RADCOM Ltd. Q2 FY2026 earnings call

Business Situation & Q2 Results Context

• Q2 revenue declines were driven by deployment delays with a small number of existing Tier 1 customers, not project cancellations, lost business to competitors, or customer dissatisfaction with RADCOM solutions. Delays stem from sharp, rapid increases in server infrastructure costs for private cloud and on-premise deployments, which have forced customers to rebalance budgets and reschedule expansion phases.
• Public cloud deployments have been far less affected, as they do not require purchase and installation of physical customer-owned infrastructure. All delayed projects remain on customers' long-term roadmaps, and RADCOM has pre-secured hardware for anticipated deployments to be ready to execute once customers give approval.
• Management expects deployment activity could return to normal pace starting in Q1 2027, with some projects potentially moving forward as early as Q4 2026, once 2027 customer budgeting processes are complete.

Recent Contract Wins & Installed Base

• Three new contracts were secured shortly after quarter-end: 1) A multi-year contract with new customer SETI Networks (Slovakia) for end-to-end AI-driven assurance, which replaces the incumbent provider and creates a foundation for future expansion across the broader SETI group serving 12+ million customers across four countries; 2) A small but strategically important reference win with a new Tier 1 APAC operator that replaces the incumbent, positioning RADCOM for a larger future network-wide contract; 3) A network visibility contract renewal with an existing European customer.
• Key existing customer deployments remain on track: RADCOM ACE deployment continues with One Global for 4G/5G monitoring, and solutions remain embedded in production networks for AT&T and Rakuten Mobile serving millions of subscribers.

Product & Strategic Updates

• The company's core strategic priorities are unchanged: expand Tier 1 operator footprint, deepen penetration of the installed base, advance AI-native assurance for autonomous networks, and maintain operating discipline to support profitability.
• During Q2 2026, RADCOM launched Radcom ADM, a new analytics designer module for the RADCOM ACE platform that lets operator teams build custom analytics in real time (replacing multi-month vendor requests), feeds real-time data to RADCOM Neura AI to improve agent accuracy, and will be generally available later this quarter to drive upsell within existing accounts.
• RADCOM Neura, the company's agentic AI suite launched in early 2026, was named a finalist for the 2026 Light Reading Leading Lights Award for Most Innovative Telco AI/ML Product. RADCOM was also part of the winning team for the AI and Automation Catalyst Award at DTW Ignite, demonstrating multi-vendor AI agent collaboration for faster fault resolution and advancing Level 4 autonomous networks.
• RADCOM continues to use a partner-led go-to-market model with NVIDIA, ServiceNow, AWS, and leading system integrators to extend market reach. The company's key competitive advantage is a lower total cost of ownership: its cloud-native software can run on existing hardware operators already have, eliminating costly rip-and-replace migration.
• The sales pipeline remains healthy and is improving in quality, with multiple opportunities advancing from technical evaluations/proof-of-concepts to commercial discussions during the quarter. RADCOM maintained active go-to-market participation at major industry events during the quarter, with encouraging customer and partner feedback on its AI capabilities.

Financial & Capital Allocation

• RADCOM remains debt-free with a strong solid cash position. The board has approved a $20-$25 million share repurchase program, with required regulatory and procedural steps already underway to launch the buyback as quickly as rules allow.

RADCOM did not break out financial performance by distinct product segments in this call. Total consolidated revenue for Q2 2026 was $11.8 million, representing a 33.4% year-over-year decrease from $17.7 million in Q2 2025. Gross margin for the quarter was 76.3%. Non-GAAP operating loss was $2.2 million (equal to -18.5% of revenue), and non-GAAP net loss was $1.5 million ($0.09 per diluted share), compared to non-GAAP net income of $4.2 million ($0.25 per diluted share) in the prior year quarter. For H1 2026, non-GAAP operating income was $1.6 million (5.1% of revenue). GAAP net loss for Q2 2026 was $3.1 million ($0.18 per diluted share), compared to GAAP net income of $2.4 million ($0.15 per diluted share) in Q2 2025. Net R&D expenses were $5.3 million (up 15.9% YoY), and sales & marketing expenses were $4.7 million (up 8.8% YoY). End-of-quarter cash, cash equivalents and short-term deposits totaled $109.7 million, with positive operating cash flow of $1.3 million for the quarter.

• Full year 2026 revenue guidance is reaffirmed at the revised level of $57 million to $63 million, with a midpoint of $60 million, which was originally announced on July 30, 2026 (a downward revision from prior 2026 guidance following Q2 delays).
• Management confirms RADCOM will remain profitable on a non-GAAP basis for full year 2026.
• The company aims to achieve free cash flow positivity for the entire second half of 2026.
• RADCOM expects to return to double-digit percentage revenue growth in 2027, once delayed deployment activity resumes.

• Sharp, rapid increases in server infrastructure costs for private cloud and on-premise deployments have caused customer deployment delays, which have negatively impacted near-term revenue, and further delays could occur if customers require more time to complete infrastructure planning and budgeting.
• Currency exchange rate headwinds (specifically shekel-dollar movements) have increased R&D and sales & marketing expenses; RADCOM has implemented a short-term hedging program for shekel-denominated expenses through end-2026 to mitigate this exposure.
• All forward-looking statements related to deployment timing, future revenue growth, share repurchase execution, and product adoption are subject to inherent uncertainties that could cause actual results to differ materially, as outlined in the company's SEC filings.

Q: The weak Q2 results were unexpected to analysts. Is there further visibility into Q3 and Q4 results, or could another unexpected negative surprise occur? Also, can you share details on how the $20-$25 million share repurchase will be executed (e.g., via stock exchange, direct offer) given the challenge of buying that volume of shares?

A: The full Q&A session could not proceed due to widespread audio connectivity issues for participants joining via Zoom, so no management answers were captured on the call transcript.