.

We are approaching this from the unique perspective of our company with years of expertise in the telco space and an advanced AI powered analytics point of view.

These net talk applications enable operators to adopt the power of journey II and trusted data to manage a network operations foster and cost effectively.

Executives and engineers can use natural language to tap into the wealth of data radical maysville juices as its analyst service quality.

Operators can talk with their network and leverage the reach insights radko, Jenny I applications using customized Louds language models LLS.

Jenny I would be a hot topic in 'twenty 'twenty, four and we will be showcasing our red can network use cases, which will continue to develop swell deal stuffing the mobile World Congress at the end of February in Barcelona.

Our market leading solutions.

So it's fully aligned with the operator needs, which drives revenue reduce 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 good mix of opportunities from our current installed base and new customers in 'twenty 'twenty four 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 vehicles deal for retcon, continuing the last full use of golf momentum.

We believe our strong sales and marketing engagements shows that the demand for our solution is robust.

Multiyear contracts also provide a strong backlog driving consistent results and driving us good visibility into 'twenty 'twenty four and beyond.

Therefore, we are confident in delivering fifth consecutive year of revenue growth further increasing our profitability and continuing the positive momentum in 'twenty 'twenty four.

Thank you Jan and good morning, everyone. Now please turn to slide eight for the financial highlights while the slides contain GAAP and non-GAAP results. It would have fell mainly to non-GAAP numbers, excluding share based compensation acquisition related expenses and amortization of intangible assets related to.

Musician in financial income and expenses, we concluded the third quarter of 2020 swing at $14 million in revenue and making a new record quarter and an increase from $12.3 million in the fourth quarter of 2022.

Although the gross margin and the one that they see in the first quarter of 2020 suites with 76%. Please note detailed gross margin conceptually dependent on Julian you weeks, although gross R&D expenses for the third quarter of 2023 on a non-GAAP basis.

<unk> was <unk> 9 million due at US a decrease of $785000 compared to the fourth quarter of 2022.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference call for the fourth quarter and full year 2023 results. All participants are present in the listen-only mode.

We received a grant of $190000 from the Israeli innovation, so a T during the quarter compared to $160000 in the fourth quartile of last year.

Operator: Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. 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 Rahab, RADCOM's CFO. Please note that management has prepared a presentation for your reference, and it will be used during the call. If you have not downloaded it yet, you may do so through the link in the Investor section of RADCOM's website at www.radcom.com slash investor-relations. Before we begin, I would like to review the safe harbor provision.

Our net R&D expenses for the fourth quarter of 2023 on a non-GAAP basis was 3.7 million a decrease of $815000 compared to the first quarter of 2022.

Sales and marketing expenses for the fourth quarter of 2020 suite. The tweet find 20 million tourists oney NAND gets basis, an increase of $401000 compared to the fourth quarter of 2022.

G&A expenses for the first quarter still doesn't in 'twenty three on a non-GAAP basis were $978000 with no significant change from default quartile of 2022.

Operating income on a non-GAAP basis for the fourth quarter of 2020 suites was $2.7 million, 19% of sliver, new compared to an operating income of 608000 Doyle Vice president of revenue for the fourth quarter of 2022.

Speaker: Forward-looking statements in this 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, and the expected increase in standalone 5G launches, and the role the company is expected to play in the 5G transformation. [inaudible] 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 in cloud development, its ability to capitalize on 5G opportunities and win more market share, and the potential of the company's use of artificial intelligence in The company does not undertake to update these forward-looking statements.

Net income for the fourth quarter of 2023 on a non-GAAP basis was a record of $3.8 million 27 per cent for a venue or a net income of 25 cents per diluted share compared to a net income of $1.3 million 11%.

Deferred revenue or net income of nine cents per diluted share for the third quarter of 2022.

On a GAAP basis as you can see on slide seven our net income for the fourth quartile still doesn't 20th see reached an all time high of $2.6 million, 19% of venue or net income of 70 cents per diluted share compared to a.

Net loss of $26000 or a net loss of zero cents per diluted share for the fourth quarter of 2022 at the end of the third quarter of 2020 suite.

