Q3 2021 AudioCodes Ltd Earnings Call
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Thank you for holding ladies and gentlemen, and please remain on the line D audio coach conference call will begin shortly thank you for your patience.
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Good day, ladies and gentlemen, and welcome to audio codes third quarter 2021 earnings Conference call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It's now my pleasure to turn the floor over to your host Roger to Chin VP of Investor Relations, Sir the floor is yours.
Thank you operator hosting the call today are shop type of atmospheric President and Chief Executive Officer, and Nuremberg, 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 audio codes business outlook future economic performance product introductions.
Plans and objectives.
And statements concerning assumptions made or expectations as to any future events conditions performance or other matters are forward looking statements as the term is defined under U S. 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 state.
And such statements. These risks uncertainties and factors include but are not limited to the effect of global economic conditions in general and conditions in audio coach 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 audio.
And its customers products and markets timely product and technology development upgrades and the ability to match 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 acquisitions.
The ability of audio closer to successfully integrate the products and operations of acquired companies into audio coach business possible adverse impact of the COVID-19 pandemic on our business and results of operations and other factors detailed in audio codes filings with the U S Securities and Exchange Commission audio codes 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 coats has provided a full reconciliation of the non-GAAP net income and net income per share to its net income and net income per share. According to GAAP in the press release that is posted on its website before I turn the call over to management I would like to remind.
Everyone that this call is being recorded an archived webcast will be made available on the Investor Relations section of the company's website at the conclusion of the call with all that said I'd like to turn the call over to shop that subject. Please go ahead.
[laughter].
Thank you Roger good morning, or good afternoon, everybody.
I would like to welcome all to our third.
Core our.
2021 conference call with me. This morning is neuron Bull Chief Financial Officer, and Vice President of Finance for 40 codes.
Arnaud will start off by presenting a financial overview of the quarter I will then review the business highlights and summary for the quarter and discuss trends and developments in our business and industry.
He will then turn it into the Q&A session neuron.
Thank you shopped and Hello, everyone.
As usual 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.
We'll be discussing on this call.
Revenue for the third quarter were $63 4 million, an increase of 12, 1% over the $56 6 million reported in the third quarter of last year.
Services revenues for the third quarter were 24.8 million up 26, 7% over the year ago period.
Services revenues in the third quarter accounted for 39, 1% of total revenues.
The amount of deferred revenues as of September 32021 was $72 1 million.
Up from $64 million as of September 32020.
Revenues by geographical region for the quarter were split as follows North America, 41%, EMEA, 38% Asia Pacific, 16% and Central and Latin America, 5%.
Our top 15 customers represented an aggregate of 57% of our revenues in the third quarter of which 47% was attributed to our 10 largest distributors.
GAAP results are as follows.
Gross margin for the quarter was 69, 6% compared to 67, 1% in Q3 2020.
Operating income for the third quarter was 10 million or 15.8 per sample forever news compared to $11 2 million or 19.
8% of revenues in Q3 2020.
Net income for the quarter was $8 3 million or 24 cents per diluted share.
Compared to 7 million or 20 cents per diluted share for Q3 2020.
Non-GAAP results are as follows non-GAAP gross margin for the quarter was 69, 9% compared to 67, 4% in Q3 2020.
Non-GAAP operating income for the third quarter was $13 5 million or 21, 4% of revenues compared to $13 4 million or 23, 7% of revenues in Q3, 'twenty 'twenty an increase of 1%.
Non-GAAP net income for the third quarter was $12 9 million or <unk> 38 cents per diluted share compared to $13 3 million or 38 cents per diluted share in Q3 'twenty 'twenty.
At the end of September 2021, cash cash equivalents bank deposits and marketable securities totaled $184 9 million.
Net cash provided by operating activities was.
It was $13 million for the third quarter of 2021.
Days sales outstanding as of September 32021 were 58 days.
On July 2021, we received court approval in Israel to purchase up to an aggregate amount of 35 million of additional ordinary shares.
Court approval also permit us to declare a dividend of any part of this amount. The approval is valid through January three 2022.
During the quarter, we acquired 424 thousands of our ordinary shares for a total consideration of approximately $13 8 million.
On July 27, 2021, we declared a cash dividend of 17 cents per share the dividend in aggregate amount of approximately $5 $6 million was paid on August 2021.
