Q4 2024 AudioCodes Ltd Earnings Call
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Speaker Change: Sabtai Adlersberg, Roger Chuchen, Niran Baruch Sabtai Adlersberg, Roger Chuchen, Niran Baruch
© transcript Emily Beynon
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Speaker Change: Greetings and welcome to the Audio Coach 4th Quarter 2024 Earnings Conference Call.
Speaker Change: At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note, this conference is being recorded.
Speaker Change: I will now turn the conference over to your host, Mr. Roger Chuchen, Vice President of Investor Relations. Sir, you may begin.
Shabtai Adlersberg: Thank you, Operator. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer, and Niran Baruch, Vice President of Finance and Chief Financial Officer.
Shabtai Adlersberg: Before we begin, I'd like to remind you that the information provided during this call may contain forward-looking statements relating to audio codes, business outlook, future economic performance, product introductions, plans, and objectives related thereto, and statements concerning assumptions made.
Shabtai Adlersberg: Expectations as to any future events, conditions, performance, or other matters are forelooking statements as the term is defined under U.S. federal securities law. Forelooking 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.
Shabtai Adlersberg: These risks, uncertainties, and factors include, but are not limited to, the effects 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.
Shabtai Adlersberg: the impact of competitive products and pricing on audio codes and its customers' products and markets.
Shabtai Adlersberg: Timely Product and Technology Development, Upgrades and Ability to Manage Changes in Market Conditions as Needed, Possible Need for Additional Financing, Ability to Satisfy Covenants in the Company's Loan Agreements, Possible Disruptions from Acquisitions.
Shabtai Adlersberg: the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes' business.
Shabtai Adlersberg: possible adverse impact of the COVID-19 pandemic on our business results and results operations.
Shabtai Adlersberg: The effects of the current terrorist attacks by Hamas and the war and hostilities between Israel and Hamas and Israel and Hezbollah, as well as the possibility that this could develop into a broader regional conflict involving Israel with other parties, may affect our operations and may limit our ability to produce and sell our solutions. Any disruption in our operations by the obligations of our personnel to perform military service as a result.
of current or future military actions involving Israel,
Shabtai Adlersberg: the U.S. Securities and Exchange Commission. AudioCodes assumes no obligation to update this information.
Shabtai Adlersberg: 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.
Shabtai Adlersberg: Before I turn the call over to management, I would like to remind everyone that this call is being recorded and archived webcasts 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 would like to turn the call over to Shabtai. Shabtai, please go ahead.
Shabtai Adlersberg: Thank you, Roger. Good morning and good afternoon, everybody. I would like to welcome all to a Fourth Quorum year-end 2024 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of Ady Codes.
Shabtai Adlersberg: Niran will start off by presenting a financial overview of the CORE. I will then review the business highlights and summary for the CORE and discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran?
Shabtai Adlersberg: 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 an earnings supplemental deck.
Shabtai Adlersberg: On today's call, we will be referring to both GAAP and non-GAAP financial results.
Shabtai Adlersberg: 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.
Shabtai Adlersberg: We will be comparing our fourth quarter 2024 result to the prior quarter as we believe it provides a better gauge of our financial performance.
Shabtai Adlersberg: Revenues for the fourth quarter were $61.6 million, an increase of 2.2% over the $60.2 million reported in the third quarter of the current year.
Shabtai Adlersberg: Full year 2024 revenues were $242.2 million, a decrease of 0.9% over the $244.4 million reported in 2023.
Shabtai Adlersberg: Services revenues for the fourth quarter were $34.2 million, an increase of 5.4% over the $32.5 million reported in the third quarter of the current year.
Shabtai Adlersberg: On an annual basis, service revenues were $130.2 million, an increase of 8.2 percent over the $120.4 million reported in 2023.
Shabtai Adlersberg: The amount of deferred revenues as of December 31st, 2024 was $84.4 million compared to $78.6 million as of September 30th, 2024.
Shabtai Adlersberg: Revenues by geographical region for the quarter were split as follows.
Shabtai Adlersberg: North America 47%, EMEA 34%, Asia-Pacific 14%, and Central and Latin America 5%.
