AudioCodes Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 8 speakers on the call.

Operator

Greetings. Welcome to AudioCode's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Roger Chuchin, VP of Investor Relations, you may

Speaker 1

begin. Thank you, Holly. Hosting the call today are Shabtai Alisberg, President and Chief Executive Officer And Naram Bruck, Vice President of Finance and Chief Financial Officer. Before we begin, I'd like to remind you that the information provided during this call May contain forward looking statements relating to AudioCode's business outlook, future economic performance, product introductions, plans and objectives related thereto, Statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters are forward looking statements as the term is defined under U. S.

Speaker 1

Federal Securities Law. Forward looking statements are subject to various risks and uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties and factors include, but are not limited to, the effect of global economic conditions in general and conditions in AudioCode's industry and target markets in particular shifts in supply and demand market acceptance of new products and the demand for existing products the impact of Competitive products and pricing on AudioCodes and its customers' products and markets, timely product and technology development upgrades and ability to manage changes and market conditions as needed, Possible need for additional financing, the ability to satisfy covenants in the company's loan agreements, possible disruptions from acquisitions, The ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes business, possible adverse impact of the COVID-nineteen pandemic on our business and results of operations and other factors detailed in AudioCodes' filings with the U. S. Securities and Exchange Commission.

Speaker 1

AudioCodes assumes no obligation to update this information. In addition, during the call, AudioCodes will refer to non GAAP net income and net income per share. AudioCode has provided full reconciliation of the non GAAP net income and net income per share to the net income and net income per share according to GAAP in the press release that is posted on its website. Before I turn the call over to management, I would like to remind everyone that this call is being recorded. An archived webcast will be made available on the Investor Relations section of the company's website at the conclusion of the call.

Speaker 1

With all that said, I'd like to turn the call over to Shabtai. Shabtai, please go ahead.

Speaker 2

Thank you, Roger. Good morning and good afternoon, everybody. I would like to welcome all to our Q2 2023 Conference Call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of Odicode. Niran will start off by presenting a financial overview of the quarter.

Speaker 2

I will then review the business highlights and summary for the quarter and discuss trends and developments in our business and industry. We will then turn it into the Q and A session. Yaron?

Speaker 3

Thank you, Hello, everyone. Before I start my formal remarks, I would like to remind everyone that in conjunction with our earnings release this morning, We will post shortly on our Investor Relations website and earnings supplemental deck. On today's call, We will be referring to both GAAP and non GAAP financial results. The earnings press release that we issued earlier this morning contains a reconciliation of the supplemental non GAAP financial information that I will be discussing on this call. We will be comparing our Q2 2023 results to the prior quarter as we believe it provides a better gauge of our financial performance.

Speaker 3

Revenues for the Q2 were $60,000,000 an increase of 1.4% over the $59,200,000 reported in the Q1 of the current year. Services revenues for the 2nd quarter were $28,500,000 accounted for 47.4 percent of total revenues. The amount of deferred revenues as of June 30, 2023, was $77,700,000 compared to $77,600,000 as of March 31, 2023. Revenues by geographical region for the quarter were split as follows: North America, 47% EMEA, 34% Asia Pacific, 13% and Central and Latin America, 6%. Our top 15 customers Represented an aggregate of 55% of our revenues in the 2nd quarter, of which 43% was attributed to our 11 largest distributor.

Speaker 3

GAAP results are as follows. Gross margin Operating income for the Q2 was $2,300,000 or 3.8 percent of revenues compared to an operating loss of $800,000 or 1.4 percent of revenues in Q1 2023. Net income for the quarter was $1,100,000 or $0.03 per diluted share compared to an operating loss of $200,000 or $0.01 per diluted share for Q1 2023. Non GAAP results are as follows. Non GAAP gross margin for the quarter was 64.5% compared to 62.1% in Q1 2023.