Operator: 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, 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. However, the presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures presented in accordance with General Investors are encouraged to review the reconciliations of gap-to-non-gap 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.

<unk> was 295.

Now, let's turn to the full Elisa.

We ended 2000, Twenty's suite 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 2020 suite.

Ted to 73% in 2022.

Our gross R&D expenses for 2020 suite on a non-GAAP basis was $69 million.

Chris Stoke point $1 million compared to 2022.

In 2024, we plan on investing in R&D at approximately the same level as in 2020.

The accumulative Gwent from the Israel Innovation authority for seven <unk> to.

<unk> 6000 Dora Julien.

In 2024, we expect grants from the Israel innovation authority to be at the same level as in 2023.

Sales and marketing expenses in 2020 suite, the $12.7 million on a non-GAAP basis compared to 10 $9 million in 2022.

Eyal Harari: 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.

In 2024, we expect a gradual increase in sales and marketing to support increasing pipeline of opportunities.

G&A expenses for 2023 on a non-GAAP basis was $3.8 million, an increase of $268000 compared today Teo ill still doesn't in 'twenty two.

Eyal Harari: Radcom is close to my heart, and I will remain in an advisory role to ensure a smooth transition and 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 year of growth. 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 a record net income of $10.2 million on a non-gap basis or $3.7 million on a gap 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.

Operating income on a non-GAAP basis for 2020 suite.

So in all time high of 5.7 million, 11% of revenue compared to an appointed gain come off 1.1 million Dora 2% of revenue for 2022.

Net income for 2023 on a non-GAAP basis was the way cold of $10 2 million dollar, 20% of Slovenia or net income of six to seven cents per diluted share compared to a net income of two 9 million six one.

Centre living you or net income of 19 cents per diluted share for 2022.

When it gets basis as you can see on slide seven.

Net income for 2020 suite was another way code of 3.7 million Doral, 7% of revenue or net income of 24 cents per diluted share compared to a net loss of two planned $20 million or a net loss of 16 cents per diluted share.

Eyal Harari: We crossed the 50 million annual revenue threshold and scaled to a mid-sized software company. In 2023, our team executed well while delivering a record year, laying the foundations for a 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 goal strategy during the year. Our strong results highlight the importance of our industry-leading solutions in the 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 to $60 million. Since the October 7th attack and the resulting situation, our operations in Israel and globally have continued without interruption.

So two dozen in 'twenty, two and 2020. So we believe the dollar shekel ratio will stabilize at the current levels and not take awhile aging turning to the balance sheet as shown on slide 11 of our cash cash equivalents and short term bank deposits as of December 30.

One 2023.

82.2 million Doral.

And so as mentioned in the previous quarter totaled 20, Sweeny completed continue on acquisition and the amount of 2.5 million Doral.

Thanks to our strong results, we generated a positive cash flow of $4.5 million, which led us to Andy ill.

This level of cash.

Now I will pass the call back to al to summarize.

As I mentioned at the start of my remarks, I am stepping down after over full years as a CEO and 20 years in various leadership roles within the company it.

Eyal Harari: While 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 enhancements and 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.

It has been an honor to lead the crazy bills team at <unk> Com.

I am proud to have led the company to suppress the 50 million annual revenue threshold and scaled the company. After a mid sized company for the first time, while achieving profitable growth.

I'm, leaving the company in a healthy situation with excellent visibility into 'twenty 'twenty four for continued growth and increased profitability, while I move to my next challenge.

That comes in the hands of capable and talented management team I'm confident that together they will continue to lead the company drive further growth and achieved new heights, and those guys leadership.

Thank you to all the employees customers investors and partners I won't weed.

Eyal Harari: 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 continued acquisition, we added Vodafone as a new customer in 2023. Vodafone is a British multinational operator operating in 21 countries, which provides potential growth areas for more business in the future.

With food their trust in the company and I wish the bold Guy and radko them every success.

That concludes our prepared remarks, I will 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. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment kind of if the handset before pressing the numbers.

Eyal Harari: 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 enhance operational efficiency. As they adopt next-generation cloud technology to optimize cost and roll out 5G, the current macroeconomic landscape presents new opportunities for Radcom, a leading global cloud native assurance solution. We continue to enhance our software with additional automation, analytics, and 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 ongoing acquisition to help operators improve the customer experience while reducing costs.

