Q1 2024 AudioCodes Ltd Earnings Call
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Ladies and gentlemen, please remain on the line your conference will begin momentarily. Please remain on the line your conference will begin momentarily.
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Speaker Change: Good morning, everyone and welcome to audio codes first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode and the floor will be opened for questions. After the presentation. If anyone should require operator assistance during the conference. Please press star zero on.
Roger: Your phone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Mr. Roger Roger.
Roger: Roger over to you.
Roger L. Chuchen: Thank you operator hosting the call today are Shanghai, Ausbrooks, President and Chief Executive Officer, <unk>, <unk>, Vice President of Finance and Chief National 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 future economic performance product introductions.
Roger L. Chuchen: Hans and objectives related thereto, and statements concerning assumptions made or expectations as to any future events conditions performance or other matters are forward looking statements as the term as defined under U S. Federal Securities Law forward looking statements are subject to various risks and uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.
Roger L. Chuchen: These risks uncertainties and factors include but are not limited to the effects of global economic conditions in general and conditions in <unk> 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 <unk> and its customers' products and markets timely product.
Roger L. Chuchen: And technology development upgrades and ability to manage 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 believe audit closer to successfully integrate the products and operations of acquired companies into <unk> business possible adverse impact of the COVID-19.
Roger L. Chuchen: Dominik on our business and results of operations.
Roger L. Chuchen: The current terrorist attacks and buy from us and the warrants hostilities between Israel, and Hamas and Israel and Hezbollah.
Roger L. Chuchen: We believe that this could develop into a broader regional conflict involving Israel with other parties may affect our operations and they limit our ability to produce and sell our solutions any disruption in our operations by the Ark by the obligations of our personnel to perform military service as a result of current or future military actions, Bobby Israel and other factors detailed in audit.
Roger L. Chuchen: Those filings with the U S Securities and Exchange Commission <unk> assumes no obligation to update this information. In addition, during the call audio coatesville refer to non-GAAP net income and net income per share.
Roger L. Chuchen: <unk> 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'd 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.
Speaker Change: With all that said I'd like to turn the call over to the shop that please.
Speaker Change: Please go ahead.
Shop: Thank you Roger good morning, and good afternoon, everybody I would like to welcome all to our first quarter 2024 conference call.
Roger L. Chuchen: With me. This morning gives me run below Chief Financial Officer, and Vice President of finance for the codes.
Run Below: Let's 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 the industry. We will then tony's into the Q&A session neuron.
Run Below: Yeah.
Tony: Thank you Shaun and Hello, everyone.
Tony: Before I start my formal remarks, I would like to remind everyone that in conjunction with our earnings release. This morning, We will post shortly on our Investor Relations website and airlink supplemental deck.
Tony: On today's call, we will be referring to both GAAP and non-GAAP financial results.
Tony: 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.
Tony: Revenues for the first quarter were $60 1 million, an increase of one 5% over the $59 2 million reported in the first quarter of last year.
Tony: Services revenues for the first quarter were $31 5 million up three 3% over the year ago period.
Tony: Services revenues in the first quarter accounted for 52, 5% of total revenues.
Tony: The amount of deferred revenues as of March 31, 2024 was 85 million compared to 77 6 million as of March 31 2023.
Tony: Revenues by geographical region for the quarter were split as follows North America, 43%, EMEA, 38% Asia Pacific, 14% in Central and Latin America, 5%.
Tony: Our top 15 customers represented an aggregate of 50% of our revenues in the first quarter of which 38% was attributed to our 11 largest distributors.
Tony: GAAP results are as follows gross margin for the quarter was $64 four 4% compared to 61, 7% in Q1 2023.
Tony: Operating income for the first quarter was $3 3 million or five 5% of revenues compared to operating loss of zero point $8 million or one 4% of revenues in Q1 2023.
Tony: Net income for the quarter was $2 1 million or seven cents per diluted share compared to net loss of zero point $2 million or one seven.
Tony: <unk> per diluted share for Q1 2023.