Now to providing an update on our guidance.
We are raising our guidance for revenues to be in the range of $246 5 million to $250 million compared to the previous range of $243 million to $250 million.
We are updating our guidance for non-GAAP diluted net income per share for 2021 to be in the range of one.
Dollar and 45 to $1.55 compared to the previous to the previous range of $1 45 to $1 65.
I will now turn the call back over to shop team.
Thank you in Iran. We are very pleased to report strong financial results and continued progress in our business in the third quarter 2021.
As in previous quarters, our enterprise business now 85%.
Of the quarterly revenue kept growing and demonstrated growth of above 20% year over year at the core of the success or the Ucas business, which grew about 18% year over year, you know contact center business, which grew more than 20% year over year.
The growth of these two key business lines for several quarters now in a row, he really points to the potential of continued annual growth rate for revenue in coming years. Just a reminder, so our stated objective of <unk> announced earlier in the year.
We plan to achieve annual growth rate of 15% by the end of 'twenty to 'twenty three.
During the quarter, we continued to execute in order for three strategic business areas in the enterprise space. The first one Microsoft teams business grew nicely above 20% year over year with live services or teams voice service leading charge.
Our Tech center and customer experience operations grew nicely year over year, we have signed a new vendor partnership agreement and we're able to drive new advanced technological solutions with end users mainly for call. It a nation.
And in the conversational AI space, we so nice progress in this in several business lines growing year over year above 50% in revenue and above 100% in bookings.
No progress made in both the ucas into context in the markets in several past course further emphasizes the fact the team collaboration hybrid work and work from home remain key industry trends not only in 2021, but also for coming years as such both markets open.
Our long term growth potential for us for several years going forward.
Contributing to this fast pace of growth and success in our is our decision made end of last year to increase our investment in R&D is Dev sets in marketing in services for those markets, we intend to grow our investment in these areas in order to fuel the business growth.
In coming years.
Growth in new cats, and more specifically in the Microsoft.
<unk> team market is primarily related to our <unk> live services in the area teams voice all in our service business revenue grew in the quarter above 25% year over year, consisting now.
Close to 40% of our revenues in the third quarter of 'twenty. One it is becoming key to our future business success and expansion.
In terms of voice.
This is primarily related the industry evolution towards cloud communication and the growing demand in the enterprise space to consume technology as a service versus buying and decline.
Our products and technology technological solution by the enterprise I T stuff delivering successfully teams voice service realized primarily on continued steadily investment in our professional and managed services operations. One terrible results of this is the shift towards technology.
The service is the continued progress and pivoting towards recurring revenues with strong execution in articles life operation.
While enjoying success in the enterprise space, we so substantially less success in the service provider market.
In this area revenue suffers from diminished demand for connectivity gear from service provider is it a result of the COVID-19 crisis. It's a result with <unk>.
Witness a decline of over 30% year over year in this area.
Just to put things in perspective, I should mention that's revenue in the service provider area provide less than 15% of the company overall revenue.
Another less favorable phenomenon in this third quarter was the shortening shortage in components, which has limited our ability to deliver products targeting connectivity in IP phones. Consequently, this shortage in components has hurt our ability to deliver a more successful quarter by roughly about two.
In revenue.
Before we move on just to summarize the various business line performance during the third quarter. So company overall revenue grew 12, 1% year over year Ucas and Microsoft teams revenue grew.
18% contact center revenue grew above 20%.
Say I, which is now roughly about one 5% of business kept growing 50% in revenues and 100% in bookings year over year and lastly, the service provider CPE business line declined above.
About 30% year over year.
Touching on several more important financial data points for the quarter as you could probably see from the press release, we issued opex increase dramatically around seven 5% sequentially and close to 25% year over year.
This phenomenon is due to the following three key factors one first inquiries and head count. We grew 100 <unk> hundred positions year over year head count increased 34 position this quarter to 855 full time employees.
And growing 13% year over year, obviously, adding 100, new positions over the year ago quarter to demonstrate our confidence in continued expansion of our business.
Second factor rising salaries in the R&D space in Israel.
Whereas the boom in the local high tech industry drive substantial shortage in skilled manpower and higher salaries for R&D employees.
Third component the impact of much lower.
U S dollar versus the new Israeli shekel exchange rate as compared to the year ago quarter, while we enjoy good hedge we are talking about 10% change in this ratio compared to last year. So all in all the three factors.
