Q2 2020 AudioCodes Ltd Earnings Call
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I'll now turn the conference over to wrap Mosfets Hayden IR right you may begin.
Thank you hosting the call today, our Shabtai Adlersberg, President and Chief Executive Officer neuron Baroque Vice President of financing Chief Financial Officer before we begin I'd like to remind you that the information provided during this call may contain forward looking statements related to Audiocodes business outlook future economic performance product introductions plans and objectives related there too.
The statements concerning assumptions made or expectations as to any future events conditions performance or other matters are forward looking statements as the term as defined under U.S. 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 stayed in such statements.
These risks uncertainties in factors include but are not limited to the effective global economic conditions in general and conditions in audio 'cause 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 in pricing on audiocodes in its customers products and markets timely product and technology.
Development upgrades and the ability to manage changes in the market conditions as needed possible.
Need for additional financing the ability to satisfy covenants and the company's loan agreements awful disruptions from acquisitions the ability of audio 'cause it successfully integrate the products and operations of acquired companies into Audiocodes business possible adverse impact of the cobot 19 pandemic on our business and results of operations and other factors detailed audiocodes filings with the.
Securities Exchange Commission.
Do you could 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 non-GAAP net income and net income per share to net income and net income per share. According to GAAP in the press release and is posted on this website.
Before I turn the call <unk> management I'd like to remind everyone that this call is being recorded an archived webcast. We made available on the Investor Relations section of the company's website at the conclusion of the call with all that satellite turn call over Shabtai Shabtai. Please go ahead.
[music].
Thank you Brett.
Good morning, and good afternoon, everybody I would like to work on most of our second quarter Conference call.
It's made this morning gives me an unbelievable.
Chief Financial Officer, Vice President Finance logic codes.
Yeah, Ryan will start off by presenting based financial overview of the core.
I will then review the business highlights in summary for the core and then discuss transcend developments in our business and industry.
We'll then turn it into the Q a nice session.
Ron.
Thank you sorry, I know everyone.
It is well on todays call, we wouldn't be referring to both GAAP and non-GAAP financial results.
Yeah, I mean split for news that we issued earlier. This morning contains a reconciliation of the supplemental non-GAAP financial information.
We'll be discussing on this call.
Revenues for the second quarter live where 53.5, mainly on an increase of 8.1% compared to the second quarter last year.
So he says listen it was for the second quartile, well 17.1 million accounting for 32.1% of total revenues.
The amount of deferred revenues as of June 30, 2020 was 65.1 million compared to 55.8 million <unk> June 32019.
Revenues by Joe Grexit geographical region for the quarter was split as follows North America, 41% Central and Latin America, 7% EMEA for 40% in Asia Pacific 12%.
Our top 15 customers see not go grades represented 60% or forever Nils into second quarter or switch, 42% or attribute that to our nine latches distribute those.
Gross margin for the quarter was 66.7% compared to 63.3% in Q2 2019.
Non-GAAP gross margin for the quarter was 66.9% compared to 63.5% in Q2 2019.
Operating income for the quarter was 8.8 million compared to an operating income of 5.9 million in Q2 2019.
On a non-GAAP basis quarterly operating income was 10.7 million or 20.1% off revenues compared to an operating income of 7 million in Q2 2019.
Net income for Dick what there was 6.6 million or 21, centsper share compared to net income of 4.8 million or 16 cents per share in Q2 2019.
On a non-GAAP basis quarterly net income was 10.5 million or 32 cents per share compared to net income of 6.8 million or 22 cents per share in Q2 2019.
During the quarter. The company raised 85.4, mainly on your net proceeds from the public offering of 2.6 million ordinary shares at the purchase price of $35 per share.
At the end of June 2020, cash cash equivalents and bank deposits totaled 170.4 million.
Day sales outstanding as of June 30, 2020 were 51 days.
Operating cash flow generated during the quarter was 10.7 million.
Now to providing an update on our guidance.
We reiterate our guidance for revenues for 2022 being the range of 214 million to 222 million.
We now raising our guidance for non-GAAP diluted earnings per share to being the range of one dollar an 18 cents to $1.24 cents.
Fair to the previous range of $1.89 cents the $1.13 cents. That's we updated following the close of the first quarter 2020.
I will now turn the call back over to shop right.