Tony: non-GAAP results are as follows non-GAAP gross margin for the quarter was 65, 2% compared to 62, 12% in Q1 2023.
Tony: non-GAAP operating income for the first quarter was $6 3 million.
Tony: 10, 5% of revenues compared to.
Tony: Two 9 million or four 9% of revenues in Q1 2023.
Tony: non-GAAP net income for the first quarter was $5 2 million or 17 cents per diluted share.
Tony: Compared to $2 7 million or eight cents per diluted share in Q1 2023.
Tony: At the end of March 'twenty, 'twenty, four cash cash equivalents bank deposits market market, both securities and financial investment totaled $106 million.
Tony: Net cash provided by operating activities was $15 million for the first quarter of 'twenty four.
Tony: Purchase of property and equipment was $6 8 million in the quarter significantly higher than historical periods related to leasehold improvements of our new corporate headquarter in Israel.
Tony: We expect.
Tony: Capex to remain elevated in the second quarter after which we expect this line item to return to historical levels.
Tony: Days sales outstanding as of March 31, 'twenty 'twenty four we're 100 days.
Tony: In December 2023, we received court approval in Israel to purchase up to an aggregate amount of $20 million of additional ordinary shares.
Tony: The court approval also permits us to declare a dividend of any part of the same month. The approval is valid through June 18th 2024.
Tony: During the quarter, we acquired 302000 of our ordinary shares for a total consideration of approximately $3 6 million.
Tony: As of March 31, 'twenty 'twenty, four we had $10 2 million available under the approval for the repurchase of shares and our declaration of cash dividends.
Tony: On February six 2024, we declared a cash dividend of <unk> 18 per share the dividend in aggregate amount of approximately $5 5 million was paid on March six 2024.
Tony: We have recently booked.
Tony: On the second phase of cost reduction plans that involves reduction.
Tony: Our head count by approximately 6%.
Tony: This program is expected to result in $6 million.
Tony: Annualized cost saving with full run rate expected in the beginning of the third quarter 'twenty 'twenty four.
Tony: We are updating our guidance for full year 'twenty 'twenty four as follows.
Tony: We now expect revenues in the range of 240 million to 250 million.
Tony: non-GAAP diluted net income per share of 85 cents to one dollar.
Speaker Change: I will now turn the call back over to shop thing.
Speaker Change: Thank you and Iran.
Speaker Change: First quarter of 2024, our results were highlighted by healthy revenue growth of one 5% year over year, Nick and executive on our strategic plan to evolve the company to become a leader in voice services in the UK since he gets markets.
Speaker Change: We continue the transition of our business to a recurring revenue model and transformation from and that's where our equipment vendor to software and services company.
Speaker Change: On the other end well growing nicely and strategic business lines, such as Microsoft teams.
Speaker Change: The customer experience market and conversational AI applications with so continued decline in our legacy gateway networking business in the first quarter 'twenty four similar to trends seen in 2023.
Speaker Change: As reported by other communication equipment vendors, we believe that the high interest rate environment continues to have an impact on music business spending, especially when it relates to how the products. They.
Speaker Change: These two factors transition to a recurring business model.
Speaker Change: And earlier than anticipated decline in legacy gateway business off of.
Speaker Change: 20%, 25% year over year led to sequential quarterly revenue decline of five 5% about two 5% lower.
Speaker Change: Than anticipated earlier in the year coming back to discuss the positive developments in the quarter. We enjoyed a very substantial positive cash flow from operations 15 million and <unk>.
Speaker Change: Strengths, you know alive minutes services operation in which annual recurring revenue grew 45% in the court.
Speaker Change: We have also enjoyed increased services backlog.
Speaker Change: These developments in the quarter provided us with a conviction about our growth prospects and puts us solidly on track to successfully.
Speaker Change: Transform airports to focus on software and services you know markets.
Speaker Change: In terms of key growth areas my first quarter at Microsoft.
Speaker Change: And teams business grew 8% and nine 6% respectively year over year.