Affecting substantial growth in our opex that probably explain how from crying revenues, 12% year over year.
The earning line really remained flat most of the increase in profitability went to covered those differences.
Differences in our spending.
Cash flow.
Again, very successive core we generated $13 million in the third quarter and.
More than about 43 million in the first nine months of the year, which is fantastic that would compare with about $28 4 million in the same period.
Last year lastly, deferred revenues were $72 1 million compared to 64 million a year ago, an increase of 12, 6% over second quarter third quarter 'twenty.
Now, let let's relate to our financial performance center in terms of our financial model.
That's we have.
Targeted earlier in the year, we target revenue growth to achieve 13% to 15% you know on an annual basis last.
Last year.
We deliver a 10 point to this quarter, we deliver at 12.1, we believe we should be able to close the year at around 12.615.
In terms of revenue growth.
In terms of gross margin with targeted to achieve between 57% and 70% glad to know that in the quarter with deliver a $69 nine.
In terms of Opex as a percentage of revenues, we target that a range of 47% to 50%.
In the third quarter of 'twenty, one we delivered 48, 5% and lastly, operating margin with target in the range of 20% to 23%. We ended the third quarter 'twenty one.
At 21, 4% all in all a very nice performance.
Now, let me touch you know.
One key area, which.
I believe everybody is interested in and that is Microsoft space.
So in the third quarter of 'twenty, one we grew more than 20% year over year, we have leverage articles live services for Microsoft teams. We saw continued momentum in the market.
Live services are focused on direct routing as a service and additional teams voice services.
As a result, we have increased the total contract value of five contracted by several millions in the quarter, reaching now few tens of millions of total contract value from past 12 months of activity.
Now.
We'd like to reference now you know until lately. There was no published report that gave visibility as to the potential or the total available market for Microsoft teams for US teams voice. So I would like to reference one recently published a seminal research from Piper Sandler highlighting there.
A large total addressable market and the strong growth potential in the UK segment.
Adding to the annual report.
Ucas should expense, rather fast Oh, I before I begin with that al mentioned that the global Tam.
Tam for endpoints is today about 440 million. So we now looking at a market that's.
Looking to replace the current TD.
T D M and other endpoints with.
Your guests and for us more specifically with Microsoft teams and zoom phone endpoints. So the report mentioned that this year the overall endpoint.
Markets U K market is about 26 million.
They forecast that that number should grow to 113 endpoints million endpoints in 2026, all in all this represents about 34% CAGR for the next five years.
According to this note Microsoft teams market share is estimated to be 17%. This year out of the total U S market and is forecast to grow to lead the market and 129%.
By 'twenty 'twenty six.
So just translated that into actual numbers. So Microsoft teams you cassettes are expected to ease from $4 2 million. This year to $31 5 million in 2020 seats. That's represents about 50% CAGR for Microsoft teams seats.
The notes states also that zoom and ring central our main competitors in that space.
I'll mention later on will be growing out our share of our revenue in the zoom phone area as well.
We had a very successful or in that space too.
Getting back to Microsoft the IP phone business is growing faster this year.
And showing plenty of room for growth. This is mainly due to the trying to return to work. So all in all we grew actually we could deliver a substantially better core unless we were facing a a component shortage.
Think.
Also now let's talk about enhancements, what we see ahead for us in 2022, Microsoft announced lately the enterprise connect industry trade show a.
Two very important programs as they are announced Microsoft operator connect.
They have introduced Api's four teams, which allows operators to integrate teams.
Hum.
Our marketplace and into the airplanes to deliver.
Ucas.
We see high traction by the carrier and service provider I S. M. D vehicle from a Microsoft perspective early release should be provided by the end of the year and the final release will be.
Provided mid 2022 and other codes is one of four partners that are helping that effort to develop and sell the platform. So that should be a big driver for.
Microsoft team service provider.
Push next year.
So Microsoft announced Sip gateway for them at enterprise connect allowing third party flows to connect to Microsoft teams.
Using advanced our session border controller technologies and device management all in all we look forward to see how that prime develops and what our part and it will be there.
Just to get some more visibility into the Microsoft.
Ecosystem sell so.
We've continued to see the share of Skype for business declining.
Versus sales of about 10 minutes ago, we so just.