Speaker 3

Non GAAP operating income for the Q2 was $5,700,000 or 9.5 percent of revenues compared to $2,900,000 or 4.9 percent of revenues in Q1 2023. Non GAAP net income for the 2nd quarter was $5,100,000 or 0.16 dollars per diluted share compared to $2,700,000 or $0.08 per diluted share in Q1 2023. At the end of June 2023, cash, cash equivalents, bank deposit, marketable securities and financial investment totaled $118,500,000 Net cash provided by operating activities was $2,200,000 for the Q2 of 2023. Days sales outstanding as of June 30, 2023 were 95 days. In June 20 23, we received court approval in Israel to purchase up to an aggregate amount of $25,000,000 of additional ordinary shares.

Speaker 3

The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through December 27, 2023. We declared a cash dividend of $0.18 per share. The aggregate amount of the dividend is approximately $5,700,000 The dividend will be paid on August 31, 2023 to all of our shareholders of record at the close of trading on August 17, 2023. Regarding headcount, as discussed last quarter, We undertook actions to reduce headcount to better align our cost structure to the current business environment.

Speaker 3

These measures were Partially reflected in our 2nd quarter headcount figures ending the quarter with 946 employees, down from 978,000,000 in the Q1. We expect full amount of Now to providing an update on our guidance. We reiterate our guidance for revenues For 2023 to be in the range of $240,000,000 to $250,000,000 We're now raising our guidance for non GAAP Diluted earnings per share to be in the range of $0.55 to $0.70 compared to The original range of $0.50 to $0.70 I will now turn the call back over to Shabtai.

Speaker 2

Thank you, Niran. I'm pleased to report Q2 2023 results With meaningful business activity improvement relative to the prior core in our key strategic areas, we executed well in a challenging macro environment with key growth engines, namely Microsoft Customer Experience and Voice AI growing nicely. We have also seen bookings experiencing measurable improvements relative to the last quarter. Importantly, core business leading indicators Such as pipeline remain robust, and we saw relative stabilization in non core lines, such as the service provider and IP phones, which was Alliance contributing the most to the drop in revenue in the Q1 of 2023. These factors, Coupled with incremental OpEx savings from cost cutting actions announced last quarter, provide us with increasing confidence to deliver on our commitment of delivering significant improvements in operating leverage over the rest of 2023 and beyond.

Speaker 2

We made good progress in our enterprise business, now reaching 88% of our company revenue. Microsoft related business in the core grew 12% year over year and 16% sequentially. Core to this growth was Microsoft Teams Business, which grew 18% year over year. Strong ongoing momentum For Adeco's live managed services continued with annual recurring revenue exiting the core at 40,000,000 and growing over 60% year over year. Live total contract value generated in the 2nd quarter Grew 75% over the previous quarter.

Speaker 2

Strong live performance to date puts us on track To achieve our target of $46,000,000 to $50,000,000 objective for 2023, representing Approximately 50% year over year growth. Zoom related business grew over 20% year over year. We also executed well in our customer experience in conversational AI business with CX delivering 7% Growth year over year. Overall, we executed well this quarter and our bill going success, Particularly in live, puts us on an accelerated path in our long term transformation to software and services. Talking about the broad based improvement in business trends that we saw in the Q2, it is clearly a validation Of the strong competitive mode that we have built in our voice business, even in the tight budget environment that we are in, Enterprises continue to turn to industry leaders such as AdiCodes for voice connectivity services, unified communication and customer experience are safe choice.

Speaker 2

What best exemplifies the competitive differentiation we have in our software and services solution Our recent live cloud hosted pro contract win with a Tier 1 service provider. This deal enables migration of the carriers and Customers to next gen UC platforms, starting initially with Microsoft Teams PSC and Voice and then to other leading You'll see platform over time. As a reminder, LiveCloud Pro is a white label audio code solution consisting of managed SBC Service along with service delivery portal for value I'm sorry, for value adds voice services such as contact center, Recording, interaction analytics of meetings for enterprises, tenants and user management. Important to note that this carrier has conducted a thorough competitive bake off process of the leading SBC vendors in the market before deciding to standardize on other code solution. Why did we come out on top?

