AudioCodes Ltd. Q3 FY2024 earnings call

• Strategic priorities: Focus on transforming to a UCaaS and CCaaS cloud software and services company. - Microsoft business: Third quarter growth of 8% sequentially, with Teams business up 9.2% sequentially. Recurring Teams Live business grew 21.4% year-over-year, accounting for 45% of Teams business. - Services business: Third quarter services revenue grew 6.4% year-over-year, with live managed services backlog at $67 million, up from $27 million year ago. - Conversational AI: Third quarter dollar value of contracts signed increased ~50% year-over-year. Voca CIC, Meeting Insights, etc., showing growth. - Notable wins: Contracts with multinational bank, multinational industrial equipment dealer, foreign government. - Profitability: Non-GAAP gross margin 65.6%, non-GAAP OpEx $32.5 million, adjusted EBITDA $7.9 million (13.1% margin).

Revenues for the third quarter were $60.2 million, a decrease of 0.1% from the second quarter. Services revenues were $32.5 million, accounting for 54% of total revenues. Geographically, North America made up 47% of revenues, EMEA 33%, Asia-Pacific 13%, and Central and Latin America 7%. GAAP gross margin was 65.2%, operating income was $4.9 million (8.1% of revenues), EBITDA was $5.9 million, and net income was $2.7 million ($0.09 per diluted share). Non-GAAP gross margin was 65.6%, operating income was $7 million (11.7% of revenues), EBITDA was $7.9 million, and net income was $4.9 million ($0.16 per diluted share). Cash, cash equivalents, etc., totaled $88.4 million at the end of September 2024.

• Reiterated 2024 revenue guidance: $240 million to $250 million. - Non-GAAP EBITDA guidance: $33 million to $39 million. - Confidence in Microsoft business returning to double-digit growth in 2026 as Live business continues to grow and outpace declining CapEx business.

• Global economic conditions, supply and demand shifts. - Market acceptance of new products. - Competitive products and pricing. - COVID-19 pandemic impact. - Effects of Israel-Hamas conflict and potential regional conflict. - Obligations of personnel to military service.

Q: How are customers thinking about AI investments for next year and budget health?

A: Increased interest and demand, especially in SaaS applications and projects with customization needs. Government space is active.

Q: How to think about growth of product and service revenue in 4Q and fiscal year '25?

A: Live services growing but CapEx in Teams declining; Live now 44% of revenues, growing 21%, CapEx 56% but declining 12%. Confident in reversal of trends leading to growth.

Q: What KPIs track subscription business momentum?

A: Monthly and annual recurring revenue, bookings. Backlog at $67 million vs $27 million year ago, steady bookings of ~$15 million per quarter.

Q: Confidence in Microsoft business returning to double-digit growth and pipeline breakdown?

A: Live business growing 21%, CapEx declining 12%; trends will continue, confident in double-digit growth in 2026. Pipeline up 12% sequentially and 19% year-over-year with large enterprise customers.

Q: Customer wins with conversational AI and product use cases?

A: Solution is organizational, used in various sectors. Example: Meeting Insights used for knowledge retention, access to missed meetings, etc., with multiple use cases in different industries.