This quarter on the Microsoft teams gross.
More than 70% so.
Since Carrie carrying out the charge going forward.
Jumps off new business created again, we saw an increase in U.
Opportunities created in the core.
And it's growing at least 25% year over year.
Now let me touch on the key problem, we have in the Microsoft space that is because alive.
Where we provide basically teams voice as a service.
In 2021 with significantly stepped up stepped up our airports and accelerated the introduction of verticals lives teams voices of service it seems to us as a service to remove complexity from the integration of team collaboration unified Communications and enterprise telephony and provide a seamless rapid and cost effective.
And my question to team.
In building. This service we have brought together, our SPC network and use it management product and a complete setup with donations.
Delivering them on a per user per month software as a service model.
And of course, we have already expanded the service offering by adding new compliance recording services and more.
So we have since extended offering of live.
Other markets, including solutions for zoom phone and contact center activities.
C C to reducing the live offering mid last year, we experienced good reception to this offering.
Continues to grow the recurring revenue are fairly fast as I've mentioned before with a target to reach 10 million L or middle of the year. We invested we believe that this time, we will cross the target of 15 million by the end of the year.
Our bookings or total contract value of these minerals on and it's already several tens of millions.
By a large number of enterprises that have already started or about to start the uk's deployments with US also does a nice pipeline that's growing steadily.
Fast growing businesses tangible proof to our superior technology in the areas of connectivity management and automation services and adjacent application to the UC solution majority.
Our fifth and team so Lewis I am confident that this business will keep growing and represents a significant portion for the goods value in coming years.
Touching on the zoom space. This has been our most successful domestics and the best quarter ever in the zoom phone area. We have reached about a million dollars in revenue a bit less than that.
We believe that our fourth quarter I will keep right all in all we see a lot of focus in this area. We believe that zoom will be focusing more and more on zoom phone and they're basically stated that application to be a strategic.
Our focus for them. So we want some large operation.
And two large deals one in Europe, one in the U S. The U S. So all in all also if you would go back to the type of center.
Report I can call that a zoom is expected to achieve a market share of 15% in 2026 from its current position of 11.
Current market share of 11% in 2021 again I remind you all were talking about the Tam of 440 million seats.
It's altogether.
Now one key operation I've mentioned before is our services as I've mentioned services is growing to become about 40% of our business that.
Basically the combination of.
Maintenance contracts, but more importantly, professional and managed services, which is growing very fast.
And that surfaces invoicing.
Well I was talking about recognition talking about invoicing, a total company services grew close to 25% of the core while professional and managed services exhibited substantially larger growth topping.
Topping 40% both for the core and for the first nine months in the year. So all in all services really do so for US a lot of room for expansion going forward Lastly, I'll touch on the voice AI voice it seems to be growing the way we.
Wanted to.
Grow this year as I've mentioned in the press release, we target overall bookings to grow above 100% and reached a level of close to $5 million, we expect that rate of <unk>.
Growth to come.
And that's been next year key death depression, where a compliance recording four themes will booking or substantially.
Over the initial plan for the year our.
Second these a technology, we call voisey connect which is used to enable AR.
Chat bots.
To connect a true voice and here we have enjoyed a very good core this year, we should end up somewhere in the 1 million they are in that business, but next.
Next year, we expect to more than triple that number and all in all you know we definitely get feedback from the market that if it comes to voice and voice becomes.
Very important in the Chet Chatbot world in the voice space. Our solution is regarded fairly advanced in superior to competition and we do have working relationships with some of the leading shed by the pause in that market are one such now.
One is a company called cognizant out of Germany in Europe, and there are a few more partners in the U K I'm, sorry in the U S and in India, and other places, which allow us to deploy that technology last I should mention that we've made very nice progress with our meeting insights product.
The first release was done in October actually earlier. This month, we have seen a great.
Great interest in over 70 or 80% of introduction.
Right now we have tens of proof of concept scheduled and running in Israel already begun.
Development in the U S with that product we've got the first few very.
Nice reaction to the product and already got the first Po from the U S. So we do expect to grow fast on that product next year.
We know that I've been able to cover most of our activity in the third quarter and I'd like to get the call back to the Q&A session.
Operator.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset.
Speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Your first question for today is coming from Greg Burns. Please announce your affiliation then pose your question.
