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spk01: Good morning, ladies and gentlemen, and welcome to the Audio Code's second 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, Mr. Roger Chuchen, VP of Investor Relations. Roger, the floor is yours.
spk07: Thank you, Operator. Hosting the call today are Shabtai Allisberg, President and Chief Executive Officer, Naran Baruch, Vice President of Finance and Chief Financial Officer, and Dimitri Nettis, 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 relating to audio codes, business outlook, future economic performance, product introductions, plans, and objectives related thereto. and statements concerning assumptions made or expectations as to any future events, conditions, performance, or other matters or forward-looking statements as the 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 for material from those stated in such statements. These risks, uncertainties, and factors include, but are not limited to, the effect of global economic conditions in general, and conditions in audio codes in 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 audio codes and its customers' products and markets, timely products 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 ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes business, possible adverse impact of the COVID-19 pandemic on our business and results of operations, and other factors detailed in AudioCodes filings with the US Securities and Exchange Commission. AudioCodes assumes no obligation to update this information. In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided full reconciliation of the non-GAAP net income and net income per share to his net income and net income per share, according to Gap in the press release that is posted on his website. Before I turn the call over to management, I'd 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'd like to turn the call over to Shabtai. Shabtai, please go ahead.
spk05: Thank you, Roger. Good morning and good afternoon, everybody. I would like to welcome all to our second CORE 2022 conference call. With me this morning is Niran Bruch, Chief Financial Officer and Vice President of Finance of Redecode. 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.
spk03: Thank you, Chapter, and hello, everyone. As usual, 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 second quarter were $68.4 million, an increase of 12.9% over the $60.6 million reported in the second quarter of last year. Services revenues for the second quarter were $27.8 million, up 21.9% over the year-ago period. Services revenues in the second quarter accounted for 40.6% of total revenues. The amount of deferred revenues as of June 30, 2022, was $75.2 million, up from $73.4 million as of June 30, 2021. Revenues by geographical region for the quarter were split as follows. North America, 43%, EMEA, 32%, Asia-Pacific, 19%, and Central and Latin America, 6%. Our top 15 customers represented an aggregate of 53% of our revenues in the second quarter, of which 44% was attributed to our 12 largest distributors. GAAP results are as follows. Gross margin for the quarter was 65.1% compared to 69.4% in the second quarter of 2021. Operating income for the second quarter was 7.9 million or 11.6% of revenues compared to 10.1 million or 16.7% of revenues in Q2 2021. Net income for the quarter was 6.9 million or 21 cents per diluted share compared to 8.2 million or 24 cents per diluted shares for Q2 2021. Non-GAAP results are as follows. Non-GAAP gross margin for the quarter was 65.6 percent compared to 69.7 percent in Q2 2021. Non-GAAP operating income for the second quarter was 11.9 million or 17.4 percent of revenues compared to 13.6 million or 22.4 percent of revenues in Q2 2021. Non-GAAP net income for the second quarter was $11.3 million, or $0.34 per diluted share, compared to $12.7 million, or $0.37 per diluted share, in Q2 2021. At the end of June 2022, cash-cash equivalents, bank deposits, market bond securities, totaled $138.5 million. Net cash provided by operating activities was 4.8 million for the second quarter of 2022. Day sales outstanding as of June 30, 2022, were 75 days. During the quarter, we acquired 374,000 of our ordinary shares for a total consideration of approximately 8.3 million. In June 2022, we received court approval in Israel to purchase up to an aggregate amount of $35 million of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through December 12, 2022. We declared a cash dividend of 18 cents per share. The aggregate amount of the dividend is approximately $5.7 million. The dividend will be paid on August 31st, 2022 to all of our shareholders of record at the close of trading on August 17th, 2022. Regarding headcount, on the hills of 112th position in 2021 and 37th position in the first quarter 2022, we added 18 full-time employees and 13 outsourced employees altogether 31 positions in the second quarter of 2022. We adjust our guidance for 2022 as follows. We now expect revenues in the range of $275 million to $282.5 million, down from $277 million to $285 million. And we now guide for non-GAAP diluted net income per share in the range of $1.35 to $1.45, down from our previous prior outlook of $1.40 to $1.60. I will now turn the call back over to Shabtai.
