Q2 2021 AudioCodes Ltd Earnings Call
[music].
Greetings and welcome to the audio codes second quarter 2021 earnings call. At this time all participants are in a listen only mode of question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as the remainder of this conference is being recorded.
I would now like to turn the conference over to your host.
Roger teaching Vice President of Investor Relations. Thank you you may begin.
Thank you hosting the call today are shot that Alex Berger, President and Chief Executive Officer and of Robertson, Vice President of Finance and Chief Financial Officer before we begin I would like.
And you that the information provided during this call may contain forward looking statements relating to the audio coach business outlook future economic performance product introductions plans and objectives related there too and statements concerning assumptions made or expectations as to any future events of conditions performance or other matters are forward looking statements at.
At the time as defined under U S. Federal Securities law, or 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 effects of global economic conditions in general and conditions.
The audio codes, the 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 of audio codes and its customers products and markets.
The product and technology development upgrades of the daily to manage changes in market conditions as needed possible.
The need for additional financing the ability to satisfy covenants in the company's loan agreements possible disruptions from acquisitions the ability of audio codes to successfully integrate the products and operations of acquired companies into audio codes of business possible adverse impact of the COVID-19 pandemic on our business and results of operations and.
The other factors detailed in the audio book filing with the U S Securities and Exchange Commission on who goes assumes no obligation to update. This information. In addition, during the call audio codes will refer to non-GAAP net income and net income per share audio growth has provided a full reconciliation of the non-GAAP net income and net income per share to its net income and net income.
Income per share of course, the GAAP in the press release that is posted on its website.
I turn the call over at the 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 with all of that said I would like to turn the call over to the shop by shop out. Please go ahead.
Thank you Roger good morning, and good afternoon, everybody I would like to welcome all to our second quarter 2021 conference call.
With me. This morning is the neuron Bull Chief Financial Officer, and Vice President of Finance authority called <unk>.
Ron will start of by presenting the financial.
Overview of the core of it.
Will then review the business highlights and summary for the quarter and discuss strength and developments in our business and the industry. We will then turn it into the Q&A session, Iran.
Thank you shopped and Hello, everyone.
As usual on today's call we.
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.
Revenues for the second quarter of were $60.6 million an increase of 13 point.
1.2% over the $53.5 million reported in the second quarter of last year.
Services revenues for the second quarter were $22.8 million up 32, 8% over the year ago period.
Services revenues in the second quarter accounting.
437, 6% of total revenues.
The amount of deferred revenues as of June 30, 2021 was $73.4 million up from $65.1 million as of June 30 of 'twenty 'twenty.
Revenues by geographical region for the quarter were split.
Split as follows.
North America of 43 per cent email 34%.
Asia Pacific, 17% and Central and Latin America 6 per cent.
Our top 15 customers represented in aggregate of 62 per cent of our revenues in the second quarter.
Of which 47% was attributed to our 11 largest distributors.
GAAP results are as follows.
Gross margin for the quarter was $69.4 per cent compared to 66, 7% in Q2 'twenty 'twenty.
Operating income for the second.
Apparel was $10.1 million or 16, 7% of revenues compared to $8.8 million or $16.5 per cent of revenues in Q2 of 2020.
Net income for the quarter was $8.2 million or 24 cents per diluted share.
Compared.
Second quakes point 6 million on on 'twenty, 1 cents per diluted share for Q2.2020.
Non-GAAP results are as follows.
Non-GAAP gross margin from.
$9.7 per cent compared to 66, 9% in Q2 of 2020.
Non-GAAP operating.
Just kind of for the second quarter was $13.6 million or 22.4 per cent of revenues compared to 10.7 million of 21% of revenues in Q2 of 'twenty 'twenty.
An increase of $26.3 per cent.
Non.
GAAP net income for the second quarter was $12.7 million or 37 cents per diluted share compared to $10.5 million of 32 cents per diluted share in Q2 of 'twenty 'twenty.
As of June.
As at the end.
In June 'twenty, and 'twenty, 1 cash cash equivalents bank deposits of marketable securities totaled 191.9 million.
Net cash provided by operating activities was $17.1 million for the second quarter of 'twenty or 'twenty 1.
