Q1 2022 AudioCodes Ltd Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to audio codes first quarter 2022 earnings conference call.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Roger to Chin.
Sir the floor is yours.
Thank you operator hosting the call today are shop tight how spirit's, President and Chief Executive Officer, Rob <unk>, Vice President of Finance, and Chief Financial Officer, and Dmitry notice Chief strategy Officer, and head of corporate development before we begin I'd like to remind you that the information provided during this call may contain forward looking statements.
Adding to our <unk> business outlook future economic performance product introductions plans and objectives related thereto.
Statements concerning assumptions made.
Expectations.
Future events conditions performance or other matters are forward looking statements hazards to 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 stated in such statements. These risks.
And factors include but are not limited to.
Fact of global economic conditions in general and conditions in audio coach industry and target markets in particular.
Supply and demand market acceptance of new products and the demand for existing products the impact of competitive products and pricing on audio codes 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 sell.
So I covenants in the company's loan agreements possible disruptions from acquisitions the daily.
Do you have audio goes to successfully integrate the products and operations of acquired companies into audio because 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 cause assumes no obligation to update this information in them.
During the call audio codes, we will refer to non-GAAP net income and net income per share auto 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 record.
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 Shanghai subtype. Please go ahead.
Thank you Roger good morning, good afternoon, everybody.
I would like to welcome all to our first score 2022 conference call.
With me this morning Gore neuron blue.
Chief Financial Officer, and Vice President of Finance.
And the <unk>.
G officer and head of corporate development.
The Iran will start off by presenting a financial overview of the quarter.
I will then review the business highlights together with Dmitry and.
And provide the summary for the quarter and discuss trends and developments in our business and industry.
He will then turn it into the Q&A session.
John .
Okay.
Thank you, Sean and Hello, everyone.
Israel and.
On today's call, we will be referring to both GAAP and non-GAAP financial results.
The earnings press release that we issued earlier. This morning contains a reconciliation of the supplemental non-GAAP financial information that I will be discussing on this call.
Revenues for the first quarter were $66 4 million, an increase of 12.8% over the 58.8 million reported in the first quarter of last year.
Services revenues for the first quarter were $27 5 million up 26, 2% over the year ago period services revenues in the first quarter accounting for 41, 5% of total revenues.
The amount of deferred revenues as of March 31, 2022.
$76 8 million up from $71 6 million as of March 31, 2021.
Revenues by geographical region for the quarter were split as follows North America, 48%, EMEA, 34% Asia Pacific, 14% and Central and Latin America, 4%.
Our top 15 customers, representing an aggregate of 60% of our revenues in the first quarter of which 48% was attributed to our 12 larger largest distributors.
GAAP results are as follows gross margin for the quarter was 66, 9% compared to 68, 4% in Q1 2021.
Operating income for the first quarter was $8 1 million or 12, 1% of revenues compared to $10 1 million or 17, 2% of revenues in Q1, 2021.
Net income for the quarter was $8 6 million or <unk> 26 cents per diluted share compared to $10 billion or 29 cents per diluted share for Q1 2021.
non-GAAP results are as follows non-GAAP gross margin for the quarter was 67, 2% compared to 68.77% in Q1 2021.
non-GAAP operating income for the first quarter was $11 9 million or 18% of revenues compared to $13 2 million or 22, 4% of revenues in Q1, 2021.
non-GAAP net income for the first quarter was $11 2 million.
<unk> 33 cents per diluted share compared to $12 7 million or 37 cents per diluted share in Q1, 2021.
At the end of March 2022, cash cash equivalents bank deposits marketable securities and financial investments.
$144 1 million.
Net cash provided by operating activities.
0.9 billion for the first quarter of 2022.
Days sales outstanding as of March 31, 2022 were 69 days.
During the quarter, we acquired 720 thousands of our ordinary shares for total consideration of approximately 20.9 million.
We reiterate our guidance for 2022 as follows we expect revenues in the range of $277 million to 200 and.
85 million and non-GAAP diluted net income per share of $1 40 to $1 60.
