AudioCodes Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2024

There are 8 speakers on the call.

Operator

Good morning, everyone, and welcome to the AudioCode's 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants have been placed in a listen only mode Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Chuchin, Investor Relations. You may begin, Roger.

Speaker 1

Thank you, operator. Hosting the call today are Shabtai Adlisberg, President and Chief Executive Officer and Niran Baruch, 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 and statements concerning assumptions made or expectations as to future events, conditions, performance or other matters are forward looking statements as the term is defined under U. S. Federal Securities Law.

Speaker 1

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 AudioCodes' 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 the ability to manage changes in market conditions as needed, possible need for additional financing, the ability to satisfy covenants in the company's loan agreements, possible disruptions from The pandemic on our business and results of operations, the effects of the current terrorist attacks by Hamas and the war and hostilities between Israel and Hamas and Israel and Hezbollah, as well as the possibility that this could develop into a broader regional conflict involving Israel with other parties may affect our operations and may limit our ability to produce and sell our solutions, any disruptions in our operations by the obligations of our personnel to perform military service as a result of current or future military actions involving Israel and other factors detailed in AudioCodes' filings with the U.

Speaker 1

S. Securities and Exchange Commission. 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. AudioCodes has provided a full reconciliation Of the non GAAP net income and income per share to net income and income per share according to GAAP in the press release that is posted on its website.

Speaker 1

Before I turn the call over to management, I'd 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. 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 4th quarter and full year 2023 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of Advocates. Niran will start off by presenting a financial overview of the core.

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. Niran?

Speaker 3

Thank you, Shabta, and 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 Q4 2023 results to the prior quarter as we believe it provides a better gauge of our financial performance.

Speaker 3

Revenues for the 4th quarter were 63,600,000 an increase of 3.2% over the $61,600,000 reported in the Q3 of the current year. Full year 2023 revenues were $244,400,000 a decrease of 11.2% over the $275,100,000 reported in 2022. Services revenues for the 4th quarter where $30,900,000 accounted for 48.6 percent of total revenues. On an annual basis, services revenues were $120,400,000 an increase of 8.7% over the $110,800,000 reported in 2022. The amount of deferred revenues as of December 31, 2023, was $82,800,000 compared to $77,800,000 as of September 30, 2023.

Speaker 3

Revenues by geographical region for the quarter were split as follows: North America, 44% EMEA, 37% Asia Pacific, 14% and CELTRA in Latin America, 5%. Our top 15 customers represented an aggregate of 61% of our revenues in the 4th quarter, of which 46% was attributed to our 9 largest distributors. GAAP results are as follows. Gross margin for the quarter was 66.7% compared to 66 point 5% in Q3 2023. Operating income for the 4th quarter was $7,200,000 or 11.4% of revenues compared to $5,800,000 or 9.4 percent of revenues in Q3 2023.

Speaker 3

Full year 2023 operating income was $14,400,000 compared to operating income of $31,300,000 in 2022. Net income for the quarter was $3,700,000 or $0.12 per diluted share compared to $4,300,000 or $0.14 per diluted shares for Q3 2023. The decrease was driven by $1,400,000 in exchange rate differences expenses related to the revaluation of assets liabilities denominated in non dollar currencies compared to $767,000 in resulted in a $0.07 negative impact on GAAP earnings per diluted share quarter over quarter. Full year 2023 net income was $8,800,000 or $0.28 per diluted share compared to $28,500,000 or $0.88 per diluted share in 2022. Non GAAP results are as follows.

Speaker 3

Non GAAP gross margin for the quarter was 67.6% compared to 67.3% in Q3 2023. Non GAAP operating income for the Q4 was 10,700,000 or 16.9% of revenues compared to $9,600,000 or 15.5 percent of revenues in Q3 2023. Full year 2023 non GAAP operating income was $28,900,000 compared to operating income of $47,200,000 in 2022. Non GAAP net income for the 4th quarter was $8,900,000 or $0.28 per diluted share compared to $8,300,000 or $0.25 per diluted share in Q3 2023. Full year 2023 non GAAP net income was $25,000,000 or $0.77 per diluted share compared to $45,000,000 or $0.35 per diluted share in 2022.