Day sales outside.
Of league as of June 30, 2021 were 56 days.
During the quarter, we acquire the approximately 236000 of our ordinary shares for a total consideration of approximately 7.1 million.
On July of 2021 we received court approval.
<unk> stands ready to purchase up to another of great amount of $35 million of additional ordinary shares the.
Court approval also permit us to declare a dividend of any part of this amount there.
The approval is valid through January 3 'twenty 'twenty 2.
Elliot.
This morning, we declared the cash dividend of 17 cents per share the.
The crew gave the amount of the dividend is approximately $5.5 million blood on the dividend will be paid on August 26, 2 all of our shell all of this of record at the close of the trading of August 11.
Now.
On the marketing and update on our guidance, we are raising our guidance for revenues to be in the range of 243 million to 250 million compared to the previous range of 240 million to 250 million.
We are reiterating our guidance.
For non-GAAP diluted net income per share for 2021 to be in the range of.
The $1.45 the.
The $1.65.
I will now turn the call back over to shop day.
Yeah.
The pro thank you in the right.
We are very pleased to report strong financial results and continued progress you know of business in the second quarter of 'twenty 'twenty 1 this.
This is the second core in the row, where our revenue growth, 13% plus year over year.
It's a comparison gross in the second quarter of 'twenty 'twenty.
Last year of about 8.2, so quite the leap in terms of revenue growth.
The growth right now the majority of the growth came from the enterprise business, which has provided the close to 85 per cent of the company revenue in the second quarter. The reminder, so enterprise business.
20th of far you cats and contact center market the operations.
All of the mind of the CS That's why the company revenue grew 13.2 enterprise related revenue grew above 20% of year over year, which clearly points to the potential of the ink of increasing GOR company annual revenue growth rate income.
Some of yours will be on 13% a year.
During the quarter, we continued to execute in order for 3 strategic business areas in the enterprise space are first the Microsoft teams.
This grew well above 20% year over year.
I should add that in general we saw.
Robust demand in the U S enterprise market much along the same trend we saw in the first quarter of 'twenty 'twenty 1.
This is a direct result of the decline in the pandemic in the U S in the attic.
Markets.
Contact center operations grew nicely year over year will touch that later on.
On and we will talk about our.
Developments in the development that we've seen this isn't the areas.
And in conversational AI, we saw nice progress in cereal business line, most important booking and revenue growth of more than the 100% year over the year.
In summary of the progress.
In the Ucas and contact center and in view of similar such trends in several past quarters.
Second core industry dynamics further underscores the fact, the collaboration hybrid work and work from home remain key industry trends not only in 2021, but well beyond.
Mendes they do present for us long term growth potential.
Also it's important to say that it's our decision made at the end of last year. The increase of our investment in R&D sales and marketing and services on account of lower of trading.
Gulf War, lower operation on margin and profitability proof the.
Privileged to be working well and should fuel our success in the market in coming years.
And much along the same line reported any of the previous score we experienced strong demand and performance in the North America services operation.
And continued SBC business strength and so the outlook for 2021 in the second half of the year looks positive and promising.
Going back to the various business line performance during the second core areas of breakdown.
Ucas, and UC, which country.
It's about.
Or about 70% of revenue.
Grew above 20% year over year contact center, which provides for between 10 and 15% of revenue.
We're above the 25 per cent year over year.
So all in all of if we take enterprises, that's the whole.
Which provide close to 85 per cent of revenue, we grew above 20% year over year.
Yeah.
In the view of that you know, we should have been growing faster.
Over there's 1 business area of the service provider of C. P.
Business, which really suffered the substantially from the pandemic much along the same line that we've seen in previous quarters. So.
On the service provider of CPE.
Which was the top of a 10 meter and of course last year was substantially below that in the second quarter and we have.
Hum expense decline.
If you take satisfy the CP that's about of between 10 and 15 per cent of revenues so that that basically the difference between the growth of.
20% plus in the enterprise and the overall company growing only about 13 per se.
Since the last Alan mentioned throughout the business line, which are really minor at this stage first is the voice AI business, which is just about 1.5 per cent of business. The grew year over year over year, 100% the can.