Shabtai Adlersberg: Our top 15 customers represented an aggregate of 64% of our revenues in the fourth quarter of which 48% was attributed to our 10 largest distributors.
GAP results are as follows.
Shabtai Adlersberg: Gross margins for the quarter was 66.2% compared to 65.2% in Q3 2024.
Shabtai Adlersberg: Operating income for the fourth quarter was $4.1 million or 6.7% of revenues compared to operating income of $4.9 million or 8.1% of revenues in Q3 2024.
Shabtai Adlersberg: Full year 2024 operating income was $17.2 million compared to operating income of $14.4 million in 2023.
Shabtai Adlersberg: Net income for the quarter was $6.8 million or $0.22 per diluted share compared to net income of $2.7 million or $0.09 per diluted share for Q3 2024.
Shabtai Adlersberg: Full year net income was $15.3 million or $0.50 per diluted share compared to $8.8 million or $0.28 per diluted share in 2023.
Shabtai Adlersberg: Non-GAAP results are as follow. Non-GAAP gross margin for the quarter was 66.5% compared to 65.6% in Q3 2024.
Shabtai Adlersberg: Non-GAAP operating income for the fourth quarter was $7.5 million or 12.2% of revenues compared to $7 million or 11.7% of revenues in Q3 2024.
Shabtai Adlersberg: Full year 2024 non-GAAP operating income was $28.1 million compared to operating income of $28.9 million in 2023.
Shabtai Adlersberg: Full year, 2024, non-GAAP EBITDA was $31.4 million, compared to non-GAAP EBITDA of $31 million in 2023.
Shabtai Adlersberg: Non-GAAP net income for the fourth quarter was $11.6 million or $0.37 per diluted share compared to $4.9 million or $0.16 per diluted share in Q3 2024.
Shabtai Adlersberg: Full year 2024 non-GAAP net income was $27.3 million, or $0.87 per diluted share compared to $25 million, or $0.77 per diluted share in 2023.
Shabtai Adlersberg: At the end of December 2024, cash, cash equivalents, bank deposits, marketable securities and financial investments total 93.9 million.
Shabtai Adlersberg: Net cash provided by operating activities was $15.3 million for the fourth quarter.
of 2024 and $35.3 million for the year 2023.
2024, sorry.
Shabtai Adlersberg: Their sales outstanding as of December 31st, 2024 were 106 days.
Shabtai Adlersberg: thousands of our ordinary shares for a total consideration of approximately 6 million.
Shabtai Adlersberg: In December 2024, we received court approval in Israel to purchase
Shabtai Adlersberg: Up to an aggregate amount of $20 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 14, 2025.
Shabtai Adlersberg: per share. The aggregate amount of the dividend is approximately 5.3 million. The dividend will be paid on March 6, 2025 to all of our shareholders of record at the close of trading of February 20, 2025.
I will now turn the call back over to Shabtai.
Shabtai Adlersberg: Thank you, Niran. I'm pleased to report solid fourth quarter performance with healthy growth in key business lines.
Shabtai Adlersberg: First, let's take a moment to acknowledge the achievements of 2022, which was an exceptional year for us, with revenue reaching a record level of $275 million and profits at $45 million on GAAP EPS.
Shabtai Adlersberg: However, in 2023 our business experienced a slowdown. The challenging economic, environmental, and global crisis had a significant impact.
Shabtai Adlersberg: on sales of our hardware products, primarily due to the high interest rates environment in our transition from perpetual sales to a recurring business model driven by shift towards cloud services.
Shabtai Adlersberg: This has resulted in an 11% decrease in revenue and notable decline in earnings in 2013.
Shabtai Adlersberg: Then, turning to 2024, while we anticipated similar trends continuing, I am pleased to report that year 2024 has signif...
Shabtai Adlersberg: who had a stabilization in comparison to the drop we faced in 2023, with a minimum revenue decline of about 1% and a comparable effect on earnings.
35 of net.
Shabtai Adlersberg: cash flow from operations further underlines our success in 2024. Furthermore, in 2024, we begin a new journey driven by combining the power of AI and business voice application to explore new opportunities for the company.
