AudioCodes(US:AUDC)2021-10-25 16:00markdown [Third Quarter 2021 Performance Overview](index=1&type=section&id=Third%20Quarter%202021%20Performance%20Overview) AudioCodes achieved strong Q3 2021 financial results, marked by significant revenue growth, solid profitability, and strategic operational advancements [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) AudioCodes reported strong Q3 2021 financial results with significant year-over-year revenue growth, particularly in service revenues. Both GAAP and Non-GAAP net income and operating margins showed solid performance, alongside positive operating cash flow and share repurchases Key Financial Highlights Table | Metric | Q3 2021 | YoY Change | | :-------------------------------- | :------ | :--------- | | Quarterly Revenues | $63.4 million | +12.1% | | Quarterly Service Revenues | $24.8 million | +26.7% | | GAAP Gross Margin | 69.6% | - | | GAAP Operating Margin | 15.8% | - | | GAAP Net Income | $8.3 million | - | | GAAP Diluted EPS | $0.24 | - | | Non-GAAP Gross Margin | 69.9% | - | | Non-GAAP Operating Margin | 21.4% | - | | Non-GAAP Net Income | $12.9 million | - | | Non-GAAP Diluted EPS | $0.38 | - | | Net cash provided by operating activities | $13.0 million | - | - AudioCodes repurchased **424,307 ordinary shares** during the quarter at an aggregate cost of **$13.8 million**[2](index=2&type=chunk) [Operational and Strategic Highlights](index=2&type=section&id=Operational%20and%20Strategic%20Highlights) The company experienced continued momentum in its enterprise operations, driven by UCaaS and Contact Center markets, which contributed significantly to overall revenue growth. Services revenue also expanded, fueled by cloud communications and the AudioCodes Live offering, with Voice.ai bookings showing substantial growth - Enterprise business contributed close to **85% of Q3 revenues** and generated growth of **above 20% year-over-year**[7](index=7&type=chunk) - UCaaS business grew about **18% year-over-year** and contact center business grew **more than 20% year-over-year**[7](index=7&type=chunk) - Services revenues grew **more than 25% year-over-year**, representing close to **40% of Q3 revenue**, driven primarily by professional and managed services offerings and the shift towards cloud communications[8](index=8&type=chunk) - Voice.ai bookings grew **more than 100% year-over-year** for both the three and nine-month periods ended **September 30, 2021**, with a forecast to reach **$5 million** for the full year **2021**[8](index=8&type=chunk) [Detailed Financial Analysis](index=2&type=section&id=Detailed%20Financial%20Analysis) This section provides an in-depth analysis of AudioCodes' Q3 2021 financial performance, covering revenue, profitability, and cash flow dynamics [Revenue and Profitability](index=2&type=section&id=Revenue%20and%20Profitability) AudioCodes reported Q3 2021 revenues of $63.4 million, an increase from both Q2 2021 and Q3 2020. GAAP net income rose to $8.3 million, while Non-GAAP net income was $12.9 million, slightly down from Q3 2020 on a Non-GAAP basis Revenue and Profitability Table | Metric | Q3 2021 | Q2 2021 | Q3 2020 | | :------- | :------ | :------ | :------ | | Revenues | $63.4 million | $60.6 million | $56.6 million | | Net Income (GAAP) | $8.3 million | - | $7.0 million | | Diluted EPS (GAAP) | $0.24 | - | $0.20 | | Net Income (Non-GAAP) | $12.9 million | - | $13.3 million | | Diluted EPS (Non-GAAP) | $0.38 | - | $0.38 | [GAAP Results](index=8&type=section&id=GAAP%20Results) GAAP gross margin was 69.6%, operating margin was 15.8%, and net income was $8.3 million, or $0.24 per diluted share for Q3 2021 GAAP Results ($ in thousands) | Metric | Q3 2021 (GAAP) | Q3 2020 (GAAP) | | :-------------------- | :------------- | :------------- | | Total Revenues | $63,408 | $56,564 | | Gross Profit | $44,123 | $37,979 | | Operating Income | $9,998 | $11,225 | | Net Income | $8,263 | $6,964 | | Basic Net EPS | $0.25 | $0.21 | | Diluted Net EPS | $0.24 | $0.20 | [Non-GAAP Results](index=9&type=section&id=Non-GAAP%20Results) Non-GAAP gross margin was 69.9%, operating margin was 21.4%, and net income was $12.9 million, or $0.38 per diluted share for Q3 2021. Non-GAAP net income excludes share-based compensation, acquisition-related amortization, exchange rate differences, and non-cash deferred tax expenses Non-GAAP Results ($ in thousands) | Metric | Q3 2021 (Non-GAAP) | Q3 2020 (Non-GAAP) | | :-------------------------- | :----------------- | :----------------- | | Non-GAAP Net Income | $12,939 | $13,250 | | Non-GAAP Diluted Net EPS | $0.38 | $0.38 | - Non-GAAP net income excludes: (i) share-based compensation expenses; (ii) amortization expenses related to the acquisition of Active Communications Europe assets; (iii) financial income or expenses related to exchange rate differences in connection with revaluation of assets and liabilities in non-dollar denominated currencies and (iv) non-cash deferred tax expenses[5](index=5&type=chunk)[21](index=21&type=chunk) [Cash Flow and Liquidity](index=2&type=section&id=Cash%20Flow%20and%20Liquidity) AudioCodes generated $13.0 million in net cash from operating activities in Q3 2021. Total cash, cash equivalents, and marketable securities stood at $184.9 million as of September 30, 2021, slightly down from year-end 2020 due to share repurchases and dividend payments largely offset by operating cash generation Cash Flow and Liquidity Table | Metric | Q3 2021 | | :------------------------------------------------------------------------------------------------ | :------ | | Net cash provided by operating activities | $13.0 million | Cash Flow and Liquidity Table | Metric | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------------------------------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents, long and short-term bank deposits and long and short-term marketable securities | $184.9 million | $186.3 million | - The use of cash for share repurchases and cash dividends during **2021** was basically offset by cash generated from operating activities[6](index=6&type=chunk) [Capital Management](index=3&type=section&id=Capital%20Management) AudioCodes actively managed its capital through share repurchases and cash dividend distributions during the quarter [Share Repurchase Program](index=3&type=section&id=Share%20Repurchase%20Program) AudioCodes repurchased 424,307 ordinary shares for $13.8 million during Q3 2021 under a court-approved program allowing up to $35 million in additional repurchases or dividends through January 2022 - During **Q3 2021**, the Company acquired **424,307 of its ordinary shares** for a total consideration of **$13.8 million**[9](index=9&type=chunk) - In **July 2021**, court approval was received to purchase up to an aggregate amount of **$35 million of additional ordinary shares**, valid through **January 03, 2022**[9](index=9&type=chunk) [Cash Dividend](index=3&type=section&id=Cash%20Dividend) The company declared and paid a cash dividend of $0.17 per share, totaling approximately $5.6 million, in August 2021 - On **July 27, 2021**, the Company declared a cash dividend of **$0.17 per share**[10](index=10&type=chunk) - The dividend, in the aggregate amount of approximately **$5.6 million**, was paid on **August 26, 2021**[10](index=10&type=chunk) - The dividend is subject to Israeli withholding tax at source at the rate of **25%** (or **30%** for holders of **10% or more of share capital**)[10](index=10&type=chunk) [Company Information](index=4&type=section&id=Company%20Information) This section provides an overview of AudioCodes' business, outlines forward-looking statement disclaimers, and details investor communication channels [About AudioCodes](index=5&type=section&id=About%20AudioCodes) AudioCodes Ltd. 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 globally - AudioCodes Ltd. is a leading vendor of advanced communications software, products and productivity solutions for the digital workplace[14](index=14&type=chunk) - The company enables enterprises and service providers to build and operate all-IP voice networks for unified communications, contact centers, and hosted business services[14](index=14&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) The press release contains forward-looking statements subject to various risks and uncertainties, including global economic conditions, market acceptance, competition, technology development, financing needs, acquisition integration, and the impact of the COVID-19 pandemic. AudioCodes disclaims any obligation to update this information - Statements concerning AudioCodes' business outlook or future economic performance are 'forward-looking statements' subject to various risks, uncertainties, and other factors[15](index=15&type=chunk) - Risks include global economic conditions, shifts in supply and demand, market acceptance of new products, competitive impact, technology development, financing needs, acquisition disruptions, and the COVID-19 pandemic[15](index=15&type=chunk) - AudioCodes assumes no obligation to update the information in this release[15](index=15&type=chunk) [Investor Information](index=4&type=section&id=Investor%20Information) AudioCodes provided details for its Q3 2021 earnings