Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the Fourth Quarter and Full-Year 2019. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded and will be available for replay from the company's website at www.radcom.com from February 14, 2020. On the call today are Eyal Harari; RADCOM's CEO, and Amir Hai, 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 on 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 2020 revenue guidance, anticipated gross margins, intended expenditures, and future developments, the company's strategy, growth leadership position, opportunities and momentum, visibility, headcount and backlog, as well as statements about future market conditions including 5G piece of adoption, benefits and deployment and future plans of industry participants and customers. The company does not undertake to update forward-looking statements. The full Safe Harbor provisions, including risks that cause actual results to differ from these forward-looking statements are outlined in the company's SEC filings. In this conference call, management will be referring 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, non-GAAP results provide information that is useful in assessing RADCOM's core operating performance and in evaluating and comparing our results of operations consistently from period to period. The presentation of this additional information is not meant to be considered as 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, which are included in the quarter's earnings release, which is available on our website. I would like to repeat the information about the presentation. If you have not downloaded yet, you may do so through a link on the Investors section of RADCOM's website at www.radcom.com/investor-relations. Now I would like to turn the call over to Eyal. Please go ahead.

Thank you, operator, and thank you all for joining us today. Earlier this morning, we issued a press release stating our results for the first quarter of full-year 2019. As you may have seen, total revenue were $9 million for the first quarter of 2019 bringing our total revenue for the year to $33 million which was at the high-end of our 2019 revenue guidance. The solid end of the year reflects the bogus made during 2019 in which we expanded our customer base into new markets by adding VimpelCom and Rakuten Mobile and maintain strong relationship with our current customers, including AT&T and Globe. Our recent customer engagements are aligned with our strategy of entering multi-year contracts with recurring revenues which provide us with good visibility into the coming year. Considering our good visibility into 2020 and the current engagements, we are providing an annual revenue guidance of $35 million to $38 million. Heading into 2020, we believe that 5G revolution has begun as more operators are beginning to launch their commercial 5G services and we're continuing our work to make sure that RADCOM is in a position to benefit from this technological transformation. As 5G sets out to be such transformative technology, I would like to spend few moments explaining about this technology and the expected stages of its rollout. In initial 5G rollouts compatible handsets connects to both 5G and 4G radios that in turn connected subscribers to the same existing 4G call network. Today, we are at this stage of 5G, also known as first phase of 5G, and we see more and more of these limited scope 5G deployments. So far, just over 60 operators in 30 countries have launched 5G. In this type of mobile network, operators may use their current service assurance solutions…

Thank you, Eyal, and good morning everyone. Please turn to Slide 6 for our financial highlights. To better understand the results, I will be referring mainly to non-GAAP numbers which exclude share-based compensation. We ended the fourth quarter with total revenues of $9 million. Our gross margin was 71.3% represented our average gross margin for the full-year of 2019 on a non-GAAP basis. Our gross margin can fluctuate depending upon delivery of revenues and revenue mix. Our operating expenses for the quarter on a non-GAAP basis were $7.3 million, the same level in the third quarter of 2019. Our operating expenses are comprised mostly of R&D expenses. Adding the financial income of $0.3 million net of tax expenses, the net loss for the quarter was $0.5 million on a non-GAAP basis. Revenues for the quarter represent an increase from $4 million in the fourth quarter of 2018. The increase was due to new contract we announced and related revenue recognized during 2019. Our gross R&D expenses for the quarter on a non-GAAP basis increased to $4.5 million from $3.9 million in the fourth quarter of 2018. The increase is attributable to the investment in R&D required to maintain our technological leadership. R&D expenses for the quarter were approximately the same as in the third quarter of 2019. Also during the fourth quarter we received $425,000 from the Israeli Innovation Authority compared to $366,000 in the fourth quarter of 2018. Our net R&D for the quarter was $4.1 million on a non-GAAP basis compared to $3.5 million in the fourth quarter of 2018. Sales and marketing expenses for the quarter were $2.5 million on a non-GAAP basis compared to $2.6 million in the fourth quarter of 2018. G&A expenses for the quarter on a non-GAAP basis were $741,000 compared to $643,000…

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions]. The first question is from Alex Henderson of Needham & Company. Please go ahead.