spk05: Thank you, Niran. I would like to remind everyone that in conjunction with our earnings release, we have posted on our investor relations website and earning supplement deck. I would like to start by providing an agenda for today's discussion. First, I would like to discuss our strategy and business characteristics that differentiate us in the market. Then I will discuss our financial highlights and outlook for second half of 2022. Finally, I will provide detailed discussions of our core business segments. On the first topic, I would like to address the macroeconomic uncertainty and remind investors why the strong business foundation we have built so far should enable us to outperform during the uncertain environment. We are leveraged to multi-year secular growth trends in the unified communications market, notably Microsoft Teams and Zoom Phone, and in the customer experience space. Customers deploy our software and services to drive greater productivity which is particularly relevant in a tight labor and inflationary environment we have consistent track record of strong profitability in cash flow generation on a trailing 12 months basis despite short-term elevated supply chain costs our non-gap operating margin was 19.2 percent which is amongst the highest in our industry over the same period We also generated $33.9 million non-GAAP free cash flow. Our strong financial profile enables us to continue to make product investments in our business to further strengthen our competitive mode and differentiate us from competition. We have a rock-solid balance sheet ending the second quarter with $138.5 million of net cash. We are in a great position to capitalize on any dislocations in the market, and we are actively looking for unique assets to add to our portfolio that can accelerate our long-term growth and transition to recurring revenues. Throughout our history, each time we experienced macro turbulence, we have extended, we've exerted strong control for our expenses and managed to not only survive, but use market location, strength or franchise, and leapfrog competition. While it is difficult to ascertain the path of the next potential macro term, this time should not be any different for us. I would like to remind everyone the strategy that has served us well over the past several years that we will continue to fine-tune and execute on. First, expand the reach of our core voice solutions and services in enabling a unified communication and collaboration in customer experience with focus on Microsoft Teams, Zoom, Genesys, and other major customer experience vendors. Second, increase customer value by upselling a broad and extended portfolio of voice services and application. And third, accelerate the transition to software and subscription organically and inorganically. Now to the quarter financials. We're pleased to report solid top line results growing 12.9% year over year. Revenue growth this quarter was mainly driven by ongoing momentum in the Microsoft Teams and Zoom phone in the UK space and the return of strong growth in customer experience segment, which led our enterprise activity. Revenue from Microsoft Teams, Zoom phone, and the customer experience market grew as a group by 22.1% year-over-year and accounted for 67% of our revenue. Service revenue grew 21.9% year-over-year and accounted for 40.6% of total company revenue. This is the proof of execution on our strategic priority by successfully transforming our company to cloud services and recurring revenue model with Audiocode's live managed services, which grew roughly 100% year over year. As evidenced by Microsoft Teams momentum, a recent Morgan Stanley CIO report cited by several Microsoft executives says that over 50% of the organization have standardized on Teams, and that's expected to increase to about 60% in the next three years. We believe this dynamic will further fuel our business, particularly in adopting increases with large enterprises. Quantifying this large market opportunity, third-party firm Wainhouse Research forecast Microsoft teams to grow at roughly 35% to 40% compound aggregate growth rate through 2025. which supports our confidence in multi-year runway for our Teams business. There are today over 270 million monthly active Teams users, of which only low single-digit percentage, based on our analysis, has adopted Teams phone system with PSC encoding. This is where we play. Our market share within Microsoft Ecosystem for direct routing application remains strong and is well above 50%. Equally strategic is a strong momentum with Zoom Phone, which continues to grow, and in the second quarter of 2022, grew over 50% year-over-year. Shifting gears to the customer experience segment, I'm pleased to report a strong snapback in our CX line, up over 20% after being down 8.5% in the prior quarter. Strong second quarter results were properly by the ongoing healthy spending environment in contact center and the closing of large deal that has slipped in the prior quarter. We continue