<unk> will be pulled in the order. They are received please standby while we poll for your questions.

The first question is from our June Bhatia of William Blair. Please go ahead.

Perfect.

Thank you guys and al Congrats on the on the run and it's been great working with you best of luck.

And in the next chapter here.

If I can start off.

On AI.

Yeah. It seems like some exciting announcements coming with not talk but al can you, maybe just talk a little bit about how generative AI makes rad com and assurance in general maybe a little bit more strategic and raises its profile like what or what are you looking for as the key kind of indicators.

Youre getting traction.

Eyal Harari: 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, or Gen-AI, for real-time and efficient management of 5G networks. Radcums Neto, 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 NetTalk applications enable operators to adopt the power of GenAI 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 rich insights through Radcom GenAI applications using customized large language models, or LLMs.

Customers that had telcos and that this is Jenny I capabilities are are resonating and adding value for your customer base.

Hi, Good morning, Thanks for all the June for the Tango Oleds.

The journey is a is.

The big trend not only full telco industry, but for all the tech and.

And we are looking to see how we can leverage these be slots gives our advancement.

We believe Broadcom is uniquely positioned as we collect a gold mine of data from the metal by monitoring the real customer experience of all subscribers using <unk> services.

We are leveraging the AI technology for the last three and we'll use trying to create automation and efficiency for the operators and are we the journey I will try.

To take it to the next level.

So the idea is that.

We will will becoming like a copilot for where the operator, you may really be engineers to do their basketball efficiently and become even.

They're experts in their domain, because we make both our solution and older dictates provides as well as some industry standards and in many respects, we made it all available and accessible.

Eyal Harari: Gen AI will be a hot topic in 2024, and we will be showcasing our Radcam network use cases, which will continue to develop throughout the year, starting at the Mobile World Congress at the end of February in Barcelona. Our market-leading solutions, thoughtfully aligned with operator needs, drive revenue, reduce operational costs, and provide 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.

And by that we borrowed the engine you disagree.

With great efficiencies for the operator, which allowed them to work we do.

More efficient teams and of course it also drives eventually improvement in customer experience. So this is what we are having today. We are also looking on the strategically and we believe that in the next three to five years, Jenny I would continue to evolve and we'd be able to do even more sophisticated.

Basket the technology is not mature today.

And <unk>.

Eventually the goal is to allow the generic to do the closed loop and really improve the network by analyzing and taking the directives from.

Eyal Harari: 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 engagements show that the demand for our solution is robust.

The engineering will form the configuration, but do the deep analytics use of the intent and and really try to understand and therefore condition.

Close the loop with a configuration in the setting of the network.

It not only drive efficiency, but also improved network and improved customer experience.

That's that's very helpful and you.

Talks about in your prepared remarks that the pipeline and how you invest in sales and marketing, but when youre looking at Jenny I, specifically and maybe some of the early signs of success that you're having do you anticipate that that will come through some of the customers that are earlier in the pipeline the new customers coming in or.

Eyal Harari: Our multi-year contracts also provide a strong backlog, driving consistent results and giving us 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.

Or do you think.

Oh, primarily get these capabilities adopted at least initially with with your existing customer base.

So the journey that AI is now you know.

Nation stage, we're not foreseeing any revenue in 2024 directly from those investments. It is important for our customers to see our innovation and our thought leadership in the space and they want to see our roadmap and our vision.

Hadar Rahab: 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 the monetization of intangible assets related to acquisition and financial income expenses. We concluded the fourth quarter of 2023 with $14 million in revenue, making a new record quarter and an increase from $12.3 million in the fourth quarter of 2022. Our gross margin on an AMGRAD 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.

So did the influences mainly indirectly when we look on our pipeline, which is very strong and we have very good visibility into 2020 full to continue our goals journey and he will accelerate.

This is based on our <unk> product line with our new and existing customers.

And I believe the journey I will be more of a long standing medical contributor.