Speaker 3

At the end of December 2023, cash, cash equivalents, bank deposits, marketable securities and financial investments totaled $106,700,000 Net cash provided by operating activities was $9,300,000 for the Q4 of 2023 $14,900,000 for the year 2023. Day sales outstanding as of December 31, 2023, were 98 days. In December 2020 We received court approval in Israel to purchase up to an aggregate amount of $20,000,000 of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through June 18, 2024.

Speaker 3

Earlier this morning, we also declared a cash dividend of $0.18 per share. The aggregate amount The dividend is approximately $5,500,000 The dividend will be paid on March 6, 2024, to all of our shareholders of the record at the close of trading of February 20, 2024. During the quarter, we acquired $595,000 of our ordinary shares for a total consideration of approximately $6,300,000 As of December 31, 2023, we had $19,200,000 available under the approval of the repurchase of shares and our declaration of cash dividends. Our guidance for the full year 2024 is as follows. We expect revenues in the range of $252,000,000 to $267,000,000 and non GAAP diluted net income per share of $1 to 1.15 I will now turn the call back over to Shabtai.

Speaker 2

Thank you, Niran. We are pleased to cap off 2023 with a solid 4th quarter results and with healthy growth in the strategic areas of our business, namely UCaaS and customer experience. At the same time, we've seen important accelerated development and nice strides in opportunities Relating to conversational AI, which grew more than 50% year over year and is quickly becoming a new growth engine for success in the areas of Microsoft Teams and CCaaS. Altogether, when we combine the progress in our operation in the UCaaS Customer Experience and Conversational AI segments. It is clear that our focus on the enterprise space, Where business reached a level of 90% of company revenues for the quarter and the full year starts to bear fruit and drive continued business expansion in enterprise space going forward.

Speaker 2

With continued focus in 2023 On shifting to our business model into subscription and recurring sales and the shift to higher margin cloud software solutions In services, we are making significant progress in our transformation to become a software and services company. As in previous years, services revenue evolved to contribute about 50% of our business. We have built Throughout the past 4 years, a profitable managed services business, exiting 2023 with 50% growth year over year, enriching the level of $48,000,000 annual recurring revenues for our live business. We expect continued live business growth in 2024, which currently is planned to grow on the order of another 40%. As a result, we've made progress in our strategic initiative to increase our software and service revenue mix to nearly 70% in 2023, up from 60% in 2022.

Speaker 2

Shifting to our focus in 'twenty three To AI first voice related software and application and more so for 2024, we're now adding a new strong leg in form of software as a service solution in the conversational AI space, which should further drive expansion for our business and profits in coming years. To recap on our success in the past 15 years, we've built a very strong voice mode position in the industry. Our partnership with leading application vendors such as Microsoft in the UK space and Genesys in the customer experience market is a testament to our success. Said success has been focused in the past on voice network infrastructure, and we became top connectivity player in both the gateway space and the enterprise SBC market. We are now shifting our focus towards a first business voice application for the U.

Speaker 2

K. S. And CCAS markets, which represent both huge opportunity in terms of tents and ultimately, 100 of millions of seats to serve. Combining our assets and capabilities in the areas of telephony, Voice networking and infrastructure. With the new emerging conversational AI solution, we believe we are creating a rather unique position in the industry, which we believe would be hard to compete with and or replicate by competitors.

Speaker 2

In 2023, We have already seen good signs of growing fast in this space, which should further pave the future for business expansion. Another key accomplishment in 2023 relates to our growth in the customer experience market. We are now investing in 2 key areas. First one is taking advantage of our strong offering of voice infrastructure for the customer experience networks and deployed solutions. We saw much success working with leading CX vendors in helping to transform legacy on prem solution, which are gradually becoming less efficient and progressing to new evolving cloud based modern CKS solutions.

