Q4 2021 AudioCodes Ltd Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to audio codes fourth quarter and full year 2021 earnings conference call.
Speaker 1: Good day, ladies and gentlemen, and welcome to Audio Code's fourth quarter and full year 2021 earnings conference call.
Speaker 1: At this time, all participants have been placed on a listen-only mode, and we will open up the floor for your questions and comments after the presence
At this time, all participants have been placed on a listen only mode and we will open up the floor for your questions and comments after the presentation.
Speaker 1: It is now my pleasure to turn the floor over to your host, Roger Chuchin, VP of Investor Relations.
It is now my pleasure to turn the floor over to your host Roger to Chin VP of Investor Relations, Sir the floor is yours.
Speaker 2: Thank you, Operator. Hosting the call today are Shabtai Allisburg, President and Chief Executive.
Thank you operator hosting the call today, what's your appetite iceberg, President and Chief Executive Officer, and Robert Booth, Vice President of Finance and Chief Financial Officer before we begin I would like to remind you that the information provided during this call may contain forward looking statements relating to <unk> business outlook.
Speaker 2: companies for waving cheers
Speaker 2: For all we begin, I'd like to remind you that the information provided during this call may contain board looking statements relating to audio codes, business outlook, future economic performance, product introductions, plans, and objectives related there too.
Future economic performance.
Introductions plans and objectives related thereto and.
Speaker 2: statements concerning assumptions made or expectations as to any future events, conditions, performance, or other matters are for looking statements as the term is defined under US federal security.
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.
Speaker 2: forward-looking statements are subject to various risks and uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.
Forward looking statements are subject to various risks and uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. These risks uncertainties and factors include.
Speaker 2: These risks, uncertainties, and factors include, but are not limited to, the effect of global economic conditions in general, and conditions in audio codes industry and target markets in particular.
But are not limited to the effect of global economic conditions in general and conditions in audio codes industry and target markets in particular shifts in supply and demand market acceptance of new products and the demand for existing products the <unk>.
Speaker 2: shifts in supply and demand, market acceptance of new products, and the demand for existing
Speaker 2: impact of competitive products and pricing on audio codes and its customers' products and markets.
Impact of competitive products and pricing on audio coach and its customers products and markets.
Speaker 2: timely product and technology development, upgrades and the ability to manage changes in market conditions as needed, possible need for additional financing, the ability to satisfy commitments and the
Timely product and technology development upgrades and the ability to manage changes in market conditions as needed.
Also need for additional financing the ability to satisfy covenants in the company's loan agreements possible disruptions from.
From acquisitions, the ability of <unk> to successfully integrate the products and operations of acquired companies into audio codes business Paul.
Speaker 2: ability of audio codes to successfully integrate the products and operations of acquired companies into audio codes business.
Speaker 2: possible adverse impact of the COVID-19 pandemic on our business and results of operations.
<unk> average impact of the COVID-19 pandemic on our business and results of operations and other factors detailed in <unk> filings with the U S Securities and Exchange Commission.
Speaker 2: and other factors detailed in Audi Coates filing with the U.S. Security and Exchange Commission. Audi Coates assumes no-
<unk> assumes no obligation to update this information.
Speaker 2: In addition, during the call, AudioCodes will refer to non-GAAP Net Income and Net Income per share. AudioCodes has provided a full reconciliation of the non-GAAP Net Income and 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 thank you for your attention. Thank you. Thank you. Thank you.
In addition, during the call audio codes will refer to non-GAAP net income and net income per share <unk> has provided a full reconciliation of the non-GAAP net income and net income per share with net income and earnings per share. According to GAAP in the press release that is posted on it.
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 of that said I would like to turn the call over to Shopify <unk>. Please go ahead.
Speaker 2: and archive webcasts will be made available on the Investor Relations section of the company's website at the conclusion of the
Speaker 2: with all that said. I would like to turn the call over to Shop Thai. Shop Thai, please go ahead.
Speaker 3: Thank you Roger. Good morning and good afternoon everybody. I would like to welcome all to our fourth quarter in the year 2021 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance Authority.
Thank you Roger good morning, and good afternoon everybody.
I would like to welcome all to our fourth quarter and.
In the year on that.
21 conference call with me. This morning is neuron Bull Chief Financial Officer, and Vice President until final for <unk>.
Speaker 3: Niran will start off by presenting a financial overview of the Corps. I will then review the business highlights and summary for the Corps and discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran.
To 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.
Speaker 4: Thank you, Shabtai and hello everyone. As usual, on today's call, we will be referring to both GAP and non- GAAP financial results.
Thank you shop and Hello, everyone.
As usual on today's call, we will be referring to both GAAP and non-GAAP financial results.
Speaker 4: The earnings press release that we issued early this morning contains a reconciliation of the supplemental non-gab financial information that I will be discussing on this course.
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.
Speaker 4: Revenues for the fourth quarter were $66.1 million, an increase of 12.7% over the $58.7 million reported in the fourth quarter of last year.
Revenues for the fourth quarter were $66 1 million, an increase of 12, 7% over the $58 7 million reported in the fourth quarter of last year.
Speaker 4: A full year 2021 revenues were 248.9 million, an increase of 12.7% over the 220.8 million reported in 20.
Full year 2021 revenues were $248 9 million, an increase of 12, 7% over the $228 million reported in 2020.
Speaker 4: Services revenues for the fourth quarter were $24.4 million, up 16.2% over the year-ago period.
Services revenue for the fourth quarter were $24 4 million up 16, 2% over the year ago period.
Speaker 4: Services revenues in the Fort Quater account for 37% of total revenue.