Good morning.
Sidoti <unk> company.
So I just wanted to touch on that.
The increase in Opex and what's your view is.
On that are there.
Ranges you kind of set in terms of you know.
Operating expenses as a percent of revenue in your operating margin targets at what point do you expect to kind of slow down the investments and start to gain a little bit of leverage on some of the the the revenue growth that you're projecting thank you.
Okay, well most of the investment in growing guest counts really.
Is related more to the sales and marketing side of the business to grow or you know team twice. It's a service you know as the market grows and we need to be able to attract more customers and grow the business, we need to add personnel to provide good service.
So.
Our investment is is less is less intense in the R&D space.
Still kind, Ghana, adding more automation and few more solution to it but the majority of the expense goes to the deployment in the market. So.
I think we've seen the most of the worse I would say.
Part of the increase simply because you know from that point and now and I think the behavior of the U S. In new Israeli shekel will moderate substantially we will not face any time soon another decline of 10% in that ratio and and.
Then you know again coming back to the you know average salary issue in R&D I think this is a phenomena that you will hear of.
Many companies in Israel The war due to the very you know are attractive I would say oh.
Attractiveness of Israeli R&D.
Just give you. An example, the months ago, we've heard a Microsoft is planning to add 2500, new positions in Israel in five new developments areas and as you can imagine you know there are tens of such companies increasing yesterday Harrods about AT&T opening a design center in Israel, So I would tell.
You that does that.
Kind of I would say not to call. It the five but there's a big big effort, you know to be able to.
<unk> recruited the right talent to be able to grow the business Luckily for us.
Again, most of the additions would be abroad in marketing and sales. So we do expect continued investment, but I'm not as big a jump as we have faced.
During the quarter.
Okay, and then in terms of the service provider space.
Can you just give us a little bit more color on what what is driving the declines there do you expect that business to kind of.
Remain at these levels like level off here or is there a reason to believe maybe that that business might.
Potentially rebound from these current levels. Thank you.
Sure now.
And but beat I'm more optimistic than I was about three months ago, because we definitely have seen in the third quarter.
You know.
Some new demand and and I would expect some of them you know level off. However, you know due to the shortage of components, we're kind of stuck here for I would say for this quarter is the fourth score in maybe the first one too so I expect you know.
I do not think that we will see in a closure of decline actually I think we've reached the bottom and could see some up grows from here.
But more growth should be expected second half of 2022. So all in all you know it's an area that's not helping to drive revenues upwards. These days, but we believe it will make a comeback.
Around mid next year.
Okay. Thank you.
Sure.
Your next question is coming from Ryan Macwilliams. Please announce your affiliation then pose your <unk>.
Sure from Barclays Bank plc.
<unk> continued strong growth with enterprise customers. So as these larger customers are looking to adopt cloud solutions are you seeing your average deal size increase and are the companies by number of employees getting larger in your pipeline. Thanks.
Thank you Ryan, yes, but our focus as I've mentioned is really was.
You know when when we develop our solution for Microsoft for Skype for business and later on teams. We try anything you know usually the large enterprise companies with and number of employees ranging from I would say 3000 5000, an upward.
Lately with.
Tim's devices. The service will also target smaller companies are we could go as low as 500 employees. So we're.
We're working with the large global system integrator on the large enterprises, we acting much more independently in the mid market.
So this is where the focus is going to be.
The typical business for us would be a few thousands of employees, whereas it will start trialing.
And two proof of concept with for US It was 100 or a few hundreds of employees and then after a period of three to nine months will probably add more so that that's the trend.
You'll see in that space.
Perfect and then you mentioned operator connect last quarter, along with this quarter.
Would you mind, just digging a little deeper on what do you think that could mean for audio codes and you know how do you think operator connect impacts the direct routing landscape. Thanks.
Sure. Okay. So great question as I mentioned, a moment ago, Microsoft focus was.
Entirely in the beginning in the large enterprise space Theres no.
Focus target effort in to meet the market. However, it's obviously going to the <unk>.
M b market and going into small businesses.
Usually that's not where Microsoft.
Is having a direct a full airports in that space you know, obviously ring central is the leading.
Claire and as they've seen zoom zoom has entered this space and actually now according to that report from pipe. A center you can see a ring central and zoom you know and fight for this segment now operate a connect which will connect between Microsoft and services.