Speaker 2

We won based on our best in class voice Connectivity SaaS solution in our broad portfolio of devices, software application and services that is unparalleled in the industry. Partners and end customers alike have a strong preference for reducing complexity in our unique end to end Unified communication customer experience platform approach provides us with a significant leg up on our competition. While the initial value of this contract award size is small, the long term revenue opportunity is large. S1, This carrier operates in a market that is the very early stage of cloud transformation and second, significant upsell potential for our broader We are grateful for this trust that this Tier 1 carrier has placed in us as well as others that have made our live and live cloud managed services offering a rousing success. We look forward to providing Before turning to detailed business segment discussions, let's quickly shift to profitability metrics and guidance.

Speaker 2

Our Q2 2023 non GAAP earnings per share was $0.16 in the quarter, exceeding our internal budget. We estimate roughly half of the earnings upside to the higher non GAAP gross margins and the balance to the lower OpEx in the quarter. 2nd quarter non GAAP gross margin was 64.5%, which improved from 62.1% in the previous quarter, driven primarily by more favorable product mix. 2nd quarter OpEx was 33,000,000 down from $33,900,000 in the prior quarter, with a decline attributable to earlier than expected implementation of the cost cutting measures announced last quarter. Regarding headcount, Accordingly, we ended the quarter with headcount of 946 full time employees, down from 978 employees 1st quarter.

Speaker 2

We expect our OpEx to continue to step down to $32,000,000 in Q3 20 $23,000,000 down approximately $2,000,000 from the Q1 2023 levels. On the guidance front, as Niran already stated, we are reiterating our 2023 revenue guidance. While we adjust our non GAAP earnings per share guidance to $0.55 to $0.70 to reflect better than expected second Core earning results. This outlook builds in continued conservative enterprise spending environment and our previously announced cost optimizations. Now to specific business line operations.

Speaker 2

1st is the Microsoft Business. Microsoft Business increased 12% year over year in the second Tim's increased 18% year over year and 20% sequentially, while Sky for Business was down over 50% year over year And 33% sequentially. We are now towards the end of the transition of Microsoft Business from Skyfall Business to Teams. And as such, The negative impact from Skyfall Business decline over the past three and a half years becomes negligible going forward. Microsoft Business has shown strength mainly in North America and Asia Pacific, while roughly flat in EMEA.

Speaker 2

In terms of bookings of new Microsoft Business, we continue to see stronger performance in 2023 compared to 2022. Hence, The greater number of sizable live deals that we closed in 2nd quarter in North America and Asia Pacific, while EMEA region remains Subdued. Overall, we added 282 new Teams accounts in the quarter, up from 250 accounts in the 1st quarter. On its earnings call last week, Microsoft disclosed over 17,000,000 PSTN users, representing 45% growth year over year. The healthy stream of Teams PSTN voice ads in a tightly enterprise budget environment Further underscores the value proposition of adding Teams Phone to the overall Teams experience.

Speaker 2

Importantly, The 17,000,000 plus PSTN users represent just a fraction of the overall 300,000,000 Teams Users monthly active users providing us with ample multi year runway to drive ongoing penetration gain. One key area for us in the Microsoft business is the TIMSS Live deals, which represent each a high total contract value. I'm glad to inform that in the Q2, we were able to sign close to 10 accounts with a total contract value of above 500,000 Roughly $500,000 to $1,000,000 which helps to build for us a very stable growing backlog of monthly recurring revenues for the next 36 months and beyond. Now to our contact center business. Contact center business grew 7% year over year in the quarter and strength in North America and Asia Pacific.

Speaker 2

After several quarters of lumpiness in this area, we believe we may be approaching an inflection point in CX bookings growth and more so in Live CX deals. Live CX deals show great potential for the future As they relate to the migration of mega contact center accounts from legacy on prem vendors onto new cloud based contact center implementation and the need to substantially transform and switch the voice access network between different CX vendors is a result of an on prem to cloud migration Underlying this growing confidence is a maturation of the deals within Healthy pipeline built over the last 12 months consisting of core SBC, Voca CIC, entry level Microsoft Teams, Contact center solution and other voice AI application opportunities. I would like to give you an example of recent Live CX contract was signed with a Tier 1 global system integrator in support of a multinational logistic firm. We believe that this deal brings to bear the broad capabilities of our Live CX and Vocational AI portfolio. Just a brief background, This large global customer intends to migrate over a multiyear period, tens of thousands of contact center agents spread Over 200 locations in over 100 countries form a large incumbent on prem contact center vendor to a CCaaS vendor.