to see great progress with our conversational AI business, where total contract value signed during the quarter grew over 100% year over year. We are well positioned to grow above 50% in our portfolio in 2022 compared to the previous year. Importantly, Audicors Live, our managed services offering for UCC and CX, and for the conversational AI segments, continue to seek strong momentum. We exited the month of June at 24 million ARR run rate, putting us on track to achieve our 2022 target of doubling the annual recurring revenues to over 30 million from over 15 million in 2021. Our pipeline continues to expand across core areas of our business, supported by long-term cyclical trends of migration of voice infrastructure to cloud, hybrid work, and enhanced customer engagement and experience, solution powered by AI. Shifting to margins discussion and OPEX. Our non-GAAP gross margin came in at 65.6% versus 69.7% in the year-ago quarter. This was influenced by several factors. A, product mix, as we're accounted for a greater percentage of our sales this quarter versus the year-ago quarter. And they typically carry lower than corporate average margins. Second, higher supply chain costs accounted for the balance of the gross margin difference, specifically we incurred 1.2 million of our component costs in second quarter versus the year-ago quarter, which was lower than the 1.4 million we mentioned in the previous quarter. We estimate the higher supply chain cost impact on our non-GAAP gross margin by about 170 basis points. Excluding this impact, which we believe is temporary, Our margin should have been 67.3%. We now believe substantially lower impact in the third quarter. While we continue to invest in our strategic areas in our business, we have slowed down its investment in the second quarter in view of the global macroeconomic slowdown. The non-GAAP OPEX growth slowed to 15% year-over-year, still growth, comparing to 20% in the previous quarter. The OPEX growth was primarily driven by adding positions. We have added 119 positions year-over-year. Non-GAAP operating margin was 17.4% versus 22.4% in the year-ago period, which was impacted by increased investment in new product and technology developments, product mix, supply chain costs, and increased hiring activity. This development or non-GAAP earnings per share came in at $0.34 in line with our internal budget. This compares to $0.37 in the second quarter of 2021. With regard to ad count, as Niran mentioned, we have added 18 full-time employees and 13 outsourced employees, altogether 31 positions in the second quarter of 2022. That speaks for itself in terms of our confidence in our ability to continue to grow and prosper. On the heels of 112 positions added in 2021 and 37 positions added in the first quarter of 2022, as we continue to invest in strategic areas of our business while prudently managing OPEX in light of uncertain macro environment, we expect continued growth in net count in the third quarter of 2022. Now to our updated guidance. While we continue to see strong business momentum and fundamentals, we believe it is prudent to update our guidance in view of the macroeconomic headwinds and the short-term elevated supply chain costs in 2022. As Niran already stated, we adjust our guidance as follows. On the revenue side, we now lower our revenue range by $2.5 million, about 1% of annual plan for the year. to be in the range of 275 to 282.5, down from the original guidance provided in January. As to earnings, we now guide to non-GAAP EPS to be in the range of 135 to 145, down from the original guidance of 140 to 160. There is no change to our long-term financial targets, which remain in growing income by 13% to 15% year over year, and by working to get back to the range of 20% to 23% non-GAAP operating margin. Touching on sales in the core, this has been a very good core. We have hit on our targets in sales in North America. We have a strong channel that keeps developing and outperform our plans by 20%. We have few regions and territories that pass the original plan. All in all, I would say that we performed well in North America, in EMEA, and some areas in Now, let's dive into our core business engines, first and foremost, Microsoft. As mentioned previously, Microsoft business grew over 20% year-over-year, with the activity in Teams up 45% year-over-year. Skype for Business continued to decline. About 50% is core, and now it's down to only about 4% of our overall company quarterly business. No question that in coming quarters, the impact of the decline in Skype for Business will be negligible, and we will see the full power of the growth in Teams, which has set it to be 45% year-over-year. With another record quarter for Microsoft Teams account additions, we added 317 accounts versus 209 in the year-ago period, and versus 260 in the prior quarter, which speaks for the accelerating adoption of TIMSS in our growing pipeline. Also, TIMSS' new greatest opportunity, here we look on the new business that's