Shabtai Adlersberg: As you will hear shortly, we are embarking on a new direction, gradually shifting our focus from connectivity business to a new AI and generative AI-powered value-added services business.
This area appears to hold significant potential for growth.
Shabtai Adlersberg: Consequently, we are optimistic that 2025 will mark a year of reversal, with plans in place for renewed revenue growth and increased profits.
Shabtai Adlersberg: More importantly, we aim to establish a leading position in the emerging market, focused on AI-driven value-added services within the UCAS and CX segments.
Now to full score results.
Shabtai Adlersberg: Our Enterprise UCAS and CX business is very well in the core.
Shabtai Adlersberg: Related revenue accounted for 92% of revenues in the first quarter, highlighted by Microsoft Business at 13%, up 30% in the quarter. This represents the highest quarterly growth rate this year. Full year, Microsoft Business increased 6%.
Shabtai Adlersberg: In the customer experience business, we made progress as planned, and our growth in our CXLive business and healthy pipeline for CXLive services supports positive outlook for 2025.
Most of these very well know our services business.
Shabtai Adlersberg: Overall, services grew 10.9% year-over-year and accounted for 54.5% of revenues.
Shabtai Adlersberg: With the U.S. market continued growth of above 15% CAGR for coming years, we expect our live managed services growth to continue at such rates in coming years.
Shabtai Adlersberg: Going back to enterprise, live teams grew 30% in the core and accounted for 47% of the overall Microsoft business.
Shabtai Adlersberg: Full Year 2024 Live Teams increased 33% and represented 47% of Microsoft business.
Shabtai Adlersberg: This growth, coupled with 30% growth in voice AI business for the full year 2024, contributed to us ending 2024 with an annual recurring revenue at $65 million, representing 35% year-over-year growth.
Shabtai Adlersberg: It is important to note that at this stage, the majority of revenue from the U.S. and CX markets are associated with our connectivity gear.
Shabtai Adlersberg: What's been developing already in 2024, and we should see more of it growing in the years ahead, is a shift in the market demand to focus on complementary value-added services for the same U.S. and CX markets.
Shabtai Adlersberg: Just to name a few such services, these include the Mount Goddard, call analytics, contact center solutions, recording solutions, meeting room solutions, CRM connectivity, and more.
Shabtai Adlersberg: As such, with the shift in our focus to offer business voice applications coupled with value-added services, we expect to see a rise in demand for our voice AI applications.
Shabtai Adlersberg: We are preparing to launch services based on Live Services Platform, a SAS Unified Service Delivery Platform that has been in development in our company for the past three years.
Shabtai Adlersberg: This platform integrates connectivity, management, and value-added services into a single ADCODE solution, which we believe positions us with a competitive market advantage.
Shabtai Adlersberg: As previously mentioned, our land and expense strategy, supported by our leading SBC connectivity solution and complemented by additional solutions and services, has consistently demonstrated our potential for growth.
Shabtai Adlersberg: We are now moving into the second phase of this strategy.
Shabtai Adlersberg: utilizing our strong network of enterprise customers to cross L-Value-Add services specifically within the realm of voice applications that we classify broadly as conversational AI.
Shabtai Adlersberg: To provide some context, our investment in conversational AI began back in 2018 with the establishment of our Voice AI business unit, well before the rise of GeneAI.
Shabtai Adlersberg: With the introduction of GenAI, we have observed a notable increase in customer interest and expansion of use cases.
Shabtai Adlersberg: which has justified a significant portion, approximately one-third of our R&D budget dedicated to this area.
Shabtai Adlersberg: We believe that our voice AI portfolio has reached a level of maturity and is now receiving increased market recognition for our solution, leading us to expect accelerated revenue growth starting in 2025 and continuing thereafter.
Shabtai Adlersberg: Consequently, as we approach 2025, we will concentrate our internal operation on managing two distinct business units, connectivity and value-added services.
Shabtai Adlersberg: Now, I will provide an overview and outline some financial characteristics of these two business units to enhance investors' understanding of the IDC's current operations.
studying with the orphan activity business.