Speaker 2

AdiCoors were selected as the SBC vendor of choice for the following reasons. 1, our SBC managed service Save the customer variable time and costly internal IT resources that are required for such a large complex migration project. 2nd, our custom designed business continuity solution leveraging our Voca Conversational IVR Smart App Compliance Calling in WebRTC client, in the event of a service outage in the cloud solution And in the CCAS platform, incoming calls would be seamlessly diverted to our solution, to our system, thereby ensuring service continuity. 3rd, having this extra layer of insurance is of paramount importance to this customer and is key Factor in its decision to move to a CKS platform. Note that our custom built architecture has been approved by the corporate division of the customer and could be purchased at individual contact center site levels.

Speaker 2

This contract carries a multiyear deployment Schedule and full and upon full ramp, annual recurring revenue is expected to reach EUR 1,000,000 without accounting for incremental revenues associated with expected uptake of our business continuity service. Now to services. Services accounted for 47.5 percent of revenue and grew 2.7% year over year compared to 10.8% in the previous quarter, with the deceleration in growth rate primarily related to timing of Professional services completion. Notably, our professional services booking remained strong, up 18% in the quarter, implying healthy growth over the balance of the year. While this fueled our ongoing momentum in services, primarily our live subscriptions business, which ended 2nd quarter at $40,000,000 ARR, up from over $36,000,000 last quarter.

Speaker 2

Additionally, we ended the quarter With total contract value for our live subscription signed from inception of this program exceeding $120,000,000 up from over $110,000,000 last quarter, providing us with increasing level of revenue visibility. At this stage, the backlog of managed services projects recurring revenue grows steadily And shown growth of well over 50% in the 2nd quarter. We expect strong momentum in Life Services to continue in 2023 and beyond and right to right to our annual recurring revenue target of $46,000,000 to $50,000,000 by the end of 2023. Now to VoiceAI. VoiceAI Business grew over 15% year over year.

Speaker 2

As presented already in the past, We have identified the potential of applying AI technologies to the world of voice back in 2018 when we established the VoiceAI Group, Now employing close to 100 R and D employees and which have since engaged in the development of technology and solution for several advanced AI applications. What's unique in this major investment of ours is the fact that this is, in a sense, a departure from our Traditional world of voice networking and connectivity to a new world of voice application, which are based on software and application, Going to be software and services centric. We have since developed several applications, one of which we announced yesterday, Roca Conversational Interaction Center, which is an AI first CKS solution, and which we target to grow into meaningful new business line For us, which will generate tens of 1,000,000 of dollars in the next couple of years. In fact, adding Voca CAC to our already existing Business of SBC and Live CX Services and adding in future in the future a new evolving application of interactive analytics, We believe we are creating a very strong second leg of the CX business side by side with our successful business of Voice solution for the unified communication as a service line.

Speaker 2

Voca Conversational Interactive Center, Our entry level Microsoft Teams native AI first contact center is garnering significant customer interest in 2023, As enterprises are increasingly looking to leverage teams for true consolidation of UCaaS and CCaaS. As announced yesterday, Voca CAC is now officially certified by Microsoft as Microsoft Teams contact center solution. We also made significant progress in our conversational AI lines. We made good progress on other lines. We'll touch them So let's talk about the different lines.

Speaker 2

Let's talk about VoiceAI Connect. This is a connectivity service supporting voicebots Use cases such as virtual agents and agent assist. VoiceAI Connect made good progress in the quarter. 2nd core bookings nearly doubled from 1st quarter, helped by expansion purchases by multiple customers, which speaks for the efficacy of our solutions and the growing adoption of conversational AI, particularly amongst large enterprises. Voca CIC, We have contracts awards nearly doubled sequentially in the quarter and credit opportunities pipeline remained robust, growing over 3 times on a year by year basis.