being created every quarter, it has grown 25% year-over-year, which provides, again, strong basis for further growth in coming quarters. Another point to note is that while our overall Microsoft business in 2021 was about 120, when we combine our revenue year-to-date with the above 80% probability opportunity that we have on hand, we are now at a similar level already at the end of July 2022, which again speaks and shows the strength of our growth. And thus, we have a high confidence level in our ability to grow Microsoft business in 2022 by 20 to 25% compared to 2021. To mention some of the key developments in the Microsoft space, we have seen substantial growth and drive in our devices activity. We've seen IP phone business growing nicely. We've seen demand substantially growing and continuing after the return to work with the decline of the COVID-19 pandemic. We still continue to include an IP phone business across several cores now. This is the third core of growth. And we plan for about 20% annual growth. I should mention, though, that if we would have been able to deliver all of the purchase orders that were received, we would probably end up with the Epiphone business growing substantially faster. We had a shortage and that has really limited our ability to deliver. Also, great focus by Microsoft on increasing efforts, equipment and delivery and installation of meeting rooms. That becomes a major topic with Microsoft. We are acting to build a new product to offer new services, and we expect to deliver and launch this product and services in this meeting space in the second half of 2022. Also, we have seen increased activity in the live cloud platform we have and Microsoft Operator Connect. Those solutions are meant to enable service providers in the market to quickly get on board with Microsoft Teams without going through tedious operations. And so we have been working closely with Microsoft and some other partners in order to accelerate live cloud operations. Just to mention two or three accounts that we have in that space, so working with a Tier 1 service provider, we have signed a 36-month contract with a large international investment firm, selling Gotico's live services for 1.5 million total contract value. This deal covers the migration from Avaya to Teams Voice for 7,000 employees in APAC and EMEA, with further scope for expansion. Another win we had in Europe, working with another T1 service provider, we signed a 48-month contract with multinational European energy company selling articles live services for close to a million of total contract value. The live services cover migration of 15,000 employees from Alcatel to Team Voice by the end of 2022. We are hopeful of potential expansion in this project and upselling additional solution in our portfolio. Third, working alongside the system integrator, we signed a 42-month contract with an international energy company, selling Odeco's live premium services for about 1.5 million total contract value. The deal provides managed SBC services plus various operations such as addition, changing, deleting services as part of the migration from this time from Cisco to Teams voice for 7,000 employees in the US and APAC. Now let's dive to the most important business line we have at Audicode, which is Audicode Live. Audicode Live stands for managed services portfolio in the Microsoft space, Microsoft Teams space. We had excellent execution in our live subscription services portfolio. We ended the second quarter at 24 million run rate, up from 20 million last quarter, and keeping us on track to achieve over or 2022 target of over 30 million. Importantly, we benefit from multi-year visibility from this revenue stream as live customers often sign 36, sometimes 48, and sometimes 60-month contracts. We ended the June quarter with over 60 million of total contract value up over 100% year-over-year. Actually, in each of the last three course, we have added more than 10 million in total contract value in Microsoft Teams. Other cause of live success stems from the fact that it removes complexity from the process of integration with legacy enterprise telephony and provides a seamless, rapid, and cost-effective migration to Microsoft Teams for enterprises. Regarding live teams, Total contract value, as I've mentioned before, just to repeat the information, in each of the last three quarters, we have signed contracts for a total value of more than 10 million each quarter. And at the end of the second quarter, our total amount of contributed total contract value is now above 60 million. Let's move to our success in the Zoom space. In the second quarter, revenues from activity in the Zoom phone space grew about 50%. We will grow this year close to 100% compared to previous year. Still will be in the range of 5 to 10 million. Second quarter 2022 was also a record quarter in which new opportunities were created. New opportunity creation really grew by north of 200% in the core, which tells you about the big potential that's