Thanks very much. I was hoping you could talk a little bit about the outlook for 2020 at this point; obviously you gave some guidance on the revenue. What portion of that guidance do you think you currently have high degree of line of sight to relative to contracts that you've already won, and how much of it comes from contracts that you need to bring in and could talk about what kind of pipeline you have relative to potentially getting some upside to those numbers?

Good morning, Alex. I think I would start with a summary of what we did in 2019 in terms of customer wins. And as you'll recall, we extended our Logos with two new Tier-1 accounts. And this, mixed with a strategy to go into a multi-year contract, give us very good visibility into 2020. We started the year with a significant revenue in our backlog. And this give us good confidence that we could meet this guidance. Along the year, we are -- you asked about the pipeline, we are currently engaged with multiple additional customers as well as additional opportunities within our installed base. And obviously, this should be materialized along the year. But I think the main change done in 2019 that we managed to enlarge our customer base, get more multi-year agreements and by that increase the visibility into the 2020 revenue significantly. In terms of the opportunity we see, as we -- our strategy is still to focus on the Tier-1; we're engaging multiple processes with a different Tier-1s globally. But as we know those processes are in sales cycles are taking a long time and it's very hard to anticipate where they're going to materialize. Most of the revenue is based on our existing installed base and by that gives us precise visibility. A smaller part is still unsecured and based on our success with winning more projects, either within the existing installed base or new accounts.

Given it's fairly early in the year, there's still obviously enough time to win an account and get some revenue from it this year, but it seems likely that any accounts that were won later in the year would probably be more 2021 number. So it sounds like if I were to summarize what I hear you saying and tell me if I'm mischaracterizing it, you have in hand the vast majority of what you need to get to 2020 numbers and you have a solid pipeline which should then give you some visibility to increasing the numbers in 2021 given the multi-year contracts, nature of the current base and the fact that the AT&T is now more of a subscription and less perpetual in nature. Is that the right characterization?

Generally speaking, yes. And I will just add that still new wins in the first part of the year like we announced Rakuten mid-2019 can materialize into revenue in 2020 like Rakuten was materialized in 2019. And but if revenues sorry all those from the last part of the year might probably take some time to implement and will impact 2021. We have good visibility as I said to the revenue, if I start as you said we are early in the year and we have this good confidence to set this guidance of that to reflect growth. And some parts obviously are still to be executed along the year, which is, as I mentioned, could be mix of new wins and upside on existing accounts.

So given that prop, the [indiscernible] on the revenue, we can forecast that reasonably easily. But we have a little bit more difficulty dealing with what is -- can you give us some granularity around whether we should expect gross margins to be stable or improve from given the mix and to what extent you intend to spend increased spending over the course of the year, how should margins track and can we anticipate any improvement in the operating losses? Thanks.

So overall the gross margin in the range that we're working with is in the range of 70% to 75% usually. As you recall, it might fluctuate quarterly depends on the product mix. But overall, we're seeing more and more software-based solutions as you told we have some customer that require us to deliver the service which impacts the product mix. When we look on the expense, we're looking to do similar level of expense in 2020 and go significantly on the revenue. So by that, I would say it gives you some cutter on the direction.

I see. And just going down the line item so one of the critical areas for your cost structure has been the NRE on the gross margins or on the R&D excuse me. Are you expecting similar amount, less, more, again that's impossible for us to forecast?

It's -- if we look on the last few years, we are looking on the similar number. Obviously, we cannot forecast exactly. But if we take the last three years, we were in around the same numbers, so you can take this as a base.

Great. And just one last one. So you've had some very good success with Rakuten obviously it's a huge win and an indication of just how superior technology is because they are definitely picking the most advanced companies to partner with. That program was pushed out from the launch time, I think from October into the April timeframe, if I remember correctly. Can you talk about how that changes the trajectory of the business does it slow it down for you? How do we think about the impact of that on your operations?