Speaker Change: Customer experience business grew 15% year over year, and conversational AI bookings grew around 50% year over year.
Speaker Change: Another sign of continued strength in core areas, where we focus.
Speaker Change: Is the marked increase you know a pipeline or created opportunities for example, within Microsoft ecosystem, which makes up close to 60% of our business.
Speaker Change: Pipeline reached an all time record up over 30% year over year and over 20% sequentially.
Speaker Change: We believe the secular trend of unified communications customer experience convergence cementing our already strong competitive moat in UC voice and driving additional opportunities and customer experience within the Microsoft teams ecosystem.
Speaker Change: We are now the leading Microsoft teams phone partner to lead a quote unquote complete Microsoft teams, calling and contact center combined offering a lot of you already know this we are the number one Microsoft teams phones partner, enabling a significant share of the current 20 million plus themes phone P. S.
Speaker Change: Fans sits what make it less clear.
Speaker Change: I'm sorry, what may be less clear is that buckets D. A C R Tim space.
Speaker Change: Our contact center as a service platform is now recognized to be best in class, having recently been awarded the best Microsoft teams contact center solution by six today based on majority votes of customer experience and industry experts are a unique team space you see see X L. Frank.
Speaker Change: Is increasingly getting more market awareness is evidenced by the buzz we will receive about are complete Microsoft teams, calling and contact center offering at enterprise connect in March 2020 for one of the largest U C. C acts industry trade show events.
Speaker Change: Regarding the weakness in topline in the quarter and why we believe it is short term in nature I'd like to know the following ongoing software spending due to macro uncertainty and continued elevated interest rates likely codes enterprises and service providers to under spend.
Speaker Change: In the context of annual budget in the early part of the year.
Speaker Change: The sofa spending impacted mainly legacy and hardware portions of our business.
Speaker Change: Whereas sales of legacy products, such as gateways declined above 25% year over year.
Speaker Change: We believe that this is similar phenomenon to what we saw in 2023 in which our first quarter 2023 Gateway business was slow out of the gate with strongest spending to come over the course of the year, especially with the luxe to put to honor located annual budget to work.
Speaker Change: As discussed growth in strategic major business, such as Microsoft customer experiences, especially I continue to be healthy we believe that the growth in silver and services at denko, especially I relate that solution with true again above.
Speaker Change: 50% year over year should fully offset declines in legacy pieces of the business starting in 2025.
Speaker Change: I should point out that 2020 for the year in which we can bark continuing strong growth in our alignment with Microsoft teams with true around 45% year over year in the core. In addition was there a new advocacy AC solution.
Speaker Change: Enabling us to be the first in the industry to offer a complete Microsoft teams, calling and contact center combined offering we're looking to proactively cross sell our subscription based work I see I see team certified see cats, the already significant Microsoft teams installed base.
Speaker Change: Base of customers.
Speaker Change: Yeah, the factor contributing to muted growth at this stage is the shifting our revenue model, which tries to increasingly towards recurring girvin U in live historical Capex muddle. This obviously impacts on near term revenue growth and creates headwinds I should mention though that this is.
Speaker Change: This shift is clearly accretive to our long term top line growth.
Speaker Change: Shifting gears to services services revenue overall accounted for 52, 5% of revenues and grew 2% year over year on top of strong services revenue generation in the year ago period.
Speaker Change: Fortunately, our professional services bookings remained strong and up 24% year over year, which potent reacceleration of services growth over the balance of the year, what does it feel to our ongoing momentum in services is headlined by our lives subscription business, which ended the first quarter at <unk>.
Speaker Change: <unk> 3 million annual recurring revenue, putting us on track to achieve our guidance for the year of 64 to 70 million exiting 2024.
Speaker Change: And as a positive development on the lives of this front is the emergence of new lives CX services for them.
Speaker Change: Past two three quarters this new area of activity for us in the CX market seems to represent growing potential connected to the continued shift of enterprises to seek care.
Speaker Change: And to see it CX industry.