Services revenues in the fourth quarter accounting for 37% of total revenues.
Speaker 4: On an annual basis, services revenues increased by 24.4% compared to the previous
On an annual basis.
<unk> revenues increased by 24, 4% compared to the previous year.
Speaker 4: The amount of deferred revenues as of December 31st, 2021, was $76.5 million, up from $69.2 million as of December 31st, 2020.
The amount of deferred revenues as of December 31, 2021 was $76 5 million up from $69 2 million as of December 31, 2020.
Speaker 4: Revenues by geographical regions for the quarter were split as follows. North America, 44%, Emea, 40%, Asia-Pacific, 12%, and Central and Latin America, 4%.
Revenues by geographical region for the quarter were split as follows North America, 44%.
EMEA, 40% Asia Pacific 12%.
In Central and Latin America, 4%.
Speaker 4: Our top 15 customers represented an aggregate of 63% of our revenues in the Fort Quater of which 51% was attributed to our 12th largest distributors.
Our top 15 customers represented an aggregate of 63% of our revenues in the fourth quarter of which 51% was attributed to our 12 large largest distributors.
GAAP results are as follows gross margin for the quarter was 67, 2% compared to 71, 4% in Q4 2020.
Speaker 4: The gross margin for the quarter was 67.2% compared to 71.4% in Q4 2020.
Speaker 4: Operating income for the fault water was 9.3 million or 14% of revenues compared to 12.1 million or 20.7% of revenues in Q4 2020.
Operating income for the fourth quarter was $9 3 million or 14% of revenues compared to $12 1 million or 27% of revenues in Q4 2020.
Full year 2021, operating income was $39 5 million compared to operating income of $38 4 million in 2020.
Speaker 4: Fully year 2021 operating income was 39.5 million compared to operating income of 38.4 million in 2020.
Net income for the quarter was $7 3 million or <unk> 22 cents per diluted share compared to $8 4 million or <unk> 24 cents per diluted share for Q4 2020.
Speaker 4: Net income for the quarter was $7.3 million or $0.22 per diluted share compared to $8.4 million or $0.24 per diluted share for Q4 2020.
Speaker 4: Full year 2021 net income was $33.8 million or $1 per diluted share compared to $27.2 million or $0.83 per diluted share in 2020.
Full year 2021, net income was $33 8 million or $1 per diluted share compared to $27 2 million or <unk> 83 per diluted share in 2020.
non-GAAP results are as follows.
Speaker 4: non-GAAP gross margin for the quarter was 67.6% compared to 71.5% in Q4 2020.
non-GAAP gross margin for the quarter was 67, 6% compared to 71, 5% in Q4 2020.
Speaker 4: non-GAAP operating income for the fourth quarter was $13.5 million or 20.4% of revenues compared to $15.4 million or 26.2% of revenues in Q4 2020.
non-GAAP operating income for the fourth quarter was $13 5 million or 24% of revenues compared to $15 4 million or 26, 2% of revenues in Q4 2020.
Speaker 4: Full year 2021 non-GAAP operating income was $53.8 million compared to operating income of $47.5 million in 2020.
Full year 2021, non-GAAP operating income was 53 8 million compared to operating income of $47 5 million in 2020.
Speaker 4: non-GAAP net income for the fourth quarter was $13.4 million or $0.39 per diluted share compared to $15.2 million or $0.44 per diluted share in Q4 2020.
non-GAAP net income for the fourth quarter was $13 4 million or <unk> 39.
Diluted share compared to $15 2 million or <unk> 44 cents per diluted share in Q4 2020.
Full year 2021, non-GAAP net income was 51.8.
Speaker 4: full year 2021 non-GAAP net income was 51.8 million or $1.50 per diluted share compared to 46.7 million or $1.41 per diluted share in 2021.
$8 million or $1 50.
Diluted share compared to $46 7 million or <unk>.
One golar and <unk> 41 per diluted share in 2020.
Speaker 4: At the end of December 2021, cash, cash equivalence, bank deposits and marketable securities total 174.8 million.
At the end of December 2021, cash cash equivalents bank deposits and marketable securities total $174 8 million.
Speaker 4: Net cash provided by operating activities was $4.3 million for the fourth quarter of 2021 and $47.3 million for 2021.
Net cash provided by operating activities was.
$4 3 million for the fourth quarter of 2021, and $47 3 million for 2021 .
Speaker 4: Netcash provided by operating activities in both periods were impacted by the 12.2 million payments made in December 2021, which was the third and last installment, pursuant to the royalty biota agreement.
Net cash provided by operating activities in both periods were impacted by the $12 2 million payment made in December 2021, which was the third and last installment pursuant to the royalty buyout agreement.
Speaker 4: Day sells outstanding as of December 31st, 2021. We're 68 days.
Days sales outstanding as of December 31, 2021 were 68 days.
Speaker 4: During the quarter we acquired 314,000 of our ordinary shares for a total consideration of approximately $10.7 million.
During the quarter, we acquired 314000.
Our ordinary shares for a total consideration of approximately $10 $7 million.
Speaker 4: In December 2021, we received court approval in Israel to purchase up to an aggregate amount of $35 million of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through June 19, 2022.
In December 2021, we received court approval in Israel to purchase up to an aggregate amount of $35 million of additional ordinary shares. The court approval also permit us to declare a dividend of any part of this amount. The approval is valid through June 19 2020.
You too.
Speaker 4: Earlier this morning, we declared a cash dividend of $0.18 per share. The aggregate amount of the dividend is approximately $5.8 million.