So first of all, the bottom line we don't see or expect any impact. The revenue and business model we have with Rakuten is not based on milestones but it's more like a subscription. So we are not reliable on any milestones. That being said, Rakuten has launched a soft launch in late last October. And if you follow most of the milestones of public, they are focusing rapidly on their implementation of the cloud native network and we're going end-to-end with implementing our solution, and evolving with them with more used cases, more services and more capacity. The current announcement was that on April, we're going to do full-launch, which is just in couple of months. And for us, it's mainly exciting to see the technology comes to play and the key role of Service Assurance in when operators try to build a new virtual network, how critical is the component of the Service Assurance to give them the visibility into issues as obviously building a new network is not easy. Most of the telecom today are established networks of 4G that are built for like 10 years or so. But when you look in companies like Rakuten, they just started to build the network probably like six to nine months ago, they are evolving and changing. And the fact that they have the eyes into the network and they see the transformation, they see the statistics, they see the issues, and they get insights on how to improve it is really exciting and making us confident that while more operators will start to be new networks, either it's Greenfield or 5G new networks, our technology advantage will come to play.

Is there any in that Rakuten ramp, is there any opportunities beyond what you -- you've licensed so far to ramp with them or is it just a fixed license agreement, a subscription agreement?

So yes, there is some increment some of them already, a small incremental received, there is a bigger potential on two dimensions. One is on the 5G, on the longer-term, there could be an upside to the subscription costs. And as Rakuten mentioned they are now looking to go global. And by working with them in Japan and both them successful and are successful in the implementation, it gives us the opportunity to work with them once they are implementing in other site. Now, this, my personal belief, I don't think they mentioned any time that will take some time, because they are mainly focusing now on Japan. But I think in Q4, they started to be more vocal and that they are going global. For us, it's an opportunity that we have them as our partners. And if their plans will come true, this will give us an opportunity to replicate the same software stack into additional countries as they will implement more visual networks globally. Not nothing yet was announced, no new operation in another country. I do believe that the coming quarters will be focused on excellent execution in Japan. This is what I would expect and we are also focused on their success would come, once the network is up and running the operation and then shows the high quality. And if all goes well, this should start to become multiple projects.

[Operator Instructions]. The next question is from Bhavan Suri of William Blair. Please go ahead.

Hey guys, thanks for taking my question and nice to see growth coming back this year. So that is exciting. I just wanted to touch base here a little bit at a high-level before we get the details here. You've been CEO for a month-and-a-half; you've obviously been at the company a long, long time. You've talked about what's changing this year versus last year. Do you see an inflection in the pace of change? Because it still feels like outside of AT&T, the 5G rolls are still pretty small, pretty sporadic sort of tests and sort of sub-services, as you said, how should we think about what's changing between maybe 2018 and 2019 or what you're seeing today from the end-markets, that sort of gives you guys sort of confidence in the growth?

So, as you see our guidance, we expect significant growth, but we're not expecting to double the revenue in 2020. So the inflection point is it might take time. If we follow the analyst of the 5G, the expectation is that 2020 will be the year of the standalone implementation of 5G. The real network change where you will need to do a refresh to use Service Assurance just to start during late 2020 or even 2021 and keep and start to accelerate with more operators around the next couple of years. We do see that by winning more accounts, we manage to get and create goals. We see that the strategy to work on a multi-year agreement and involve very closely with our Tier-1 accounts as partners and as strategic advisors pays off and allow us to get this good visibility to 2020 and then give this guidance. I believe that the 5G is a long-term [indiscernible], not that the market will happen all at once in 2020. And I'm building the company towards that. Today the main focus in 5G is investments in R&D. We started that in 2019 and we continue in higher pace 5G investment in the quarter. We believe as a technology company that our growth will come with their technology advantage that we build, we had the virtualization capabilities that will helping us to lead AT&T and Rakuten and others. Now we are keeping and investing to create unique capabilities into the 5G market that allow us once transformation will happen to secure new wins. Now about the inflection point again, I can't say exactly foresee if and when it will happen. But we believe in our technology. The feedback from the technology we get is very good and it all depends on the…

That's helpful. Thanks for the color, Eyal. One more strategic one and then I'll dive into sort of more tactical ones. But given the sort of the delay or the slower uptake, or the slower shift to 5G, do you worry the competition has had time to sort of start catching up? Are you seeing any change in the competitive environment, any of the competitors building sort of a software-only virtual service capability for intrusion detection things like that? Or are they still sort of still relatively behind so focused on a hardware based world? How should we think about the competitive environment give there been a bit more time for these guys to sort of maybe think about updating their legacy stacks?