Speaker Change: Other positive developments in the quarter War continued strengths in our SBC product line, which grew 15% year over year, and where we kept our top leading position with more than 25% market share in enterprise space.
Speaker Change: Most notably gross came mainly from increase in our SBC and managed services. It should further cement our strength in this market.
Speaker Change: And then we so very nice progress in the conversational AI business live bookings grew above 50%.
Speaker Change: And Hum basically we see that growth.
Speaker Change: In the future.
Speaker Change: Well, if it's all profitability metrics, our first quarter of 2024, non-GAAP EPS was <unk> 17 cents, which was below our internal budget, primarily on lower revenues, our non-GAAP gross margin in the quarter was came at 65, 2%.
Speaker Change: Lord than the 65 to six it's a longer long term range and compared to 67, 6% in the first score of 23 and 62.1% in first square of 'twenty three.
Speaker Change: Just a question on margin decline is primarily attributed attributable to less favorable product mix.
Speaker Change: First quarter non-GAAP Opex was $32 9 million in line with our planning and expectation net cash provided by operating activities was 15 million. We ended the quarter with headcount of 959 employees up from 950 employees in full score.
Speaker Change: And compared to 978 employees in the first quarter of 23.
Speaker Change: We expect our head count figure has to come down from current levels.
Speaker Change: That's it.
Speaker Change: Second phase of cost reduction.
Speaker Change: Initiative takes effect in second and third score 24.
Speaker Change: Now to budgets dreaming.
Speaker Change: Let me discuss steps, we have already initiated and are taking as part of our long term commitment to drive significant margin expansion and operating leverage in the first quarter of 'twenty four operating <unk>.
Speaker Change: <unk> were in line with the original budget for the year anticipating them now further industry music business spending in 2024 and continued transition in our revenue model from Capex into recurring business model, we took budget cut steps to address our operational expenses to lower forecast.
Speaker Change: Hello, a forecast of revenues in 2024, we've recently initiated a second phase of the cost reduction measures that we previously communicated a few quarters ago.
Speaker Change: This current phase encompassed that counter installation of more than 6% primarily related to R&D functions dedicated to legacy areas such as gateways in mattresses. This routers once fully implemented which is expected to occur by mid third quarter of 2024.
Speaker Change: The program is expected to yield $1 5 million of quarterly run rate savings or 6 million annually. This action does not impact R&D spending on core strategic areas of our business such as Microsoft teams see acts of conversational AI, which continued to be robust in fact.
Speaker Change: Reducing positioning in legacy related R&D.
Speaker Change: We kept hiring and growing our R&D product management marketing and sales resources, you know alive and conversational AI operations.
Speaker Change: On the guidance front.
Speaker Change: Neurons suggests that in view of the continued decline in our legacy gateway revenue and market outline.
Speaker Change: Outlook I'm, sorry for the rest of 2024, you know market segments. We are updating our 2024 guidance as earlier stated by neuron.
Speaker Change: We believe that the continued shift to software and services coupled with cost cutting measures. We took already in first score at 24 should allow us to continue to expand our margins.
Speaker Change: Crow earnings by about 15%.
Speaker Change: Compared to 2023.
Speaker Change: Top line outlook assumes continued success in our Ucas see Cas and conversational AI operations in line with the growth that we have demonstrated already throughout the whole 2023 and during the first square if 2024.
Speaker Change: In terms of our acute business line I'll touch a few areas Microsoft as discussed previously Microsoft business increased 8% year over year in the first quarter, Microsoft EMS business grew higher reaching nine six.
Speaker Change: Growth ear, but over a year Skype for business continued to decline close to 20% or rather a very low very low level of about 1 million of core such solutions for Microsoft teams consistent now 97% of Microsoft quarterly revenue.
Speaker Change: Exit first score of 24, the HIFU team's annual recurring revenues reached a level of 53 million in line with our plans. We're that confident that we are on track to achieve our stated goal of achieving dive annual recurring revenue of 64 to 70 million for the whole year.
Speaker Change: It services with him represent now nearly 45% of Microsoft.