Speaker 2

In this space, we saw much success in our live CX services and enjoyed growth of about 20% year over year for the full year. Secondly, we saw huge success related to the penetration of the customer experience market, Winning new opportunities with our Voca CIC product, our new leading initiative for AI first Azure native CCaaS solution for the Microsoft Teams environment. We saw initial large wins with the enterprise with enterprise customers in North America, among them with 1 of the largest universities in U. S. And the second one Fortune 500 Global Manufacturer.

Speaker 2

In both cases, Voca CAC solution has displaced an incumbent team certified CCAS vendor, which serve both as proof points that Voca CRC is ready for prime time. We expect this initiative to further increase Seeker's market penetration in 2024 and beyond. All in all, we ended 4th quarter in the CX Area with record business level of over 40% year over year and close to 20% for the full year. Exceed 2023, customer experience revenue now represents more than 20% of our business going forward. As such, we have high confidence in the customer experience segment emerging, a second major growth pillar for our business in addition to our Microsoft Teams UC Voice success.

Speaker 2

Now to UC. Within enterprise, our UCaaS business continued to perform well. Business in the Microsoft UC grew 5% year over year in the 4th quarter. Full year Microsoft UC Business increased 7%. Microsoft Teams business grew 10% year over year for the quarter and 13% for the full year.

Speaker 2

At the end of 2023, Teams business is now more than 95% of the Microsoft business. SkySo Business revenue continued to decline in the 4th quarter by With related revenue declining above 40%, for the full year, they declined approximately $8,000,000 or 55%. So exiting 2023, Skype for Business declined to less than $1,000,000 in the 4th quarter, which means that Skype for Business revenue will no longer weigh on the Microsoft business going forward, and thus, we should see the full impact of Teams growth in terms of expansion. On the services side, we continue to experience continued strong momentum for our LDcodelive managed services Business mainly in the Microsoft Teams environment with annual recurring revenue growing 50% year over year, ending the quarter at $48,000,000 consistent with our expectations. On the SBC product line front, We enjoyed a very strong Q4 ending above $35,000,000 of revenue.

Speaker 2

For the full year, we ended the year with revenue of close to $130,000,000 In December 2023, research firm, Omdia, ranked Adikode as the market leader For enterprise SSDs for the Q3 of 2023 was a worldwide revenue share of 23.2% in its enterprise SBC and voice over IP gateway market tracker. Our medium to SBC line is keen winning Microsoft Teams Direct business. Again, getting back to where I stopped. Our mid and SBC line is key in winning Microsoft in direct route business And for connectivity in more market areas such as Zoom Phone, Genesys Cloud CX, Microsoft Dynamics 365 and other leading UCaaS and CCaaS solutions. We're growing nicely on the enterprise space.

Speaker 2

We have witnessed rather soft business in the service provider space. During the Q4, business in this space declined above 50% year over year and over 40% for the full year. With economic slowdown across the board in 2023, The effect of growing inflation coupled with high interest rates has affected materially sales of hardware related products, which in return had an impact on sales of equipment gear provided to service providers worldwide. It is important to understand that though The longer term plans and definitely with the shift we are making towards more software and services, this decline was anticipated to occur over the period of the next 3 to 5 years. Due to the accelerated economic slowdown in early 2023, We saw acceleration of this trend and thus have seen major impacts already in 2023, which should have occurred anyway in coming years.

Speaker 2

As such, we believe that the pressure and impact on our growth from the decline in the service provider space early 2023 will be substantially relieved in 2024 and beyond. While visibility in the segment remains limited, Revenues did stabilize sequentially in the quarter, which may point to a better 2024. On the operations side, I'm glad to report solid progress in non GAAP gross margin, which has recovered from early 1st quarter with 62.1 percent in 2023 to reach in 4th quarter 67.6%. Coupled with disciplined expense management, non GAAP operating margin has also improved dramatically from 4.9% earlier in the year to reach 16.9% in the quarter, which is in the range we define for our long term financial model. This continued focus on shifting to our business model into subscription and recurring sales and shift to higher margin cloud software solutions, we expect operation margin to keep inching forward in coming years.

