Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Limited Results Conference Call for the Fourth Quarter and Full Year 2021. 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 Eyal Harari, RADCOM's CEO; and Hadar Rahav, RADCOM's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you have not downloaded it yet, you may do so through the link in the Investors section of RADCOM's website at www.radcom.com/investor-relations. Before we begin, I would like to review the safe harbor provision. Forward-looking statements in the conference call involve several risks and uncertainties, including, but not limited to, the company's statements about the 5G market and industry trends and expected increase in stand-alone 5G launches, the role the company is expected to play in the 5G transformation, sales opportunities, sales cycles and pipeline, the expected impact of currency rates, the company's market position, cash position, potential and expected growth in 2022 and thereafter, its expectations with respect to research and development and sales and marketing expenses as well as grants from the Israel Innovation Authority, the company's expectations with respect to its relationships with Rakuten and AT&T, the potential of the RADCOM ACE product and the integration with Microsoft Azure and AWS, its expectation to continue enhancing its software solutions and demand for its solutions, deployment of its 5G solutions in multiple cloud environments and the potential benefits to its clients, its ability to capitalize on the emerging 5G opportunities and win more market share, the potential of the company's long-term vision and the use of artificial intelligence in its products, its expectation that greenfield operators will choose vendors based on innovation and its revenue guidance. The company does not undertake to update forward-looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward-looking statements are outlined in the presentation and the company's SEC filings. In this conference call, management will refer to certain non-GAAP financial measures, which are provided to enhance the user's overall understanding of the company's financial performance by excluding certain noncash 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 the call over to Eyal. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2021 earnings call. Q4 represented a strong finish to a good fiscal year. We achieved our highest ever quarterly and full year revenue results, ending the year at the higher end of our projected annual guidance. Total revenue for the fourth quarter was $11.2 million, which represents a 10th consecutive quarter of year-over-year revenue growth. Full year 2021 revenues grew to $14.3 million, which represented a 7% year-over-year growth and the new all-time full year record for the company. In fiscal 2021, 70% of our revenue was recurring, which reflects our strategy to procure multiyear contracts, which provide us good visibility into 2022. Our consistent results throughout the year came from the solid execution of these contracts, our team's ability to remain agile in an ever-changing environment and the value we bring to our customers. I am proud of our achievements in fiscal 2021. A lot of credit belongs to our global teams and our experienced leadership. Despite the global pandemic, our teams executed exceptionally well to meet the needs of our customers and to execute our growth strategy. While we delivered our highest ever quarterly and full year revenue results, I believe that we can deliver an even stronger growth year in 2022. Let me start by reviewing some of our 2021 achievements. In 2021, we continued to strategically invest in research and development to extend our technological leadership within the 5G assurance space, which we believe to be a key enabler for our future business. We announced the release of a new AI solution as part of the RADCOM ACE portfolio. We believe that the AI-driven analytics will be offered considerable benefits to operators for the future network automation and…

Thank you, Eyal, and good morning, everyone. Now please turn to Slide 8 for our financial highlights. To help you understand the results, I will refer mainly to non-GAAP numbers, which exclude share-based compensation. We ended the fourth quarter of 2021 with $11.2 million in revenue, 9% year-over-year growth in the new record quarter. It is also a 10th consecutive quarter of year-over revenue growth and an increase from $10.2 million in the fourth quarter of 2020. Our gross margin in the fourth quarter of 2021 on a non-GAAP basis was 70%. Please know that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2021 on a non-GAAP basis were $4.7 million, a slight increase of $110,000 compared to the fourth quarter of 2020. We received a grant of $194,000 from the Israel Innovation Authority during the quarter compared to a grant of $308,000 in the fourth quarter of last year. As a result, our net R&D expenses for the fourth quarter of 2021 on a non-GAAP basis were $4.6 million compared to $4.3 million in the fourth quarter of 2020. Sales and marketing expenses for the fourth quarter of 2021 were $2.6 million on an non-GAAP basis, a slight increase of $256,000 compared to the fourth quarter of 2020. G&A expenses for the fourth quarter of 2021 on a non-GAAP basis were $837,000, a slight increase of $89,000 compared to the fourth quarter of 2020. Operating growth on a non-GAAP basis for the fourth quarter of 2021 was $158,000 compared to an operating loss of $231,000 for the fourth quarter of 2020. Net loss for the fourth quarter of 2021 on a non-GAAP basis was $237,000 or a net loss of $0.02 per diluted share compared to a net…

[Operator Instructions]. The first question is from Bhavan Suri of William Blair.

It's [Kate Bruner] on for Bhavan. First off, just congrats on the quarter and a great year. I wanted to start out with some housekeeping items about the ongoing projects, specifically the project in Latin America. Can you guys touch on just how this is progressing and the planned progression into '22?