Okay got it and then just maybe touching on on the pipeline you did mention that youre, making you'll make some incremental sales and marketing investments because youre seeing demand, which certainly makes a lot of sense can you just maybe give us a sense for where you're seeing traction in the pipeline and the.

A mental resources that you're.

We're dedicating to sales and marketing is that to grow and get more customers in the pipeline or convert the existing customers just give us a sense for where you'll be directing those in 2024.

Sure so as I.

Discuss this and also in previous calls we.

Following very carefully the evolution of five G and primarily the <unk> Standalone do what they called a strategic <unk>, what we see is that the early adopters in the market.

Hadar Rahab: 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. GNA expenses for the fourth quarter of 2023 on a non-GAP basis were $978,000, with no significant change from the fourth quarter of 2022.

North America, and some adverse events countries like Japan, and South Korea, and this is where we started to put our focus already a few years back in the last couple of years will starting to accelerate our investment as we see additional region starts to progress and I believe it went to 24 weeks.

Going to be people thoughtful.

Five G athlete technology, we see mall at airports and mold Wogan for Newell.

Europe as we know there's more scattered it'll more opioid dosing smaller countries and we beef up the team in order to make sure we have good visibility and enough boots on the ground to capture the opportunity.

And we will continue to invest during the year in order to make sure. We keep we decided to keep pace with.

Hadar Rahab: 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 an ungapped 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 gap 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 revenue was $295 million. Now, let's turn to the full ear results.

You have to do the privilege that our customers really know we know what they are doing do we see the bi frequencies, we see them.

We live in a nickel rentals to be liquefied juniper or can we see.

There's a public announcement on the window going to filed yesterday and this is where all our solutions become squeaky clean.

We see that the market is going to the next step will also go into the next step with our sales and marketing and.

Well, if I would quantify that we're talking about 20% to 30% increase in our teams.

Globally.

Our main focus in Europe, but also with increasing some of our other things as well we see both.

Already crowded opportunities in our pipeline.

Importantly, what we want to continue and increase our pipeline to support all of the multi year growth plan.

Okay perfect very helpful. I'll leave it there. Thank you guys and I appreciate you taking the questions.

T O.

The next question is from Alex Henderson of Needham and company. Please go ahead.

Okay.

Yeah.

I was little surprised.

I think.

Such a young age.

Bad debt.

No.

It's hard to hard to fathom, but.

Patients on <unk>.

On the decision.

Was hoping you could talk a little bit about.

The rate of growth.

Produced double digit growth in each of the last two years.

Is it reasonable to think that Oh.

24.

<unk> growth is.

Hadar Rahab: We ended 2023 with revenue of $51.6 million, an increase of 12% from $46.1 million in 2022. On a non-gap basis, our gross margin was 74% in 2023 compared to 73% in 2022. Our gross R&D expenses for 2023, on an ungapped basis, were $16.9 million, a decrease of $2.1 million compared to 2022.

Obtainable.

On the top line.

You mentioned several times in the call essentially accelerating it.

Reasonable.

Acceleration is going to happen here.

Okay. Thank you Alex.

Hmm.

Yes, so as you saw our guidance for the year we have.

We're looking to continue at a minimum with double digit growth and if you look on the higher range of our guidance. This could be further accelerating compared to what we do today.

Our business model with the over 70% recurring revenue is supporting our long term goals and meets all based on the execution on keeping the the run rate and further evolved with our existing customers and winning new logos.

Logos than units in dollar market share.

Hadar Rahab: In 2024, we plan on investing in R&D at approximately the same level as in 2029. We received a cumulative grant from the Israel Innovation Authority for $736,000 during the year. In 2024, we expect grants from the Israel Innovation Authority to be at the same level as in 2022. Sales and marketing expenses in 2023 were $12.7 million on an on-gap 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. GNA expenses for 2023, on an ungapped basis, were $3.8 million, an increase of $268,000 compared to the entire year of 2023.

I believe the 'twenty 'twenty four is the yield that we will start to see more.

And then five G S. A as I previously commented and this is why we continue increase our sales and marketing. So definitely the plan is to the trajectories to continued its double digit goes over the multiyear and I'm personally optimistic that we can actually accelerate our goals and it all depends on the.