Speaker 2

What has been fueling our Burger King success here is a strong position in TIMSS Voice Akosys giving us an attractive installed base from which we can upsell our entry level CCaaS solution and enterprise Customers increasingly look to leverage Teams for both consolidated UC and CX environments. Now let's mention Meeting Insights. This is our meeting room solution. Basically, we have completed the integration of GPT-four, making officially available to end customers productivity enhancement services such as Auto generating meeting summary outline and action items leveraging the power of generative AI. We are not stopping There as we are making investment to build new products to drive more actionable insights for our users and towards We have executed well in a challenging macro environment with key growth engine in our core business, namely Microsoft Customer Experience and Voice AI Bookings, experiencing measurable improvements relative to the last quarter.

Speaker 2

Importantly, core business leading indicators such as pipeline remain robust, while non core service provider and IP phone business lines seem to have stabilized. These factors coupled with incremental OpEx savings from cost cutting Actions announced last quarter provide us with increasing confidence in our ability to deliver on our commitment of delivering significant improvements in operating leverage over the rest of 2023 and beyond. With that, I would like to turn the call back to the operator for the Q and A session. Operator?

Operator

Thank you. At this time, we will be conducting a question and answer session. Your first question for today is coming from Mason Mariani at Jefferies.

Speaker 4

Hi. Thanks for taking the questions. So I want to start on product revenues. Can you further elaborate what's driving the continued declines here? And then How are your inventory levels within the channels?

Speaker 4

And how does that inventory dynamic look for the back half of the year?

Speaker 3

Yes. First, with regards to product, indeed, year over year, there was A decline, a double digit decline, but what's encouraging is that sequentially, we had 10% growth in product In the Q2 compared to the Q1, with regards to inventory, it Mainly relate the increase in inventory mainly relates to 1 business line of product line, which is the IP phone And also relates to the weakness at the service provider CPE business, we believe effective next This quarter, we will start to see a decrease in the inventory level.

Speaker 4

Okay. That's good to hear. And, for my second one, I wanted I'm interested in the Voca contact center solution with Teams. Can you just tell us more about this product? What's the size of this opportunity You believe you're attacking and then what kinds of customers is this targeted towards?

Speaker 4

Are you focusing on SMBs, mid market, enterprises?

Speaker 2

Right. So basically, Voca CAC targets entry level CKS solution. We basically target both Customer experience and enterprise experience agents. If you think about desk that would be used in IT environments, HR desk, sales, travel desk, legal, etcetera, it would be very useful. Usually, we target in the initial phase You know a level of, tens of agents.

Speaker 2

However, the product is designed at this stage to Be able to answer with customers that have up to, let's say, 500 agencies.

Speaker 4

Okay, understood. Thanks for taking my questions.

Operator

Your next question is coming from Ryan McWilliams with Barclays.

Speaker 5

Hi. This is Damon Coughlin calling in for Ryan Williams. What is driving commentary around future large enterprise contact center deals? And Did you see any of those deals closed in the Q2?

Speaker 2

So we are actually Already active in these markets. And we've as I've mentioned on our call, we already have Booking growing substantially in the first half of the year. We definitely look we just delivered 8 deal Well, we just signed a deal that's close to $1,000,000 with a large U. S.-based organization. And we are fairly competitive.

Speaker 2

We get all kind of indication that we are able to replace known and incumbent Due to the fact that the solution is very advanced, native to the Microsoft Azure and Teams environment. And once we are able to consolidate UCaaS and CCaaS in a single solution, that seems to be quite attractive Steve, to the customer base that, intends to use Teams as its UC platform.

Speaker 5

Got it. Thanks. That's all from me. I'll hop back in the queue.

Speaker 2

Sure.

Operator

Your next question for today is coming from Greg Burns with Sidoti and Company.

Speaker 6

Good morning. The large service provider that is going to be deploying Using you for Teams Live, can you just talk about that opportunity in that channel? Is that the first And a large service provider using you in that capacity and what the pipeline of maybe other opportunities look like for you there?

Speaker 2

Yes. So actually, we're talking about a derivative of the live services, which we call Teams LiveCloud. LiveCloud targets service providers that typically will sell The live services to their own business customers. We already have a pack of more than 50 such Service provider, although some are smaller in size. We are active in that area for the past 18 months, Already are generating monthly recurring revenues in the order of a few 100 of 1,000 of dollars.

