AudioCodes(AUDC) - 2022 Q1 - Quarterly Report

First Quarter 2022 Overview AudioCodes' Q1 2022 performance saw revenue growth driven by services, alongside decreased GAAP and Non-GAAP net income First Quarter Highlights AudioCodes reported 12.8% YoY revenue growth to $66.4 million, driven by services, and $11.2 million non-GAAP net income Q1 2022 Financial Highlights | Metric | Q1 2022 (USD millions) | YoY Change (%) | | :---------------------- | :--------------------- | :------------- | | Revenues | 66.4 | 12.8% | | Service Revenues | 27.5 | 26.2% | | GAAP Gross Margin | 66.9% | - | | GAAP Operating Margin | 12.1% | - | | GAAP Net Income | 8.6 | - | | GAAP Diluted EPS | 0.26 | - | | Non-GAAP Gross Margin | 67.2% | - | | Non-GAAP Operating Margin | 18.0% | - | | Non-GAAP Net Income | 11.2 | - | | Non-GAAP Diluted EPS | 0.33 | - | | Net Cash from Operations | 0.938 | - | - AudioCodes declared a cash dividend of 18 cents per share, totaling $5.8 million, paid on March 1, 2022 The company repurchased 720,124 ordinary shares at an aggregate cost of $20.9 million during the quarter[2] Detailed Financial Performance Revenues rose to $66.4 million, but GAAP and Non-GAAP net income declined YoY, with cash decreasing due to capital returns Q1 2022 vs Q1 2021 Revenue and Net Income | Metric | Q1 2022 (USD millions) | Q1 2021 (USD millions) | Change (USD millions) | Change (%) | | :---------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Revenues | 66.4 | 58.8 | 7.6 | 12.9% | | GAAP Net Income | 8.6 | 10.0 | (1.4) | (14.0%) | | GAAP Diluted EPS | 0.26 | 0.29 | (0.03) | (10.3%) | | Non-GAAP Net Income | 11.2 | 12.7 | (1.5) | (11.8%) | | Non-GAAP Diluted EPS | 0.33 | 0.37 | (0.04) | (10.8%) | Cash and Cash Equivalents | Metric | March 31, 2022 (USD millions) | December 31, 2021 (USD millions) | Change (USD millions) | | :---------------------------------------------------------------------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents, long and short-term bank deposits, marketable securities, and financial investments | 144.1 | 174.8 | (30.7) | - The decrease in cash and cash equivalents was primarily a result of cash used for the share repurchase program and cash dividend payments during Q1 2022[5] Business Segment Performance & Strategic Initiatives UCC business, including Microsoft Teams Voice and Zoom Phone, drove growth; service revenues rose 25% YoY, and conversational AI grew 40% - UCC business was a key growth driver, with enterprise sales in Microsoft Teams Voice and Zoom Phone environments each growing above 50% year-over-year The Microsoft business as a whole grew above 25% year-over-year[6] - AudioCodes Live for Microsoft Teams managed services ARR is forecasted to double in 2022 and reach a level of above $30 million[6] - Service revenues grew above 25% year-over-year, driven primarily by professional services and AudioCodes Live managed services, reaching 41.5% of total company revenue[6] - In the CX market, total contract value (TCV) for conversational AI business grew 40% year-over-year, with a forecast to grow more than 50% in 2022, supported by the Callverso acquisition and Voice.ai Connect platform[8] - Q1 2022 non-GAAP operating margin was 18%, 240 basis points below last quarter's, mainly due to $1.4 million higher component costs affecting gross margins and a 17% increase in headcount and related budget[9] Shareholder Returns & Capital Management Declared 18 cents per share cash dividend, repurchased $20.9 million in shares, with $8.3 million remaining for capital returns Shareholder Returns Q1 2022 | Metric | Amount (USD) | | :---------------------- | :----------- | | Cash Dividend per Share | $0.18 | | Total Cash Dividend Paid | $5.8 million | | Shares Repurchased | 720,124 | | Cost of Repurchases | $20.9 million | - As of March 31, 2022, AudioCodes had $8.3 million available under its court approval for the repurchase of shares and/or declaration of cash dividends, valid through June 19, 2022[10] Corporate Information Provides details on investor communications, company profile, and forward-looking statement disclaimers Conference Call & Web Cast Information AudioCodes held a conference call on May 2, 2022, to discuss Q1 2022 results, with a webcast available on their investor website - AudioCodes conducted a conference call on May 2, 2022, at 8:30 A.M. Eastern Time to discuss Q1 2022 results, with a simultaneous webcast available on their investor website[12] About AudioCodes AudioCodes is a leading global vendor of advanced communications software and solutions for digital workplace voice networks - AudioCodes is a leading vendor of advanced communications software, products, and productivity solutions for the digital workplace, enabling all-IP voice networks for