AudioCodes Ltd. (AUDC)

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AudioCodes Ltd. (AUDC)

Q2 2008 Earnings Call

July 30, 2008 9:00 am ET


Erik Knettel - Investor Relations

Shabtai Adlersberg - Chairman, President and Chief Executive Officer

Nachum Falek - Vice President, Finance and Chief Financial Officer


Vivek Arya - Merrill Lynch

Troy Jensen - Piper Jaffray & Co.

Edward Jackson - Cantor Fitzgerald

Eric Kainer - ThinkPanmure

Joe Parks - Oppenheimer & Co. Inc.

Jeff Meyers - Cobia Capital

Robert Katz - Senvest International



Welcome to the AudioCodes second quarter 2008 earnings conference call. (Operator's instruction) It is now my pleasure to introduce your host Erik Knettel, Investor Relations for AudioCodes.

Erik Knettel

I would like to welcome everyone to the AudioCodes' second quarter 2008 earnings conference call. Let me begin the call today with a brief Safe Harbor statement concerning AudioCodes’ business outlook or 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.

These 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 global economic conditions in general and conditions in AudioCodes’ industry and target markets in particular, shifts in supply and demand, market acceptance of new products and continuing product demand.

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 Securities and Exchange Commission. AudioCodes assumes no obligation to update that information.

In addition during the call we will refer to non-GAAP net income. We have provided a reconciliation of non-GAAP net income to our net income according to GAAP in our press release and on our website.

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

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

Shabtai Adlersberg

With me this morning is Nachum Falek, Vice President, Finance and Chief Financial Officer. Nachum will start up by presenting the financial overview of the quarter. I will then review some of the business highlights for the second quarter and I will describe some of developments in our business. We will then turn it into the Q&A session.

Nachum Falek

Before beginning the financial overview of the quarter, I would like to note that the following discussion will include GAAP numbers and pro forma numbers.

Our second quarter pro forma results reflect adjustments for the following two non-cash items; Stock-based compensation expenses which totaled $1.2 million in the second quarter of 2008 and amortization expenses relating to the acquisition of Nuera, Netrake and CTI, which totaled $800,000 in the reported quarter.

Full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued yesterday.

Getting to our quarterly results. In the second quarter, revenues were $45.7 million which represent 4.5% increase from the last quarter. As a percentage of our revenues, sales in America accounted for 52%, Europe 24%, Asia Pacific 16% and Israel 8%. We had one customer above 10%. Our top 15 customers accounted for 53% of our revenues compared to 49% in the previous quarter.

In terms of revenues by business groups, in the second quarter, our technology business group accounted for 31% of revenues compared to 35% in the previous quarter, and our networking business group accounted for 69% of revenues compared to 65% in the previous quarter.

In the second quarter of 2008, pro forma gross margin was 57.6% compared to last quarter pro forma gross margin of 57.8%. On a GAAP basis, gross margin was 56.2%.

Our total pro forma operating expenses were similar to the first quarter levels at approximately $22.5 million in the second quarter of 2008. On a GAAP basis, operating expenses for the second quarter were $23.8 million. Headcount decreased this quarter by 25 employees, which brings us to a total of 663 employees.

Pro forma net income for the second quarter was $3.6 million or $0.09 per share. GAAP net income for the second quarter was $1.6 million or $0.04 per share. Short-term and long-term cash balances were $147 million compared to $137 million last quarter.

The increase in cash balances is attributed mainly to a positive cash flow from operations and financing which were offset by a negative cash flow related to investment activities. During the quarter, bought back of AUDC's share in the amount of $7.2 million and received a bank loan in the amount of $50 million for five years. We have recently secured additional $15 million bank loan for five years in order to improve our balance sheet strength and which brings our total cash balances at this time to approximately $160 million. DSO came in at 59 days compared to last quarter DSO of 50 days.

As for our guidance, we wish to update our annual guidance for 2008. On an annual basis, we forecast revenues for 2008 to be in the range of $180 million to $185 million and now forecast that our non-GAAP earnings per share will be higher above of the range of $0.34 to $0.37 which we planned earlier this year. We also estimate our GAAP earnings per share to be in the range of $0.12 to $0.15.

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