Speaker 2

On the cash flow side, we have witnessed a very successful quarter. Operating cash flow grew to $9,300,000 in the quarter and $14,900,000 for the full year. Regarding Headcount, all in all, we are fully disciplined in hiring, mainly in our networking business. However, we are adding a select position in the growing areas of customer experience and conversational AI. We ended the 4th quarter with 9.50 employees compared to 9 38 employees in the previous quarter.

Speaker 2

As for the guidance that Niran provided earlier, We are initiating 2024 revenue guidance of $252,000,000 to $267,000,000 for the full year. We anticipate mid range revenue growth of about 6% compared to 2023. Non GAAP EPS guidance of $1 to $1.15 that's anticipating mid range earning growth of about 40%. The top line outlook builds in continued conservative enterprise spending environment and assumes modest growth in networking and high double digit percentage growth in conversational AI backed by ongoing LC pipeline funnel. As the key wins in the quarter, we have signed a 36 month live contract with 1 of the world's largest PBX Companies, enabling the vendor to use Otico as a defector solution when provisioning its end customers with Microsoft Teams voice.

Speaker 2

We have signed a 36 month contract with 1 of the largest U. S. Universities providing Voca CRC, Azure Native Teams certified contact center solution and smart head compliance recording as competitive displacement of a team's CKS incumbent. We also signed a 60 months contract with Fortune 500 Global Manufacturers, providing Voca CRC Azure Native TIM certified contact center solution and smart tech compliance recording is again, is a competitive displacement of a TIM's CKS incumbent. To wrap up my introduction, we had solid Q4 and strength across the board in strategic areas of our business having navigated well in an ongoing difficult market conditions.

Speaker 2

We are gaining market share against our primary competitors, Having scored multiple landmark deals in both the UC and the CX space, which serves as validation of the successful execution of our land and expense strategy. This sector of capital with core business leading indicators such as pipeline remaining robust gives us conviction that we have the right strategy in place and on the right path to execute on our commitment of returning to revenue growth and driving operating margin improvement in 2024. With increased focus and investments in technologies and services for the U. K. Customer experience in conversational AI markets, backed by strong live bookings, mainly in the Teams Live CX and Voca CRC, We believe we are on the right path to execute on our plan to achieve revenue growth and drive improved profitability in 2024.

Speaker 2

And with that, I've concluded my introduction. I'd like to move over the call to the operator.

Operator

Thank you very much. We will now be conducting our question and answer session.

Speaker 2

Thank

Operator

you. Your first question is coming from Ryan McWilliams of Barclays. Ryan, your line is live.

Speaker 4

Hey, guys. This is Damon Cobban on for Ryan McWilliams. Thanks for taking the question. How does your pipeline visibility now compare to what it was in 3Q? Were there any green shoots that you could point to for improving demand trends leaving the quarter?

Speaker 2

Ryan, this is Shafter. I'm sorry, it was hard to hear you. Can you please repeat the question?

Speaker 4

Just a question on your pipeline visibility, how that compares Now to the end of 3Q at the last earnings call and just if you were seeing any green shoots leaving the quarter?

Speaker 2

Yes. Well, largely, I would say that there's no much difference. Although I must point out that usually full score is the strongest quarter in the year, I think that in 2023, that phenomena has Kind of been emphasized because budgets were less used earlier in the year due to the slowdown and The delay of projects, so I think we enjoyed a strong 4th quarter. I therefore expect that Q1 will be just like in many previous years, will be probably down like 2% or 3%. But all in all, the pipeline looks good.