conference call and webcast, along with links to its investor website and social media channels for further engagement - AudioCodes conducted a conference call and webcast on **October 26, 2021**, to discuss **Q3 2021** operating performance, financial results, and outlook[11](index=11&type=chunk) - Investors can access the webcast via the AudioCodes investor website at http://www.audiocodes.com/investors-lobby and follow social media channels[11](index=11&type=chunk) [Condensed Consolidated Financial Statements](index=6&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents AudioCodes' condensed consolidated balance sheets, statements of operations, and cash flows, including GAAP to Non-GAAP reconciliations for Q3 2021 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, AudioCodes reported total assets of $350.09 million, a decrease from $358.12 million at December 31, 2020. Current assets decreased, while long-term marketable securities significantly increased. Total liabilities also decreased, leading to a slight reduction in total shareholders' equity Condensed Consolidated Balance Sheets ($ in thousands) | Balance Sheet Item | Sep 30, 2021 (Unaudited) | Dec 31, 2020 (Audited) | | :--------------------------------------------- | :----------------------- | :--------------------- | | Total Assets | $350,086 | $358,123 | | Total Current Assets | $166,876 | $203,642 | | Cash and cash equivalents | $88,448 | $40,934 | | Short-term and restricted bank deposits | $363 | $84,817 | | Long-term marketable securities and accrued interest | $90,133 | $54,895 | | Total Liabilities | $146,585 | $148,268 | | Total Shareholders' Equity | $203,501 | $209,855 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 2021, total revenues increased to $63.41 million from $56.56 million in Q3 2020, driven by growth in both products and services. Gross profit improved, but operating income decreased year-over-year due to higher operating expenses, resulting in a GAAP net income of $8.26 million, up from $6.96 million in Q3 2020 Condensed Consolidated Statements of Operations ($ in thousands) | Metric | Q3 2021 | Q3 2020 | | :-------------------------- | :------ | :------ | | Total Revenues | $63,408 | $56,564 | | Products Revenues | $38,610 | $36,987 | | Services Revenues | $24,798 | $19,577 | | Gross profit | $44,123 | $37,979 | | Total operating expenses | $34,125 | $26,754 | | Operating income | $9,998 | $11,225 | | Net income | $8,263 | $6,964 | | Diluted net earnings per share | $0.24 | $0.20 | [Reconciliation of GAAP to Non-GAAP Net Income](index=9&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Net%20Income) The reconciliation shows that Non-GAAP net income for Q3 2021 was $12.94 million ($0.38 diluted EPS), compared to GAAP net income of $8.26 million ($0.24 diluted EPS). Key adjustments include share-based compensation, amortization expenses, exchange rate differences, and deferred tax expenses Reconciliation of GAAP to Non-GAAP Net Income ($ in thousands) | Metric | Q3 2021 | Q3 2020 | | :-------------------------------- | :------ | :------ | | GAAP net income | $8,263 | $6,964 | | GAAP net earnings per share | $0.24 | $0.20 | | Share-based compensation (total) | $3,474 | $2,097 | | Amortization expenses (total) | $70 | $83 | | Exchange rate differences | $38 | $(418) | | Deferred tax | $1,094 | $4,524 | | Non-GAAP net income | $12,939 | $13,250 | | Non-GAAP diluted net earnings per share | $0.38 | $0.38 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) AudioCodes generated $13.01 million in net cash from operating activities in Q3 2021, an increase from $10.87 million in Q3 2020. Investing activities resulted in a net cash outflow of $21.88 million, primarily due to marketable securities purchases. Financing activities showed a net outflow of $19.10 million, mainly due to share repurchases and cash dividends Condensed Consolidated Statements of Cash Flows ($ in thousands) | Cash Flow Activity | Q3 2021 | Q3 2020 | | :---------------------------------------------------- | :------ | :------ | | Net cash provided by operating activities | $13,013 | $10,874 | | Net cash provided by (used in) investing activities | $(21,884) | $(111,837) | | Net cash provided by (used in) financing activities | $(19,102) | $(4,251) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(27,973) | $(105,214) | | Cash, cash equivalents and restricted cash at end of period | $93,548 | $63,635 | - Key financing outflows in **Q3 2021** included the purchase of treasury shares (**$13.848 million**) and cash dividends paid to shareholders (**$5.563 million**)[25](index=25&type=chunk)