Shabtai Adlersberg: This business encompasses our traditional voice infrastructure solution and service operations, which are designed for large enterprises in the U.C. and CX markets.
Shabtai Adlersberg: In 2024, this segment has generated approximately 95% of the company's revenue. Operating for the past 15 years, this is a well-established operation that holds a strong market position, particularly within the Microsoft Teams and Genesys ecosystems.
in Achieving Attractive Known Gap Operating Margins.
Shabtai Adlersberg: Fully mature and solid business, which continues to grow roughly at above 10% annually. As a leading player in this area, we anticipate consistent long-term growth in the years ahead.
Shabtai Adlersberg: With the advancement of cloud services, we have adapted our voice infrastructure solution shifting from hardware-focused products to software solutions and services.
Transitioning from traditional capital.
Shabtai Adlersberg: expeditious or perpetual sales through recurring managed services model is expected to improve both revenue visibility and stability while supporting sustained long-term growth.
Shabtai Adlersberg: Consequently, we view this business as highly profitable with promising growth potential and significant cash flow from operation, which will allow us to invest and fund the evolution for our value-added services and voice AI.
Now let's discuss our Voice AI business.
who initiated the investment in this area back in 2018.
Shabtai Adlersberg: From an operational standpoint, we are still in the investment phase, as the number of voice AI applications we support is rapidly increasing in the value-added services sector, largely due to the emergence of Gen-AI technology launched by OpenAI back in November 2022.
Shabtai Adlersberg: In 2023 and 2024, we allocated around $8 to $10 million of investment each year.
Shabtai Adlersberg: which has influenced the company's overall financial performance and bottom line.
30-50% for the voice AI business in the coming years.
Shabtai Adlersberg: As the voice AI business offers its voice application as a solution, we foresee an increase in gross margins.
Shabtai Adlersberg: that will exceed the current company average, resulting in enhanced gross margin over the next few years.
Shabtai Adlersberg: Of the last year, our voice AI business clients have gone on multiple industry accolades.
for Competitive Strategy Leadership in the AI Business Meetings Market.
Shabtai Adlersberg: Why we believe we will emerge a leader in the conversational AI field among established players and startups? We are uniquely positioned to succeed due to several key factors.
Shabtai Adlersberg: First, we possess extensive domain expertise in VoIP telephony and networking built over the past 20 years.
Shabtai Adlersberg: Also, since 2018, we have made significant investment in cognitive services technology and AI. Our team has vast experience in developing and delivering SaaS cloud and on-premises services.
Shabtai Adlersberg: We have a proven record in UCAS and CCAS managed services and we have extensive experience in deploying AI solutions that will further strengthen our position.
Shabtai Adlersberg: Moreover, the brand trust that we have established with major enterprises in North Worthy, a voice solution of deployed mission-critical UCCX voice infrastructure of 65 out of the Fortune 100 companies.
and 4 out of the top 10 multinational banks.
Shabtai Adlersberg: We believe this strength collectively position us favorably within the competitive landscape of conversational AI for binned voice application.
Shabtai Adlersberg: Now, before turning into more detailed business line discussion, let me quickly shift into the fourth quarter profitability metrics.
Shabtai Adlersberg: Our non-gap gross margin for the quarter was 66.5%, falling within our long-term target range of 65-68% and an improvement from the previous quarter of 65.6%.
This increase is mainly attributed
Shabtai Adlersberg: to increase investment in marketing, travel, and cloud services aimed at bolstering business growth as we move towards 2025.
Shabtai Adlersberg: The hike in expenses can be primarily linked to enhanced participation in marketing events, an expanded sales team, and higher travel costs, all focused on driving revenue growth, especially in live managed services and voice AI.
Shabtai Adlersberg: In terms of workforce, we concluded 2024 with 946 employees, an increase from 935 in the third quarter, but the slide declined from 950 in the fourth quarter of 2023.
13.1% in the previous quarter.
For the entire year, adjusted dividend reached $31.4 million.
Shabtai Adlersberg: Lastly, in a positive development, net cash from operation activities was $53 million for the core and $35.3 million for the full year 2024.