I will now turn the call back over to Shanghai.
Thank you and your own before we dive into the first quarter results I'd like to inform you that we have prepared and then placed a great presentation.
The quarter update to aid in our discussion today, please refer to the Investor Relations section.
<unk> site.
We are pleased to report solid topline results for the quarter growing 12, 8% year over year.
Revenue acceleration this quarter was mainly driven by ongoing strength in our enterprise business, which grew over 15% year over year and accounted for roughly 85% of our revenues.
Service revenues grew above 25% year over year and accounted for an all time record of 41, 5%.
Total company revenue.
This is a proof of executing on our strategic priority by successfully transforming to cloud services and recurring revenue model with article drive minutes services.
And the core of this success was our unified communication and collaboration business, which grew over 20% year over year.
In fact communication and collaboration makes up roughly 85% of enterprise business.
<unk> grabbed the majority of our UCC, our Microsoft business grew above 25% year over year, representing an acceleration in growth from approximately 20% in 'twenty one.
Within that mix, Microsoft teams grew over 50% year over year.
As projected by several sources, including an industry research firm <unk> Research and then analyst notes from Piper Sandler.
Microsoft teams voice seats are anticipated to grow at roughly 35% to 40% compound annual growth rates.
Throughout 2025, which supports our confidence in multi year runway for tims business.
Wrapping up discussion of UCC business or zoom phone business outside an exceptional quarter, reaching all time records and up 50% year over year.
Shifting gears to the customer experience segments.
Which accounts for the remaining 15% of the enterprise business.
Customer experience declined eight 5% on a year over year basis, I'm too tough comparison from Russia business generated in the first quarter 'twenty, one ex Russian business.
Our CX segment.
Would have been up roughly 10%.
We continue to see great progress was often recessionary a business with total contract value signed during the quarter grew around 40% year over year, we are well positioned to grow 50% in our.
Conversational AI portfolio in 2022 compared to the previous year.
Glad to report that the acquisition of Cold first so at the end of 2021 started to bear fruit with substantial and creating new opportunities for them.
Intelligent virtual agents solution for the contact center application.
Importantly, our records lives our managed services offering for UCC C acts in conversational AI segments continued to see strong momentum.
We exited the month of March 20 million, a our run rate and we expect our articles live managed services to double again in 2022 drove a $30 million from over $15 million in 2021.
Our pipeline continues to expand across core areas of business supported by long term secular trends of migration of voice infrastructure to the cloud hybrid work and enhanced customer engagement and experience solution powered by deep.
Shifting shifting to margins.
Our non-GAAP gross margin came at 67, 2% versus 68, 7% in the year ago quarter, owing to the one 4 million higher costs.
Associated in the quarter.
With the procurement of components in the open market.
Clothing discussed on a non-GAAP gross margin would have been at 69 poetry.
non-GAAP Opex increased 20% year over year, mainly due to three factors one the increase in head count of 132 positions or up 17%.
And related budget in salaries on a year over year basis, all of that done in order to support our growing business needs and expansion.
Rising salaries in the R&D space in Israel is the second driver for higher costs and salaries.
So.
Higher rising salaries in the R&D space, where the booming local high tech industry drives shortage in skilled manpower.
Therefore drives higher salaries.
And lastly, the impact of much lower N. A S. A U S dollar exchange rate as compared to the first quarter 'twenty, one rates, which was favorably hedged.
non-GAAP operating margin was 18% versus $22 four in the year ago quarter, which was impacted by higher component costs increased hiring activity and less favorable edged.
New Israeli shekel U S dose.
Rate accelerating to the higher component costs non-GAAP operating margin would have been at 21% and decor.
On the heels of this development our non-GAAP earnings per share came in at.
<unk> in line with our internal budget. This compares to 37 cents in the first quarter F. 2021.
Getting back to the guidance provided earlier this year.
We are radio ratings are at 2022 revenue guidance of $277 million to $285 million and GAAP.
EPS of $1 40 to 160.