developing for a solution in the Zoom phone arena. We know that Zoom is focusing more and more on the Zoom phone and has stated its strategic importance publicly. And we know that per a Piper-Sandler report out of October 21, Zoom is expected to gain market share from about 11% this year in the U.S. market to 15% in 2026. Just to remind everybody, we're talking about the 400 million seats U.S. market. We are cooperating with Zoom on projects targeted to increase the number of product and solution in the Zoom phone environment. We invest in coming up with a solution for local resiliency, several phones, connectivity devices, MSBR and gateways, some conference devices, and more. So all in all, we believe that we are making nice progress also with Zoom in the U.S. market. The next strategic business segment is the customer experience. We are pleased to see the return of strong growth up over 20% in second quarter after being down 8.5% in the prior quarter. Growth was fueled by continued healthy adoption of connectivity services and the closing of a large deal in EMEA, this quarter that has slipped in the prior quarter. On that particular large deal, we are working with a global system integrator to provide SBC infrastructure to a large European financial institution. which has embarked on a digital transformation initiative. This is a 48-month deal worth of roughly 1 million in total contract value. As you can clearly hear, during the past two years, we are increasingly growing the number of long-term high contract value for two, three, and sometimes even five years, which tells you that we are building and paving for ourselves the future going forward. Also, we see growing adoption of new products and services launched during the past 12 months that we expect to boost revenue growth. Among them, it's WebRTC solution, and then voice AI-related product and solution, including conversational IVR solution, Voice AI Connect, which enables voice connectivity to chatbots, and intelligent voice agents and assistants. I'll just mention original success in the customer experience. So in addition to North America where we have traditionally had strong activity that is related to our long-term relationship with Genesys, we've seen nice pickup in activity both in EMEA and APAC. And this time we have activity that involves directly end users. Lastly, let me talk about our global services. Global services, as we have mentioned, is really growing pillar for our business. In the second quarter of 22, services grew to become 40% of our revenues. Specifically, we've grown 12% in the second quarter, year over year, and if we combine first quarter, altogether we grew 13% in first half. Growth in support and maintenance contract was mild, 4.3% in second core, and then about 8.1%. And this results from moving from selling in a capex mode to selling in a recurring mode, simply because then support services really belong more to past transactions. On our professional services, we grew substantially. We grew over 35% in the second quarter with our professional services year-over-year, coming mainly from North America and EMEA. In fact, professional services had the highest investing quarter on record globally and in North America. North America professional services at the first half year-over-year growth of about 35%. And then, just to mention, we won in North America 45 new Audicodes Live managed services customers. So all in all, bringing the total contracted America's managed services customer count to above 200. And with that, I have concluded my introduction, and I will now turn to session to Q&A. Operator?
spk01: Thank you very much, Shabtai. Ladies and gentlemen, the floor is now open for questions and comments. If you have any questions, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please wait while we poll for questions. Okay, your first question is coming from Greg Burns of Sidoti and Company. Greg, please ask your question.
spk10: Good morning. So just first on the revised guidance, in terms of the EPS, the decrease in EPS guidance, what are your assumptions in terms of margins for the back half of the year? Are you expecting any improvement from the second quarter, or should we expect the gross margins to remain under pressure?
spk05: Yeah, generally I think, generally I believe that we will see the additional cost for components going down. We've seen it going down a bit in second quarter. We expect higher decline in the third quarter. So all in all, I think, you know, we hope to return, as I've mentioned, to a gross money that's about 67%. Okay. Um, yeah, that's all right. Okay.
spk10: Um, and Microsoft, um, had mentioned they had 12 million PSTN users, uh, on teams. So is that what, are those the users that are where your, um, your services are touching? Like when, if they're reporting to that number, is that a good number to kind of gauge the voice adoption? in teams? And what are you seeing in terms of their, their efforts to to increase that rate of adoption?