Water will allow Microsoft for the first time.
To target that a smaller thing, but smaller size business market.
You know traditionally businesses.
Of that size are being sold by service providers.
Yeah, you know take AT&T, and Verizon and operators anywhere in the world. So that was definitely open for us completely new segment that has not been served by US before once that program goes into full motion.
Corporation between Microsoft and service provider will allow us to.
<unk> tunnel.
Our voice synthesis of service into that small business market. So it's a very important addition.
Towards our future.
Future.
Thanks for taking the questions nice print thanks, guys.
Your next question is coming from Samad Samana. Please announce your affiliation then pose your question.
Hi, Good morning has an outsider from Jefferies. So maybe Shanghai first I wanted to ask about the component side I wanted to make sure one that.
I think you said it was a 2 million dollar headwind in the quarter.
One I want to confirm if that's the case and then how does that factor into the guidance that you've given and given for the fourth cohort or the implied guidance for the fourth quarter and maybe how should we think about the impact of that into 2022.
Okay. So yes, you understood correctly are we could have delivered more outperform products and more service.
Service provider gear.
We believe that all in all we kind of missed delivery year for about $2 million in the quarter.
You know we've targeted a larger gross revenue in the quarter.
That phenomena will probably.
Continue I would say this quarter and in the first half of 2022.
<unk>.
We took that into account when we gave the overall guidance, meaning that taking that shortage into account, we still target to grow in the fourth quarter.
Make quick calculation you know, we definitely plan on growing in the full score although less than we could have expected earlier in the year. So all in all that debt, that's where the guidance again next year I believe that as we approach second half of the year are all that will go away. So we.
Should get.
Get a boost from include you know phone sales and service providers out there.
Great and then maybe a follow up I know, we've touched on on Opex, but if I look back at sales and marketing dollars and you know from 17 to 18 or is roughly flattish. It was up very modestly in 2019. So.
Even pre Covid it was fairly limited expansion in sales and marketing dollars and now this year were tracking up pretty healthy how should we think about.
That just the increases there going forward and what's the right level.
Our sales and marketing investments that we should think about maybe about short term and intermediate term.
Somehow this is Neil so again as <unk> mentioned, we are planning to invest more in opex, mainly at the sales and marketing area.
I can refer to the near term to Q4, we are planning to invest more in the level that you see in the third quarter, which was $14 4 million.
We are planning to increase it, but let's say, 1% to 3% in terms of sales and marketing.
With regards to other opex.
Such as R&D and G&A, we are not planning to invest much more.
The <unk>.
And then the level got you so in the third quarter.
Great and then just last question for me I'm sure you spent a lot of time today talking about the seats available in the market and the opportunity I was wondering if you could share with US just maybe how many Microsoft teams voice seats Youre actually enabling today, just so we can get an idea of how audio.
Just progress looks against this large market.
Right.
We do not you know are discussing publicly the number of seats whereabouts, but that'll give you. Some numbers. If you will and if you go back to the type of center. A report you can see that Microsoft teams.
Seem to be deploying about $4 1 million.
Barbara This year this should grow as Ive mentioned to 31 million in 2026 now we are by far.
The dominant player in that market.
You can use you know market share of 60 or 70%. These days so that probably can give you. Some idea about the number of seats, we are enabling but at the same time gives you an idea of about you know the future our ability to know.
Doubled that number next year and grow to be 60, or 70% out of the total of 30 million in 2026.
Great. Thank you for taking my questions. This morning.
Thank you.
Sure.
Your next question is coming from.
Please announce your affiliation and pose your question.
Thank you my affiliation is bank of America.
Good morning, I had a question on zoom.
Also on Microsoft can you share with us.
What's the outlook presume.
What is what are they doing there that that involves you.
What's the potential for other types of businesses with them just kind of because it's such an important company I just wanted to understand.
The outlook, even though with numbers just the kind of the potential opportunities there.
And then on Microsoft can you share with US your view of how they evolve from here.
Is there a risk of slowdown because of Covid, our year over year comparisons and just in general the same question on Microsoft things.
Okay. Thank you.
Okay, referring first zoom.
<unk>.
That zoom phone is a strategic presume.
And we have been working with zoom for more than two years now on readying and integrating our solution into their offering now.
We have done very little business in 2020.
That business is growing substantially in 2021.