Based on strong business fundamentals and our ability to navigate the supply chain issues that said, there's no change to our long term financial targets, which remain.
In the range of 13% to 15% long term.
Go on the revenue growth.
About 67% to 70% on a non-GAAP gross margin.
Opex.
Percentage of revenues within the range of 47% to 50, and then non-GAAP operating margin.
Between 'twenty to 'twenty three.
I would like now to hand over the call to Dimitri <unk>, our chief strategy officer to give a brief overview of our strategic focus areas after which I will provide more disclosure of different business lines Dmitry.
Thank you <unk> and Hello, everyone.
I joined the team in January we have undertaken a deep dive into fine tuning our strategy to ensure that we have optimal plan in place to capitalize on the strong multiyear secular growth opportunities in our core market.
Which is mainly an enterprise market and accounts for roughly 85% of our total revenue.
<unk>, 15%.
Is the service provider segment, comprising our hardware platforms in.
In terms of the enterprise business audio codes is the leading provider of voice services, serving customers had two primary markets unified communications and collaboration service UCC.
And customer experience cockpit centers, which we refer to as CX.
Voice remains a top interaction channel in digital transformation and will remain as such for a very long time voice is a high impact high value channel mission critical to companies serving their customers and their employees.
We're seeing the next stage of evolution of voice not just in the traditional sense of telephony, but also in the non telephony world such as beating assistance.
As conversational AI call recording an even better bursts in the future.
It is increasingly hosted in the cloud and consumed as a service as in the case for instance, with Microsoft teams.
The addressable market for voice services is expected to reach 72 billion Tam.
Tam by 2025 comprised of UCC NCS, both of which are undergoing a shift to the cloud.
Our approach here is simple.
The most interoperable communications platform as a service when it comes to voice services, we focus strictly on the enterprise segment, where 65, a fortune 100 multinational companies are customers of audio codes and we believe this segment will ultimately drive the long tail of our Cts our voice see Paas platform.
Corporate is a cloud native architecture of our session border controller or SBC web RTC gateways, and our voice AI connect platform powered by our by our coal flow Apis and enhanced by <unk>.
By our voice quality monitoring analytics and orchestration tools on top of this voice platform, we offer meeting room solutions and user devices in our <unk> lives subscription services that enable a one stop shop marketplace for our enterprise customers. This is what Microsoft and increasingly zoom customers value most.
This platform makes up the vast majority of our total enterprise revenues today split between the UCC and CX.
Additionally, we offer a portfolio of productivity enhancing software and conversational AI applications, which include our intelligent virtual agents called Zika from our <unk> acquisition.
This is an exciting market that recently Gartner in its piece Gold's contact center conversational AI and virtual assistant.
It needs to grow from $332 million.
213, 9 billion by 2026, that's a 72% CAGR.
Conversational AI market as the future is it's future growth engine.
<unk> 40 of codes and we're developing a number of new applications here, including conversational IV arc for customer service called Volcker and are meeting intelligence solutions Smart App and meeting insights audio coats is a unique asset built on product led engineering organization with a strong technology superiority in voice related services.
Keith strategic partnerships and a one stop shop approach.
With that let me now update you on the key pillars of our strategy. Our mission here is threefold first we expand our voice platform and upsell conversational AI apps into the UCC vertical by partnering with Microsoft teams and zoom phone second.
We expand our voice platform and upsell conversational AI apps into customer experience vertical in partnership with Microsoft Genesys and other contact center and CRM platforms at <unk>.
Third we accelerate our transition to subscription services via what are your coat slides for auto customers. This move to managed services shifts the burden of managing complex voice infrastructure to us freeing up resources of it departments to focus on more value. It has.
<unk> initiatives of our customers as for audio coats the economics here.
Equally compelling over the life of a typical 36 months managed services contract we derive over two weeks.
The economic value of the recurring services versus the historical Capex model.
Wrapping up this discussion we're looking to execute on the aforementioned land and expand strategy by leveraging our strong voice surpass powered by our market, leading cloud native session border controllers cold flow Apis and management and orchestration tools.
