RADCOM : Q4 and FY 2021 Earnings Call – Full Transcript

Q4 & FY 2021 Management's Prepared Remarks & Q&A	February 24, 2021

Q4 & FY 2021 Financial results conference call

Management's prepared remarks and Q&A

February 24, 2021

©RADCOM Ltd., 2022

Q4 & FY 2021 Management's Prepared Remarks & Q&A	February 24, 2021

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Radcom Ltd. 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.

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 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 Investor 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 standalone 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 non-cashstock-based compensation expenses, non-GAAP results provide information helpful in assessing Radcom's core operating performance, and evaluating and comparing our 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

Q4 & FY 2021 Management's Prepared Remarks & Q&A	February 24, 2021

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.

Eyal Harari:

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 dollars, which represents a tenth consecutive quarter of year-over-year revenue growth. Full year 2021 revenues grew to

40.3 million dollars, which represented a 7% year-over-year growth and a 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 will be critical as part of an automated assurance solution as 5G evolves. I will expand on this later in my remarks. I wish to take this opportunity to thank all of Radcom employees as they helped us to meet our business commitments and support our customers during 2021. Working in hybrid mode requires a new operating model that spans people, places and processes.

We quickly adjusted our mode of operations to the new way of remote working, empowering teams with the ability to work effectively to support our customers and to collaborate utilizing cloud-based applications and virtual conferencing.

Q4 & FY 2021 Management's Prepared Remarks & Q&A	February 24, 2021

Turning to the business.

AT&T remains a key strategic customer for us. And in 2021, we continued our solid business relationship. We received orders for additional analytics and network integrations, and we also have a significant backlog that provides a good visibility into 2022. We continue to innovate and deliver our best-in-class software to AT&T. Our cutting-edge cloud technology is embedded into AT&T's network and monitors the service quality, allowing them to optimize performance and troubleshoot network degradations.

In 2022, we expect to continue providing AT&T with advanced software enhancement and providing premium customer support.

We are working closely with Rakuten and other strategic customers to support their 4G network rollout in Japan, which in February reached 96% population coverage. We announced during the year that we started monitor Rakuten's stand-alone 5G services in preparation for the launch of their 5G network.

Having secured one of the industry's first 5G stand-alone assurance contract with Rakuten, we believe that this work will continue helping our product mature and provide valuable experience for us when we help more operators implement standalone 5G as they look to our assurance expertise. In addition, as Radcom is Rakuten's service assurance vendor of choice, we are integrated into Rakuten Symphony, a business dedicated to selling the Rakuten communication platform and managed services to telecom operators worldwide.

We believe this platform integration could open significant opportunities for us in the future.

While our focus remains on the 5G market, we continued in 2021 to see demand for our 4G and VoLTE assurance solutions, winning additional orders from our installed base for Radcom ACE, including the previously announced expansion with a top-tier LATAM operator and other key accounts.

In 2021, we also announced the integration of Radcom ACE with 2 hyperscalers, Microsoft Azure and Amazon Web Services. We expect 5G to be deployed in multi-cloud environments. And so with these ecosystem partners, operators can simply roll out by using the public cloud along with Radcom ACE to smartly manage and optimize 5G network services more automatically. As 5G gains traction, we expect these solutions integration to help us serve a wider range of customers for the rollouts of more advanced 5G services.

Q4 & FY 2021 Management's Prepared Remarks & Q&A	February 24, 2021

Turning to the telecom industry and the state of 5G.

Our estimates last year that the 5G market momentum will continue during 2021 were largely played out and the market continues to scale and expand globally. The GSA identifies 20 operators that are launching 5G standalone networks with most being limited in scope. While the critical mass is still at the early stage of 5G, true 5G networks will be launched over the next few years.

Assurance vendor selection is expected to occur at the later stages of the rollout. So the market is gaining momentum. We are only on the cusp of this transition.

As 5G advances, we see new greenfield 5G networks being built in the telecom space. These new networks can be built by established telecom operators investing in 5G or newcomers to the telecom market. They build a network from scratch and deploy the most advanced technology. They are in essence, pure 5G and cloud-native from the start. For these operators, like Rakuten, automated assurance solutions are vital to monitor the network lifecycle and ensure ongoing service quality from lab to full commercial launch.

With our R&D investments and the product strategy focus on automated assurance for 5G and cloud-native networks, we believe that we have competitive advantage in this emerging greenfield market and demand for our best-in-class solution will grow.

As I mentioned earlier, Rakuten is one of the operators already testing and planning their standalone network, and we are already monitoring these services, which provide us with an invaluable experience. This makes us one of the only service assurance providers that is conducting real-life 5G monitoring, and we expect this will serve as a favorable factor when more operator choose their assurance solution in 2022 and beyond. The current 5G momentum is reflected in our pipeline, which was increased by double digits from the beginning of '21 as more operators are planning and transitioning to 5G.

Our pipeline consists of a good mix of opportunities from our current installed base as well as new logos. These opportunities also include several engagements with potential multiyear contracts.

Our long-term vision is based on helping telecom operators become more autonomous. Telecom operators needs to modernize, reduce OpEx and deploy new services to generate new revenue streams. To achieve these goals, networks needs to be software- based, smarter and more automated. This means the operator need to make data-driven decisions in real time. So operators need to collect and analyze network data and instead of human analysis, use AI to gain insight into the network and pinpoint issues automatically.

We believe that we will be a key player in this industry transition and have already started this journey with some of our customers where we are considered as the operator's trusted assurance adviser. 5G and the cloud are expected to be business enabler that can be leveraged to realize this transformation in this industry transition.