Earlier. This morning, we declared a cash dividend of <unk> 18.
Sure.
<unk> the amount of the dividend is approximately five 8 million.
Speaker 4: The dividend will be paid on March 1st, 2022, to all of our shareholders of record at the close of trading of February 15th.
The dividend will be paid on March five 2022 to all of our shareholders of record at the close of trading.
For February 15 2022.
Speaker 4: Our guidance for the full year 2022 is as follows.
Our guidance for the full year of 2022 is as follows.
Speaker 4: We expect revenues in the range of $277 million to $285 million and non-GAAP diluted earnings per share of $1.40 to $1.60. I will now turn the
We expect revenues in the range of $277 million to 285 million and.
And non-GAAP diluted earnings per share.
$1 45.
The $1 60.
I will now turn the call back over to shop there.
Speaker 3: Thank you, Niran. We're very pleased to report strong financial results for the fourth quarter and full year 2021.
Thank you in Iran. We are very pleased to report strong financial results for the fourth quarter and full year 2021.
Speaker 3: 2021 capped an exceptional performance for the company, with revenue growth year-over-year accelerating to 12.7% for both the full score and full year. Definitely a nice achievement when compared to the annual revenue growth achieved in 2020, which was 10.2.
2021 capped an exceptional performance by the company with revenue growth year over year accelerating to 12, 7% for both the fourth quarter and full year definitely nice achievement when compared to the revenue growth achieved in 2020, which was 10 two.
Speaker 3: More important, beyond the success of the financial front, in 2021, we have successfully executed on our strategic priorities in our markets. We have built a more dominant position in our industry as a leading unified communication collaboration voice.
More important beyond the success on the financial front in 2021, we have successfully executed on our strategic priorities in our markets. We have built a more dominant position in our industry.
As a leading.
Unified communication collaboration voice.
Speaker 3: company. We kept making progress in our key areas of focus, namely U-CAS, Contact Center and C-CAS, and the Voice AI world, and continued to pivot our business towards cloud communications and greater contribution from managed services and recurring revenues.
Company, we kept making progress in our key areas of focus, namely Ucas contact center, and see Caf and the voice AI World and continue to pivot our business towards cloud communications and greater contribution from managed services and recurring revenues.
Speaker 3: On the net income side, we grew 10.8% compared to 67% in 2020. This is mainly due to our calculated and conscious decision to increase investments in sales and marketing and R&D in order to be able to capture the huge opportunity available for UC Voice in coming years in the UCAS and the contact center markets.
On the net income side, we grew 10, 8% compared to 67% in 2020.
This is mainly due to our calculated and conscious decision to increase investment in sales and marketing and R&D in order to be able to capture the huge opportunity available for UC voice in coming years in the ucas and cortex in the markets.
Speaker 3: just to go and quote some data in recent two market studies targeting UCAS and
Just two.
<unk> and quote some data.
In recent two market studies targeting ucas and cutbacks on the market.
Speaker 3: mentioned before, the Piper Sandler note which talks about a global TAM of about 440 million endpoints.
Mentioned before the Piper Sandler.
Which talks about the global Tam.
About 440 million endpoints.
Speaker 3: UCAS next five years should show a huge increase, basically we're talking about only 26 million endpoints at the end of 2021, and the report projects 113 million at the end of 2026, way low from
Ucas next five years should.
Show huge increase.
Basically we are talking about.
Only 26 million endpoints at the end of 2021.
And the report projects $113 million at the end of 2026 way low from the Tam.
Speaker 3: Now, this forecast presents about 34 percent five-year compound aggregate growth rate.
Now this forecast presents about 34% five year.
Compound aggregate growth rates.
Speaker 3: And therefore, for us, this is the time to invest. This is the time to take some of our profits and our ability to generate net income and operating margins that are above 20% a year and reinvest them in the business to create higher annual growth.
And therefore for US. This is the time to invest this is the time to take some of our profits and our ability to generate net income and operating margins at or above 20% per year and reinvest them in the business to create higher annual growth.
Speaker 3: Another report that just came out about two weeks ago from BIRD.
Another report that just came out.
Two weeks ago from Baird.
Speaker 3: They have done a channel survey in the UCAS and products on the market.
They have done a general survey is the ucas and prospects in the market.
Speaker 3: They've talked to tens of different partners.
They have talked to tens of different.
Speaker 3: Some of them selling more than 10 million in the use you see revenue annually when they've been asked
Partners.
Some of them selling more than $10 million you see revenue annually.
<unk> been asked about Zurich.
Is there expectation for performance over the next three months.
I have said.
They expect the business to grow up 30% and above.
Speaker 3: 53% of them have said that. If I compare it to what was quoted a year ago in December 2020, only 38%. So definitely a huge conviction among channels and among vendors that this market is growing fast and represents a huge opportunity. This is again why we've done that decision to invest more in growing annual revenues and keep profitability.
53% of them have said that if I compare it to what was quoted on it.
A year ago in December 2020, only 38% so definitely huge conviction among channels and mark vendors that this market is growing fast and represents a huge opportunity.
This is again why we've done that decision to invest more in.
Growing annual revenues.
And.
Keep.
Profitability at 20%.
Speaker 3: Now, that's the result of that.
Now this is a result.
Speaker 3: And we've done some modeling, financial models not only for 2022, but also 23 and beyond.
Debt.
And we've done some modeling financial models not only for 2022, but also 'twenty three and beyond and we can see that just based on organic growth and we will be talking about inorganic growth.
Speaker 3: and we can see that just based on organic growth, and we will be talking about unorganic growth immediately, but just based on organic growth, we should grow this year as we have quoted somewhere around the mid-range at about 13 percent.