Our past stellar performance has been recognized by Omnia.
Which ranked audio codes just this quarter as the number one enterprise SBC in 'twenty.
In the whole entire year of 2021 with 18, 18% market share bypassing for the first time on the annual basis competitors, such as Oracle Cisco and ribbon. We're proud of this achievement.
<unk> from roughly 10% market share to nearly 20% in just three years of excellent execution track record technology superiority and innovation engine give us confidence as we write the next chapter of our growth lastly, consistent with the strategy. We just outlined we will also look to accelerate our organic growth via potential.
M&A opportunities.
I will now hand, the call back to <unk> to discuss details of individual business lines.
Chapter.
Thank you Dmitry as discussed previously Microsoft business grew above 25% year over year, representing an acceleration in growth from approximately 20% in 'twenty 'twenty. One we're pleased to see that the pickup in growth from Microsoft created opportunity.
Scott on the last quarter translated into higher business growth this quarter.
Specifically, Microsoft teams business grew above 50% year over year in the first quarter <unk>.
<unk> accounts additions into core with 260.
Versus 206 in the year ago quarter, the highest on record, which speaks to the accelerating adoption of teams.
The UCC platform and our market leadership in this segment.
Importantly, Microsoft created the opportunity continue to grow at a healthy rate.
In the first quarter of 'twenty to Neil.
New opportunities new tims opportunities created grew 51% year over year comp.
Compared to 2021.
Now, let's talk through a couple of Microsoft.
Important wins in the quarter the first one we.
We're working with a tier one service provider, we have signed a 78 months contract with a global freight transport company selling articles live services four 5 million total contract value the deal calls for migration of 30000 users.
Microsoft teams voice, we want the engagement on the simplicity and broad capabilities of our solution versus those so far competitors underscoring the strong competitive position, we enjoy no market.
Second wind.
We are working with the large system integrator.
And signed a contract with a multinational healthcare medical device company, enabling migration to Microsoft teams from Cisco and Avaya by providing other codes live minutes surfaces to 3000 seats in the U S plus IP phone sales in the first phase of the deployment discussion on our own.
Gyn that could take total deployment to over 50005th globally, whereas several millions in total contract value.
Now after reviewing these two deals let's dive into the other codes life or as we call it seems to us as a service.
Just to remind everybody since inception in mid 2019.
<unk> ended 2020 at about $7 million a L L as more than doubled in 2021 to reach above 15 million air and in 2022 as discussed earlier, we plan to double it again to above $30 million.
<unk> for this growth is obvious based on growth demonstrated in the UK market in the past 12 months. It is obvious that Microsoft teams is the leading solution for large enterprises in North America and worldwide. According to a recent pipe of Senator Analysts' reports from October 2021 interest.
Using a ucas market model for the next five years Tim.
<unk> sits compound aggregate growth rate in coming years is about 34%.
Quite steep growth that should support continued growth so four themes live services.
This reports estimates.
About $4 2 million claims.
Team sits for 2021 8.1 million seats with 22 and $31 5 million for 2026.
I think good life success stems from the fact that it removes complexity from the process of integration with legacy enterprise telephony and provide a seamless rapid and cost effective migration for tims communication collaboration for enterprises.
<unk> provides among other things a solution for the actor out as we see devices network and user management products and a complete set of formations all of which are delivered on a recurring per user per month model.
Now referring to some of the.
Live product announcements made in the first quarter since the launch of our flagship <unk> live team that crowd managed service nearly two years ago that crowd is Microsoft terminology for rig year on carrier service.
Our <unk> priority is to provide partners and end customers with flexibility in choosing the theme Suez deployment options that best suits their needs. So that then with <unk>.
<unk> recently announced that the codes that Ive Express, which is a self service SaaS offering.
I sit on as it goes as your cloud for resellers Vars and managed service providers looking to seamlessly and efficiently provision Microsoft teams. One services. The beauty of this service is quick on boarding and provisioning, which can occur in minutes and he's handled entirely.
