AudioCodes Ltd. (AUDC)

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AudioCodes Ltd. (AUDC)

Q3 2012 Results Earnings Call

November 5, 2012 9:00 AM ET


Erik Knettel - Investor Relations

Shabtai Adlersberg - Chairman, President and CEO

Guy Avidan - VP, Finance and CFO


Andrew Uerkwitz - Oppenheimer and Company

Rich Valera - Needham & Company



Greetings and welcome to the AudioCodes Third Quarter 2012 Earnings Conference Call. It is now my pleasure to introduce your host Mr. Erik Knettel, Investor Relations for AudioCodes. Thank you, Mr. Knettel you may begin.

Erik Knettel

Thank you, Jessie. I would like to welcome everyone to the AudioCodes' third quarter 2012 earnings conference call. Let me begin today with the Safe Harbor statement. Statements concerning AudioCodes' business outlook, future economic performance, product introductions and plans and objectives related thereto and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters are forward-looking statements as that term is defined under U.S. Federal Securities Law.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties and factors include, but are not limited to the effect of current global economic conditions and conditions in general and in AudioCodes' 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 AudioCodes and its customers, products, and markets, timely product and technology development, upgrades and the ability to manage changes in the market conditions as needed, possible disruption from acquisitions, the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes' business and other factors detailed in AudioCodes' filings with the U.S. Securities and Exchange Commission. AudioCodes assumes no obligation to update that information.

In addition during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided a reconciliation of non-GAAP net income and net income per share to its net income and net income per share according to GAAP in its press release and on its website.

Joining us today from AudioCodes we have Shabtai Adlersberg, Chairman, President and Chief Executive Officer and Guy Avidan, Vice President of Finance and Chief Financial Officer.

I would now like to turn the call over to Shabtai Adlersberg. Mr. Adlersberg, please go ahead.

Shabtai Adlersberg

Thank you, Erik. Good morning and good afternoon, everybody. I would like to welcome all for third quarter 2012 conference call. With me this morning is Guy Avidan, Chief Financial Officer and Vice President for Finance. Guy will start off by presenting a financial overview of the quarter.

I will then review the business highlights and summary for the third quarter. I will report on progress made in our restructuring plan and then discuss development in our business and industry. We will then turn it into the Q&A session. Guy, please go on.

Guy Avidan

Thank you, Shabtai and good morning everyone. Before beginning the financial overview of the quarter, I would like to note that the following discussion will include GAAP numbers as well as non-GAAP pro forma numbers.

Our third quarter non-GAAP pro forma results reflect adjustment for the following two non-cash items, stock-based compensation expenses which totaled $407,000 and amortization expenses relating to the acquisition of Nuera, Netrake and CTI, which totaled $282,000.

The full reconciliation of the non-GAAP pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued earlier today.

Getting to the numbers, our third quarter results are in line with our previous revenue guidance discussed in our conference call dated July 24, 2012 and includes significant progress towards our plan to reduce annual operating expenses, that announcement issued on July 11.

As announced in July, the restructuring plan is expected to generate estimated annualized savings of approximately 10% of company's operational expenses. At the end of the third quarter, we managed to reduce headcount by 7% compared to the end of the previous quarter. The implementation of the plan is expected to be completed in three to six months during the period of the plan, we will monitor closely our business trends even hire selectively in our growth areas.

In addition to the cost saving components of the restructuring plan the company continues to focus its investments in innovations around AudioCodes' key strategic initiatives in the area where unified communication, enterprise communication, and business services.

Third quarter revenue now $31.4 million, which represents 1.1% increase from the sequential second of 2012. Aside from some headwinds, we experienced during the quarter in our Technology Group and OEM business, we did see solid demand for our Core Networking Equipment Group business especially in the unified communication and contact center market.

Geographically, as a percentage of revenue, sales in Americas accounted for 50%, Europe, Middle East and Africa 34%, and Asia Pacific 16%. Revenues associated with our Manage and Technical Services business line was approximately 17% of total revenue or $5.4 million in the third quarter of 2012.

Managed Services provided recurring revenue driver, which helps further by an AudioCodes high value relationship with its customers. Our top 15 customers accounted for 53% of our revenue compared to 46% in the previous quarter. In the third quarter, we added a single distributor in North America that accounted for 13% of revenues compared to 11% in the previous quarter.

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