On the allergy business continued to decline. It is now about 2 to 2.5 per cent of overall revenues.
It has declined about 15%, but all in all of our very strong core in terms of our enterprise performance now.
Now getting to more of our long term financial model that we presented.
In the last 2 cores you know generally we.
Looking for all of the current 3 years 'twenty.
The twins tree to provide from a revenue growth of 13% to 15% our non-GAAP gross margin of 67 to 70 per cent opex as a percentage of revenues. We said it would be capped at the 47% and then non-GAAP operating margin of.
<unk> to be in the.
The range of 20% to 22% if we look at second quarter performance, we seem to be well within those ranges except for Opex Opex came at 47, 3% and we believe that indeed going forward, we will fix that.
Range and in the.
1 we will probably target.
47% to 49% or even 50% it all comes to investing more in areas, where we feel that there's a lot of potential and we should encourage our investment interest in this area.
Now touching on several more important financial.
Actual data points for the core Opex.
Opex increased substantially more than 5% sequentially, mainly due to 2 key factors 1 is increasing the head count at the edge of that immediately and then the impact of much lower.
The new Israeli shekel versus the U S. The exchange rate.
I think basically I should say and that.
That we basically we were hedging of that conversion rate up to at the end of the first quarter if done in 'twenty, 1 and we enjoyed the very good rate of 3.7, new Israeli shekels per door. However.
In the second quarter, we no no wage was available and therefore, we were at 3.3 per cent. So does the big gap of about 11% between the exchange rate used the opposite the second core and in the second core net explain a surge of more than a million.
A dollar in the Opex expenses.
The expenses.
Headcount increased 31% I'm, sorry, 31 positions to 821 full time employees in the second quarter of 'twenty, 1 of growing 9% year over year, and tripled and 9% sequentially obviously.
The adding more than a 770 position over the year ago core of clearly demonstrate our confidence in our continuous a continued.
Continued expansion of our business.
Cash flow cash.
Hello from operating activities, we generated $17.1 million in the.
Score.
And more than 30 million in the first half of 'twenty 'twenty..1 net compares with just $17.5 million in first half of 2020 on an annual level. We can now plan on annual cash flow from operating activity of $55 million to $60 million in 'twenty 'twenty 1.
The second bidding a lot of cash and allowing us to allocate capital for various targets that we see.
The fluids revenues continued deferred the revenue continue to grow and mounted to $73.3 million versus $65.1 million a year ago, an increase of 12, 6% of of the SEC.
General or the last year.
Now, let's go to the key business area that the.
On presented the most potential for US, let's talk first about Microsoft the.
The Microsoft business grew.
Above 20% in the second quarter.
We have seen accelerating mid market opportunity.
Second that we had the access to them we have been leveraging verticals of live services I'll talk more of that later on from Microsoft teams, mostly around that crowding of the service and at this stage of life contracts, a total contract value of pipeline equal.
The tens of millions going forward. So we of generators for us quite a potential going forward.
Within the Microsoft teams space IP phone business came back from 2020 and was stable and showing plenty of room for growth.
That was the very nice comeback.
Several of us compared to 2020, a war of you know, we all suffer from the pandemic and the fact that there were no purchases of devices for our premises.
Though the magnitude of recovery somewhat you know encouraging we all know about the ongoing the chip.
Supply constraints.
And therefore, we believe that we could be hurt in the third quarter from <unk>.
Sure the of.
Chips.
We continue to certify our devices for video conferencing in the teamster environment also invested quite a lot in the Microsoft team.
<unk>.
<unk>, we have been investing in the new proprietary development for that ecosystem.
On invested substantial R&D to come up with an offering that's new to the market. We assumed that we will talk more about it as we launch it early 'twenty 'twenty 2.
Environment about the are alive cloud operation, where we try to from.
Vision in and help our service provider provide allow of service themselves with.
We saw some progress in that space.
We are really think of a major release in the September.
And that will allow us to add the multi tier and reporting makes it more powerful for the go to market with 1 big OEM that the sign up to live cloud and is now introducing it in there of channels.
The other program that is a very important to us.