Speaker 2

And basically, the idea, if you take a name in the 1st tier or 2nd tier service provider, Each of them would be basically looking to empower its business customers With live services, you know, white glove services from us and it should grow. I mean, we're just in 1st innings of that product, but quite advanced. The product, by the way, supports not only Teams, but also We'll support shortly also Zoom solution and probably also WebEx solutions. So all in all, it's The only true multiplatform solution out there that should be able to get Onboard fairly quickly smaller accounts into a very powerful UC service.

Speaker 6

Okay. And then the improvement you saw in the Microsoft business this quarter sequentially, Have you seen that continue into this quarter? Are you seeing businesses more willing to move forward with Maybe projects that were delayed, what's the market environment look like there around Microsoft? And then, looking forward, should we just Expect the growth of Microsoft now just to line up with Teams at this point? Thanks.

Speaker 2

Sure. Yes, well, the environment really, we saw improvement in the 2nd quarter. I think the question that hovered in the Q1 whether we're going into a recession or not. I think in the Q2 that Went a bit away, so businesses are willing to invest more moving forward with their projects. So all in all, yes, regarding the split between TIMSS and Skyfall Business, yes, we are glad to say that We are really at the end of the decline in Skyfall Business, which hurt the Teams growth.

Speaker 2

So yes, going forward, The main business is Teams and it's growing nicely. I would expect that business to continue to Grow in the range of 15% to 20% year over year.

Speaker 6

Okay, thanks. And then just lastly, how much revenue you're generating Your voice AI suite of products now and how much do you expect that to grow this year?

Speaker 2

So I think I gave some numbers in the past. Last year, we did close to $6,000,000 We plan this year to grow at least 50%, but as no several of our applications are maturing this year, We do expect even larger growth to start next year. So next year, I would count on 50% to 70% growth. All in all, we have just to give you an idea, we have 4 different areas of activities. I've mentioned VoiceAI Connect, which is already selling in several millions a year.

Speaker 2

We just Started out with meeting insight, we do have Smart App, which is a compliance solution. We have the Voca CIC, which again shows very strong ramp up in bookings, and we will plan on adding Interaction Analytics going forward. So As I've mentioned on the call, we believe that these many different activities in the CX and the customer experience Markets will definitely help us grow conversational AI rapidly over the next years.

Speaker 6

Okay, great. Thank you.

Speaker 2

Sure.

Operator

Your next question is coming from Ryan Koonce

Speaker 5

subscription, dollars 40,000,000 ARR and new product revenue at $30,000,000 Is it fair to interpret that that the transition from license to subscription for new footprint going out the door right now is around 25% subscription. Is that for assessment?

Speaker 2

Pretty much, yes. At this stage, I think we have gone pretty upwards with our live I believe that in terms of bookings, that's close to 25% of our overall Teams business.

Speaker 5

That's great. And then circling back to contact centers, can you update us on any of your Strategic kind of partner developments in this space, be it some of the big players like Genesis and Five9 or Any of the pure CCaaS players, including Amazon progress with their any updates on your kind of strategic plans with your contact center partners would be helpful. Thank you.

Speaker 2

Right. So yes, actually, we enjoyed quite a success in the 2nd quarter. We 1 and I've described, we won a multi $1,000,000 deal of 7, 8 years with a large system integrator Moving a large logistic company from an on prem vendor, who seems to be losing steam Into a cloud contact center solution. Our model of fame is our voice Capabilities, we well, providing a solution to a fairly complex voice network that may include 200 different sites in 100 different countries, different location, different That's definitely a difficult task. And yes, I think that capability of ours has not gone And discovered by some of the large contact center names that you have mentioned.

Speaker 2

So yes, we do have Fairly closed discussion with some of these partners that see us as a Strong partner who can help them in solving all kinds of issues. I've mentioned business continuity solution, some Switching and Firstmile solution. So yes, we are in a very strong discussion with players in the field.

Speaker 5

That's great. Thanks very much. Appreciate it. Sure.

Operator

Your next question is coming from Tal Liani at Bank of America.

Speaker 7

Hey, I hope you can hear me.