Thank you in Iran.
We're very pleased to report strong financial results for the second quarter at 2020.
Stated earlier enough financial release, we enjoyed good business momentum into quarter, both in the enterprise space and the service provider space. There's no question you know markets. These days the team collaboration is worried the action. These when it comes to enterprise communication platforms.
Remember only because of the fact that endemic forced enterprises.
Employees to work from home and Rollouts collaborations it sounds like Microsoft students, which end users found to be no longer adjusts interesting, but clearly indispensable. It must still if you want to preserve business continuity and recover faster from described a crisis and so.
Well you casts a cloud service and collaboration became Keith <unk> resilience and have taken center stage, the newly evolving digital workplace.
Now let me touch on some reason im call of Russian market data that reinforces the statements.
According to limit as a global research based advisory and consulting firm.
Jim caught up rush and use it dramatically growing fast CMO.
That's 42% of enterprises currently if more didn't want team collaboration application in use obviously, it's number is writing on an ongoing basis.
According to Nemertes, Microsoft into the clear leader at 14.3%.
Well, it's by Cisco Webex teams at 27% second, 9% Googles jet to 8.5%.
In another example, a data from maternity and application monitoring company.
Shows that between February 17 through June 14, this year, Microsoft teams use.
Grew almost 900 sense was zoom is grown 680%.
More data points.
From a gulbis study of more than 525 for organization found that 91%, Oregon over the organization no supposed to work from home up from 63% prior to the dynamic.
End of the total workforce, 72% to know on days compared with just 34% before the pandemic, obviously videoconferencing isn't just a core technology to ensure work from home and nowadays more than 91% of companies usually to support the.
Nearly 30% says that they will use video for all of their meetings.
It's a result, we've experienced in the second core gross in most of the major market segments would participate in it.
Including the UK market the contracts in the market and the service providers. So let me make Russian markets.
I didn't I know a success into second quarter.
Tony Tony is the financial performance.
That's from you refer to specific financial parameters revenue growth, we continue to deliver on our stated guidance to grow revenue. This year by 9% delivering 8.1% gross into second core wrote off first off 2020 growth to 9.9 gross over the same period.
In 2019.
Gross was very strong in used to CIP, which were well above 20%. However decline of about above 15% in gateway revenues and decline of close to 1 million in energy revenue have limited the overall quarterly revenue to 8.1 its stated.
Service revenues.
Most of the year ago or it was 2% however, take taking into account seasonality in quarterly service revenue and the fact that we have reported gross.
25% year over year for the first quarter over this year is basically puts us in an average services revenue growth of 15.2% in the first half of 2020.
Gross margin expansion, we keep focusing on growing our self <unk> products and solutions. This is hard to refrain turning the company to increasingly become a communication so if the company.
So for products and the touch services crude to about 35% of the other revenue into core compared to just 25% into a year ago quarter.
Specifically in the second quarter, we grew 50% above the year ago quarter. This by the mix.
Oh software product.
This score allows us to improve gross margin to 66.9% as compared to 66.1% in the previous score and 63.5% into a year ago quarter.
Operating margin operating expenses were substantially lower than planned in the second core mainly due to the degrees in expenses in travel HR related expenses and better FX right. It's a result, I'll pick says degrees to a level of 25.1 million. This is 26.
6.5 million in the first score and operating margin ended that 20.1.
Sent a record.
Core compared was just 15.2% in the previous core and 14.1% into year ago core.
Net income growth.
<unk> sales year over year, coupled with lower operating expenses is driven a meaningful increases in earnings whatever's of 10.5 million compared with 7.8, I mean, the previous score and 6.8 million tons a year ago core that's an increase of 54.4.
Both year over year Gastro was strong we kept producing cash from operating activities delivering 10.7 million languages are planned for the overall year, it's count rose in headcount fear of a year for full time employees what was 4.4%.
Adding to eat grossing outsource as count we grew overall, 5.2% year over year, obviously, adding more than 40 position over the year ago or clearly demonstrates our confidence in continues expansion for business.
Success in coming years.
Finally deferred revenues continued to grow in mounted to 65.1 meter and an increase of 16.7% over second quarter 2019.
As mentioned on our previous quarter Investor School I'd like to stress again.
That was revenue growing steadily passive of course and before the revenues growing in a similar to try and all along.