Overall, we are very pleased with our progress. We got this project awarded somewhere in the middle of 2021, and we continue with execution. This project in LATAM is very important to us, as you recall, the start of a multistage RFP that we got the initial stage while we are still looking forward to further expand this. Our relationship with the customers are very well. Implementation is going very well and we look positive on this activity.

Okay. Awesome. With that, I also wanted to talk about the Rakuten partnership. I know you mentioned the possibility of international expansion with them. I was just curious if there's anything in the direct pipeline on this, any new contracts expanded to different markets with them currently?

So I mentioned in the past, Rakuten strategy is to go beyond the only Japan into international markets, and they are going very aggressively now and very actively with the Rakuten Symphony. And as you maybe saw in the news, they announced the [Symov], which is the Rakuten app store for telecom applications. RADCOM is fully integrated into the Rakuten stack. We are a strategic partner of them and the issuance of choice. So any success of Rakuten and any pipeline we built put us in a very well position to get additional projects. This is, of course, not guaranteed. This is, of course, relates to the end customer requirements. But definitely, there are opportunities and some of our pipeline includes also opportunities with Rakuten to expand into additional carriers globally.

Okay. Last one, just as you look forward to the next 2 to 3 years, what do you see being like the main growth drivers of your operations? Is it focused on the 5G expansion? Is it kind of work through the early stages or more product expansion? Can you just add some color on that?

Yes. So we are very focused on our strategy to look on partner operators as they transition to 5G and actually totally innovative network. Today, most of networks are built on a physical clients-based implementations. And while operators now move to 5G, they not only totally revise their network, but they are moving into cloud native. This is exactly where RADCOM excels, put us in a very good position with our technology. We invested in the last 5 years, tons of R&D into virtualizing and perfect our software solutions. And now that operators are moving to 5G, and this is what I expect to see in the next 3 years. Most of them will require to revisit select vendors, while some of them may remain with the existing vendors, I believe that many will be open to you a better alternative as we believe we offer, and this is a great opportunity for us. We are in a position that we have the right technology. There is the right market event, and we are still ahead of the market. And most of the operators, as I mentioned in my previous remarks, are still not in the stage they selected or select now. It will take time. We are only in the beginning. But it's very exciting to see the strategy starts to work and we are able to show consecutive growth, while in the very early stage of the market, which might mean that we can do much, much better. So I'm very excited about the opportunity looking forward.

The next question is from Alex Henderson of Needham & Company.

So a couple of questions. First one, I wanted to talk a little bit about the penetration of the AI analytics today in terms of existing customers and more importantly, what's in your pipeline, to what extent the AI is included in the pipeline of opportunities for '22? And any calibration around that would be helpful.

So our AI is really kind of our secret sauce as many of our competitors are still busy to figure out how to build virtualized cloud-native solution and how to address 5G. We already invested heavily on that in the past, and we have very advanced capabilities there. This allows us to direct lots of our R&D resources towards the next stage AI. I laid out my long-term vision. I believe this is going to be where we are going to invest more and more in the future. So today, we are already engaging with both new and existing customers for AI. We provide it in 2 flavors. Some of the AI capability goes into our, let's say, out-of-the-box solution in order for operators to really benefit from that. But some of the more advanced or potential additional upsell, both on the existing discount and the new ones. I could say that there is still a lot to do with AI as we are collecting tons of data by monitoring in real time, each and every transaction of the customer. But we see that the potential is great. The AI is getting really advanced now as a whole in the -- not only for telecom, but in many other verticals. But for the telecom that you have so many customers, millions of customers, and we need to create an efficient operation, this is probably the best way to go. And I see us playing an important role in this situation. We have some initial customers that already implemented this and starting to see results that are replacing manual labors and actually providing better insights than before because it can provide the insight in a larger scale and in more real time as opposed to you will be trying to analyze the data and find anomalies.

So the question really is, obviously, the piece that's embedded in your existing core technology is -- that's going to be part and parcel of any transaction you do. But the upsell piece is an add-on sale. Is the add-on sales in the existing pipeline? Are you -- do you believe that recent pipeline will be pulling that out on sale, and therefore, you get a higher revenue or service provider as a result? Or is that something that will happen after they've already deployed as an upsell to the existing installed base?

It's mostly the second. When you're looking on the pipeline for the new accounts, usually, they're more focused today on the, let's say, basic. And this is already part of the out-of-the-box solution. I believe the opportunity is more on the longer term to further expand while we add more and more use cases into our AI capability.

The second question is on the cloud-based operating structure. Clearly, it's a cutting-edge capability. It's impressive that you're able to deliver on a micro service cloud node architecture. And it's certainly impressive that you have Microsoft and AWS engaged. However, it's not clear to me how many service providers are as cutting edge as this technology would imply. So I was wondering if you could talk a little bit about as you're looking at your pipeline and existing customers, to what extent the cloud-native capability is a critical element or it's something that's beyond their scope of ambition?