But just based on organic growth, we should grow this year as we have.
Call it somewhere around the mid range, it's about 13% personally I believe that we should do given better than that.
Speaker 3: Personally, I believe that we should do even better than that. If we are good at executing on M&A strategy, we would grow further into the 15 to 20% year. So expect growth and capturing market share in the markets. This is the strategy and this is why we do invest in our sales and market in R&D.
If we are.
Good at executing on.
M&A strategy would grow further into the 15% to 20% a year, so expect growth and capturing market share in our markets. This is the strategy and this is why we do invest in our.
Sales and marketing R&D and <unk>.
Speaker 3: not less important. As we grow revenues, we capture more market share against competition, and I think this is really shown in the performance that we have presented in 2021.
Not less important as we grow revenues, we capture more market share.
Against competition and I think this is really shown in the performance that we have presented in 2021 .
Speaker 3: At the same time, we were able to achieve operating margin in 2021 of 21.6%, which is within the 20 to 23% range defined in our long-term financial model that we've presented to our analysts a long time ago. This is a similar level of operating margin achieved in 2020.
At the same time, we were able to achieve operating margin in 2021 of 21, 6%, which is within the 20% to 23% range defined in our long term financial model that we've presented to our analyst longtime ago DC.
This is a similar level of operating margin achieved in 2020.
Speaker 3: Other key achievements for 2021 are gross margin expansion from 68.1% in 2020 to 69% in 2021, and substantial expansion of our core services offering. I'll touch that when I'll talk about our services offering.
Other key achievements for 2021 gross margin expansion.
From 68, 1% in 2020 to 69 in.
In 2021.
<unk>.
Substantial expansion of our core services suffering.
That went on to talk about our services offering.
Speaker 3: In many ways, our performance in 2021 pretty much underlines the migration from our traditional gateway and SBC connectivity business, which was primarily hardware-based, towards a software and services offering carrying substantially larger gross margin and innovative approaches to AI-powered communications and collaboration.
In many ways our performance in 2021 pretty much underlines the migration for more traditional gateway and SBC connectivity business, which was primarily Hasbro based.
Towards a software and services offering carrying substantially larger gross margin and innovative approaches to a part communications and collaboration.
Speaker 3: Now at the core of this success was our Microsoft go to market. We're talking about growth of about 20% year of the year in 2021. That was driven primarily by continued success before Microsoft Teams solution.
Now at the core of the success with our Microsoft.
Go to market.
We're talking about growth of about 20% year over year in 2021 that was driven primarily by continued success before Microsoft teams solutions sales.
Sales of Microsoft Tim solution.
Extensive growth of above 70% year over year and lapping the clients from Skype for business, which now represents only about 10% of the total Microsoft UC contribution <unk>.
Currently our contact center quarterly business grew 12% year over year and more than 15% for the full year.
As such enterprise contributed nearly 85% of our revenue during the year growing about 15% in 2021.
Our articles live managed services suffering extended.
Fitted our internal expectation.
With annual recurring revenues.
Exiting this year, well above our target of $15 million and more than doubling from a year ago of about $7 million.
Services grew on an annual basis 24, 4% and now they account for 37, 7% of revenue. This is up from 34, 2% in 2020.
Additionally, our pipeline continues to expand across core areas of our business supported by long term secular trends with my question of the voice infrastructure to the cloud.
Video enabled collaboration hybrid work and enhanced customer engagement and experience solution powered by AI.
Dutch ink and other.
Focal area in the company, which is <unk>.
Suffering from the pandemic for the second year in a row. This is the service provider CPE activity.
I'm glad to say that in the fourth quarter, we have seen improvement in our sales for the CPE business.
We saw a nice recovery.
That contributed to growth of about 50% year over year, meaning demand is coming back coming back at the end of 'twenty, one coming back for 2000, 22022 I'm sorry.
In 2021, we have seen a decline of about 13% in revenue compared to 2020.
We continue to suffer in this line from shortage in components, which is limiting our ability to deliver product and this disruption.
And the supply chain is now also forecast that to continue well into 2022.
It will cost us with limited delivery capability and higher costs that will hurt our.
Gross margin so all in all.
Small area of our business contributing about.
13, 14% and.
And declining without that enterprise growing more than 15% that is where we invest in the company. This is work growth should come from.
Then I want to touch voice AI, and we'll talk about that your own but while being a very small percentage of our revenues voice AI bookings and revenues grew over 100% during the year.
And basically they have topped our project and a $5 million for the year.
We now project these business lines to close to double again in 2022 extra they can clearly see that in about two.
Two years from today and with the acquisition, we made some talk about military of coal vessel.
Looking at the line that should do between 20 and $25 million.
In.
Two years from today very strong line growing very fast.
In the fourth quarter of 2021, we announced the acquisition of Conversant small Israeli.
Private company, which specializes in developing and deploying state of the art virtual agent solution for the contact center market. This acquisition further strengthen <unk> ability to help contact center improve their customer experience, while reducing operational cost.
Still on.
The financial performance, let me touch a few more points.
Opex Opex is a slow point.
Opex increased substantially about one 5% sequentially by $17 six year over year, mainly due to the following key factors one is the impact of much lower.
Use those newly Israeli shekel exchange rate as compared to the 2020, right which was.
Favorably edge there.
Then increase in head count.
<unk> will talk immediately above the increase in net count all in all I think we have added more than 110, new position over the last year will keep growing we keep adding about it's a rate of about 30, new 30, new position every quarter.