Our ability to meet the topline target. So every new core setting is improved as the momentum as the confidence in achieving the revenue targets in coming quarters.
No to review of the networking business line.
That's working business line kept growing 10.5% year over year and has reached a level of 51.9 million accounting now to 97 cents for business in second quarter two dozen funny.
With networking being the core of far business. It is important to note that the into first quarter of this year networking business grew 12%.
The first scoring 2019 and so.
On first half revenue well first off revenue 2020 compared to the first half revenue in 2019 overall networking business is growing nicely. It is basically rone, 11%.
At this stage I believe that you know, we you know anybody wants to monitor or the <unk> of the company makes sense well the side.
The technology line and I think we should focus from now on on networking, which is 97% of the business.
Now the networking business comprises of two key business and I used to Sip gateways.
He used to Sip business line grew nicely in the core, let's just say decline in our gateway business.
Yes, the Sip business line grew substantially well above 20% in second quarter funny and provides now too close to.
70% of far business revenue into core Keith would these growth were substantially.
Potentially increase year over year says the noise that we see an MSP. Our productize revenue grew also you North Central Network management software business line in our advanced routing management solutions.
Yeah, I phone business line remained about flat compared with the revenue level of the year ago core we attribute this that's favorable performance through the stat I'm, new normal which is practically hurting sales stuff on prime devices, It's right, which we believe will persist in near future It's war.
Habits of organization will become more hybrid and will basically shared between on Prem presidents and remote work practice in the new emerging digital workplace.
No towards sees the fact that revenue into you see business line grew substantially above what we used to knowing previous year, 15% to 20%, meaning that that larger business line and bear in mind, a we did last year about 100 within 10, we target this year to do between 135 in 40 million.
A this is a lines it carries the gross margin of close to 70% in grows well above 20% Ali none of the thing that is the key business side of the company. This is where we invest SAR resources efforts in energy and I believe that continuing that momentum a will bring the company substantially further.
In the future. So please bear in mind that gross margin budget for this business line increases and no 50 kids go to 70%.
This as a provided definitely for the overall company gross of the gross margins to 66.9. This is mainly due to the increase as opposed to <unk> products and related services and the transition to cloud communications.
Now to gateways and the great to a business. We saw a second coring arose declining revenue gateway business line revenue declined more than 15% compared to the year ago core Gateway business line now provides for less than 30%.
The second quarter revenue and carries a gross margin of close to 70% decline is mainly related to products the products components, which declined above 20% year over year decline is gateway services was milder.
It's less than 15%.
Now to the Microsoft Echo system, all in all the business in the Microsoft Echo system was good growth in revenues was close to 20% just somebody here. So the first score Joseph highlights of outperformance and Microsoft ecosystem, we so very strong.
Uptake in themes opportunities closure and very strong growth in new opportunities created on Deoderant, we've seen meaningful decline in Skype for business related as revenues I'll refer to more numbers in sequel, Oh, So slow down in IP phone sales due to the said Tom you practice of organization.
And this is the result of the pandemic and the move to work from home and we believe that this f. mentioned before we believe that that trend would persist.
Oh, you know a Microsoft continue to report gross and demand for its cloud services and teams.
The quote soon data points on that according to Microsoft Invisio color fall last week announced their stated that 69 organization now.
As of the to have more than 100000 users have moved to use teams also over 18, hundreds organization, which have more than 7000 users have been moved to use team. So all that they'll do that on the enterprise Evan on the large.
Enterprise companies. Microsoft teams is a winner and this is where we sell so that that that gives.
Part of the explanation for why we are that's successful in that range.
Give me more data points. The was survey done between the middle of February and in Oh June.
And basically the survey was about to check the marketshare different team collaboration application basically chose that in that environment I'm. Microsoft teams grew from 11.4 cents to 34.0.
3%. This was an increase of 300 sense are the country's Skype for business declined and that will expand later on you know what we also see unit revenues. He has declined from 75% to 44%.
Oh, so successfully in that period was zoom growing 127%.
Webex Cisco Cisco Webex was less successful growing about 50% and then slack showed 33% rose all you know team stands at the top of the table was more than 300% growth.
Well now the fronts, we have early a few Winston DRG codes live initiative, we announced in March 2020.