Speaker Change: It seems to be this compared to just 25% in the year ago quarter, and thus we believe that the impact of the shift to recurring revenue model should ease in coming quarters.
Speaker Change: Also enjoyed growth in total contract value of live services, which grew about 45% year over year.
Speaker Change: From Geo perspective.
Speaker Change: Our bookings registered modest growth for the first time in multiple course, well North America experienced steady growth.
Speaker Change: Given the robust growth in our pipeline or graduate opportunities.
Speaker Change: Remain optimistic about the long term growth potential for our Microsoft business. In addition to the multiyear opportunity of teams phone connectivity, we can see clear signs of growing potential for a new source of revenue based on voice related business application.
Speaker Change: Among this they include components, such as Vivek I see I see as a contact center solution for the teams environment smarter through 60, it's a compliance through coding solution, but the teams environment and meeting insights as a central hub solution for capturing and sharing meeting information across the organization.
Speaker Change: Moving to CX in conversational AI.
Speaker Change: First quote first quarter contact center business grew 15% year over year led by North America and in the Asia Pacific regions convincingly I as Ive mentioned before.
Speaker Change: Conversational AI bookings grew over 50% year over year.
Speaker Change: Voice services for enterprise see cats deployments continued to be the center of our activity.
Speaker Change: With the integration of our lives platform into these opportunities we see a steady rise of revenues associated with our lives CX activity.
Speaker Change: We now see strength in the CX C. A eye on all fronts emanating from sales of our solution in support of enterprise customers leading vendors of.
Speaker Change: Customer experience platform and cross sell for.
Speaker Change: One AI first of all because JC contact center platform to the team's fone installed base.
Speaker Change: Staying on the topic of workers see a sea of the past 12 months, we've significantly stepped up our product development resources and investment into the team's contact center solution I lifted by a recent edition of the Omnichannel capabilities, we are thrilled that the industry analysts and market.
Speaker Change: Like are starting to notice as evidence.
Speaker Change: By Us having recently being awarded by six a day the best Microsoft teams contact Center solution based on the evaluation of 16 top industry experts.
Speaker Change: While still a small portion.
Speaker Change: Still a small percentage of our overall business, we expect to see a C to be a major growth catalyst.
Speaker Change: No spillover F. R C acts and overall long term future arising from both Zurich revenue contribution and pull through of the rest of the Gulf, especially all AI business lines, such as smart compliance recording and close summarization.
Speaker Change: Now, let's quickly go through highlights of our.
Speaker Change: Other conversation I had been the segments are first on meeting insights just to remind us all meeting insights for teams is an enterprise grade.
Speaker Change: Software as a service solution that enables the organization to capture analyze and share. This meeting information across the company. It provides a comprehensive set of tools and conversational yeah technologies for recording for a thriving indexing and analysis, making it easy to search and retrieve information from past me.
Speaker Change: Earnings was making insights users can quickly find and review coupons and decision from previous meetings for improving collaboration and decision making across their organization.
Speaker Change: The first quarter of 2024, we have achieved a key development milestone or the solution was upgraded to become a cloud.
Speaker Change: Base true SaaS solution, providing a multi tenant service to enterprises.
Speaker Change: Roadmap for the solution in 2024 and includes among others editions of our automation capabilities are more languages European languages enhanced mobile operation and extent, sending the function of a meeting ESI to more a UK solutions.
Speaker Change: For sales, we have seen nice growth in new accounts in the U K and U S adopting the tool for their ongoing daily.
Speaker Change: Operations.
Speaker Change: <unk> second quarter 2024, we plan to launch smart at both though its a SaaS solution for enterprises, a process that will expand our go to market opportunities, enabling service provider and resellers so for their own branded recording services at Toyota codes.
Speaker Change: This new platform shares the same infrastructure, it's meeting insights and we have plans to unify the surfaces in 2024.
Speaker Change: Given growing synergies between these two business lines.
Speaker Change: To wrap up our discussion are relying on the nice progress we see in all sorts of zinc clients around Microsoft teams.