<unk> cloud.
We also recently extended capabilities in Flash cloud managed service, which simplify onboarding schemes with business customers of service providers offered in the service provider cloud. These services also known as Microsoft Operator connect.
Microsoft connect provides.
<unk> provides end users and alternative.
To procure teams voice from select carrier partners directly through the Teamsters mean puts out.
<unk> is the first publicly disclose carrier using codes to offer this service on a Microsoft operated connect to date Laura.
Roughly 25 carrier partners on Microsoft Operator connect Antarctica is working with many of them.
Just last week, we announced that the codes as being named by Microsoft and operator connect accelerator on there is a new direction for Microsoft to enable tenths of additional carrier. So our minutes service providers to expedition Lee offer voice service or offer either connect with no.
Infrastructure investments required and without the need to maintain ongoing API integration directly with Microsoft.
So with a vast array of different live services offering let me distill the primary differences between the different offering. So a flagship is drive teams, which targets enterprises and which enables teams via direct route is solution he sold too.
Soc and system integrators, the target our historical medium to large customer usually we're talking about seat count of between 3000 30000.
It often as a very complex telephony system environment and require customization.
Second offering is live cloud, which is a white label of SaaS platform.
He sold to service provider to enable them to provide small to medium sized customers.
And then lastly lab express, which again is a <unk> branded first platform that enables through service.
With no telephony experienced to quickly on pool with Gastroparesis.
As discussed so far are alive basically targets. The enterprises. This is where we derive all four managed services today.
Life cloud and lot of express represents new Greenfield opportunities.
Sure I'll start getting small to medium customers was likely fear office location and less center complexity.
Let me now shifting gears to zoom phone.
I would like to discuss.
And emerging fast growing operational momentum at zoom phone, while still a small percentage of overall business zoom phone activity in the core sets or not.
Another record and was growing more than 50% year over year.
Boomers publicly discuss the strategic importance of Upselling its core meeting customers with zoom phone in.
The January 2022 core zoom added around 550000 zoom phone sets up from zero.
Triple in five years ago.
Zoom phone launch in U.
U S Canada in January 2019.
As the foremost voice expert who has the most comprehensive voice solution in the market as.
<unk> is uniquely positioned to benefit from this long term op sales tailwind.
We are stepping up our investment in marketing activities around the zoom platform and look forward to announcing new product launches on zoom ecosystem in the coming months.
Following the revenue growth in the first quarter 'twenty. Two we also know that we have seen a record in new opportunities created so in the first quarter 2020 to zoom phone new opportunities room more than 50% year over year.
Now, let me wrap up my discussion with conversational AI segment, which grew 40% year over year.
And is expected to grow 50% above 50% 2022.
This segment consists of five application smarter or compliance recording.
Solution meeting insights are meeting productivity service Voka orphan recessional IV our solution.
Voice AI connect platform that transforms chat bots into voice bots and Vica, our intelligent virtual agents solution, let me highlight our intelligent virtual agent solution.
The one we acquired from <unk>, which has been a driver of strong momentum in the first quarter.
As proof of our strengths and scalability for IV solutions I would like to discuss a large customer in the medical space, clearly, which is Israel's largest medical services provider serving over four 7 million people with or IV a deployed at the companies.
<unk> Center and 600.
1600 of its cleaning.
Let me provide some data points that indicate.
A strong and successful.
The IV a services clearly.
We're talking here about the following metrics are weak.
Vica the IV a analyst daily more than 80000 calls a day and up to 120000 calls a day on peak volume.
That has resulted in.
Roughly.
Replacing 200 fewer.
Human agents and then all.
All of that saving was translated into cost savings of about 100 million, new Israeli shekel or about 30 million U S dollars.
Following our success in the Israeli market with Veeco virtual agent, we have plans to start addressing with global market in the second half of 2022.
Another area of strength within the conversational AI portfolio is the voice AI connect product, which parse voice interactions for the growing market of chat box continued to win more chatbot applications with leading global partners. We believe we are on track to more than Triple a R.