Timeframes of operator connect Microsoft introduced the API for teams, allowing operators to integrate to.
The team's marketplace and offers their plants in the eighties labs cloud testing with the operator connect API.
Started already and we expect an introduction to the market and.
So as myself of 'twenty 'twenty 2.
In terms of growth, we've seen definitely growth in the teen space.
Jim says is rone 90 per cent year over year compared to the second quarter in 2020, Skype for business continued to decline.
All in all of them if we compare.
For the second quarter of 2020, the decline was about 45% year over year. All in all we continue this I've mentioned before to grow on overall, Microsoft business, 20% year over year at this stage Skype for business really is down to a level of war. So the decline will.
Hum.
Contribute much to the decline of a Skype for business I'm sorry, Microsoft.
It was also a very successful quarter in terms of new business created a.
We've seen a lot of business created mainly the teams space.
We have seen an increase.
Not the 100% year of a year and more than 20% sequentially.
So definitely quite active area for us.
In terms of some of the wins, we enjoyed I can talk about 1 big winning the.
Western Europe, where we are.
Provided.
On a solution managed services solution to a minute serves the solution in that space.
On the significance is that more.
Managed services provider is finding the codes live it's an easy way for them to accelerate time to service.
We also on Jud.
On a large contract with.
A leading tier 1.
Operator in Asia Pacific.
Basically it's a large we believe the cloud service providers continue to rollout of teams to the SMB and mid market accounts true those type of services.
Also we've seen large enterprises, which we acquired discuss them in the Skype for business many years ago, they keep placing purchases and expansion as they migrate to the teams and we've got such examples both in the <unk>.
Japan and the U S.
Now to our alive offering which is real.
Key to our success.
Going forward.
So let's talk about teams voice of service. This is where we focus teams versus the services are.
You know best offering today in the market in 2021 we have significantly stepped up our efforts on the accelerated the introduction.
1 of verticals lives teams.
<unk> is the service addressing critical challenges faced by mid and large sized businesses, if they adopt Microsoft teams phone system here.
Tims versus the service removes complexity from the integration of teams collaboration unified Communications and enterprise.
<unk> and provide a seamless rapid and cost effective migration to the teams in building. The service. We have brought together all of our SBC network and use of management products and complete set of automation and are delivering them on a per user per month.
On a software assets.
The service model. This allows our customers to quickly integrate Sip trunk.
The contracts integrate with legacy solutions and rollout globally, including on premise of the vessels such as phone video rooms in analog adapters.
Our consulting services team can help address planning design and discovery to.
With our partners or to complement the capabilities of some of history of 65 per.
Chris who have expertise in the Microsoft surface solution, but lack of telephony knowledge.
Since introducing the concept of slides mid last year, we experienced good reception to the offering it took about this in the following in.
Growth in our annual recurring revenues from this activity.
It is important to know that using this suffers the server software we are able to extend the sofa to other markets.
We have already won first accounts for similar such service with zoom phone customers of tech about zoom zoom in a minute.
We were successful also in the winning first such offering and the contracts on the market. So article drive is the key to our success going forward.
As we continue to grow very fast on a recurring revenues and made good price in second quarter 'twenty 1.
We have exceeded by more than 10 per cent.
Our stated 10 million AOR target for June 'twenty, 'twenty, 1 and we now expect the this type of business to go above the target of 15 million or by the end of the year our.
Growing 2.5 times.
The above 2020.
Our booking or total contract value of this business on and is already several tens of millions of the us by a large number of enterprises that have already started or about to start. The are you cash deployments with US also does a nice pipeline, that's growing steadily and building up.
This fast.
It's growing businesses the tangible proof to our superior technology in the areas of connectivity management automation tools services and the adjacent application to the UC solution majority of it.
For voice teams voice of the service I'm confident that this business will keep growing.
<unk> presents a significant portion of the codes value in coming years.
Now, let's talk a bit about zoom zoom, starting show up you nor on our activities in 2021 we already reported on in the first quarter of 2021 about the growth in the.
And we're prone area second core was also a good 1.
We all know that when we reported about 2 months ago that they've grown from a 1 million zoom phone users to 1.5 million zoom phone backwards and announce it.