This is primarily about supplying professional services to the Microsoft in this environment Oh, So we keep investing in his vast networking solution. Microsoft teams you know the to allow fossett growth seems to use as well.
We anticipate a greater support from Microsoft feel sales in the new fiscal year, if Microsoft in pushing up for an elevated use a voice services. This relates to teams, we believe that that shouldn't be a positive catalyst <unk> war efforts incoming a year.
No to some.
Really dramatic Ah Ah development in Microsoft revenues into core you older Remember that's reported that Oh, we have sold more than 18 million.
Production services in 2019, that's was primarily attributed about I would say, 99% to Skype for business only about 10%. The teams what we sell into second quarter easy completes revolution Skype for business came down dramatically instant grew up drug.
Radically Skype for business was down.
28% from a second quarter, a year ago, and 20% down from the first quarter. So 20% a decline in the first square however, Tim screw more than 336% year over year and that basically tells you and almost.
Dabbled.
Or if the core so that tells you that gross of teams have surpassed the decline of Skype for business and only know unless we have managed to show on growing Microsoft's sales. It means that we have we had doing this transition from a scaffold Vince the teams in a very its assuming a show.
The way.
On another front I mean, each quarter, we we measure each quarter by two key K.P. eyes, one which is just reported the closure of opportunities and sales level, but the other one is really not less important than relates to the future and that is the amount of new opportunities created in that.
Sure.
So with regard to create should know from new opportunities in the Microsoft space I would like to know that's why did we so a dramatic decline in new Skype for business opportunities just like in the revenue side of the business. So teams.
Related opportunities are doubling integration here over the year to give you some sense for it.
<unk> Skype for business, new graded application opportunities have declined more than 50% in the core meaning less and less new opportunities created evercore.
On the other and Tim says growing substantially almost double in terms of for number of <unk>.
War amount of opportunities than that in financial.
And Ah over a year ago core.
Now let me bring you get to some three examples to a important project we have done in the second core I'll talk first about one of the largest.
Food manufacturers companies in the World in North America as employee 100 emphasis thousandth employees are there and audiocodes customer for the past seven years as they have deployed Skype for business was our products beads gateways session border controls a management so for recording so for et cetera.
Our overall revenue was them to date exists.
Exceeds many millions of dollars.
And recently I'm glad to say that you're essentially they said, it's rolling out to teams.
The team suite of security in the second core a half a million deal for a session border controller for direct route. This is delivered through a partnership with.
No big.
Value as a reseller and who sell this as a service amended service. Additionally, with secure a 700000 suppose renewal contract with their current Skype for business solution.
Another example is a fortune 500 global manufacturing markets Youre, a packaging products are we talking about thousands of fits.
Using.
Teams fully managed service, it's a a five year contract in second quarter, we've secured more than half a million in professional services.
So as example is a giant Brazilian bank and this is a customer of ours for many years snow using guard gear in Genesis contact Center environment. This is by the way. It shows you. The other code strong positioning enterprise will we are able to provide solution and equipment not.
The only for Ucas, but also for the contact center.
So they sold it to rollout teams with us because using guar as you see a routing manager and <unk>, a one voice suppression scitor two out of them build the foundation of teams who voice.
Network again, it's a half million contracting in the second core.
Yes, let me mention a large pharma enterprise with servo San thousandth employees around the world with a longstanding relationship they have evolved or is there a digital transformation from legacy I'd be PBX Skype for business and now ultimately moving to Microsoft teams to date we've.
Generators about 3 million was this account training session border controllers gateways, a one voice suppression sit here and more services.
In this score it will secure the virtual SBC.
Project was them, a we basically moving with them to the next stage in.
Yes.
Now, let me move over to the as we see a business line glad to say that 2020 is a very strong year for the line.
We ended 2019 was more than 60 million in revenues. We now anticipate that in 2020, we will reach above 80 million. So.
All in all we predict for more than 30% growth on SBC, Oh, we're clear a leader in as a B C on June 24th.
We've issued a press release, where on the Uh huh.
It's really say you report the says that Oh decoders experienced a 24 year over year gross and as we see revenue.
First quarter after 2020 more than any of the other vendor is covered in the report your own decor.
Because he is ranked second among enterprises to see vendors in the report was 17% overall revenue market share. So all in all very strong position the SBC market. This we all know.
He.