spk05: Okay, good point. So yeah, teams, teams, you know, I'll quote some of Microsoft and, you know, statements. So a they announced 270 million of teams users, right? Teams users does not include, you know, phone. So if you want to understand how many Kim's phone users are, they state, 80 million. Now out of those 80 million people who use Kim's phone, not all are communicated with the outside world. So they have announced, and this is indeed an important announcement, they have mentioned in the last call, you know, a week ago, that now they have 12 million of PSTN users compared with just 6 million a year ago. So growth on what we point here to the SBC direct route functionality. Every organization that has embarked on using TIMSS can work internally without any specific voice solution. However, in order to communicate with the PSCN, either to receive call or to dial outside, you need to add the SBC direct route functionality, as we just heard. Right now the state 12 million and such sits using that. I can tell you that we saying and we see it in the field that we control north of 50% of these sets and we see big growth in that. So yeah, that is an important data point to base our future you know, estimation as to the potential that we see either of us.
spk10: Okay, great. Thank you.
spk05: Sure.
spk01: Thank you. Your next question is coming from Samad Samana of Jeffrey. Samad, please ask your question.
spk02: Hi, great. Good morning. I wanted to follow up on the guidance question, but on the top line, I guess, Just as I think about the implied numbers, it kind of suggests a back half deceleration to let's call it about 10% from 18% in the first half of the year. And the comps are easier in the back half of 2020 versus the back half of 21. So I guess I'm just trying to maybe understand what you're seeing specifically that led to the guidance reduction. I know you said macro, but Are you seeing deal cycles get longer? Are you seeing people do smaller scale projects? What is driving the top line dollar revision?
spk05: Right. So I'll just say initially that, you know, the update really was done due to our update on the earning side. Okay. We would have not, target to update that, I probably would have not changed my update on the revenue. As we provide an update, we said, okay, we're going to take down growth from, we've guided initially to 13% a year, now it's going to be 12% a year. So we don't see that as a major update, right? To your question, yeah, we do see some of the project taking a bit longer time it's either a delay in decisions you know I think I think the wall has been in the previous month you know questioning you know how this crisis is developing worldwide you know I know that in the last month you know estimate is more positive but just to be you know prudent and not just take the guidance we gave initially and say, okay, everything runs as before. No. There are some headwinds. We see longer projects. We see some delays. But the impact in income is about 1%. That's all.
spk02: Okay. That's helpful. And then maybe just... In terms of what you're seeing with – when you're doing Microsoft conversions from Skype for Business to Teams or as customers move over to Zoom Phone, are you seeing any change in behavior in terms of the footprint? Like are they – Are they moving over the entire base at once? Are they being more methodical about how quickly they're moving over to the cloud environment? I guess what are you seeing as customers that you're helping convert over to the cloud? How are you seeing in terms of trends there?
spk05: Yeah, we definitely see a very strong trend of all Sky for Business and Sky for Business online accounts. moving to teams. That, you know, just to talk numbers, right? If, you know, a year ago, we were with Sky for Business at 10 million and 8 million cores. A core, you know, in second core, I think we were down to about 2.7 versus the core ago was about 4. So the decline is fairly rapid. I know that we know that It's kind of costly. You can assume that it's costly for Microsoft to maintain three different, I would say, infrastructure, application infrastructure solutions, such as Skype for Business, Skype for Business Online, and then Teams. So it is with Microsoft's interest to speed up that process. And we are aware of that fact. Customers are aware of that fact. And I think, you know, it will not take, you know, more than a year before we, you know, the amount of sky for business really goes to almost nothing. But, again, as I've mentioned, you know, because it's that low this time, 2.7 million a quarter, you know, less than even 5%, you know, the growth expected in teams will substantially dwarf that decline in sky for business.
spk02: Great.
spk01: Thank you. Your next question is coming from Ryan Kuntz of Needham and Company. Ryan, please ask your question.
spk09: Thanks for the question. On the strong services growth here with the audio codes live in, you know, 24 million ARR, what ending would you characterize we're in in terms of this transition of your new sales from product over to subscription? Where are we in that migration today on new sales? Thanks.