Speaker Change: C acts and conversational AI and despite the slower than expected start to the year due to legacy decline with strong conviction about our long term business fundamentals and have made significant progress in our Russell mentioned to a software and services company with strong profitability.
Speaker Change: This optimism is supported by record pipeline of greatest opportunity and the first square at 2024, particularly in the Microsoft and contact center environments growing momentum of book I see I see it as a major long term growth driver for the company and ongoing strong annual recurring revenue growth was alive.
Speaker Change: Minutes services for the company.
Speaker Change: And with that I've concluded my.
Speaker Change: Section of the call and I'd like to over the call to the operator.
Speaker Change: Thank you very much we will now be conducting a question and answer session. If you would like to ask a question press star one on your keypad now we also buy your pacing. Your question you. Please pickup your handset if you will.
Speaker Change: Using a speaker phone.
Speaker Change: Please give us one minute falsely poll for any questions.
Jefferies: Thank you. Your first question is coming from so much demand out of Jefferies. Your.
Jefferies: Your line is life.
Jefferies: Hi, This is Nate Marion on first not thanks for taking my questions I wanted to start with guidance.
Nate Marion: The $15 million reduction to the full year revenues, what amount was from lower than expected gateway revenue did.
Nate Marion: Did you lower revenue expectations for any other products or services as well.
Speaker Change: Okay, well, we've seen about dreaming and you know declining first score.
Speaker Change: You know just relying on the experience we had from 2023, we believe that we will not see major you know improving throughout the year. So taking a three minute for core we took 12 million for the full year for the Gateway a decline and then you know based on you know our.
Jefferies: <unk> of the ongoing continued you know slowdown in the market than you did.
Jefferies: No Oh spending in the market you know we left drove another $3 million.
Speaker Change: Understood. Thank you said Cai and then.
Speaker Change: You've been talking about this transition towards more recurring revenue for several years now.
Cai: Are we reaching an inflection point, how big is your legacy business scale and when could we start to see total revenue growth for <unk>.
Speaker Change: Closely reflect your recurring revenue growth.
Cai: Right. Okay. So let me repeat some of Oh, the stat I I mentioned before the most important business. When you tried to analyze you know our recurring business versus Capex is Microsoft teams now.
Speaker Change: Now what I'd say that is in this first quarter of 2024.
Speaker Change:
Speaker Change: Recurring revenues teamster recurring revenues reached 45% compared to just.
Speaker Change: 25% a year ago, so Mike our expectation are that within the next two or three months you know the decline of our wood sake.
Speaker Change: Our capex teams will be substantially less meaningful so you know.
Speaker Change: In General you know, we view 2023, 24, and probably the first half of 'twenty five as the years of transition in our revenues from a capex model to a an opex model. So.
Speaker Change: We do expect that.
Speaker Change: You know this quarter maybe another.
Speaker Change: Another quarter of two will will still suffer from that but I think entering towards at the end of this year and early 25, I think we will have a very strong pace of ongoing accumulated you know pipeline for or recurring revenues and therefore.
Speaker Change: I believe that we should be say from that point at all.
Speaker Change: Alright, thank you.
Speaker Change: Thank you very much.
Speaker Change: Your next question is coming from Ryan Macwilliams of Barclays. Ryan Your line is live.
Speaker Change: Hey, Thanks for taking the question. This is Pete on for Ryan Macwilliams, just I'm trying to look into what dynamics, you're seeing right now in terms of see Cas versus you cast driven demand.
Pete: And how would you characterize those demands for both and if that's similar to what you saw in 2023.
Speaker Change: So actually we do see.
Pete: We do see a shift I mean, I think the turning point was probably somewhere in the beginning of 2023 until then thank you Cass was primarily the biggest market in and see cats was less we all believe and I think anybody who attends industry.
Pete: Trade shows and events such as the enterprise connect and figure out that you cast as kind of a you know taking a slower growth path.