Pace of the openings will adopt the five GSA getting into live and our ability to execute well in windows new logos.

From past experience and with 20, using the physical usually with any technology evolution. It takes a lot of time, but once the technology is mature.

Is maturing.

Then you start to see the adoption rate goes much higher in the next 18 to 24 months is where we expected the fact yesterday.

And really become more popular and this is why.

I definitely believe there is a potential to accelerate the goes even further.

So.

Given that backdrop of 10%.

Plus growth you're talking about.

Pretty significant acceleration in spending around sales and marketing if I'm reading it correctly.

20 to 30 years.

Yeah.

Kris.

James.

Maybe give us some sense of.

What do you think these sales and marketing line is likely.

Hadar Rahab: Operating income on an on-gap 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 an ungapped 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 gap 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 current levels and not require hedging.

Scenario.

You're talking about.

Compression in operating margins this year.

So we are in the process of shifting and moving.

Moving to social some R&D to sales and marketing did increase is incremental so we will get.

Some of the increase in the first part of the use in some of the increase would come only later the year end.

And so what you'll do sleep follow the development of the five GSE.

So I think this is the best vote of confidence.

The business, we see and we will adapt to the pace of new five G. If the rfps that we see new opportunities we want to cover we wanted to make sure we don't Miss the market opportunity and we believe the next.

As I said 18 to 24 months I was going to be creep.

Critical to win the market share and we want to be rabies.

Teams.

We are going to focus the ne we already very strong in North America, we are going to increase our presence in New York and in it.

50 countries, we find them.

Your best people, our product lines, where quality matters with you.

Looking for innovation, we look for issuer solutions that will allow them to do the transformation like Japan as we work for many years with Rakuten.

Hadar Rahab: Turning to the balance sheet, as shown on slide 11, our 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 dollars. Thanks to our strong results, we generated a positive cash flow of 4.5 million dollars, which led us to end the year with our highest level of cash. Now, I will pass the call back to Eyal to summarize. As I mentioned at the start of my remarks, I am 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.

And this is why we are doing will come in with the strategy.

I understand the strategy.

Looking for some quantification of that strategy.

Given the commentary around sales and marketing expansion.

That youre going to compress the operating margins in 2024.

No the operating margin.

Will improve as we are looking to grow.

Significantly in the revenue and the increase in the level of increase in the operation.

On the operational costs will be lower than the increase in the revenue.

Okay. So.

I need a 30% increase in the number of genes.

Eyal Harari: I am proud to have led the company to shrug off the $50 million annual revenue threshold and scale the company up to a mid-sized 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, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.

Is that trend.

Sales and marketing expansion.

Is it.

Okay.

Well ahead of your revenue growth.

Even if I hold your R&D flat it wouldn't be enough to produce that type of.

Investment growth, so what am I doing to offset it.

Other elements of the sales and marketing costs coming down as a result of the mix shift within sales and marketing how do I get 20% to 30% increase in the number of teams without increasing the cost.

As mentioned, we are going to be lower and go with R&D expense.

And to cover.

Some of the goals and the sales and marketing and overhaul of the sales and marketing is not the biggest expense for the company. So it's not that we're going to increase the overall operation expensing that and 20% and we're gonna have only moderate increase to the operating expense because because of this shift.

And the sales and marketing increase of teams we gradually saw the overall number it's over to you.

We are going to have lower impact on demand as it.

Not a full impact won't from January some of them will come in the second volatile deal.

Okay. Okay.

Okay.

The next question is from Charles Elliott.

Please go ahead.

Thank you.

Yeah.

First thanks very much for all you did for the shareholders over the last few years and good luck.

Operator: Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Arjun Bhatia of William Blair. Please go ahead.

In terms of your future are you going onto an equally active ROE or is it more like do you take a sort of chapman's position or.

Arjun Bhatia: Perfect. Thank you guys, and Al, 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, there seem to be some exciting announcements coming with NetTalk, but Al, can you maybe just talk a little bit about how generative AI makes RADCOM and assurance in general maybe 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 in telcos and that this, you know, these generation AI capabilities are responding to and adding value for your customer base? Hi, good morning.

Or nonexecutive positions.

Sorry can you repeat the question it was out of Israel.