Speaker 2

We have I didn't mention that, but we had a very high score of bookings done in 2023 compared to 2022. So all in all, we believe we're fairly effective. I would also add one more point, which I have not mentioned in my introduction, that we do intend To add, in the first half of twenty twenty three, new software as a service additions, new cloud multitenant solution for recording services in the form of compliance recording and meeting space. And we believe that our live platform will become substantially more competitive. We do not see any close competitor with such capabilities.

Speaker 2

All in all, we believe that Pipeline and visibility for 2024 should be good.

Speaker 4

Got it. Thank you. And then how did CCaaS demand fair in the quarter? And are you seeing increased attention for buyers on voice AI? Thanks.

Speaker 2

Yes, definitely. Actually, we do see a rise A number of opportunities in the Seacrest space for our Focus CIC product. We actually, I've mentioned, 1, 2 large deals, one that's close to $1,000,000 one that's above $500,000 in North America. We have a range of more opportunity coming up. Also, we'll have a we plan on an Analyst Day in about a month from today or 6 weeks from today, dedicated primarily to Vocus CAC and obviously we will present that at Enterprise Connect in March.

Speaker 2

So a lot of activity in the CX space.

Speaker 4

Got it. Thanks, Yitai. I'll go back in the queue.

Speaker 2

Thank you, Brian.

Speaker 5

Thank you

Operator

very much. Our next question is coming from Greg Burns of Sidoti and Company. Greg, your line is live.

Speaker 5

Good morning. The growth rates from Microsoft have slowed a little bit from where they were maybe a year ago. Can you just talk about What's driving that? Is it mix with live, gaining greater traction? Or is it macro?

Speaker 5

Because it seems like in the CX market, you're still Posting solid growth there, a little stronger than what you're seeing on the UCaaS side of the business? Thank you.

Speaker 2

Right. Yes, I think your observation is correct. Well, I think that the moderated growth Results partly, a, as we all know from the slowdown in global economics, so projects has been pushed, etcetera. However, Our specific business in the space relates directly to the success of what we call Microsoft Teams Phone, which is the connection of the enterprises to the public network. Now we believe that Up to now, there was limited benefit from adding the phone functionality Overall, the functionalities of Microsoft Teams, such as chat, presence, conferences, etcetera.

Speaker 2

We do believe that in 2,003, we started to see the impact of conversational AI on The use of Teams phone, right? We have seen obviously generative AI technology being put to work. Our solutions, including meeting insights, is making use of generative AI, which in order to provide benefits in the Microsoft phone space, you really need to have a phone a Teams phone license. Similar, the introduction of Microsoft of CoPilot and Teams Premium. And you can see a lot of more applications.

Speaker 2

So once There will be new business voice application that will provide value. On top of the Teams phone license, We will start to see increase in our business. And we believe that we've already seen sense for it at the end of 2023. And we believe that going forward with the, I would say, emerging adoption of meeting insights, Recording of meetings, co pilot, we will see definitely a rise. So we believe that's kind of a belly in 2023, but we should see and expect to see growth coming back in 'twenty four and beyond.

Speaker 5

Okay. So what are the penetration rates of voice licensing in the Teams environment now? Is it still Less than 15% or 10%?

Speaker 2

Yes. Well, the last numbers that I remember being quote were that Around July of 'twenty three, I believe the number that was quoted was about 17,000,000 or 18,000,000 PSN breakouts, that's just, I mentioned, dollars 17,000,000 or 18,000,000 The runaway is obviously substantially larger, right? Microsoft 365 paid licenses are close to 400,000,000 Teams As a whole, without the phone is nowadays quoted to be at least $80,000,000 So there's huge, huge runway expected. So Again, when there will be more applications that drive value on top of the TIMSSON license, I think you'll see increase in number of seats using Teams phone.

Speaker 5

Okay. And, Niran, the cash conversion for this year, do you expect it to be stronger than what it has been in the last 2 years?