Zoom a weird 1 non although we made the you know.
Quite big leap over 'twenty 'twenty do.
Do you know the Cork with the of being substantially higher.
Higher you know except for in 1 big deal that slipped to the third quarter.
So all in all we are building.
Building our presence in.
The zoom phone area on the amount of new opportunities develop.
In the second quarter of were substantially above anything whatsoever in the zoom phone area amounting to several millions of just in the second quarter just to remind you that also in the first quarter of a weird.
Above 1 million of business created so all in all of we start to see some enterprise zone from deals that are rolling out over a prolonged period. We also.
Talking about introducing more of what we do in the Microsoft voice space.
To be.
On to the zone zoom phone area basically we try to position of our surface the.
Best of voice go to partner for successful a collar.
Collaboration players such as Microsoft and now we start to see that with them too.
Talking a bit about the SBC.
Lickable AR, which was great in second quarter, we grew above 20% actually we at this stage, we are well into our plan to reach 120 million of phase, we see revenues in 2021 side by side with our ability.
Ability to deliver a good quarter, we've seen nice growth in bookings going forward, both in life and non life environment and also we've seen.
Seamless such phenomena in the contact center and in the Microsoft being the so all in all of our very good core again.
Business from.
The geos, great I'll mention that.
It's split almost 1 third in North America on 1 third in Western Europe are about 1 of you know.
The 17% in APAC and the rest in the car line and.
In the in Eastern Europe, So all in all of Europe.
Well on plan to execute on our plan to grow this year by more than 20 per cent.
Is most important to our services business as we've mentioned before you know we grew above 32% year over year majority of the growth really comes from the professional.
On the services.
Area and must be for a minute services are very strong I would say that you know the complexity of launching a new voice service with the.
In an enterprise you know usually you know.
Our ability to provide those services provide both some you know.
The products and the accompanying services so that we can basically provide.
Provide the enterprise looks quick fan to deployments in the <unk>.
Corrosion.
Is a much appreciated by our customers already have a very nice pipeline of opportunities in this area. So professionals.
Interest in managed services is becoming key.
All in all of the represents about 38% before revenues in the second quarter.
Just to touch on some of the developments in the contact center market. So.
We're starting to see web RTC.
As the key successful technology.
If we have mentioned before when you start to place agents at or a lot of the communication goes from home.
Does the need for good you know high quality.
On the voice solution to be transported over the internet clients are wherever the C provides that it's being used mostly in the contact center area and we've seen a record quarter in terms of our web RTC operations.
Also you know we focus in the contact center of market mainly on.
On collaborating with Genesis. So we have invested quite heavily in transitioning some of our solution into the cloud the environment. We have already registered for leading application in Genesis a foundry solution in the cloud.
<unk>, the namely voice, both the connectivity whoever ITC teams integration and advanced bring year on carrier. So all in all are we starting to see some developments here already so some first few projects with or our web RTC and live operation in contact Center.
The last I'll touch on on on the development of the voice AI area of war conversational AI.
We have been able to grow revenues and bookings by more than the 100%.
I would.
Talk mainly about our of voice the I connect the activities.
Which have shown great.
Growth attached to it immediately and also a lot of success for smart app or compliance recurring solution. The transition of you know communication and collaboration platforms into teams really no make it necessary.
To move all of the old compliance recording solution to seems to sort of we enjoy a lot of business in that area.
So smart up has been growing fairly fast and basically 8 has shown almost 100% year over year on growth.
Growth searching on voice of the I connect the say Ive mentioned in the past. This is the solution that allows the connect the voice world telephony contact centers.
Sip trunks PB axis to cognitive services, such as speech of attacks, Texas speech and more.
We made quite of progress in the second.
Quarter in terms of revenue, we have more than doubled the first corner of revenue booking grew.
10 times more than the first of you know the sets of I'm sorry, the same quarter in 2020, we've created the lot of opportunities and.
Roughly we are hum above and beyond the plan, we had at the beginning of the year. So at this stage we are in Hum fairly accelerated more than that out of all the different projects. We have in that space I'd like to touch on 1 very specific the which is key to our success going forward.