I'm sorry is is this better.

Can you hear me better now yes.

Yes.

Decorative row, or nonexecutive or something like an active chairman.

I'm going to be supporting the company and Guy.

For the next two.

He ran out of time, making sure broadcom is going to be successful.

And in Poland I would.

I would like to share my plans on what type of I'm going to the next but no I'm not going to stay there.

Eyal Harari: Thank you, Arjun, for the kind words. GNI is a big trend, not only for the telco industry but for all the tech, and we are looking to see how we can leverage this disruptive advancement. We believe RADCOM is uniquely positioned as we collect a gold mine of data from the network by monitoring the real customer experience of all subscribers using Goldway Services.

I am chairman of the board of Broadcom.

Thank you.

Few more questions.

Yeah.

Yeah.

With your balance sheet, so full of cash and the company now generating free cash flow.

Is it a post prospect that you that retro returns some free cash flow returns are more to investors through buybacks or through a dividend decrease.

Eyal Harari: We have been leveraging AI technology for the last three or more years, trying to create automation and efficiency for the operators, and with Gen AI, we are trying to take it to the next level. So the idea is that we are becoming like a co-pilot for the operator, enabling the engineers to do their tasks more efficiently and become even more efficient at their webinars. We made it all available and accessible, and by that, we empowered the engineers. This creates efficiencies for the operator.

Or do you want to conserve your cash to get revenues well above $100 million in a few years and grew further from there.

So it's more the second.

We still believe that.

While we are generating cash and profitable in <unk>.

We generate over $20 million in the last.

Two to three years.

Allow us to have a very good position in the market person.

Eyal Harari: It's allowed them to work with more efficient teams, and, of course, it also drives an improvement in customer experience. So 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, Gen AI will continue to evolve, and we'll be able to do even more sophisticated tasks that the technology is not mature enough for today.

So most with our customers that will allow.

Allow us to engage and take more risk in terms of.

And seeing how we can increase our market share we did our first M&A last year, and we believe there might be opportunities to further increase our strategic position in the market.

And we wanted to make sure that we have.

Opportunity and Oh, the auction of <unk>.

Dividends or buybacks.

Eyal Harari: Eventually, the goal is to allow the GNI to do the closed loop and re-improve the network by analyzing and taking the directives from the engineer or from the configurator, but do the deep analysis of the intent and really try to understand the network condition and close the loop with a configuration or setting of the network. And by that, not only drive efficiency, but also improve the network and improve customer experience. That's very helpful.

It's being discussed, but we believe that in the current stage or is it better to use.

We are looking on there you can go with strategic position in keeping the options for additional <unk>.

M&A will allow us further goals.

Thank you and one final question you mentioned Vodafone.

Did it come through your acquisition of continual or was this a kind of greenfield.

Our greenfields new customer win.

Eyal Harari: You talked about in your prepared remarks, you know, the pipeline and how you'll invest in sales and marketing. When you're looking at Gen-AI specifically and maybe some of the early signs of success that you're having, do you anticipate that that will come through some of the customers that are earlier in the pipeline, the new customers coming in, or do you think... you'll primarily get these capabilities adopted, at least initially, with your existing customer base? So GenNAI is now in the innovation stage. We are not foreseeing revenue in 2024 directly from those investments. It is important for our customers to see our innovation and our thought leadership in the space, and they want to see our roadmap and our vision. So the influence is mainly indirect.

And should we look at this as a similar size to some of your.

Big customers now like Rakuten or.

AT&T, even or is it significantly smaller at the moment.

At the moment it is a significant smaller it is the customer.

Inherently the M&A will continue on.

Vodafone was the key customers will continue on one of the values, we sold by partnering continue on and create these great synergy.

We believe that we could power fradkov, the zika or product set that we have and the wider portfolio. We can further expand what we more more value.

Eyal Harari: When we look at our pipeline, which is very strong, and we have very good visibility into 2024 to continue our growth journey and even accelerate, this is based on our Radcom-based product line with our new and existing customers. And I believe that GenNAI will be a more long-term contribution. Okay.

And we are walking today with Vodafone as the.

As a certified vendor.

It allow us to live better.

