AudioCodes(AUDC) - 2023 Q3 - Quarterly Report

Performance Overview Second Quarter 2023 Highlights AudioCodes achieved sequential revenue growth to $60.0 million in Q2 2023, alongside substantial improvements in profitability and cash generation Q2 2023 vs Q1 2023 Performance | Metric | Q2 2023 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues ($) | $60.0M | $59.2M | +1.4% | | Service Revenues ($) | $28.5M | - | 47.4% of Total | | GAAP Gross Margin (%) | 64.1% | 61.7% | +2.4 p.p. | | GAAP Operating Margin (%) | 3.8% | -1.4% | +5.2 p.p. | | GAAP Net Income ($) | $1.1M | -$0.2M | Positive Swing | | GAAP Diluted EPS ($) | $0.03 | -$0.01 | Positive Swing | | Non-GAAP Gross Margin (%) | 64.5% | 62.1% | +2.4 p.p. | | Non-GAAP Operating Margin (%) | 9.5% | 4.9% | +4.6 p.p. | | Non-GAAP Net Income ($) | $5.1M | $2.7M | +88.9% | | Non-GAAP Diluted EPS ($) | $0.16 | $0.08 | +100% | - Net cash provided by operating activities was $2.2 million for the quarter[1] - The company repurchased 318,891 ordinary shares during the quarter for an aggregate cost of $2.9 million[2] Management Commentary Management emphasized strong enterprise business growth, driven by Microsoft-related services and AudioCodes Live, with significant interest in conversational AI solutions - The enterprise business now accounts for 88% of the company's revenue[6] Business Segment Growth Highlights (YoY) | Business Segment | Growth Rate (YoY) (%) | | :--- | :--- | | Microsoft-related business | 12% | | Microsoft Teams business | 18% | | AudioCodes Live managed services (ARR) | >60% | | Zoom related business | >20% | | Customer Experience (CX) & Conversational AI | 7% | - AudioCodes Live managed services ARR reached $40 million, on track to meet the 2023 target of $46-$50 million[6] - Voca CIC is now officially certified by Microsoft as a Microsoft Teams Contact Center solution, which is expected to drive adoption by enterprises looking to consolidate Unified Communications and Contact Center environments[7] - The Meeting Insights for Teams solution has integrated with GPT-4 generative AI to offer advanced summarization and recap features[8] Shareholder Returns Share Buyback Program AudioCodes repurchased $2.9 million in shares during Q2 2023 and secured approval for an additional $25 million buyback program - In Q2 2023, the company repurchased 318,891 ordinary shares for a total of $2.9 million[9] - In June 2023, the company received court approval to purchase up to an additional $25 million of its ordinary shares, valid through December 27, 2023[10] - As of June 30, 2023, $24.7 million was available for future share repurchases and/or cash dividends under the current court approval[10] Cash Dividend The Board declared a semi-annual cash dividend of $0.18 per share, totaling approximately $5.7 million, payable on August 31, 2023 Dividend Details | Detail | Value | | :--- | :--- | | Dividend per Share ($) | $0.18 | | Aggregate Amount ($) | ~$5.7 million | | Record Date | August 17, 2023 | | Payment Date | August 31, 2023 | - The dividend is subject to Israeli withholding tax, generally at a rate of 25%, or 30% for shareholders holding 10% or more of the company's share capital[11] Financial Statements Condensed Consolidated Balance Sheets As of June 30, 2023, AudioCodes reported total assets of $317.7 million, with total liabilities at $130.5 million and shareholders' equity at $187.2 million Condensed Consolidated Balance Sheets (U.S. dollars in thousands) | | June 30, 2023 (Unaudited) | Dec 31, 2022 (Audited) | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $145,657 | $149,930 | | Total long-term assets | $126,941 | $130,810 | | Property and equipment, net | $6,298 | $3,965 | | Goodwill, intangible assets and other, net | $38,847 | $39,126 | | Total assets | $317,743 | $323,831 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $90,554 | $94,457 | | Total long-term liabilities | $39,975 | $39,614 | | Total shareholders' equity | $187,214 | $189,760 | | Total liabilities and shareholders' equity | $317,743 | $323,831 | Condensed Consolidated Statements of Operations Q2 2023 total revenues were $60.0 million, with GAAP net income at $1.1 million or $0.03 per diluted share, a decrease from Q2 2022 Condensed Consolidated Statements of Operations (U.S. dollars in thousands, except per share data) | | Three months ended June 30, 2023 (Unaudited) | Three months ended June 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $60,020 | $68,360 | | Gross profit | $38,477 | $44,510 | | Operating income | $2,255 | $7,922 | | Net income | $1,055 | $6,936 | | Diluted net earnings per share | $0.03 | $0.21 | Reconciliation of GAAP to Non-GAAP Net Income Non-GAAP net income for Q2 2023 was $5.1 million, or $0.16 per diluted share, after adjustments for share-based compensation and amortization expenses Reconciliation of GAAP to Non-GAAP Net Income (U.S. dollars in thousands, except per share data) | | Three months ended June 30, 2023 (Unaudited) | Three months ended June 30, 2022 | | :--- | :--- | :--- | | GAAP net income | $1,055 | $6,936 | | Share-based compensation | $3,063 | $3,919 | | Amortization expenses | $133 | $201 | | Deferred payments expenses | $250 | $250 | | Other Income | $0 | ($405) | | Exchange rate differences | $71 | ($495) | | Deferred tax | $562 | $940 | | Non-GAAP net income | $5,134 | $11,346 | | Non-GAAP diluted net earnings per share | $0.16 | $0.34 | Condensed Consolidated Statement of Cash Flows AudioCodes generated $2.2 million in operating cash flow in Q2 2023, with a net cash increase of $6.6 million driven by investing activities Condensed Consolidated Statement of Cash Flows (U.S. dollars in thousands) | | Three months ended June 30, 2023 (Unaudited) | Three months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,206 | $4,818 | | Net cash provided by (used in) investing activities | $7,349 | $574 | | Net cash used in financing activities | ($2,908) | ($8,124) | | Net increase (decrease) in cash | $6,647 | ($2,732) | | Cash, cash equivalents and restricted cash at end of period | $36,225 | $35,246 |