unified communications, contact centers, and hosted business services[14] Forward-Looking Statements Statements about future outlook are forward-looking and subject to various risks, with no obligation for updates - Statements regarding business outlook, future economic performance, product introductions, and plans are 'forward-looking statements' subject to risks such as global economic conditions, market acceptance, competition, timely product development, financing, acquisition disruptions, and the COVID-19 pandemic[15] Condensed Consolidated Financial Statements Presents the company's balance sheets, statements of operations, and cash flows for Q1 2022 Condensed Consolidated Balance Sheets Total assets decreased to $320.98 million from $349.36 million, primarily due to reduced cash and equivalents Key Balance Sheet Items (USD thousands) | Metric | March 31, 2022 (Unaudited) | December 31, 2021 (Audited) | Change | | :-------------------------- | :------------------------- | :-------------------------- | :----- | | Cash and cash equivalents | 37,978 | 79,423 | (41,445) | | Total current assets | 129,592 | 167,553 | (37,961) | | Total assets | 320,976 | 349,364 | (28,388) | | Total current liabilities | 89,773 | 95,943 | (6,170) | | Total long-term liabilities | 43,539 | 47,923 | (4,384) | | Total shareholders' equity | 187,664 | 205,498 | (17,834) | Condensed Consolidated Statements of Operations Total revenues increased to $66.36 million, but higher operating expenses led to decreased operating and net income Revenue and Gross Profit (USD thousands) | Metric | Q1 2022 (Unaudited) | Q1 2021 (Unaudited) | Change | | :------------- | :------------------ | :------------------ | :----- | | Products | 38,820 | 37,021 | 1,799 | | Services | 27,537 | 21,817 | 5,720 | | Total Revenues | 66,357 | 58,838 | 7,519 | | Gross profit | 44,360 | 40,271 | 4,089 | Operating Expenses and Income (USD thousands) | Metric | Q1 2022 (Unaudited) | Q1 2021 (Unaudited) | Change | | :-------------------------- | :------------------ | :------------------ | :----- | | Research and development, net | 14,982 | 12,047 | 2,935 | | Selling and marketing | 17,288 | 14,476 | 2,812 | | General and administrative | 4,038 | 3,625 | 413 | | Total operating expenses | 36,308 | 30,148 | 6,160 | | Operating income | 8,052 | 10,123 | (2,071) | GAAP Results GAAP net income decreased to $8.61 million ($0.26 per diluted share) despite revenue growth, due to higher operating expenses GAAP Net Income and EPS (USD thousands) | Metric | Q1 2022 (Unaudited) | Q1 2021 (Unaudited) | Change | | :---------------------- | :------------------ | :------------------ | :----- | | Net income | 8,608 | 9,993 | (1,385) | | Basic net earnings per share | $0.27 | $0.30 | ($0.03) | | Diluted net earnings per share | $0.26 | $0.29 | ($0.03) | Non-GAAP Reconciliation Non-GAAP net income was $11.16 million ($0.33 per diluted share), with adjustments for share-based compensation and amortization Non-GAAP Net Income and EPS (USD thousands) | Metric | Q1 2022 (Unaudited) | Q1 2021 (Unaudited) | Change | | :------------------------------ | :------------------ | :------------------ | :----- | | Non-GAAP net income | 11,162 | 12,743 | (1,581) | | Non-GAAP diluted net earnings per share | $0.33 | $0.37 | ($0.04) | - Non-GAAP net income excludes share-based compensation, amortization of intangible assets, deferred payments expenses from the Callverso acquisition, other income from lease termination, financial income from exchange rate differences, and non-cash deferred tax expenses[4][20] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly decreased, with higher investing and financing outflows leading to a $46.55 million cash reduction Cash Flows Summary (USD thousands) | Cash Flow Activity | Q1 2022 (Unaudited) | Q1 2021 (Unaudited) | Change | | :------------------------------ | :------------------ | :------------------ | :----- | | Net cash provided by operating activities | 938 | 13,020 | (12,082) | | Net cash provided by (used in) investing activities | (20,787) | 69,739 | (90,526) | | Net cash used in financing activities | (26,696) | (15,445) | (11,251) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | (46,545) | 67,314 | (113,859) | - The significant decrease in cash from investing activities was primarily due to a $15.4 million purchase of long-term financial investments and a $5 million investment in short-term deposits in Q1 2022, compared to proceeds from short-term deposits in Q1 2021[22] - The increased net cash used in financing activities was mainly driven by higher purchases of treasury shares ($20.87 million in Q1 2022 vs $10.26 million in Q1 2021) and cash dividends paid to shareholders ($5.83 million in Q1 2022 vs $5.30 million in Q1 2021)[24]