Application of ads B C is around the Sip trunking and also using a transition to all IP a we've seen dramatic growth in teams a direct route using Gore SBC. We now see few more in New York applications or namely a if you think about.
<unk> whoever they see this will be useful walk from home to think about a new voicenet drug defined think about virtualized cloud migration think about telephony engagements with digital age and so all in all sbcs are very key.
Network element in every anew solution, that's being deployed in and we know that we see thing among the leaders in death.
Markets.
In terms of the core specifically this was a record core revenues rich well above 20 million.
We basically so an increase of more than 10% quarter over quarter and more than 50% year over year.
The business nine care as a very high gross margin above 85% you've seen good activity both into service water SBC CP and in the enterprise.
So for Geo split.
36% of revenues were in North America, 38% in Western Europe, the rest in Asia Pacific in Cala, we've seen strong booking almost 50% year over year. You also so an increase in Ukraine is to put two entities. So all in all of very strong December.
<unk> line.
One key new development, that's important there not a keep.
Talking about our transition to being a communication so if the company.
Is that we try to increase the sulfur content in every business line that we involving so I'm just looking at the SBC line or what we started the year ago with.
So for a being providing about 26.9% over the overall as a b C line now a year after that the suffer as a b C accounts to almost 40% so very strong increase above 50% into sulfur content of session border controller. So obviously that's relates to.
More deployments of virtual SBC a in public cloud then in probably the data centers.
I'll give you two examples south for Wince Justice, we did was Microsoft So we want a very lucrative.
Contracting on inter connect SBC with a very a world known.
Leading communication vendor into space, basically they where I'm looking to expand servicenow progression in specific countries in Asia Pacific in Cala and there wasn't needs for a high capacity resilient as we see platform.
Yeah that will meets Susan regulatory requirements, we were selected the out of basically seven as the sequence Tenaris all of the known names in the industry, thanks, or a flexible as we see capabilities alongside the D. A one voice oppression center lifecycle men.
Regimen suites, and primarily due to real time voice quality monitoring.
This win Giants previous session border controllers, and what both to see wins with leading contact center as a service providers North America, and Europe demonstrated that's real life constraint and need for faster deployment cycle scrap business within Q4 I scale is a b C was pure play cloud providers is a scale up.
Their service.
In another example, we talking about the war, leading ecommerce vendor due to the carbon 19 needs and due to regulatory requirements in a country. The company now as to move more than 10000 until fees.
Customer support agents to work from home.
This customer is already a multimillion dollar account for the codes.
Which is purchase and deployed voice gateways in session both them to Charles.
Super duty is around our integrated web or to see gateway that is a key differentiator versus main session border controllers competition.
The customer and like I didn't make guy in surprise is very strong internal development teams and develop their own where both to see Klein based on their own Weber to see.
And in client as gay there what was the gateways needed for termination of a the calls.
I'll talk a bit also on the walk from opportunities as mentioned in previous calls, we see I'm very fast ramp up in the need to provide the good quality of service solution for contact center agents moving to work from and.
Yes, I can tell you that in previous months into second quarter, a we've seen an uptake in the number of new opportunities created and we work to come up with a solution that will far exceed the capabilities of any other walk from mom quality monitoring and.
Delivery solution.
I did mention I'm more one very promising go product for US Let me talk about the voisey Gateway, we talking here about session border related development, which adds on top of fit the various components and allows basically connect exist.
I think a chat bots, who voice and telephony channels now it's obvious that you know weve covered 19 pandemic on the need for Chad boats is increasing Oh, we're all locked into a situation, where we need to approach Susan organizations in or a supplier.
And our ability to since we all calling them by phone a with two two key promise a you know not all of US all right at CASMED using chat bots. So that's a problem on the I'd Ryan when you have to any phone calls coming into a a contact center you.
They need to use more agents and then you get a substantially longer out wait times. So we have developed by the voice the I gateway to allow connection enough our voice calls to chat bots and SAS weekend, a improved substantially the response time and be Oh, so provide a lot.
Saving for the cost of those agents that product is already in use with several.
Customer I'll just mention that so so far with more than 50 opportunities created out of which 20 work rated in the second core a with more than 10 opportunities. That's worth a close one oh, we have few already in production levels and then.
Owners picture is very encouraging there's no such comparable capability. These days.