This ability to their requirements and needs and we'll walk you read few countries with Vodafone is the large enterprise, we'd really operations alone.

Eyal Harari: And then maybe touching on the pipeline, you did mention that you're making some incremental sales and marketing investments because you're seeing demand, which certainly makes a lot of sense. Can you just maybe give us a sense of where you're seeing traction in the pipeline? And the incremental resources that you're dedicating to sales and marketing, is that to grow, get more customers in the pipeline, or convert existing customers? Just give us a sense for where you'll be directing those in 2024.

Mainly.

And out of Europe, and we believe that with the outcome power and technology, we can further expand volt.

Original continue on product line as well as the radical means.

It's technology. So it can definitely can scale into a size of a frac within well we've been AT&T with Vodafone as an enterprise very loud, but at this stage, we we have our emission.

The activity, we then but.

I believe this relationship could further to go and get it in the near future.

Eyal Harari: Sure, so as I discussed in previous calls, we are following very carefully the evolution of 5G and, primarily, 5G standalone, what I call strategic 5G. What we see is that the early adopters in the market are in North America and some advanced countries in Asia like Japan and South Korea, and this is where we started to put our focus already a few years ago. In the last couple of years, we are starting to accelerate our investment as we see additional regions start to progress, and I believe 2024 is going to be pivotal for 5G SA technology. We see more efforts and more progress in Europe. Europe, as we know, is more scattered; there are more operators in smaller countries, and we beefed up the team in order to make sure we have good visibility and enough boots on the ground to capture the opportunity, and we will continue to invest during the year in order to make sure we keep with the 5G pace. We have the privilege of our customers being really known. We know what they are doing.

That's great. Thank you.

Thank you very much.

Yeah.

This concludes the Rad Com L T D fourth quarter and full year 2023 results conference call. Thank you for your participation you May go ahead and disconnect.

[music].

Eyal Harari: We see them buying frequencies. We see them partnering with their network vendors to build their 5G network. And we see the public announcement on when they are going to 5G SA. And this is where our solutions become critical. As we see that the market is going to the next step, we are also going to the next step with our sales and marketing. And if I would quantify that, we are talking about a 20 to 30% increase in our teams. Globally, again, with the main focus in Europe, but also increasing some of our other teams where we see both current opportunities in our pipeline and, very importantly, where we want to continue and increase our pipeline to support our multi-year growth. Okay, perfect, very helpful.

Arjun Bhatia: I'll leave it there. Thank you guys and I appreciate you taking the question. Thank you, Odin.

Operator: The next question is from Alex Henderson of Needham & Company. Please go ahead. Thanks, um, yeah, I'll let you. You're deciding to move on at such a young age; I don't understand it.

Alex Henderson: No. It's hard to fathom, but congratulations on the decision. Um, I was hoping you could talk a little bit about the rate of growth, which has produced double-digit growth in each of the last two years. Is it reasonable to think that in 2024, public budget growth will be attainable? on the top line and, mentioned several times in the call. So we're going to get..., reasonable to think that the acceleration is going to happen. Thank you, Alex.

Eyal Harari: Yes, as you saw in our guidance for the year, we are looking to continue at least double-digit growth, and if you look at the higher range of our guidance, this could be further accelerating compared to what we do today. Our business model, with over 70 percent of recurring revenue, is supporting our long-term growth. And it's all based on the execution, on keeping the run rate and further evolving with our existing customers and bringing new logos and enhancing our market share. I believe that 2024 is the year that we will start to see more in a 5G essay, as I previously commented.

Eyal Harari: And this is why we continue and increase our search and marketing. So definitely, the plan is to, and the trajectory is to continue these double-digit goals over the multi-year. And I'm personally optimistic that we can actually accelerate our goals, and it all depends on the pace of the operator adopting the 5G SA, getting into live, and our ability to execute well and win those new logos. From past experience and with 20 years in the telco, usually, with any technology evolution, it takes a lot of time, but once the technology is mature, is maturing, then you start to see the adoption rate go much higher. And And this is why...