Speaker 3

Yes. You saw the operating cash flow at the 4th quarter, which was close to $10,000,000 an improvement from previous few quarters. And We believe the operating cash flow for 2024 will be better than in 2023.

Speaker 5

Okay, great. Thank you.

Operator

Thank you very much. Your next question is coming from Ryan Koonce of Needham and Company. Ryan, your line is live.

Speaker 6

Thanks for the question and nice quarter on the margins, particularly there, really great to see that. I hope we could circle back to contact center and your CX there. You talk about a really nice inflection to 40% growth. Can we drill in there? What's behind that?

Speaker 6

Is it product improvements? Is it focus on go to market? Is it some of your key partners seeing inflection on sales growth? Any of those would be helpful. And just a quick follow-up.

Speaker 6

You clarify what those wins were again? The audio was breaking up a little bit on the I think the 2 CX wins you mentioned. Thank you.

Speaker 2

Right. Thank you, Ryan. So on the CX space, as I've mentioned, there are 2 key activities, one which is Supporting in deployment of voice networks. The world of contact center is moving on prem to cloud, there's a need to basically shift from the old Networks to new networks, which are global in nature, different architecture. So we are providing Usually SBC gear and managed services and more components in order to enable the transition from on prem to CCaaS.

Speaker 2

The large growth in CCAF in CX, I'm sorry, is related to participating in several such large deployments of large CX vendors. So take a leader in CX, We now win against an incumbent that's kind of legacy and less powerful. When you move from an old No supplier architecture. It's on prem to a new cloud based vendor. There's a whole huge network, you're talking about hundreds of locations around the world.

Speaker 2

And in order to achieve that with high quality, high security and efficiency, our SBCs and managed services like CX come into play. So that explains the success we enjoy. And if the trend of moving from on prem to cloud continues, I believe we will continue to win such project. As to the 2 wins that I've mentioned, so the first one is A very large university in the U. S.

Speaker 2

Who used our Voca CAC, our compliance recording To replace Encampments solution at that time, that Specific transaction was close to $1,000,000 in booking. 2nd one with a large Manufacturer or one of the S and P 500 Companies who again chose to use our Voca CIC and replace an incumbent certified solution in the Microsoft Teams space.

Speaker 6

All right, great. Thanks. This is somewhat helpful. I mean, I guess, prem to cloud is not really a new trend. It's going up for many years.

Speaker 6

So Any commentary on why you're specifically seeing this inflection of growth for AudioCodes in terms of your efforts in that market, which has been humming along pretty healthy for years?

Speaker 2

Yes, it's definitely a healthy market and we actually seen Expansion in that segment, actually, we just discussed prospect For the Q1 of 2024, it seems that it continues. I believe that with probably with More maturity and reliability of contact center operation from the cloud, that may become an incentive for end users to move. Also I would add that usually we're talking about contracts that last several years. And usually when such a contract is becoming to an end, this is the time when transition from on prem to cloud will occur. So that is an ongoing process.

Speaker 2

And as the world of Seacrest matures and becoming more successful, We believe that we'll see more projects like this.

Speaker 6

Great. That's real helpful. Just a quick follow-up. You haven't talked about Zoom Phone in a while. Any Quick commentary on Zoom in terms of their progress and with their phone product and your selling opportunity?

Speaker 6

Are you seeing much traction with Live there?

Speaker 2

Well, we do continue to work with Zoom. We had enjoyed a few opportunities. But At this stage, I would not say that we believe Zoom will become a growth engine for us in the U. K. Space.

Speaker 3

Fair.

Speaker 6

All right. I'll pass it on. Thank you.

Speaker 2

Sure.

Operator

Thank you very much. Your next question is coming from Samad Samana from Jefferies. Samad, your line is live.

Speaker 7

Hey, guys. This is Billy Fitzsimmons on for Samad. Maybe backing up and taking a higher level view here. Can you guys remind us what you're seeing on the macro front? How did things like lead times and close rates evolve over the course of 2023?