Speaker 2

Hi, Shabtai

Speaker 7

and Yaron. I want to ask you about the environment in the context So last quarter Microsoft was weaker, this quarter Microsoft is better. Does it mean that the environment is getting better, meaning the visibility has improved or any better signed deals? Did they work through inventories? Kind of when you look at last quarter that was pretty dire and this quarter when you look beneath the surface, you can see some signs of, I don't know if it's stability or even some growth.

Speaker 7

I want to understand if it means something or it's not. Just if you can tell us about spending. Thanks.

Speaker 2

So I've mentioned that we feel second quarter was better in terms of the overall environment and Willingness, I would say, of management of corporations to start spending more on modernizing their communication and collaboration solutions. And in that regard, I've mentioned that Teams users, we have overall worldwide 300,000,000. Voice have been applied to less than 20,000,000 at this stage, I mean, Tim's phone. So there's huge, huge runway in front of us. And I think that once the climate is better Economically, we do see the environment better.

Speaker 2

So yes, we see it quite stable and We build on further growth in coming quarters and years.

Speaker 7

Now there is expected acceleration in the second half. Is it based on contract you already have or is it just normal seasonality? I'm trying to understand the risk in the acceleration.

Speaker 2

Well, so far, we have not met any such risk. If you take our annual recurring revenue, which basically tells you that is the most important parameter for us. We're stepping Fairly steadily. Just like any solutions with growth, we grew 100% a year, then Declined to 80%. This year, we will grow 60%.

Speaker 2

We're talking about Tense of different projects. So all in all, the statistic is there. The coverage is nice. By the way, one very important thing is that we're Starting to see, as I've mentioned on the call, some very high total contract value projects, which could range from 1,000,000 3,000,000 of it, 36 months. All in all, very stable and Promised the environment for live deals in Microsoft Teams environment.

Speaker 7

Got it. Last question. Sorry, I'm taking too much time. I think there was a question about it before me, but maybe it wasn't. One of the problems we have in the industry is 2 things.

Speaker 7

Number 1 is Channel inventory that companies just bought too much. And number 2 is too much backlog. So even when you see growth, it's coming from backlog, it's not coming from orders. Can you refer to these two things?

Speaker 2

Yes. Actually, we have been on the opposite side Of defense, right? I mean, in the Q1, we dropped simply because partners who used to buy our product and sell them to their customers Stop buying due to the high cost of money. So we see we saw in the second quarter that some of them Probably emptied already their back their inventory. So we started to see some growth In the second half of the quarter.

Speaker 2

And going forward, we already we are past July and we see that trend continuing. So I believe that In the second half, we will see, at least for us, more orders that would use to fill up those inventories.

Speaker 7

Got it. Thank you.

Speaker 2

Sure.

Operator

We have reached the end of the question and answer session. And I will now turn the call back to Shabtai for closing remarks.

Speaker 2

Thank you, operator. I would like to thank everyone who attended our conference call today on the heels of good second quarter And with more focused planning and better control of expenses for the rest of 2023, we have a high confidence in our ability to expand our business this year and in coming years. We look forward to your participation in our next quarterly conference call. Thank you all. Have a nice day.

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Key Takeaways

  • Revenues for Q2 2023 were $60 million, up 1.4% quarter-over-quarter, with GAAP net income of $1.1 million ($0.03/share) versus a loss in Q1 and non-GAAP net income of $5.1 million ($0.16/share) on a 64.5% gross margin.
  • Management reiterated 2023 revenue guidance of $240 million–$250 million and raised non-GAAP EPS guidance to $0.55–$0.70 from $0.50–$0.70.
  • The Microsoft Teams business grew 18% year-over-year (12% overall Microsoft), pipeline remains robust, and Live managed services ARR reached $40 million (+60% YoY) with Q2 bookings up 75% sequentially.
  • Customer Experience (CX) revenue grew 7% YoY and VoiceAI grew 15% YoY, driven by new solutions like the AI-first Voca Contact Center and Meeting Insights powered by GPT-4.
  • AudioCodes won a Tier 1 service provider contract for its LiveCloud Pro managed SBC service and value-added voice offerings, representing a small near-term award with a large long-term revenue opportunity.
A.I. generated. May contain errors.
Earnings Conference Call
AudioCodes Q2 2023
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