Shabtai Adlersberg: Clearly, this robust cash flow generated supports our positive outlook regarding our capacity to keep investing in and expanding our business moving forward.
Shabtai Adlersberg: concerning our growth strategies for connectivity and value-added services sector in 2025.
We aim to sustain growth of
20-26% in the connectivity sector, with a target annual
recurring revenue of $78 million to $82 million.
in the value-added services sector.
who anticipate booking will increase by over 40% year-over-year.
to exceed $17 million.
In light of these
Shabtai Adlersberg: planning. Along with operational momentum and strong pipeline in our live managed services and voice AI, we are setting our guidance as Niran mentioned earlier.
to Revenue Guidance.
Shabtai Adlersberg: $246,000,000 to $254,000,000 for 2025, with full year non-GAAP EBITDA guidance of $34,000,000 to $38,000,000.
Let me move a bit to...
Shabtai Adlersberg: give more background on Microsoft's business. Regarding strategic business segments, as previously noted, Microsoft Teams experienced 13% increase year-over-year in the full score, marking the highest score growth of the year. The full year growth for Microsoft Business was
Shabtai Adlersberg: 6%. Looking at the recurring versus capital expenditure aspects, so live booking in full score surged by 30% year-over-year with live booking
constituting 47% and increased from
40% in the same year last year.
Shabtai Adlersberg: Consequently, this time CAPEX segment of the teams accounted for 53% down from 60% in the previous year quarter.
Shabtai Adlersberg: The activity regarding new live team contracts remained robust in fourth quarter.
Shabtai Adlersberg: With total contract value booking exceeding $20 million. For the entirety of 2024, we observed annual contract value growth surpassing 25% compared to prior year.
Shabtai Adlersberg: A significant factor in success within this domain is the live services platform, which combines connectivity management and value-added services. This platform facilitates faster development for large enterprises.
Shabtai Adlersberg: large enterprise accounts on one end and then enables quick onboarding for small and medium-sized businesses.
Shabtai Adlersberg: The Microsoft Teams ecosystem has shown robust growth, adding over 3 million new seats in the past year, reaching a total of about 22 million, which is a small fraction of the estimated 300 million potential for Teams seats.
Shabtai Adlersberg: Also, I am pleased to share that we have recently been focusing on creating a valuable opportunity.
and Tzi Wong.
Shabtai Adlersberg: With an estimated 16 million seats and an additional 3 million seats in the past year, we view this new market segment as an excellent chance to expand our market presence.
In a previous discussion,
Shabtai Adlersberg: We highlighted the ongoing strength of the Microsoft ecosystem, especially within the education sector. I am happy to report that this momentum has not only persisted, but has also intensified.
Here are a few significant achievements.
Speaker Change: from the Corps. The first success involves the major state university system comprising of over 50 campuses.
Speaker Change: Recently, we finalized a master agreement with the IT administration, which designates us as the preferred communication partner at the campuses aimed to enhance their UC CX infrastructure in coming years.
Speaker Change: In the fourth quarter alone, we secured contract value in the low single-digit million, which includes live pro-managed services, professional services, and capital expenditures for high performance.
Speaker Change: Notably, this figure represents the initial commitment from 9 campuses only out of the 50, and is just a small part of the total number of universities available. We anticipate that more campuses will join us in the upcoming months.
Speaker Change: Associated with the McGratin Call Center and Voice InfoSector to the cloud. Many customers are choosing our live CX service.
Speaker Change: During the fourth quarter, we secured a contract exceeding $1 million for LiveCX in Brazil with a banking institution to assist in their network migration to the cloud. In North America, we established multiple LiveCX agreements in Q4 with leading banking and financial organizations.
Speaker Change: By beginning of fourth quarter, we established a CX partnership with an Indian BPO to transition their multi-region voice infrastructure to the cloud.
Speaker Change: They went live within a few weeks using our live service delivery platform, which typically takes months with traditional deployment methods.
Speaker Change: Our efforts to encourage partners to adopt our live platform resulted in a new contract with the North American T1-SI system integrator that has major genesis in Cisco.
Speaker Change: CX practices. We will continue working to onboard more partners onto our platform to expand the reach of our live CX service.