In 2022 compared to 21.
As such we strongly believe that conversational AI Kent.
Can develop into a new meaningful growth engine to fuel our growth going forward.
This pretty much concludes my prepared remarks, I'd like to point out that in.
In view of the strong growth anticipated for the UCC markets. We serve are top leading position this leading voice partner to the leading vendors.
And the investment done and continue to be done to keep our momentum in this space, we are confident and optimistic as ever about the strategic vision, our strategic vision and strong competitive.
Foundation that we've built to capitalize on the multi year secular growth opportunities in our core enterprise market and subscription services.
I'll stop here and now we will turn the floor back to the operator for 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 you. Please pickup your handset listening on 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.
It's Greg Burns from Sidoti <unk> company.
First you had mentioned some impact from Russia, I didn't catch if you put an exact number behind it but what was the exact impact.
From Russia on the business in the quarter.
Yeah referred to existing business, mainly in the <unk> market, where a large deal.
It was delayed.
So revenues compared to the first quarter of 'twenty one were rough.
Roughly of very low we do not anticipate any new opportunities for developing the Russian market in the coming future.
Okay.
Okay and.
Dmitry was talking about.
Cross selling opportunities can you just talk about what the attach rates currently or maybe with some of your.
Applications into the Microsoft ecosystem, and how you see that developing over time. Thank you.
Yeah.
Well dmitry define our strategy is land and expand.
So.
As we see that crowd is the most needed.
Solution in the Microsoft teams, if you want to connect and use voice with the outside World now we do have today probably.
The leading the best solution in the enterprise space.
Once we are able to penetrate an account with that service.
We are offering within our managed services more services attached to it are those could be cellphones.
Meeting room services, Cora coding services solutions and others. So all in all we take advantage of the fact that with broad access to the teams customer base.
That allows us to win with one area.
Application and our service and then add on top of it more services.
But maybe just to understand where you're currently at versus what the what the goal is here what is the typical like attach rate.
Or applications on top of the core.
Microsoft direct route offering.
Right. So right now we have no statistics here with me to answer that I'll mention just that.
There's definitely an interest give you want want one or actually two areas. Okay.
I think we need to realize TMC is the new PBX to win the world right, we're coming from a world where there's been a lot of other PBX manufacturers, such as Cisco Avaya Nortel.
The hotel loosen and others.
And all the gear is going to migrate now and in the future to teams now every PBX has got auxiliary services right take IPR services.
Take.
No recording.
Compliance recording services. So if you add a PBX, let's say an avaya PBX.
And you needed to provide IV our solutions to your customers. Once you move to teams you need to do you know establish a new IV our solution or a new compliance recording solution. So that that's exactly what we do we have develop very advanced IVF.
Conversational <unk> solution.
We have a very advanced compliance recording solution called smart depth and in the past six nine months, we've seen rising number off.
<unk> users, who now on top of the day crowd and I want to.
Use the IV or and or the compliance recording so hopefully that answers your question.
Thank you.
Your next question is coming from Ryan Macwilliams. Please announce your affiliation then pose your question.
Hey, Jack Mcguire on for Ireland Barclays. Thanks for taking my question. So.
So on the two large live deals in the quarter.
Any color on how order because it's brought into these deals.
Is there any specifics around the pipeline for these kinds of deals going forward. Thanks.
Sure. So usually you know.
With our live services, we usually work.
Directly to meet the market true usually a setup for VAALCO.
Onerous Microsoft partners when we go to large deals such as those that I've mentioned here.
The one that has to do with the health care or the one was the freight transport services. Those are huge companies. The go to market is usually true global system integrators. So in both cases, you know we have war fell way into the accounts to those partners.
Great. Thanks, and then one more quick one any more specifics around how called versa has been performing and any key plans for the acquisition as you take it global in the second half.
So again.
We have.
Evan mentioned that number, but we've seen huge growth in the number of new.
Opportunities for our virtual agent solutions, we are working right now in the Israeli market.
Very strong on the medical.
Vertical on the financial.