spk05: Okay. Yeah, it's a great question, actually, because we still keep selling products. At this stage, I think products are above 50% of our revenue core. But it is a very rapid transition. Already now, if I need to give an estimate, I think that... approximately, uh, above 25% or maybe close to 30% already moved from, you know, buying, um, you know, all the codes live as a recurring service compared with our, uh, uh, CapEx, uh, um, transaction in teams. So it's a rapid, um, but again, I think we've shown so far, uh, the ability to grow a hundred percent year over year without the codes live move to recurring. we do not see actually I would tell you that this is a very you know accepted very well in the market because the current you know difficulties of you know chronic lack of you know professional and talents in this space and the inability of large companies to deal with the modernization of their solution And actually, most of them are very open to, as it is not part of their core competence, many of them are open to using many services. As well, I think many services at this time are accepted, you know, favorably simply because it alleviates a lot of the issues one has to deal with when he's deploying a new service. solution in our system. So yeah, we will see continued growth, if not 100% a year, I would tend to think that in the next three years, we will see between 50 and 100% growth every year.
spk09: Super helpful. Can you remind us of the gross margin difference in your managed services versus your corporate average?
spk03: Actually, the live, because it's with more services, and the margin there is higher than one-time CapEx deal.
spk09: Got it. And just a quick follow-up, if I could. Any update on the competitive environment there, particularly as it relates to Microsoft's own internal solutions for SBCs?
spk05: Yeah, I think I mentioned before, you know, everything we've discussed so far, you know, relates to enterprise business. Microsoft acquired SBC from the meta switch deal is not in this space at all, they apply to the operator connect. And there, you know, actually, a substantial ramp up of sales really did not start. So We do not see at this stage an impact to our business from that.
spk09: Great to hear. That's all I have. Thank you.
spk05: Thank you.
spk01: Okay. Your next question is coming from Tal Liani of the Bank of America. Tal, over to you.
spk08: Hi. Thank you. Good morning. Good afternoon. Hi, guys. Shabtai, I didn't understand your answer on the previous, previous question, so I'll ask it again but in a different way. You lowered the revenue guidance for the next two quarters. Is it based on concerns or is it based on a decline in orders you've seen from customers? And if there was a decline, where is it? Is it specific product lines or specific customers? Can you elaborate on the revenue side? And then on margins, why now? We've seen supply constraints throughout the last, you know, at least four quarters, heavy, heavy supply constraints. Actually, most companies are saying that it has stabilized. It didn't improve, but stabilized. So why now you're flagging it more than before?
spk05: Okay, so let me answer the second question first. A, you know, we watch our costs in this market and our ability to you know, get delivery and supply. I can tell you that towards the end of the second quarter, you know, the two or three manufacturers which we use, you know, most of them have solved their issues. So we believe that going forward, you know, I'm not sure, you know, we're not using the same volume that, you know, large companies are using. So with our volume, we believe that third quarter will be a nice improvement and And actually, I'm told that in the full score, it will be minimal. So that's what we're seeing here internally at other codes.
spk08: Can you remind me on your first question what this is regarding the... The revenue, the question is, in simple terms, where do you see the weakness that drives you to lower the revenue guidance for the next two quarters?
spk05: is this coming from specific customers or specific products is it is it related to order cuts what drives you to lower the guidance for the next two quarters okay on the revenue side okay no or the cuts no specific you know situation with specific customers it's simply taking to account we've seen the velocity of and that we had two years ago in providing product and services and getting to revenues. And the picture in the second quarter was more difficult, right? I think we all experience headwinds anywhere in this world. So just being more, you know, precautious. Simply, you know, we have, again, I've mentioned that with revenues, that's not, the reason for providing an updated guidance. This is just, since I'm updating guidance, you know, it should as well take that into account, and so we lowered it by 1%. Nothing specific. It's simply longer, you know, projects, decision being taken slower than before, et cetera.