Now moving...
Speaker Change: to details about Voice AI business. Voice AI business, as mentioned before, grew 30% in 2024, contributing nicely to the overall company revenue growth, development of machine AI technologies, and increasing customer demand for AI-driven business. Voice applications play a significant role in the adoption of Voice AI applications.
Speaker Change: There's new opportunities emerging in this sector and booking nearly reaching 15 million in 2024. It is anticipated that demand will remain steady and this segment is projected to grow by 40 to 50 percent in 2025.
Speaker Change: Let me make a quick run through two or three of the businesses in the Voice AI area. The first is the Voice AI Connect.
Speaker Change: are primary target or large enterprises in North America and Europe that develop and deploy multiple custom voice boats and agent-assist solutions to serve contact center solutions.
Speaker Change: Following over 3-4 years of development, the solution, which is SBC-based, has reached a mature stage and is highly appealing to large corporations.
Speaker Change: Additionally, we've created a derivative product, a cloud-sales-services application named Live Hub. This platform enables both developers to rapidly test or onboard both applications within minutes, making it highly attractive to developers of bot solutions.
Speaker Change: Another exciting development is the recent soft launch of our real-time translation capability in mid-November. We have seen strong market interest, resulting in multiple proof-of-concepts with existing and new customers.
Speaker Change: In 2024, sales grew by over 30% and we anticipate maintaining the same growth rate in 2025.
Speaker Change: Turning to Roka CAC, this is our AI-first, Azure-based contact center solution for Microsoft Teams. When combined with our calling solution for Microsoft Teams Phone, Roka CAC offers a comprehensive and advanced calling and contact center solution.
Shabtai Adlersberg, Roger Chuchen, Niran Baruch
Speaker Change: In 2024, we successfully delivered an expanded deployment with large enterprises in North America, EMEA and AIPAC. In some of these deployments, we were successfully displacing and winning against key competitors.
Speaker Change: In its third year of operation, this business's bookings grew by approximately 35 percent. We are now planning for a growth of 50 percent in 2025.
Speaker Change: Now turning to Meeting Insights. This has been an event for the past few months for Meeting Insights on all fronts. First, we are thrilled to have Frost and Sullivan present us with
Speaker Change: Douglas Goldstein, CFPÆ, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Speaker Change: who believe this validates the vision of serving a centralized organizational knowledge hub, breaking down silos by unlocking valuable insights from meetings across major UC platforms.
Speaker Change: Even before this recognition, we already saw step function increase in customer interest in meeting insights across all geos. With full core proof of concept trials at nearly 2.5.
Speaker Change: times the level from the previous quarter. Generally proof of concepts off to a new good start and so would expect another record for proof of concept in the first quarter of 2025.
Speaker Change: In terms of product development and operational updates, I'll name a few. We recently unveiled an intelligent room solution by powering
Speaker Change: Populating our own video conference devices with meeting assets such that all meeting participants will automatically receive auto-generated AI meeting summaries.
Speaker Change: This move enhances value proposition to users by bringing to bear the full capabilities of our portfolio and can spare further interest in adoption of Meeting Insights.
Speaker Change: We are also adding Bring Your Own Storage option, which expands the addressable market to customers who are required to have their recording storage on their preferred or private cloud.
Speaker Change: Since the announcement of Zoom meetings support in late October, we've seen a good number of meetings conducted in Zoom.
Speaker Change: environment validating our vision and value proposition of centralized knowledge repository.
Speaker Change: In the next few weeks, we will look to offer integrated major CRM platforms, starting with Salesforce to Meeting Insight.
We have announced...
Speaker Change: This is a meeting solution for organizations seeking highly secured environment for meeting solution and complete disconnect from the Internet.
Speaker Change: It is in first stages of evolution, already selling nice in the government application area in Israel, and we intend to offer it in international markets in coming months.
Speaker Change: A very unique offering. We have seen high demand for the solution. It touches the most sensitive areas for management in the government, defense, finance, and healthcare markets.