So resonate edge count also rising salaries in the R&D space in Israel, where the boom in the local high tech industry drives shortage in skilled manpower and drives higher salaries.
Into account more head count higher salaries that impacts or.
Opex still as I've mentioned before we will plan our business such that we will keep.
Generating operating margin in that north of 20% a year.
Cash flow we have generated.
$16 5 million in the quarter.
Bringing overall 2021 cash flow from fruition to about $59 six.
Almost $60 million this year on the heels of close to 50 million previous year deferred revenues also grew to $76 5 million compared to $69 2 million a year ago, an increase of about 10, 5%.
In terms of our long term financial model.
Nothing has changed we still.
<unk> this year.
Our revenues to grow in.
Ridge between 13% to 15%.
non-GAAP gross margin to be in the range of six 7% to 70%.
Opex.
To be not more than 47% to 50% than operating margin as I have mentioned the range plan for <unk> 'twenty two 'twenty three.
Yes.
We have announced.
In recent weeks about strengthening our corporate development efforts, we have announced the joining golf Mr. Dmitry <unk> Chief strategy Officer.
Effective immediately Mr. <unk> joins us after a long career.
75 years in the technology sector 15 years in Wall Street.
Covering companies in the unified communication and collaboration customer experience.
Among other sectors and most recently, Mr. <unk>, <unk>, managing director or an investment banker with <unk> advisors.
And it has been a senior equity research analyst at Stifel.
We feel in 2022, we are creating substantially.
Stronger.
Theme of corporate development and planning.
And then that will.
Executing this year.
<unk>.
Allow nonorganic growth to the company.
Now let me go into some of the key areas of activities. We have mentioned that Microsoft grew.
Year over year about 20%.
<unk>.
Gross is we leverage mainly our live services, which help companies transform their UC or telephony services from another solution to Microsoft teams.
A very strong activity in direct routing as a service and full teams voice service I can say that we are signing.
Signed in 2020 one.
Total contract value north of $50 million in the year as I've mentioned before.
<unk> grew from 7 million to well above $15 million, which was the target.
In terms of.
Breakdown of Microsoft revenues.
So again, we split it between teams and Skype for business teams kept growing teams actually grew in the fourth quarter.
50% year over year Skype for business on the other side declined about 50% year over year all in all a Skype for business is now it's a very small level.
Just to give you some.
Visibility into our Microsoft sales so in the fourth score.
At around 36 million out of which about $4 million were contributed by Skype for business and the rest of the fleet close to $32 million were contributed by Tim.
In terms of creating new opportunities and Microsoft.
So.
Here the trend is even.
Stronger.
If we look at new opportunities created in the team space, we've seen growth of more than 76% year over year.
So all in all.
If we compare the amount of total of potential revenues from created opportunities does.
Does the ratio of <unk> 81.
When you compare creation versus build.
So all in all we do expect continued growth and definitely.
Stronger acceleration of revenues from the Microsoft space.
In terms of new accounts.
Lately.
Course of the last three or four quarters.
We are roughly adding.
A few hundreds.
Of new accounts.
The Microsoft activity about one quarter of them.
Came from the transition of accounts from Skype for business to teams three quarters of the new accounts or fresh new accounts.
As for <unk>.
I have mentioned before that we.
Basically done.
Above $15 million the plan for 2022 is to more than double that.
Now let me touch on.
Important new activity and Microsoft which is operate a connect operator connect targets too.
Service provider in the world tool for Microsoft teams to their business customers.
To do that.
That needs to be.
<unk> platform and automated solution that will allow end users and customers too.
Onboard Microsoft teams.
A sophisticated interface.
We have announced earlier in January .
On the introduction of our solution for Microsoft Operator connect we've received a lot of interest a few.
Very large service provider approaching gas I can tell you that at this stage, we work with some tier one names in the world and all of this activity.
Our platform is one of few very small number of platform selected by Microsoft.
<unk> launched that activity we have.
Expect the announcement of the platform by Microsoft.
In the first quarter of 2022, and we expect the business to start ramping up.
In the first half of 2022 .
I'll mention more that we've seen pickup in our business and the IP phone.
Area desktop phones.
2021, and more so in the fourth quarter.
This is partially as a result of the return to office.
That's one activity picking up and growing very nicely.
And Microsoft than does the new area that we are.
We are confident will start growing in 2022 and this is the meeting room area, we reintroduce our conference devices.
More than a year ago, we continue to build the client.
In 2021 from few hundreds of thousands of those made in 2020, we cross.
The $1 million between one and $2 million in 2021, and would expect that line to more than triple.
Or more in 2022, we feel we are in a very.
Good position taking into account.
Product line itself or management.
Capabilities are meeting inside.
Processing solution. So we believe that meeting space is going to be very important line for us.
From 2002 and on.
All in all lines, we've covered substantially.
Microsoft Operation I'll mention also that we.
Became successful in 2021 in the zoom marketplace.
So zooming.
Zoom is focusing more and more on zoom phone and have stated.
Strategic importance for that line we have.
Seen announcement of more than 2 million users in the space I can tell you that from our side.
We have seen.
Very nice increase.
If I go back to the.
Piper Sandler report I'll mention that zoom is growing very fast side by side with Microsoft and they are expected.
To gain.
Market share.
At the end of 2021.
It was estimated the whole 11% in <unk>.
Our plan to grow up to 15% just to give you an idea about the number of seats, we're talking about rising from $2 8 million seats to more than 60 million seats in 2026. Similarly on tims, we should be growing.
From mere $4 million in 'twenty $1 million to $8 million in 2022.
$30 million in 2026.
Room to grow on both the <unk> zone.