And I'll talk about the Vodafone.
Vodafone as a bot called Tobey Tobey the Vodafone.
Channel digital assistant the.
That is in use in multiple Vodafone countries. Many markets. It is used by Vodafone to be non simply engaged with its customers offering persistent.
Since the end customer experience now Vodafone has selected the article the voice AI connect to enable its customers to talk the Tobey.
The chatbot voice the I connect.
Not only facilitates the voice interaction with all of them, but also integrates with Vodafone multi vendor.
Customer support system.
Including Genesys Avaya and Cisco.
The initial rollout started earlier this year in South Africa with positive feedback and plans for rapid expansion to additional countries.
And later also other use cases, including agent assist speaker of if vacation and outbound calls the.
The solution has provided us the managed service the Vodafone Datacenters, if a person based model you know.
And it should be used all over the world.
With that I've completed my introduction to the skull and who.
We'd like to take the call into the Q&A session operator.
Thank you.
At this time of be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is on the question Kim.
You May press star 2 if he like to remove your question from the camp for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
The first question comes from the line of some on some on it with Jefferies. Please proceed with your question.
Hi, Good morning, and thank you for taking my questions. Maybe first chapter I. Appreciate all the detail that you gave in your prepared remarks, but just.
Notable to me that Youre seeing the assumed burn more off.
I felt like something incremental or new can you maybe just help us understand how the economics of that partnership work and are you seeing the are you seeing customers decided between the rebound in Microsoft games for telephony or just maybe what are you seeing from from those 2 head to head.
So you know zoom zoom as far as we know right much of what I'll tell you of really comes from the market.
The zone.
It's very easy and will be successful mostly in the lower end of the market.
On the working their way up to the mid market.
<unk> in the large enterprise.
Obviously, we have more value to offer when you come to enterprise.
All of this zoom steps into more and more deals with large enterprise and mid market companies collaboration with whom we will pick up and that's really the source of free.
You know better performance in the first half of 2021.
Great and then maybe just a follow up question on the guidance you know we saw the that the bump up in the revenue outlook, but EPS was held the and the same range.
I'm curious how much.
Any of that is due to the.
The FX.
That's the first is the ramping of actual growth investments just can you help us maybe bifurcate that Ed and if it hadn't been for FX that you have raised that EPS guidance.
Yeah, So you know where the step function.
So far of the FX. So all of the impact of on the the U S. Dollar exchange rates are going down from <unk>, 7% of true country is now fully embedded and therefore, we do not expect any further change in coming quarters.
On the other end I can tell you that.
We have pressure from both partners and some big customers.
To perform certain developments some of our partners come to us with request to invest and develop new capabilities and you know are serving them.
Says, yeah, we will evaluate.
Alrighty, then we will invest in it so.
Basically this is really.
What drives our investments are considered the most of the investments really will made in 3 different areas you know its R&D developing those solutions.
Solutions it sets on marketing to attract and achieve.
More sales in the market and then service because once we focus more on in a minute services, we need to increase personnel that helps customers deploy those managed services.
Beyond that you know I think of that.
You know we need to take.
And getting into consideration the phenomenon 1 is the shortage in components, which may hurt you know sales going forward third quarter of will already know that some deals were pushed from the third quarter because of shortage of components.
And then there's also of the pandemic, which.
With thoughts we all thought we were out of it and now we have the force wave.
So trying to be a bit more conservative.
You know I can tell you that we will keep pushing.
Pushing on all of them on all the cylinders on growing revenues, but as far as you.
You know on profit.
The ability.
Need to be more conservative that's where it is.
Okay, Great and then just 1 housekeeping question I didn't hear if you said he is growth specifically for the quarter can you just tell us the teams really did go out the last page.
I'm sorry can you repeat the question.
Please.
Yeah, Microsoft teams related growth I think you said overall, Mike Yeah, Yeah, Yeah, what we've mentioned yes.
Yeah, I've mentioned the teams.
Our revenue grew 90% year over year.
9 zero, Okay, great great. Thank you I'll turn it.
Over to the next analyst appreciate that the questions. This morning, and congrats on the quarter.
