AudioCodes(AUDC) - 2023 Q4 - Annual Report

markdown Financial Highlights and Business Overview [Third Quarter 2023 Financial Highlights](index=1&type=section&id=Third%20Quarter%202023%20Financial%20Highlights) AudioCodes reported third-quarter 2023 revenues of $61.6 million, a 2.6% sequential increase. Both GAAP and Non-GAAP metrics showed significant sequential improvement, with Non-GAAP net income reaching $8.3 million, or $0.25 per diluted share. The company continued its capital return program, declaring a dividend of $0.18 per share and repurchasing $9.0 million of its shares Q3 2023 vs Q2 2023 Performance | Metric | Q3 2023 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $61.6M | $60.0M | +2.6% | | GAAP Operating Margin | 9.4% | 3.8% | +5.6 p.p. | | GAAP Net Income | $4.3M | $1.1M | +291% | | GAAP Diluted EPS | $0.14 | $0.03 | +$0.11 | | Non-GAAP Operating Margin | 15.5% | 9.5% | +6.0 p.p. | | Non-GAAP Net Income | $8.3M | $5.1M | +62.7% | | Non-GAAP Diluted EPS | $0.25 | $0.16 | +$0.09 | Q3 2023 vs Q3 2022 Performance | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | $61.6M | $69.7M | -11.6% | | GAAP Net Income | $4.3M | $5.4M | -20.4% | | Non-GAAP Net Income | $8.3M | $10.5M | -21.0% | - Service revenues constituted **49.6%** of total revenues at **$30.6 million** for the quarter[2](index=2&type=chunk) - The company declared a cash dividend of **18 cents per share** and repurchased **880,457** of its ordinary shares for **$9.0 million** during the quarter[2](index=2&type=chunk) [Management Commentary and Business Performance](index=3&type=section&id=Management%20Commentary%20and%20Business%20Performance) Management highlighted strong performance in strategic areas, with the enterprise business now accounting for a record 90% of total revenues. Significant year-over-year growth was seen in the Microsoft-related business, AudioCodes Live managed services, and conversational AI bookings. Despite geopolitical events in Israel, the company's global operations remain undisrupted, and management is confident in returning to top-line growth in 2024 - The enterprise business grew to a record **90%** of the company's total revenues[7](index=7&type=chunk) Year-over-Year Growth in Strategic Areas (Q3 2023) | Business Segment | YoY Growth | | :--- | :--- | | Microsoft-related Business | 13% | | Microsoft Teams Business | 21% | | AudioCodes Live ARR | >50% | | Customer Experience (CX) | 13% | | Conversational AI Bookings | >50% | - AudioCodes Live managed services are on track to achieve the 2023 target of **$46-$50 million** in Annual Recurring Revenue (ARR), ending Q3 at **$43 million**[7](index=7&type=chunk) - There is rising customer interest in the Voca CIC (AI-first Teams CCaaS platform) and other conversational AI products like Meeting Insights and SmartTAP[8](index=8&type=chunk) - Despite the tragic events in Israel, global business has continued without material disruptions, and the company maintains a positive outlook for growth in 2024[9](index=9&type=chunk) [Capital Allocation](index=3&type=section&id=Capital%20Allocation) In Q3 2023, AudioCodes executed its capital return policy by paying a cash dividend of $0.18 per share, totaling approximately $5.7 million, and repurchasing 880,457 shares for $9.0 million. As of September 30, 2023, the company had $10.0 million remaining under its court-approved plan for share repurchases and/or dividend declarations, valid through December 27, 2023 - A cash dividend of **18 cents per share**, totaling approximately **$5.7 million**, was paid on August 31, 2023[10](index=10&type=chunk) - The company acquired **880,457** of its ordinary shares for a total of **$9.0 million** during the quarter[10](index=10&type=chunk) - As of September 30, 2023, **$10.0 million** was available for future share repurchases and/or dividends under the current approval, which is valid until December 27, 2023[11](index=11&type=chunk) Financial Statements [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, AudioCodes' total assets stood at $329.5 million, with total liabilities of $150.3 million and shareholders' equity of $179.2 million. Cash, cash equivalents, and various marketable securities totaled $102.5 million, a decrease from $124.3 million at the end of 2022, primarily due to capital return activities Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $134,822 | $149,930 | | Total assets | $329,486 | $323,831 | | Total current liabilities | $86,923 | $94,457 | | Total liabilities | $150,265 | $134,071 | | Total shareholders' equity | $179,221 | $189,760 | - The combined balance of cash, cash equivalents, bank deposits, and marketable securities was **$102.5 million** as of September 30, 2023, down from **$124.3 million** as of December 31, 2022[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the third quarter of 2023, AudioCodes generated $61.6 million in revenue, a decrease from $69.7 million in the same period last year, primarily due to lower product revenue. Service revenue, however, increased to $30.6 million from $26.8 million. GAAP net income was $4.3 million, or $0.14 per diluted share, compared to $5.4 million, or $0.17 per diluted share, in Q3 2022 Q3 2023 vs. Q3 2022 Statement of Operations (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Product Revenues | $31,039 | $42,879 | | Service Revenues | $30,552 | $26,841 | | **Total Revenues** | **$61,591** | **$69,720** | | Gross Profit | $40,937 | $43,750 | | Operating Income | $5,779 | $7,009 | | **Net Income** | **$4,252** | **$5,373** | | Diluted EPS | $0.14 | $0.17 | [Reconciliation of GAAP to Non-GAAP Net Income](index=8&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Net%20Income) AudioCodes reconciled its Q3 2023 GAAP net income of $4.3 million to a Non-GAAP net income of $8.3 million. The primary adjustments included excluding $2.6 million in share-based compensation expenses, $1.0 million in non-cash deferred tax expenses, and other items such as amortization and lease expenses. This reconciliation is provided to help investors better understand the company's ongoing operational performance Q3 2023 GAAP to Non-GAAP Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | **GAAP net income** | **$4,252** | | Share-based compensation | $2,607 | | Amortization expenses | $133 | | Deferred payments expense | $250 | | Lease expenses | $724 | | Exchange rate differences | ($767) | | Deferred tax | $1,023 | | Other Income | $0 | | **Non-GAAP net income** | **$8,302** | - Non-GAAP diluted net earnings per share for Q3 2023 was **$0.25**, compared to GAAP diluted net earnings per share of **$0.14**[20](index=20&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) In the third quarter of 2023, the company generated $0.2 million in cash from operating activities. Investing activities provided $5.9 million, while financing activities used $14.6 million, largely for share repurchases ($9.0 million) and dividend payments ($5.7 million). This resulted in a net decrease in cash and cash equivalents of $8.5 million for the quarter Cash Flow Summary for Q3 2023 (in thousands) | Activity | Cash Flow | | :--- | :--- | | Net cash provided by operating activities | $178 | | Net cash provided by investing activities | $5,864 | | Net cash used in financing activities | ($14,588) | | **Net decrease in cash** | **($8,546)** | - Major uses of cash in financing activities for the quarter were the purchase of treasury shares (**$9.0 million**) and payment of cash dividends (**$5.7 million**)[26](index=26&type=chunk) Other Information [Conference Call Information](index=4&type=section&id=Conference%20Call%20Information) AudioCodes hosted a conference call and live webcast on November 2, 2023, at 8:30 A.M. Eastern Time to discuss its third-quarter 2023 financial results and outlook. Supplementary slides were made available on the company's investor website - The company conducted a conference call and webcast to discuss Q3 2023 results and outlook on the day of the earnings release[11](index=11&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements concerning the company's business outlook and future performance. These statements are subject to various risks and uncertainties, including global economic conditions, market acceptance of products, competition, and potential operational impacts from the war and hostilities in Israel - The report includes forward-looking statements as defined under U.S. Federal securities laws, which are subject to risks and uncertainties that could cause actual results to differ materially[14](index=14&type=chunk) - Identified risks include global economic conditions, shifts in supply and demand, competitive pressures, and the potential effects of the conflict in Israel on operations[14](index=14&type=chunk)