Speaker 7

And did they get better or worse in the Q4? Any customer verticals looking particularly strong or weak at this point? And then I want to double click on what's kind of assumed on macro in terms of the 2024 guide?

Speaker 2

Right. Actually, it's a great question For CEOs and CFOs, 2024 is still kind of foggy. We have not seen any dramatic change from the end of 2023. We've seen good pipeline, as I've mentioned before. Q4 was strong, but it's The last quarter in a year, so that's kind of expected.

Speaker 2

So no change. At this stage, it's hard to Make a call as to whether 2024 will be substantially better or better than 2023. But all in all, I think for us as a company, while we have put aside the whole issue of service providers, which has impacted our operations early 2023. We're glad to focus on contact center, which is growing conversational AI, which is very fast growing these days, lots of opportunities. And also UCaaS, which again, we believe that conversational AI will contribute to the growth of our business.

Speaker 2

So all in all, we believe enterprise space will be Good and no other indication at this stage.

Speaker 7

Got it. And then it's Probably still early, but on the strong conversational AI bookings demand, can you relay some of the initial feedback you're Seeing and hearing from customers, any color on the initial wins? And how should we think about the materialization of that offering on the revenue line going forward?

Speaker 2

Right. So we do focus again, I mean, we live in a world where on one end there are Some very strong, big, technology providers such as Microsoft, Google and AWS on one end. So Lots of technology out there in the cloud. On the other hand, you have every company, every successful enterprise company Adopting fast AI to improve its operation productivity. So in the middle, you need solutions that will tunnel the AI gear to those end users.

Speaker 2

Usually, that's done by applications such as You can take Copilot, you can take Salesforce, you can take other known Google application. But then there are specific implementation which required a combination of a lot of those technologies. So I'll give you an example. We have implemented A very important solution for an emergency service that needs to pick up calls in real time, record them, transcribe them, derive insights from them and act upon, apply automation on top of it and display it and send alerts. So you're basically talking here about a new breed of applications That will be AI first enabled and which combine a lot of areas, including telephony, networking and cognitive services.

Speaker 2

And this is where we shine when we bring a Combination of all of these technologies that we have developed around the years, right? There's another these days with, austerity Everywhere in the world, there's a need increased need to understand what's been said, where, For what purpose and act upon it? That is a rising application in many areas, And that is something that, has budgets for. So those are the type of solution that we see currently.

Speaker 7

Perfect. Thanks guys.

Operator

Thank you very much. We appear to have reached the end of our question and answer session. I will now hand back over to Shabtai for any closing comments.

Speaker 2

Thank you, operator. I would like to thank everyone who attended our conference call today. On the heels of recovery in our business in the second half of twenty twenty three, we have high confidence in our ability to successfully expand our business 2024 and following years. We look forward to your participation in our next quarterly conference call. Thank you very much.

Speaker 2

Have a nice day.

Operator

Thank you very much everyone. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day.

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Key Takeaways

  • Q4 revenue was $63.6 million, up 3.2% sequentially, while full-year 2023 revenue declined 11.2% to $244.4 million.
  • Services revenue grew 8.7% year-over-year to $30.9 million in Q4 (48.6% of total), supporting the shift toward subscription and managed services.
  • Non-GAAP gross margin rose to 67.6% in Q4 (from 62.1% in Q1), yielding a 16.9% non-GAAP operating margin.
  • Strategic segments—Microsoft Teams UC (+10% Q4 yr/yr), conversational AI (+50% yr/yr), and CX/CCaaS (+40% Q4 yr/yr)—are driving the move to higher-margin software and services.
  • 2024 guidance calls for $252–267 million in revenue and non-GAAP EPS of $1.00–1.15, implying mid-single-digit revenue growth and ~40% EPS growth.
A.I. generated. May contain errors.
Earnings Conference Call
AudioCodes Q4 2023
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