Eyal Harari: I definitely believe there is the potential to accelerate the growth even further. So, given that backdrop of 10% plus growth, you're talking about a pretty significant acceleration in spending around sales and marketing, if I'm reading it correctly when he deferred, an increase in the number of teens, that and to give us a sense of what you think the sales and marketing line is likely to do. We talked about Depression and Operating Margin. So, we are in a process of shifting and moving resources from R&D to sales and marketing. The increase is incremental, so we will get some of the increase in the first part of the year, and some of the increase will come only later in the year.

Eyal Harari: And so, to our tune, this will follow the development of the 5G S&P. So I think this is the best vote of confidence in the business we see, and we will adapt it to the pace of new 5G SA RFPs that we see, new opportunities we want to explore. We want to make sure we don't miss the market opportunity, and we believe the next, as I said, 18 to 24 months are going to be... Critical to win market share, and we want to be ready with the We are already very strong in North America. We are going to increase our presence in Europe, and in specific countries where we find the best fit for our product lines, where quality matters, where we are looking for innovation, where we look for insurance solutions that will allow them to make the transformation like Japan, as we have worked for many years with Rakuten, and this is why we are coming with this strategy.

Eyal Harari: I understand the strategy and look forward to it. It's reasonable to think, given the commentary around sales and marketing expansion, that you're going to compress the operating margins in 2020. No, the operator margin will improve as we are looking to grow significantly in revenue, and the overall increase in operating costs will be lower than the increase in revenue. So, if I'm talking about a 20 to 30 percent increase in the number of.. is that, Sales and Marketing Expansion, and that's clearly well ahead of your revenue growth. Even if I held your R&D flat, it wouldn't be enough to produce that type.

Eyal Harari: As mentioned, we are going to be lowering our R&D expenses to cover some of the goals in sales and marketing, and overall, sales and marketing is not the biggest expense for the company. So it's not that we're going to increase the overall operation expense by 20%, and we're going to have a moderate increase to the operating expense because of this, and the sales and marketing increase of teams will take gradually affect the overall numbers over the year. And we are going to have a lower impact on the economy, as it's not a full impact from January. Some of them will come in the second half.

Eyal Harari: Thank you. The next question is from Charles Elliott, IPI. Please go ahead.

Charles Elliott: Thank you. First, thanks very much for all you have done for the shareholders over the last few years and good luck. In terms of your future, are you going on to an equally active role, or is it more likely you will take a sort of chairman's position or a non-executive position? Sorry, can you repeat the question? It was hard to hear you.

Charles Elliott: I'm sorry. Is this better? You hear me better now. Yes, an executive role or a non-executive role or something like an active chairman. I'm going to be supporting the company and guys in the transition for the next period of time, making sure RADCOM is going to be successful, and in parallel, I would later share my plans on what I'm going to do next, but no, I'm not going to stay as chairman or on the board of Radcom. Thank you. There are a few more questions. Yeah. 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, returns more to investors through buybacks or through a dividend increase, or do you want to conserve your cash to get revenues well above $100 million in a few years and grow further from there? So it's more of the second. We still believe that.

Eyal Harari: While we are generating cash and are profitable, and we have generated over 20 million dollars in the last two to three years, this allows us to have a very good position in the market, first and foremost with our customers. It allows us to engage and take more risk in terms of seeing how we can increase our market share. We did our first M&A last year, and we believe there might be opportunities to further increase our strategic position in the market, and we want to make Thank you, and one final question. You mentioned Vodafone. Did it come through your acquisition of Continual, or was this some kind of Greenfield's new customer win? And should we look at this as a similar size to some of your big customers now, like Rakuten or AT&T even, or is it significantly smaller at the moment? At the moment, it is a significantly smaller.

Eyal Harari: It is a customer we inherent in the M&A of Continual. Vodafone was the key customer for Continual, one of the values we saw by partnering with Continual and creating this great synergy. We believe that with the power of Radcom, the richer product set that we have, and the wider portfolio, we can further expand with more value. We are working today with Vodafone. It can definitely scale to the size of Rakuten or even AT&T, as Vodafone as an enterprise is very large, but at this stage, we have initial activity with them, but I believe this relationship could further grow in the near future.

Eyal Harari: That's great. Thank you. 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. Thanks for watching!