Pete: Although still big and strong however, the majority of the interest and I think this is mainly due to the impact of you know I'm, a I N Gen AI and conversational AI technologies.
Speaker Change: We definitely see substantially more opportunities and see Cas I'll also take the fact that the the biggest market is substantially more fragmented compared to UK. If you guess you know you just take the top three accounts.
Speaker Change: Microsoft teams and Cisco Webex and zoom.
Speaker Change: And maybe you have another one player too you know that comprise about 70, 80% of the market. So are the.
Speaker Change: The opposite.
Speaker Change: Fortuna is there or are becoming kind of a narrow and and and and limited while the CX industry is growing fast substantially higher right and its substantially more fragmented and subside and also broken into different functionalities and solution.
Speaker Change: And so our ability to take or you know a deep technology base.
Speaker Change: And in an experience and expertise in many networking and and cognitive services and conversational AI technologies. This will allow us to substantially be a more creative and successful so for us.
Speaker Change: Starting 2023.
Speaker Change: And this year more definitely the CX seek as industry is much more interesting for us and this is where he will now put of most of our airports.
Speaker Change: Great. That's very helpful. Thank you shall die and then just maybe following up sure should we think about the shape of product and service revenue for the rest of FY 'twenty four just given the commentary around the legacy business and then also the service pipeline looking good but anything you can talk about in terms of shape of revenue for products and services.
Speaker Change: For the rest of this year.
Speaker Change: So just like you know on the heels of 2023, we believe services will continue growing last year I think.
Speaker Change: We ended the around 50% this year will probably grow.
Speaker Change: Probably towards you know the 50% to 55% product portion of our sales will always come down also due to the fact that there's you know still a very high impact for from the high interest rates. So we may see further you know.
Speaker Change: Hum.
Speaker Change: Product decline, but in essence, we've cross our you know the.
Speaker Change: On the line and where our products are as important as they were you know back in our history. Our services is now.
Speaker Change: And any new project, we are initiating beat in Ucas in see Cas NASA conversational AI tends to be surfaces and in long term bookings so.
Speaker Change: The shift is occurring so I would expect you know at Justice, we provided our guidance that we will.
Speaker Change: So either keep or even grow beyond where we are in the first quarter.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Sure. Thank you very much just a reminder, if anyone has any remaining questions. You can press star one on your keypad to join Nikki.
Speaker Change: Our next question is coming from Ryan Koontz of neat Needham <unk> Company Ryan Your line is life.
Ryan Boyer Koontz: Great. Thanks for the question I'm asking.
Ryan Boyer Koontz: Generally our exposure to service providers here with traditional service providers.
Ryan Boyer Koontz: Some gateways.
Ryan Boyer Koontz: <unk> is due to the exposure and go beyond just the weakness in cloud I'm, sorry or weakness in Capex.
Ryan Boyer Koontz: Yeah, they're also putting up some pretty awful gross numbers and or are their wholesale and business services.
Ryan Boyer Koontz: Used to be an accelerating decline.
Ryan Boyer Koontz: So I assume that that's also an impasse on the gateway business or can you confirm.
Speaker Change: Yes that is indeed, you know what what I'm, you know as Hertz or you know gateway business back in 'twenty, three and and and now are in essence, you know we definitely view you know the giants in the software industry.
Ryan Boyer Koontz: People are investing in growing their offering therefore spending more in and you know, allowing enterprise AR.
Ryan Boyer Koontz: To.
Ryan Boyer Koontz: <unk> be beneficial service provider with according to what we see are playing a very safe and minimal play.
Ryan Boyer Koontz: Trying to hold.
Speaker Change: They are but we cannot see any growth from that side of the business.
Speaker Change: Okay.
Ryan Boyer Koontz: The teams what seems like there are there are gross.
Ryan Boyer Koontz: Gross numbers on PSTN ads or are you looking to be real healthy.
Ryan Boyer Koontz: If it is accelerating 'twenty.
Ryan Boyer Koontz: 20, 20 million subscriber or seat a number.