So I would say that definitely in the last five years since we launched the first virtualized assurance competitors had time to invest and move to more components to software. But we didn't stay still, we invested in the last five years significant amount of R&D resources to continue and improve, crystallize and innovate a lot around this product. I can just share that most of the customers that we meet given us a feedback that we still have a significant advantage compared to most competitors. I wouldn't underestimate any of our competitors because some of them will be companies that can invest. So far and both in VEON and Rakuten it was competitive other fields they looked on all the market and all the players, and we managed to win due to the global unique technology. So I'm one and confident that that we have this advantage. But it's definitely not -- the market is not where we were five-years ago, when we announced five-years ago, everyone told you that what RADCOM is doing software is bullshit, let's spend on hardware. Now everyone is saying that this is high direction and everyone invest in software. So we always need to keep and invest and innovate and create an edge and this is what we are busy these days.

Got it, that is helpful. Thank you. And then a little more tactically, you talked about, the company has talked about in the past that PoC, the Tier-1 workshops, just an update in terms PoCs the larger Tier-1s are progressing, obviously AT&T being a separate one, and then sort of workshops and things like that. And this is obviously times you're not revenue this year. But sort of revenue next year just want to get some color on the numbers there, number of PoCs, how they're progressing, number of workshops how they're progressing?

So, what I can tell you that we are now in any given time engage with multiple accounts in both workshops and PoCs. I don't want to get into exact numbers I think it's we are very busy on marketing dollars technology mainly now with everyone very curious on how to address 5G. So in any given time, we are active with multiple Tier-1s. Eventually, as I mentioned before sales cycle is long, and it's a process, it's very hard to anticipate when those processes will materialize. But we are busy today not only on the wins for 2020 revenue but as you mentioned rightly we are busy also 2021 because we're talking about multi-year long-term processes. I think it's the message we get from the market is our technology is exciting, which is what's important. And when and if and how this was material to business, we say, we are in February. Hopefully along the year, we'll see more progress and we'll have more announcements as we progress with the business.

Got it, got it. One last one from me. Renewals, any major renewal coming up in 2020. And if there are can you talk about what that expansion could look like or a reduction could look like if they're any coming up in 2020?

Most of our contracts are multi-years in a scale of three to four to five years. Most of them are not ending in 2020. Some of them do. We're working closely with those customers and working to secure those renewals. It's not most of the contract, but some it's not insignificant. But contracts are three to five years; you can estimate the range of what's relevant. I would say that Rakuten was just announced, VEON was just announced and AT&T just we announced like that with for multi-year give us a lot of confidence for 2020.

[Operator Instructions]. We have a follow-up question from Alex Henderson of Needham & Company. Please go ahead.

It seems that there is a potential for pretty nice improvement in margins. If you're holding the cost fairly stable, you have a little bit of improvement in mix on gross margins and your revenue grows. So given the near break-even quarter, is it been [indiscernible] more than half the losses you posted in 2019 and maybe that you'll break-even or stay profit at some point during 2020 or is that too aggressive?

So, as we gave all the guidance to the revenue, we didn't give any guidance on profit. We know that there could be fluctuations depend on the product mix and the projects and we focus today on the growth. We do keep the investment of the -- on the technology high and our intent is to mainly secure the goals and the wins on the 5G. That being said, as you entered out, it looks that if we will keep the same range of gross margin then we are getting closer I would say to the break-even point and it depends eventually on the fluctuation on the exact wins and the product wins in this mixture.

There are no further questions at this time. This concludes the RADCOM Ltd. fourth quarter and full-year 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.