At the level and performance, we provide and so we are able to.
But to work with many Chet developers and both framework vendor us into space and also we some of the Big names you all know from the public networks. So all in all of our successive product very successful activity.
I also mentioned I'm, you know a quarter ago, we announced I'm, you know collaboration with Google or the one click a program a which is meant to allow to connect a and provide a phone numbers a in the U.S. in UK to check developers I'm happy to say that there's been a lot.
Interesting that's when you bought service.
We had more than 100.
People signing gain we have more than 10, a cat active accounts right now and we believe that that is a great.
Lead generation tool for us.
For the growing Chad both worlds.
Regarding serves as already mentioned revenues just touch another angle, which is bookings so in the second core Oh, we grew very nicely in in bookings, 6.3% compared to the saying the core EHR go very impressive at the gross.
More than 40% you know professional services year over year. So all in all very active cores in terms of professional services.
Finally, I'll come to our guidance. So in terms of revenues, we estimate neuron mentioned to ready we reiterate our guidance from the beginning of the year and see no reason to change it feel fully confidence in achieving good. That's you mentioned you know the current.
Ranges are targeting between 2215 to 222.
Surrogates earnings in second quarter, 20 were able to meaningfully beats original plan and Dnos consensus for the rest of 2020, we believed that we will see similar Petrobras of revenue and operating expenses and thus we are confident in our ability to continues to grow earnings instead result.
We know how that all earnings guidance and increase the earnings range from one on nine wants a 10 cents to 118 to 124 cents.
And it was that to have completed my.
Introduction for the core and would it turns according to you in a.
Operator.
Thank you.
At this time, if you like to ask a question you May press star one on your telephone keypad and the confirmation total indicate your line is the question can you.
You mean press star too if you like to move your question from the Q.
Purplish considering speaker equipment, maybe necessary to pick up your handset before pressing the star Keith.
One moment, please hold me poll for questions.
Thank you My first question comes from the line of Tal Liani with Bank of America. Please proceed with your question.
Hey, guys.
Thank you very much for the comprehensive overview of the quarter.
I want to ask you I want to go back to basics and and understand first of all within the Microsoft.
What's the current use of voice and unified communication and what are the efforts Dod what's the outlook for increased use of voice because I understand that.
It's about unified communication and about like us up meetings, but it's more about the use of voice within the platform. So that's number one and number two.
Can you talk about your efforts with other players or other than Microsoft meetings, and what can you do for other players. Thanks.
[noise] genotype.
Okay, I'm going to see.
Yeah, Yeah, I'm, sorry, I wasn't mute Ah. Thank you Todd.
Thank you regarding voice voice is definitely probably one of the most important ingredients in unified Communications you know put it.
Side with chats.
And says if you run statistics.
No statistic says that folks is the most preferred media of communication now it seems to provide the voice capability for on that internally. There's no need for voice is for voice services outside it but once you want to get to dial tone. Once you want to talk with third party.
The organization, you want to dial them or get a call you need to add voice services that is under connectivity side very simple functionalities, sometimes for a complex in terms of implementation, but essential to two to having a for a compressed.
Unified communication solution IRA now think about the new world, that's emerging and that's a was it knows to process to content that was to take a voice content and produce results from me. So if we were talking about you know I'm a virtual agents then if you want to save.
Costs, if you want to provide his service.
But substantially faster than waiting on the line for an agent you have today, a technology that takes the voice five feed that and basically can apply a speech to text a natural language understanding machine learning few more technology that will now take.
Advantage off the concept itself, so connectivities key for to connect to other organization.
You know content processing kids ski so voice is primarily a key technology was in every communications solution and that that's the approach we take a regarding your question as to working we've got our organization. We definitely have tried to do that we have.
Partners I can name few Oh working for many years snow is companies like a used by eight and Ringcentral and Vonage. A we know so certification for zone, we have growing opportunities zooming 2020, Oh, we have announced partnership with eight up address chime so all in.
Well, we very active or we work with some some legacy names like Alcatel and and we work closely with companies out into contact fair market, we worked with Genesis and and two more of the leading companies and Gothic Submarkets. So all in all with a broad play and we try to work.
With more bodies, but at the end of the day right now it seems the majority of our own growth and success will reside with Microsoft and which is.