The amount of new business has created for US a pass to chorus is really overwhelming.
Now the way we are designed into the zoom phone.
Solution is in two key areas one is devices phones.
That is integrated already today now I'll tell you and I think this is known that Mac that zoom success really comes from the small businesses and in SMB.
Zoom is an airport to grow up the market and go into larger organization.
Whenever they go into larger organization the need for SBC. Good SBC solution grows so whenever they go to sell to.
A larger company.
Our potential offering grows in importance.
So we do intend to come in next six to nine months with or a new offering for four meeting rooms, and that offering would combine off our conference devices or.
Our a meeting room devices management and meeting insights and we will provide a comprehensive bundle Oh, we believe will be very successful we believe that you.
Should be a very important partner for us So that's one zoom.
Regarding Microsoft.
James is perceived to be a key driver in Microsoft.
No effort to increase licensing fees from all five.
I think security and teams are the two leading drivers for the increase in our E. Five licensing is such a we could see a pretty focused airport, it's Microsoft to support our team.
<unk> team since it seems to voice more specifically and Ive just mentioned these two programs operated connect and Sip gateway.
To be a fairly important to demo. So I think it's known that seems should be part of windows try 65, basically integrating teams into practically not only the business world, but also for the consumer world. So I don't think we face a a tread.
And a potential you know trends of lower sow cost.
Lord focusing in this area I think we will see Microsoft keep investing because this is part of an substantially larger than our overall more important target for Microsoft.
Great.
Thanks, Jeff Thanks for the color.
Just last question on supply chain.
How can you discuss how supply chain impacts you.
How it impacts your clients and your ability to sell even if you have the right components in place just in general the environment for supply chain.
There is a increase lead times.
So you know our you know customers really suffer from our inability to get the products they want but other than that shortage of you know we are capable of working out.
Around those issue in the production and delivery so that that's something that.
Contained within our operations.
All in all I think of you know.
We are starting to see some signs that you know there are ways in which the world is starting to.
Crank car out more devices more components I'm optimistic that in six to nine months, we will see substantially.
Leveling off of this issue.
Got it thank you.
Sure.
Your next question is coming from Ali Yakov. Please announce your affiliation then pose your question.
Hi, Diane.
And from a couple of times.
Great job on another good quarter.
So my question is can you elaborate and give us more color about the problem that you mentioned in the Microsoft teams area, specifically for the audio call July.
To my understanding you're talking about the rest of the market from the 40.
440 million seats is $4 2 million and that's you can't assume 50% CAGR year over year and from that you can take 70% micro chair.
Correct.
Yeah that is about the rough you know of my calculation yes.
And how should we look at it in the next couple of years.
In terms of your market share or maybe you can oh.
More from a user.
Right.
Right. So a one needs to make a differentiation you know we haven't done that yet, but we'll be we'll probably need to do it starting from next year everything we've discussed so far on Microsoft teams is really in the enterprise space.
Now, let's not forget that that 440 million.
The Tam relates to both enterprise and service providers now.
This provider will start to play next year.
You'll see there a competition, we expect competition from companies like ribbon and meta switch, which is now part of Microsoft So how market share will develop in the service provider that is still yet to be seen wherever we're very confident.
In the enterprise space, where we are today, we will keep.
Being the dominant player.
Obviously.
You know the only competition rail competition, we face there.
It's.
Just one company and we really don't see them closed to US also we do intend and I haven't not you know mentioned it but we do intend to add more services contact center services, making.
Making room services recording services management services. So I think we should be able to defend fairly nicely or dominance in the enterprise team space.
So to my understanding is that the spend your time, you see $4 2 million, it's only for the enterprises.
You can take another oh, another market share from the service provider.
In the upcoming years right.
Yes that is correct.
You know 2022 will be just the launch here. So you should expect rather mild beginning but I would I would tend.
<unk> tend to think that 2023 will be a year, where that market without growing fairly fast with large service provider you know.
No name stuff pushing it to the market.
Okay. Thank you so much.
Sure.
Yeah.
There are no more questions in queue I would now like to turn the floor back over to Shanghai.
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 nine months of the year. We believe we are well on track to end 2021 with a strong note of confidence in growth and expansion in coming years.
Look forward to your participation in our next quarterly conference call. Thank you very much enjoyed today.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Okay.