To wrap up my presentation,
Speaker Change: We exited 2024 with good operational momentum, particularly with the continued strong growth in our two primary engines, our live family of managed services and voice AI. With the progress we are making in increasing our recurring revenues.
Speaker Change: and that live currently nearing half of Microsoft Teams bookings, we believe we have laid the foundation to support sustainable and healthy top-line and margin expansion in 25 and beyond.
Speaker Change: With that, I've concluded my presentation and I'd like to move over to the Q&A session.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please, while we poll for questions.
Thank you.
Speaker Change: Our first question is coming from Ryan McWilliams with Barclays. Your line is live.
Speaker Change: Hey guys, this is Damian Koglenoff from Rival Quilliams. Thanks for taking the question.
Speaker Change: I believe in the full square we saw a record backlog of...
Speaker Change: total contract value assigned for more than $20 million that compares roughly to an average of $15 million throughout the year. We've seen a nice pickup in the full score.
Speaker Change: Gen AI and Copilot technology. There will be more reason for enterprises to adopt
Speaker Change: AI and Gen AI to deal with Teams meetings and Teams calls. And therefore, we believe that there will be more deployments of Microsoft Teams phone in the market.
Shabtai Adlersberg, Roger Chuchen, Niran Baruch
So, the answer is...
Speaker Change: First, we are substantially increasing the capacity of the live CX services we are offering.
Speaker Change: Prior to moving to cloud, enterprises were usually aided by partners.
Speaker Change: who really took care of most of the installation and operations, day two and on. With the move to cloud, much of these partners were left...
Speaker Change: with no ability to support the enterprises, and therefore, you know, that support needs to come from the veterans themselves.
which created kind of a gap in the market.
We have identified that mid-2024.
Now we have a substantially fuller...
Portfolio of Life CX Services.
Speaker Change: I think we just had a very substantial win, I think I've mentioned it.
Speaker Change: It is one of the largest North American system integrators that deals with CX projects, mainly in the Genesys and Cisco environments.
Thank you. Bye-bye.
That offering really represents, you know, substantially
Speaker Change: Douglas Goldstein, CFP®, is the Director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
to contact Center Recordings.
that will be analyzing agent calls.
will be able to hand over to management.
Speaker Change: trends and more important insights into what's going on. And we're not talking about single sessions, but also when you talk about, you know, multitude of sessions. You can talk about tens and hundreds of sessions where Gen-AI helps you to identify patterns and trends.
Great. Thanks, guys.
Speaker Change: Thank you. Our next question is coming from Ryan Kuntz with Needham & Company. Your line is live.
Great, thanks for the question.
Speaker Change: Great to hear the traction on Microsoft picking up there around Teams. And what kind of trend are you seeing relative to, you know, operator voice connections into Teams? Are you seeing a trend over toward this new operator connect capability or still a lot of direct routing? And how does that impact your attach rate for Teams? Thank you.
a shift in
and the encouragement of using OperatorConnect over a direct route.
Speaker Change: We've not been exposed to such trend. So yes, the movie, you know, the trend is moving from, you know, as we see the aircraft to operator connect, but at this stage, we still do not see a big increase in usage in the market.
All right, great. And just...
Speaker Change: At a high level, you know, you talked about some big customer wins here in Brazil and the Systems Integrator North America. I wonder if you're seeing a trend toward larger, you know, fewer larger customer wins Or are you seeing more activity down market where you maybe have, you know, a higher number of smaller customer opportunities in the pipeline? Thanks.
Speaker Change: Thanks for the question because that really allows me to elaborate a bit about segmenting the marketing to two key areas.
We see here a continued...
trend of large enterprises, you know, adapting.
Speaker Change: Tim's, you know, year by year. And as I've mentioned before, we believe that the advent of AI and copilot solution will drive more enterprise seats toward using, you know, Tim's meetings and calls. So,
Speaker Change: but in this space we are, you know, generally, you know, a very dominant leader and we do not see much competition. So here the growth is well. Now touching the SMB space...
Speaker Change: Yes, as you alluded it, there is definitely competition over there.