One.
Large utilities.
We are working.
<unk>.
Oh 2022 to port that technology into a multi tenant cloud based solution that we can deploy on a global basis. So it's work in progress.
Assume will probably launch it within the next six to nine months.
Thanks, so much.
Sure.
Your next question for today is coming from Ryan Koontz. Please announce your affiliation then pose your question.
Sure, it's a rankings with Needham.
Congrats on a nice Microsoft numbers straight to hear that I Wonder if you could expand a little bit on the.
The decline in contact center customer experience.
Is that primarily attributable to Russia or was something else going on there with your.
Different partners you work with contact center.
Okay.
Yes, so actually the decline is tied up to few fed herself named three of them. One is as I've mentioned before the Russian.
Market. The second one has to do with the.
Delayed big you know above $1 million.
Opportunity delaying the finance sector.
And then we do see.
I know some of the players in the Phoenix market.
Thank you know their names some of them are losing market share. So we had some decline and lastly, obviously.
We had some business with some.
Large contact center player who is moving.
His business to the cloud that is of course also some some loss, but all in all.
The space is fairly vivid and we do expect to recover from that.
Clients the first quarter.
Alright, great. Thanks for that color and on the gross margin headwind does that primarily on.
It sounds there or are you are.
Cloud appliances.
No naturally IP phone IP phone is fairly okay.
Actually it's other components, which are hard to outsourcing the open market. Therefore, we trying to get them through.
You know other Richardson, but that's another phone it's more the CP.
Gear the service providers.
Got it okay. That's all I have thanks, so much.
Sure.
Your next question is coming from Jeremy Solar please announce your affiliation and pose your question.
Hey, guys. This is Jeremy.
Work with so much.
Another quick one on margins actually how should we think about the shape of margins throughout the rest of the year do you have any visibility into how these costs are looking into Q2.
Yes with regard to the gross margin.
Procurement cost of components in the open market continued to accelerate in the first quarter the component purchases in the open market at the higher than expected cost in.
The first quarter of 2022 is expected to have residual impact.
On the second quarter as well.
Though at a magnitude that's less than the first quarter and while we expect supply chain cost to remain temporarily elevated for the rest of 2022 relative to <unk> 2021 we believe supply chain situation should stabilize by the end.
For the year.
Got it thanks, and one more from me.
How should we do you have any color on kind of teams across geos, how it's performing.
It's still primarily driven by the Americas, if you can provide any color there.
There are okay. All in all we definitely see teams continues to grow actually at the mine.
Long term basis of.
The numbers quoted were like 4 million last year 8 million. This year. So yeah, it's not going to stop we do see more contingencies created and I think we have a a.
A winning position in the market.
Got it thanks, guys congrats on the quarter.
Sure.
Your next question for today is coming from Liana <unk>. Please announce your affiliation then pose your question.
Madeleine Brookman for Italian Bank of America.
A little bit.
<unk>.
Hum.
Last quarter I noted this upon concurrent with well have written <unk>.
Nice quarter, especially when you look at the supplementary slides I'm just wondering if at this quarter and with the magnitude of that component shortage greater than expected.
Yes, actually we see the trend continue also in the second call in the second quarter. So.
We believe it should be stabilized by the end of the year.
Okay, great. Thank you that's it from me.
Sorry, this is Tom I'm going to jump in.
When you say stabilized does it is it going to worsen in the second half or is it I'm just asking about the impact on gross margins and margins in general.
Yes.
We believe that the second half will be better in terms of gross margin. If we compare it to the first quarter of 2022, which was the low.
Side of our range.
And is the improvement because of supply chain or the improvement is because of other things like currency or anything else.
We are one month ahead in the quarter and we see better both in supply chain and also in prices. So we need to buy less in the open market less components.
Thanks.
There are no further questions in queue I would now like to turn the floor back over to Shanghai for any closing comments.
Okay. Thank you operator, I would like to thank everyone, who attended our conference call. Today. We've continued good business momentum 2022, 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.
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.
You for your participation.