Getting back to one of our oldest and most important business line, which is the SBC.
We've seen growth.
In the quarter.
Ending the year all in all in the year. We grew revenues from 100 million last year to $121 million in 2021.
We dense <unk> seen even more promising.
Activity creates opportunities so.
We have seen.
A lot of new opportunities created we've seen growth of 36% so growing from $100 million in 2000 $20 million to $136 million in 2021, all in all.
Very important line also I should mention that the transition to software based solution continues and we are.
Close to 40% in 'twenty, one from just 30% in 2020.
At the same time, we are investing in our SaaS infrastructure.
Infrastructure and managed services in.
In 2022, we plan to expand our investment in SaaS solution for our key target markets. Microsoft teams Zoom phone contact center, bringing your own carrier worked from home click to call and multiple use cases of conversational AI such as virtual agents agent disease intelligent I VR solution.
Et cetera, So we plan to aggressively market growth more a function of our successful SaaS growing recurring revenue managed services to the SaaS platform.
Just two.
Touch again surfaces services grew in 'twenty 116, 2%.
However, more important we've seen.
Decline in support and maintenance services as a result of the move from Capex sales into recurring sales, but at the same time with in huge huge increase in sales of professional and managed services. So in managed services and prevention, we grew 44.
9% almost 50% in 'twenty, one which means a lot of growth in managed services sexually.
That kind of set the direction for us to excel in managed services going forward.
Touching on some background on the voice AI stuff.
So as I mentioned bookings.
<unk> grew more than 100% actually topped or focus were $5 million.
In the fourth quarter, we actually seen.
<unk>.
Booking growing two 3 million versus $1 million.
The year before.
Some of the key components of RCI RIS photos.
<unk>, which is a compliance recorder.
So in 2021 revenues.
Grew nicely above 70% and bookings actually grew.
Another 60% so all in all.
The transition to teams.
Obligates companies, who have compliance.
Our obligations to move their solution to 18th based solution and this is where we come shining we keep investing in the line, we do intend to come up with a multi tenant SaaS solution towards the second half of the year. So all in all very successful line of recurring business.
I'll touch our vodka operations <unk>.
Rich I VR application.
Debt.
Is substantially more investment than the previous.
Our product.
We started to develop a very advanced product, which allows.
Recessional ABR.
We have launched that solution second half of last year, we do see huge growth.
And I can tell you that if you compare a number of opportunities created.
We are starting to compare.
About 50, new.
Opportunities versus just 14 in the year before.
All in all we do expect deadline to generate more than doubled revenues in 2022.
Then coming to a very lucrative solution, we're talking about voice AI connect.
<unk> connect enables chat bots.
To use voice.
Inputs and outputs for the conversational AI platform.
<unk>.
Very intensive activities with many partners in the market, most notably with Google and Microsoft Both we just add a webinar with Microsoft about.
Two weeks ago.
Where we hosted more than.
Participants from all over the World, that's what we know.
What's run together by Microsoft and <unk> codes.
We then have seen a new magic quadrant Gartner report coming out.
A few weeks ago I can tell you that out of the leading pack in the.
Up up.
Upper right.
Quadrant, we've seen two partners that use us extensively.
One is integrating.
The voice AI connect.
Into their platform Nov <unk>.
Serving many enterprises large enterprises solutions.
Four four.
Bots capable of handling both text and voice and then the other partner is very strong.
Relying on us on many different.
This is relating to voice and actually they are building an AI first contact center around our.
Contact center and <unk> connect so all in all more than 50 customers.
More than 30 productions, we expect this line to <unk>.
<unk> tripled in 2022, so now you can understand the basis for being so optimistic that Ryan that is across bookings of $5 million. This year, we will get to 25 in the next two to three years.
This is just organic growth at this stage.
Talking about customers coming from.
Talk to you about solution being deployed in the insurance banking automotive energy service provider.
<unk>.
Now to.
Two words about our acquisition made.
Last November we have acquired so I've mentioned before our private company developing virtual agents in Israel. This.
This is now part of our business lines in the contact center in the company.
We already started integration it goes very nice we added resources we have.
Starting to.
Ploy product management, a few more operational procedures just to make their operation is very efficient.
Active in the last pandemic.
Omicron.
Wave that basically triggered huge amounts of volume of calls into contact center of <unk>.
Medical service provider.
Colver, so virtual agent will vary.
Efficient in tackling just mentioned that.
Daily basis normal day, usually you have like 100000 calls during the last few weeks.
The volume got to almost more than double and virtual agents will very efficient in tackling that.
So we do intent obviously to extend their operation, but also take that technology and deployed worldwide.
With that I believe I've exhausted.
The presentation for the session will.
We'll be turning the call into the Q&A.
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.
Asks that while posing your question you. Please pickup your handset listening on speaker phone.
<unk> optimum sound quality.
Please hold while we poll for questions.
Your first question for today is coming from Ryan Macwilliams. Please announce your affiliation and pose your question.
Brian <unk> from Barclays. So thanks for taking the question guys. It looks like the midpoint of your initial revenue guidance implies similar growth of this year and the guidance going into next year stronger than the guidance you gave when headed into fiscal 2021.
Shanghai given that there are investor concerns around a pull forward in cloud communications growth due to Covid, but then in light of the stronger guidance could you just talk about some of the indications you were seeing of an improved market opportunity as we head into this year. Thanks.
Right Yeah.
And so naturally with the Calvin.
We all moved to be kind of a hybrid workers in a hybrid mode.
You need to be able to work from anywhere not only from home but from office.
And you need to travel between the two.