Obviously, a very dominant than a successor player in the market.
Great jumped I can just have a follow up on your first the first answer so when you talk about analytics can you discuss the reception you're seeing from clients.
Are there what's the competition there I'm sure that there are other solutions that can ride on top of any voice company and provide the analytics, but what's the benefit of customers to go with you versus others and what's the reception that you're seeing from clients.
Right, Hey, we enjoy the fact that we are out very known brand and established a vendor and supplying the enterprise world. So we have <unk> access to a lot of found on the large enterprises I've mentioned before so you know selling up in it.
I think customer a usually easier second a you know the companys early established to you know more than 20 years, a public many years since the business very advanced sophisticated telephony capability of watching establish organization with.
No functionalities Ah we have found myself several times, a competing with new startups at the end of the day or scale, our brands our capabilities I'm able to throw resources into a project because he is important to me we.
Fund Ourself preferable, Wisconsin is due to the fact that we are out of very establishing strong no offender. So all in all.
One one more data points that he's never discussing those cases is the fact that you know.
Contrary to the products when you in the past take a router take a file will take anything that's quote unquote. These a standard product. The winner takes it all so if Cisco was you know leading the router market. It was very tough for other companies the.
Plain simply because that reached a you know to the overall market when you're talking about you know cognitive services when you're talking about speech attacks and Texas stage, you talking about languages and here. It's a feature is completely different so that allows us to penetrate several of them.
Markets in parallel and basically will allow us to be much more successful because we will have the scale. If it goes can sell to let's say, a the U.S., Germany, UK, Japan, and Australia, you bad that's our ability to invest resources and.
Got to results will be substantially better than in Australian based start up that will be may be successful in Australia, but will find its hard to expand I'm being a smaller platform. So I didn't know what I think we're sitting in a very uncomfortable situation.
Shopped I'm just gonna squeeze in one little a one small additional question and that's for in Iran.
Your revenues were roughly in line for the quarter roughly inline with expectations, but your gross margins were almost 200 basis points above and your operating margin was a lot more worth almost 400 basis points above so first what drives this great margin performance and second what's the sustainability, what's the outlook for the next few quarters what are the.
Puts and takes for margins.
Okay. So were actually what drives that their gross margin to 66.9% was mainly the increasing as software revenues a shop they mentioned in the call.
More a professional services and all in all product mix. There was a benefit there this quarter, we had more revenues from man SBC, we choosing the high gross margin.
And they're less revenues relates to a phone switch to the low gross margin Hey, we believe it's sustainable there for the coming quarters, then or even maybe improve because we already selling more and more software revenue.
Thank you.
Our next questions from the line of Samad Samana with Jefferies. Please proceed with your question.
Hi, Good morning, Thank you for taking my questions.
Maybe one or the Starwood on I I follow up on teams as clearly outstanding how much of that was Skype for business customers migrating to teams versus maybe organic net new teams customers using voice and then I have a follow up question.
Hello, sorry to disappoint you some madden that I really do not to have a the data with me now a will look into it and I will now provide the answer a between.
See I can tell you that we are seeing definitely a mix between new.
Catherine and some of the customers are the U.S I submission in some of the examples like you have.
Already using Skype him isn't moving but I don't have Oh, the actual division a with me right now.
Okay.
That's helpful and then <unk>, maybe I just as a follow up to that if you think about generally that customers that are adding voice to the teams through audiocodes any characteristics in terms of maybe the average size of the customer or is it usually a full end to end deployment.
All right or is it a phased rollout how should we think about maybe the ramp at individual customers on a rolling out voice into teams.
Okay. That's actually a very interesting question and I'll tell you why because in the past when Microsoft with selling mainly Skype for business. A large companies always took the time to do a pilot deployed eat with Sizzle, you know branch offices.
Then continue the deployment every quarter in coming years to think a this is situation right now with seems is completely different I think these days and organization are moving out of necessity nobody has a time to wait for a prolonged deployments. So.
And because I'm actually does know deployment I mean, you're not talking about deploying you know I'm Microsoft's service on prime you're talking about using a cloud service. So actually you can think about companies going online with teams all across the company or less of.
Of course, they want to first try linked with.