Ryan Boyer Koontz: How do you read your attach rate there or the teams.
Ryan Boyer Koontz: Is this primarily through service provider solutions, where they're where they're struggling a bit to.
Ryan Boyer Koontz: Just to stay relevant relative to the new teamster platelets.
Ryan Boyer Koontz: Okay. So yeah, yeah, well Microsoft teams.
Ryan Boyer Koontz: Teams, our phone business seems to be growing nicely.
Ryan Boyer Koontz: You know about you know a.
Ryan Boyer Koontz: Few millions every year, we are definitely enjoying that trend you know when we cite growth nor alive.
Ryan Boyer Koontz: Managed services growth of you know, 45% growth that is attached to business and the Microsoft phone you know our business and therefore, yes.
Ryan Boyer Koontz: We will definitely benefit from that.
Ryan Boyer Koontz: We actually see growth you know our backlog is growing our live services are growing a bigger companies, who just did the first step of deploying a project now enter a more meaningful phase of moving we also believe the journey AI co pilot.
Ryan Boyer Koontz: This will drive more use of teams phone simply because once you get those are.
Ryan Boyer Koontz: Great analytics capabilities from co pilot on meetings and calls that would definitely drive Ah. We believe you know phone users from legacy telephony systems to move to teams fun you know this to be able to benefit from.
Ryan Boyer Koontz: The capabilities co part of the brain. So yeah, we believe Tim Swan is growing nicely or businesses attached to it then.
Ryan Boyer Koontz: I can definitely see a very long run.
Ryan Boyer Koontz: Runaway for this activity.
Speaker Change: That's helpful and one last quick one if I could on although cost per teams.
Speaker Change: What are you seeing as you use cases, there is this primarily in the.
Speaker Change: Tier two use cases, a lot of companies are your peers that rollout a contract early contact center products are lead generation products are using are seeing internal use cases and kind of second tier use cases is that similar for boca or what what sort of east coast very soon thank you.
Speaker Change: Yes, yes. Indeed, you know it was book C. H C being you know a new entrant. Obviously are you know we need to go for the lower hanging fruit. So yeah lower number of seats you know a contact center that's of you know our internal desks.
Boca: And or you know small offices, but then you know I can tell you. If I'm you know we just one end of 2023, a huge project who is one of the leading universities in the U S. A this university as you know tens of thousands more than 50000 students.
Boca: All in all with you know stuff and other functionalities on the campus I think theyre all in all of like you know.
Boca: Go above 150000 users buts.
Boca: That means that contact center is going to be using variety of application within that campus.
Speaker Change: And you know in many cases, you know you have you know of many you know, let's say one application.
Speaker Change: You know that is serving about 25 contact center out of you know substantially larger in number in that campus. So volcker definitely serves that need. So we are we are growing we are investing you know, we just said as I've mentioned omnichannel capabilities, you know on top of voice, where we already achieved 90%.
Speaker Change: Average of what's needed.
Speaker Change: So yeah, we're gaining a lot of farms Ah. The fact is that you know due to the fact that we are in such a very large installed base of customers in Microsoft teams and because the solution is Asia and native you know our realized avidly the state of the art the deepest level of technology available for Microsoft.
Speaker Change: For sure which is not available in other contact center solution in the market makes our solution for Microsoft teams and Azure are substantially you know more advanced and preferable.
Speaker Change: So the solution is very unique in that environment and we believe we were gaining a lot of traction in that space.
Speaker Change: Thanks for all of that shortly.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: That appears to be the end of our question and answer session I will now hand, it back over to shop tie for any closing comments.
Shop Tie: Okay, well. Thank you operator, I would like to thank everyone, who attended our conference call. Today. We've continued good business momentum in the Orient apprised operations and good underlying market trends and you can see cats and churn AI growing we believe we are transitioning their business towards <unk>.
Shop Tie: <unk> growth and prosperity in the future. We look forward to your participation in our next quarterly conference calls. Thank you very much for being here with us today have a nice day.
Speaker Change: Thank you very much shop tie. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.