Huge demand for you.
<unk> solution is growing we have seen with quarters numbers.
Those those trends both in <unk> and contact center.
Can you see them coming up and I can tell you that actually.
One of the question later on would be regarding guest count and the great resignation or ability to.
Deliver I'll tell you that our.
Issues going forward and I think everybody in the world would be much more.
Concentrate is about the ability to deliver having enough people onboard.
The demand the demand is there very strong and we are constantly adding people have mentioned, we added 110 last year 30 every new quarter. It's all in the race to be able to deliver the demand that we're seeing.
Excellent and then one for neuron neuron it looks like fourth quarter service revenues were slightly lower than the prior quarter, just any puts and takes to call out there would be helpful.
Thanks.
Yes, I wouldn't read too much into quarterly fluctuation in the service revenue growth loan.
We have a professional services training in the service line.
There can be fluctuation.
Can screw the quarterly growth rate, our 2021 service revenues grew 24%.
Which is an improved growth rate from 16% to 20 twin.
So there are fluctuations between but.
Okay.
I suggest not to look on a quarterly basis.
Excellent and then last one for me <unk> congrats on bringing on Dmitry I may be a little biased here, but you mentioned the future 4%.
Actual future for more inorganic acquisitions going forward any specific areas of the market that seem interesting or are there any like software capabilities or things that your customers are asking for.
Thank you.
We are focusing on our strategic market direction, and I think we have defined that to be the <unk>.
Because of the team's space.
As such and since we deliver managed services.
Our highest priority would be in that area too.
Supplement and augment our ability to deliver more services in that specific space acts of team's flows.
We are working also on the voice AI working also contact center.
We will be looking more for market reach.
Rather than technology.
We will be adding few.
More of a technology pieces, but that's not.
The focus the focus is really gaining more market share.
I appreciate the color thanks, guys.
Thank you.
Your next question for today is coming from Greg Burns. Please announce your affiliation then pose your question.
Good morning, Greg Burns with Sidoti <unk> company.
Just wanted to follow up on the service line just in terms of the gross margins this might be similar a similar answer in terms of quarterly fluctuations, but what was driving the gross.
Gross margin down on the service line this quarter or is that kind of how we shouldnt expect.
What we should be looking for in 'twenty two.
Yes, it's a result of.
Increasing our manpower at the customer service.
Department.
The main reef horizon with regards to gross margin.
Paul.
We are facing like all over the world and ongoing supply chain disruption.
And this quarter, we had made one time purchases of components cost in the open market at higher cost to fulfill demand.
So we estimate the gross margin impact from products of the carrying these higher component cost to be roughly 100 basis points in Q4.
So that's what we had in terms of gross margin both in service as a total.
Okay.
Sure Pat you mentioned.
Some shift in the revenue mix, given youre moving away from hardware to more like recurring service sales so that the debt.
That.
The recurring revenue like SAP you saw a lot of solutions does that go into the service revenue line item or is that product line revenue.
Where is that falling out on the income statement.
Yes, it's definitely going into.
Services.
Part of our managed services.
<unk>.
It's growing it's growing fairly fast I can tell you that just gives you a rough idea that at this stage you know I have mentioned that teams grew this year.
Almost 70% compared to last year.
And.
Live.
<unk> is now in the fourth quarter.
Rising to more than 2020 between 2025% of total teams revenue. So as <unk> grows live will grow managed services would grow.
Okay.
Lastly, you talked about operator connect but Microsoft also launched teams essentials kind of going more for the <unk>.
<unk> space how might that.
Impact your business.
Is that something that.
Could you accept further accelerate.
Growth for you in the Microsoft ecosystem.
Yeah as a matter of fact, you know Microsoft essentially there's really a plan targeting to lower.
Prices of Microsoft teams or small organization in that regard, it's definitely a boost to the operator connect.
Operator connect will allow those businesses too.
Connect.
Two teams but to.
To make it even more attractive zev Lord subscription rates for the small businesses.
Okay, great. Thank you.
Sure.
Your next.
Question is coming from Samad Samana. Please announce your affiliation then pose your question.
Okay, great with Jefferies. Thanks for taking my question, so I kind of want to unpack why the comments you made.
That the growth expectations are and I know the formal guidance, but that your view is that you guys should.
You do better than that and I bring it up again.
If I think about last year. The initial guidance for 2021 was I think by $2 $40 million to $50 million and you guys are kind of.
Charlie at the high end of that initial range. So maybe what gives you the confidence that you guys can outperform kind of the initial guidance today.
Versus when you think about your guidance last year historically when you've guided just is there any is there a change in the guidance framework.
Maybe just help us understand what underpins it.
Actually yeah.
So Matt, Yes, actually I think I gave you a hint let.
Let me know.
<unk> and get into the details for K. So we were at kind of the cast them.
Here is to see Microsoft revenues growing 20% a year right.
However, we didn't always who mentioned all with the teams is growing in the Skype for business is coming down, but we have never thought about the interrelation between the two when you compute growth but now.
Microsoft call, let's talk about the fourth quarter.
So in the fourth quarter.
Skype for business.
To some very low level of about $4 million and teams got to about 32 million now remember the Skype for business, let's say the clients, let's say quarter over quarter by 10%.
10% declining 4 million is $400000 on the other end you know Microsoft is growing I'm sorry for teams is growing.
Say north of.
20% quarter over quarter, you take now 32 U S. 20% of that you get another $6 four so all of the southern Europe find that while we have suffered from the kind of Skype for business in previous years in 2022, or even more going forward is not gone.