Speaker Change: in a relationship with the world's largest service providers. And then you have Zoom playing in that area, and Microsoft Teams also trying. There, I believe, is going to be more competition. However, we believe that
Speaker Change: The platform we will be introducing second core, you know, the live platform delivering value-added services with so many unique AI-driven applications such as Contact Center, Recording, Meeting Solution, Analytics, CRM Connection.
We believe that being very strong technologically.
Speaker Change: We do have an advantage with coming up with one of the best platforms you'll see in the market. Therefore, we believe that we will be a strong player in that. All in all, we have a two-pronged strategy and we believe we will be successful in both.
Great. Thanks, Shabtai.
Thank you.
Speaker Change: Thank you. Our next question is coming from Samad Samana with Jeffries. Your line is live.
Right, so...
Speaker Change: meeting he said is targeting to become a UC agnostic solution meaning that our solution is an enterprise level solution and and you know in every enterprise you have you know no
No matter what type of you see.
Speaker Change: solution that enterprise has adopted takes us as an example. We are using Microsoft Teams.
Speaker Change: We have often, you know, a lot of Zoom calls. We are called in and or sometimes when we need to talk to the government here in Israel, you know, it's a Google Meet session. So you want one centralized solution, enterprise solution, that should be able to...
Speaker Change: basically contain all of the different sessions from both Microsoft Teams, Cisco WebEx calling, Zoom meetings, and Google Meet meetings. And therefore our solution will allow that.
Speaker Change: anyone using just Zoom, you know, will simply not be able to add to it, you know, calls coming from different environments. So that is a major, you know,
Speaker Change: Also, we believe that the fact that we are dealing with larger enterprises, which have finer requirements.
Speaker Change: and you know they can find you know executives with different you know research and market and business driven questions that we can answer it within Meeting Insight because we use custom prompts.
We believe that we will see that less.
Speaker Change: in other solutions, one of them could be Zoom AI Companion. So we believe that the fact that we're dealing with large enterprises will make our solutions substantially more extensive and providing more detailed solutions.
Speaker Change: And then more broadly, obviously the business has been going through this kind of subscription transition, shift to more recurring ratable revenue.
Speaker Change: to support side to make up for that in terms of growth.
Right.
Speaker Change: So, you know, as I mentioned earlier in the call, you know, we learned that in 2024 we saw the drop in legacy business, drop stabilizing.
Speaker Change: meaning, you know, contrary to the 11% drop in 2023, we went down only 1% in 2024. We believe that the trend will continue in 2025, meaning we'll have less and less drop in legacy.
Speaker Change: And as I mentioned before, I think we're stepping into a new era of, you know, business voice application, which is all, you know, software and cloud services, SaaS solutions.
Speaker Change: For example, we ended 2024 with voice AI revenues at about $12 million, and we're targeting $18 million, so we're targeting 50%. And quite frankly, I believe that we...
Speaker Change: are not yet in a phase where those solutions are mature enough. So as those solutions get more and more mature, I believe that the growth rate will intensify.
Speaker Change: So we're building much upon our ability to drive voice AI business revenues. So combining the two, you know, halt of the drop.
Speaker Change: decline in legacy and emerging of voice AI. And obviously as we said before, you know, the live business which is growing 35% a year, I think we set for a good year in 2025.
And then if I could sneak in one final question.
Speaker Change: You guys obviously got into EBITDA for next year, but could you maybe go a step further and just help us think even high level about kind of the individual OPEX lines next year? Where are you making kind of incremental headcount investments and maybe where are you kind of paring back spending?
Speaker Change: Obviously there have been a lot of AI products, but R&D spend is actually down over the past couple of years. Could we expect that line, for example, to pick up a little bit next year in terms of OPEX spending?
Speaker Change: We believe for 2025, and that's how we budgeted it, the growth of OPEX will be...
1%, maybe 2%, not more.
Speaker Change: Awesome. Super helpful. Thank you Shabtai and Niran. I appreciate the answers.
Speaker Change: Thank you. As we have no further questions at this time, I would like to turn the call back over to Mr. Adlersberg for any closing remarks.
Shabtai Adlersberg: Thank you, operator. I would like to thank everyone who attended our conference call today. We continue good business momentum in our enterprise operations and good underlying markets.