Thank you Samantha thank you.
Thank you, ladies and gentlemen, as a reminder, please press star 1 if you'd like to join the question queue.
Our next question comes from the line of Greg Burns with Sidoti and company. Please proceed with your question.
Morning.
Are there any potential benefit for you from zooms out pushing of 5.9.
Good question, Greg So on the first glance not sure however should zoom the successful and integrate.
With 5.9 in terms of the customer base with you know 5.9 assume is the easy strong mid market player.
It May help me.
May help the zoom too you know.
Windows.
Meet the market.
Players now if that happens the answer is yes.
Yes, meaning that it is going to be successful in acquiring more on mid market customers.
Customers of 5.9 that would be good for us.
Okay.
And then just getting back to the fee.
The Opex and I think the increase.
The increased.
The investments, you're making I didn't.
Quite catch it did you raise your target for Opex the that cap from 47.
The above 47 line, how should we think going forward.
Yeah. Good question. Okay. Good question you know originally you know when we have established the range for you know a.
Opex will be capped at 47% you know that was made and the floor sphere, we have not anticipated.
No debt the euro.
The us will.
Depreciate against the.
The new Israeli shekel that much I'll tell you that the guiding line for us.
It's really increasing investments where needed.
Be it in services be it in the R&D.
And in other areas or adding the sales positions. So in view of that we driver a change what we have said that opex will be kept by 47.
7 per cent and basically we want to expand the to be.
Kept by 50%, Okay and cruise of 3 per cent.
That would mean that the if that happens then operating margin will go down towards the 20% rather than stay as they are today above 22.
But that's of course for me you know, we will give priority to increasing investments over profitability.
Okay.
Okay, and then in terms of the the decline youre seeing in the the.
Service provider the C P area.
It's pretty.
The significant decline this quarter whats the outlook for that the terms of the year do you expect the stabilizer to continue on the same downward trajectory.
You know our second quarter represented the bottom.
And soon our stacks we.
Perceived some signs of a better market in third quarter already you know some of.
The customer some of the service provider of really did not place with us.
So a purchase order for a long time, we started to see towards the end of the core of <unk>.
Some new pillows.
However, with them you know the a rise of the force wave.
Hard for me to say I'll tell you that in our you know plans because enterprise market goes well you know software and services goes well most of the company priority and.
The strategy lies in that area and therefore at this stage you know service provider is you know still a 10% to 15% you know revenue.
So for the company, but we place less importance to that.
We will have to live with what the market provides us.
Okay.
Thank you.
Thank you, ladies and gentlemen, once again, if you'd like to join the question can you. Please press star 1 at this time, what part of the amendment to allow for any other questions.
Yeah.
Okay.
Thank you. Our next question comes from the line of Ethan.
Let me now with as Muni portfolio management. Please proceed with your question.
I wanted to ask about the interest expense.
Why would you have an interest expense would be up so much cash and no debt.
Oh.
I you know first we are investing in the.
You know marketable securities on mostly at the the yield of 8.1% because we don't want to take any risk.
About our cash investments.
There were some exchange rate difference as it come close to zero for this quarter on previous quarter of course, the if the interest rate for a.
At the the marketable securities Alright, the bonds with the raise we should expect.
Why.
But the net.
Negative.
Do have ifr 16 are you impacted by that or Youre not subject to I.
GAAP the subject tariff or no we are.
We are subject to U S GAAP North Korea for us.
Okay.
So it's nothing to do the leasing or something like that.
No lifting that are non-GAAP.
We.
Take it out of a reconciliation you can look at the reconciliation between the GAAP and the non-GAAP So no impact from the leasing on.
So we should expect the positive.
The finance income over the long term.
Yes, yes.
Okay. Thank you very much.
Okay.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to management for any final comments.
Thank you.
Thank you operator, I would like to thank everyone for attending our conference call today with continued good business momentum and execution in the first half of 2021.
Believe we are on track to achieve another strong year of growth and expansion in 2021, we look forward to your participation on our next quarterly conference call.
Thank you very much of a nice day.
Thank you. This concludes today's conference you may disconnect your lines at the time. Thank you for your participation.
We will share.