To overlay overhang or impact gross Microsoft So actually I can tell you that if you do the math youll reached and assuming that the growth will continue in teams as we continue to invest in it we will see growth in Microsoft that's north of 30%.
So that gives you some flavor as to why we are more optimistic about the ability to reach those revenue levels and beyond.
Got you and then just maybe one last question for me when you think about the growth versus investment philosophy.
I think you do.
Definitely touched on it on the call but.
How should we think about.
How should we think about it kind of like.
What's the what is the I know again, you gave guidance, but what is the end goal growth level that you are trying to drive or is it is it to sustain in this low teens is it with the what are the opex investments meant to get you to a range that's closer to 20%.
Just trying to understand.
We think about the reinvestment philosophy, especially given the EPS guidance for 2022 tier to the growth level that youre actually trying to get to a durable growth level.
Alright, Thanks, Matt Yeah, if you take a step backwards right.
You'll take a higher level perspective over several years right starting from let's say 2020, and looking into 2025 up to 2020.
Have been very cautious with growing our opex. So just to give you an idea.
<unk> 'twenty our opex.
Grew only about three 5% over the previous year, However, as planned in 2021.
We have invested heavily and actually we grew opex in 'twenty 114, 6%.
And in our plan.
We are.
Planning not less of an effort in 2022, so just think about.
A huge investment that we will be applying we've applied half of it already in 'twenty, one we'll be doing that as well in 'twenty two.
But you will see according to our internal business model.
Predict that will keep hey, we'll keep revenues growing at least 50% and above organic we should be growing given 16, and 17, but we need to be well into the year to be more confident about that but even more you'll see the net income line all of a sudden.
<unk>, Inc. From 'twenty, three and beyond because at some point there will be no more need to invest that much. So.
It's major investment done in 'twenty, one 'twenty two.
Now.
The result of it would be.
Revenue growth, 15%, 70% annual.
Organic and beyond and then obviously improved net income line.
Great. Thank you so much I'll pass it on to the next hour I appreciate it.
Thank you.
Your next question is coming from Ryan Koontz. Please announce your affiliation then pose your question.
Sure I'm with Needham <unk> company.
Obviously, the teams ecosystem really gaining momentum here globally I wonder if you could share any color you have on different segments, where you're seeing that are having success.
Is it primarily in the U S where the quarter business is coming from and how are they doing outside the U S and moving down market. I know you mentioned, the new SMB offering, but any color you can offer on kind of.
How teams disappearing across different market, Jeff that's really helpful. Thank you.
Alright, Thank you Ray.
Again, Ryan I don't think theres any specific vertical that shines out but definitely.
As you have mentioned.
<unk> is substantially leading in deployment of teams.
More western.
Westwood.
Countries, such as the U K.
Germany.
And few more countries, Canada, France et cetera.
So.
It's still in the infancy again.
Related to the type of Center report you know a very small portion.
No.
Been deployed so far so a lot of things to come but then again the western world is leading by far.
Okay Super helpful and one quick follow up I could.
You have on the deal size in terms of seats are you seeing.
Very large enterprises start to opt more into into Ucas offerings now or are we still kind of in the smaller enterprise and mid market. That's the fast adopters too.
No Tim is by far a decline in the S&P in a major way I think we are deployed in close to think we have heard teams deployed in over 90% of the S&P.
100 <unk>.
So.
The focus is really on large enterprises and lately on mid market. It's only now that they are starting to try to attract to the smaller businesses, but that that's where the focus is.
Super helpful. Thanks, a lot.
Sure.
Your next question is coming from.
Please announce your affiliation then pose your question.
Hi, <unk>. This is Tom from Bank of America.
I have two questions first one it's on the margins.
Our R&D and G&A went up 15% to 20%.
So your EPS is going down while your revenues are going up whats. The outlook can you explain what are you investing in.
What are the projects and then what's the outlook for expenses.
The second thing is I wanted to also ask you about the margins.
Any impact of I think you touched on it when you spoke about gross margin, but any impact of supply constraints.
Any impact on your ability to deliver at least on the legacy side.
What's what's the status of you getting enough components.
Yeah, Hi, Tom.
So indeed there.
Opex on an annual basis increased.
14% year over year, if we split it between the.
R&D sales and marketing and G&A.
R&D was 13%.
Sales and marketing, 17% and G&A six 8%. So all in all we are planning to supplements and we are planning to invest more in opex to support our.
Revenue growth.
Mainly at the area of <unk>.
Sales and marketing and customer service. So that's with regards to the Opex.
With.
Regards to the.
The gross margin as I mentioned, we are.
As you know everybody is suffering from the supply chain disruptions spin.
Specifically for this quarter.
We had.
An impact of about 100 basis point since we had to buy some components at the open market at higher cost.
While we expect a similar gross margin impacted the first quarter of 2022, we do believe this is a temporary issue.
Got it so going back to your first answer about expenses is that the onetime phenomenon that your expenses are going up or.
And it's going to stabilize after or do you envision that margins.
Operating margins keep coming down next year.
No.
2022 we are planning to increase opex.
And that's why our guidance for the EPS.
The mid point of that was flat.
<unk>.
<unk> dot if we jump to 2023, we will definitely.
The need to invest less in terms of growth year over year than we had this year and in 2022.
Got it great. Thank you.
Youre welcome.
There are no further questions in queue.
Thank you operator would like to thank everyone, who attended our conference call. Today is continued good business momentum and accelerated growth in 2021 and strong underlying market trends in our industry.
We believe we are on track to another year of growth in 2022.
We look forward to your participation in our next quarterly conference call. Thank you very much have a nice day bye bye.
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.