So it depends on the customer type. And when we look on the customer that we are into, those that are most advanced with the 5G moving into 5G stand-alone. Many of them are -- it's very important for them to have a cloud-native application. It's true, and I mentioned this in past quarters that the immigration into public cloud is something that's going to take time and it's a multiyear process as telecom today and mainly legacy providers are. Many of them are still using the appliances and physical solutions and some of them are in the first step of moving into virtualization. I believe long term, we will see more and more activity from the hyperscalers and we see more and more partnerships forming between operators and hyperscalers. This being said, still today, you see only the cutting edge operator going to this technology. But this is exactly where we are into. Our strategy is to stay in the cutting-edge implementations to partners, those that are most advanced with 5G and create the first-to-market solution there. I believe that in time more and more operators, as they mature, the 5G implementation, going more strategically, this will become a must. So overall, I think it's going to be very important in the future.

So just to clarify, this is a requirement on the road map, but not something that don't necessarily will show up in initial orders for the next couple of years?

For the advanced operators, it's mandatory requirement. For the ones that are a bit behind, this is maybe something they don't have today. So they want to see it in the shorter roadmap. It all depends on the operator's maturity to use those technologies. So for example, Rakuten is, as we talked a lot about them in the past, Rakuten is a clearly a mandatory requirement. You cannot do any business probably with Rakuten, not regarding only our solution, if you are not fully cloud-native. If you go to operators that are still not with 5G, yes, they might say they can -- it's an enrollment requirement.

So going from what you're doing to -- what other people might be doing, have you seen any change in the competitive landscape over the course of 2021? What's going on with that scout? Have they realized that the refrigerator probes are not the way to go and seeing what you've done and tried to catch up? It's been -- you've been visible for quite a while. I would assume that they're scrambling to respond. So can you give a little bit of competitive landscape?

Yes. I'm not sure. I'm mainly focused on what we do and what are the feedbacks we are hearing from our customers and prospects. Overall, across the board, we hear that everyone is excited on our technology. We don't hear that other competitors are as advanced as we are. When they go into the details, they see and appreciate the investment we did into the technology. And we are keeping and investing and innovating. So we are very, very confident with the technology offering we have compared to the other markets. As I mentioned before, there are -- we are now playing in the prime market of the 5G. All the competitors understand that telecom are moving to 5G. It's not something that any secret now. And everyone understand that they have to move the solution into cloud-native and exempted. It's only now the matter of how much time it will take them and how good they will do it. I believe that with the 5 plus news that we are investing in this area, it will be very hard for them to catch up.

So have you seen any competitive bids where they're showing up? Or are you still pretty much the only game in town in most of the pipeline that you're looking at?

So again, the message we are hearing is that we are the most advanced, and we are really -- that is mainly referring to road map and future commitments. But has really come with reference customers in a cloud-native environment in the cloud environment, not something that we are leading yet.

If I could shift gears a little bit to the income statement and cash position. Clearly, there's a pretty high level of wage inflation and our head count is not going up a lot, but it does seem like there's a fair amount of wage inflation given roughly a 10% increase in revenues, do you expect that you'll be able to improve your operating margins? So to get close to breakeven by year-end, or should we anticipate slight losses throughout the year?

So as you can see, this quarter that already reflects a lot of the inflation increase and Shekel to dollar ratio, we are around breakeven at $11 million quarterly. So with the guidance, if we meet the higher part of the guidance, we are really looking to see somewhere in the breakeven point. You should see something similar. So yes, this is about the range. Overall, we are looking to, as Hadar mentioned before, we are looking to keep our R&D expecting similar levels and do some increase in the sales marketing. So if we are able to execute our growth, we are going to continue to decrease our loss and get into closer to profitability.

You only added a couple of people last year in terms of headcount. So are you expecting a larger hold count increase in 2022?

No, we are around the headcount we plan, maybe a slight increase, but we are overall around where we want to be and maybe grow a little bit on the sales and marketing, as I mentioned before, as we are looking to now expand into more and more territories and 5G advance, and we need to go after more opportunities and have more resources to address those sales forces.

And then on the cash flow side, it seems that you're actually going to generate a lot of cash in '22. Is that correct?

I'm not sure. We generated cash in 2021. I believe that it makes sense, but not something that we can be ensured as we are working with large projects and sometimes there could be fluctuations depends on the specific milestone and the exact payment date and -- sometimes we shift a few millions from year-to-year. But overall, if you look on our current cash level, it's I think the highest in the last 3 years, and we are not burning cash. As the results improve and our revenue grows, this would only go and be even better.

This concludes the RADCOM Ltd. fourth quarter and full year 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.