spk08: And where do you, so, right. And this 1%, it's 1% for the year, but it's greater for the next two quarters just because of the math. And where do you expect, if you think about kind of where to take it from, where do you expect the weakness to be for the next two quarters? I'm trying to understand if certain projects or certain customers or is it more general kind of all over the places? Is it services? Is it products? Is it shipments?
spk05: listen um you know just give you an idea it's not tied to any specific area I'll give you the reason for it right I mean we're talking about deals you know you know a contact center deal that could be you know 1 million dollar inside that could be a half a million in size you know so you know just say removal of one project in or a project declining I need we deal with you know revenue of close to 70 million a quarter so the ability to be on top in such you know difficult environment you know I I assume I need to leave more space for misses here and there it's not tied to any specific area it's not tied to Microsoft It's not tied specifically to the contact center. It's not tied to the service provider space. But all in all, if I want to take the overall environment into account, if I have to basically estimate, I would probably say that middle of 2022, contrary to the beginning of 2022, chances are that it's going to be harder to achieve
spk08: revenue target and that's why we made that change and I know you don't provide guidance for 23 but from your discussions with your customers and the projects you're involved in do you already see some cautiousness from customers about project push outs or anything that could suggest that that we shouldn't be cautious on on the following year not really no actually
spk05: Actually, I can tell you that, you know, we're discussing second quarter. I'll tell you that we have already July behind us. I can tell you that the pickup in projects in July is very strong. We have not heard in even one case projection for 2023 is going down. I think Microsoft keeps growing. Well, you know, if you want to take Microsoft announcement a week ago, you know, they are taking, you know, more... you know, they're very cautious, right? They are limiting the hiring transit before. You know, I need to relate to that, right? And I think there was another announcement in May, I believe, where they've mentioned that they intend to decrease the rate of hiring in certain areas, including our space too. So taking that into account, you know, makes me make an estimate that, you know, we're not different than Microsoft, right? Got it.
spk08: Last question, Shabtai, about your own hiring and your own kind of workforce. What are your plans and how do you adjust to the environment?
spk05: So we keep hiring. I mean, you know, we have stated that this quarter we added 31 positions, 20, about 18 full time employees and 13 in our source positions, we continue to hire I can tell you that I'm sitting daily and weekly with new requests, services business growth, we need to add people, we have more position, we would like to increase our business in Asia Pacific because it's growing very nicely, we will have to add position. So all in all, you know, we simply need to be in control of how we grow. But we will continue to hire. Great. Thank you. Sure.
spk01: Thank you very much. Your next question is coming from Brian McWilliams from Barclays. Brian, please ask your question.
spk06: Hi, this is Jack. I'm for Ryan. Thanks for taking the question. So you hit a strong inflection point in the CX business coming off the first quarter zero viewer decline. After this return to growth versus the first quarter, should we expect this momentum to continue into the third? Thanks.
spk05: Yeah, well, I can tell you that from what we see already in the third quarter, we are in good position to continue to grow in the third quarter. And all in all, I will tell you that the disruption in that market and the whole fast growth of, you know, call automation and conversational solution, yes, we will see contact center growing up.
spk06: Great, thanks. And then in the first quarter, you discussed bringing the cover. virtual agent of the global market in the second half of the year. Is there any sort of update here?
spk05: So we're talking about progress, but there's no big contract that I can talk about. I can tell you that a new solution that we got to the market in the second quarter for conversational IVR, we are receiving a very strong reception and we are right now The product is now being tried in between 5 and 10 new accounts, and it seems to be a gap in the market that we can cover with that new product. All right.
spk06: That's it for me. Thanks, Shota.
spk05: Thank you, Ryan.
spk01: Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your phone at this time. Okay, we appear to have no further questions in the queue. Would you like me to hand back over for closing?
spk05: Yes, Liz. Well, thank you, operator. I would like to thank everyone who attended our conference call today. This continued good business momentum in the second quarter of 2022 and strong underlying market trends in our industry. We believe we are on track for another year of growth in 2022. We look forward to your participation in our next quarterly conference call Thank you all. Have a nice day.
spk01: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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