Small group, so that the death or regarding that I'm sorry. Your first question was Matt Yeah, Yeah, you got them, but I'm, just getting that that rollout cadence and maybe just one final of financial question I'm clearly that earnings was a as a solid performance this quarter, how should we think.
Maybe the investment philosophy for the back half of the air on expenses since then.
If I heard the guidance correctly there isn't it.
And that guidance I'd, just reiterate it so it is the upside planning on being on reinvested or how should we think about opex trends maybe for the rest of 2020.
Okay. So opex a indeed the decreased from 11 low fare 26.5 million in the first quarter 225.
Really on into second quarter.
It wasn't mainly relates to let's say a expenses are relates to travel and too.
HR related expenses I can tell you that our planning floor at the second docile fair 2020 is to be are still there as say being gay and these are major expensive said travel and HR related and Moreover, we have a better ethics.
Right the Israeli shekels against <unk> dollar and ER as such we believe.
The opex there.
It will be increased but they're not too much compared to second quarter of 220.
Okay, well I appreciate you taking my questions and thanks again for the time have good day.
Thank you.
Thank you as a reminder, in your press Star one ask a question.
Next question is from the line of Rich Valera with Needham and company.
Thank you shipped out you've noted the conflicting dynamics and the Microsoft business with Skype for business declining in teams growing quite rapidly. How do you think that nets out for you kind of for the here right from a year outlook perspective from Microsoft and then taking that level higher you see that sounded like a dog.
Very good growth overall, so how do you think about how do you see that outlook for the year do you think that's kind of about 20% or better gross business overall for the year. Thank you.
Yeah.
Thank you rich yeah that is indeed, a very interesting.
A question its I've mentioned before you know take or 20, plus revenue for the second core you I'm more one with data point that team sent and scaffold minutes, where I basically.
No around the same level give or take a million now. The real question is you know fast scaffold is a the clients <unk> purchase orders or.
Skype for business related equipment declined versus the gross in team, we think a very strong a pickup in tim's I'm actually as we speak. This is no July 20 eights already you know I'm a the current a ramp up in the core you know is substantially.
Better than what we've seen.
In April so.
So I'm confident that.
At least based on data, we haven't and right now that growth in teams will you know more than outgrow declining Skype for business also.
Lets bear in mind that every time you know a business line is dropping you know the majority of the drop occurs in the initial phase and then it basically it's a wasted so all in all we're pretty confident in our ability to keep growing gone to Microsoft.
Revenues for the rest severe and and and we believe it will see continued growth next year also I'll mention that we old we try always to increases.
Oh, the new products and new services, we offer in that environment. So.
In many ways or offering for Skype for business I was kind of all said.
A more than a year or two years ago and own Deoderant 'em, we have as I've mentioned more investment in new offering new opportunities with them. So all in all are we believe that seems to be a fully successful.
Got it just one more if I could on the service revenue, which I guess was a little light from a growth perspective this quarter, but it has shown some historical lumpiness how should we think about that going forward. This was that just kind of lumpiness in should we expect that to kind of presume orbitz historical growth trajectory.
Yes, definitely I mean, you know <unk> services basically has two components. One is the maintenance contracts in the other one is special services maintenance contracts piece or the years I'm you know five six years now that you know gross.
The year is usually between 11% to 15% and we believe who see the same year submission already if you take into account the first half of the year to gross was 13 point.
2%.
However, there's another component and this is the professional services and here I think the feature is essentially a rosier a we are growing substantially there's much needed by the way a philosophical point.
People are saying at some of those they are productive inefficient when it comes to new large project that's as to occur within a company, it's always substantially more difficult to I'll put them to work and complete them. When you have people distributed you know all around though the place.
So you can assume that the need or desire to move to use more services from a party that can provide them. You know you can assume that that desire is growing and therefore, we believe that professional services.
On a global basis will become a much more a successful therefore deployment. This is what we focus these days.
Got it thank you.
Thank you we've reached the end of the question answer session well now turn the call over to Shabtai Adlersberg for closing remarks.
Okay, well. Thank you operator, I would like to thank everyone. What tenders are conference call today.
It's continued good business momentum and execution in all markets in first South of 2020. We believe we are on track to achieve another strong year growth you know business.
We look forward.
Your participation in our next quarterly conference call. Thank you very much ever nice day. Thank you.
This concludes today's conference you may disconnect. Your lines. This time, thank you for your participation.