On November 5th, 2012 Audiocodes (AUDC) reported its 3rd quarter 2012 earnings report. For the first time in over a year the company didn't disappoint investors on either results, or guidance. As a long term investor of Audiocodes I wanted to bring to my followers and potential followers a brief update of the quarterly conference call and a recap of its recent presentation at the Needham conference in New York on November 7th, 2012.
I would remind all, that Seeking Alpha has a transcript of the call if anyone wants to double check my thoughts.
Earnings Conference Call:
Audiocodes reported revenues of $31.4 million vs. an estimate of $31 million, a beat albeit a small one. Historically, the summer quarter is one of the slowest quarters. This was the first quarter in over a year that the company didn't negatively pre-announce, or miss its quarterly numbers, in my view a big positive.
Audiocodes raised guidance for the December quarter, but did not offer specific numbers. I estimate that the company will bring in $33 million in revenues for its 4th quarter, while Oppenheimer's analyst (Hold rating) has a $32.9 million estimate. In my view, this is another positive as it shows that management has confidence in its sales pipeline. In the question and answer section, Management reported that it finished the 3rd quarter with a strong September and that this strength continued on into October. As a result of this along with a sizable backlog, management is confident that the company will be breakeven or profitable for the first time in over a year. In addition, its expense reductions will be in full effect in the 4th quarter (December) 2012 and the CEO emphasized that even with a flat quarter the company could breakeven in the 4th quarter.
The company announced completion of its stock repurchase plan, buying back 10% (4 million shares) of the company's shares. I have the average repurchase price at approximately $2.70 per share on the 4 million shares bought over the past 4 quarters. The shares now trade just north of this price this price at $2.81. We often hear companies announce a buyback plan, but unlike most, Audiocodes actually went on to complete the buyback. This gives credibility to Audiocodes management and will give credence to any further buyback announcement.
Commenting on new product launches in Session Border Controllers (SBC) and Multi Service Business Routers (MSBR), management said that it saw new growth opportunities in both markets. It also noted that it competed head to head with, and beat out Cisco Systems (CSCO) and Juniper Networks (JNPR) on its recent MSBR 850 customer win with Israeli telecommunications service provider Bezeq.
Some other points of interest are that it is actively engaged in R&D efforts for the mobile PBX market and the enterprise mobility market, we should see new products for both of these markets.
Microsoft (MSFT) Lync activity was good for the quarter and the company is seeing many new opportunities. The company named a few Fortune 1000 customers in respect to Lync: Earnest & Young, Ebay and Radio Shack.
IP Phones - The company has made some transitional changes over the past few years and believes its new product line up will bode well for 2013.
At the recent Needham conference, the company announced that it is confident that business trends are moving its way for the first time in more than a year. The confidence comes from four areas in its portfolio which it highlighted. The conference ended with management speaking about its four key partners.
Enterprise-Session Border Controls (E-SBCs) - Audiocodes only entered the E-SBC market over the past year. However, the company feels that it can garner 10-15% of the E-SBC market over the next 3 to 4 years (which is estimated to be worth $500 million by 2016) as enterprises adopt the cloud model. This past summer, industry analysts reported that Audiocodes had a 5% share of the E-SBC market; it has since increased to 6%.
Service Revenue - Service revenue jumped nicely year over year and quarter over quarter. The company believes its main strength is its two decades of expertise in the VoIP market, where it has always been ahead of the curve. Audiocodes has the most knowledgeable service team into the field as they have experience working with all the players in the market both past and present. As you know, having a product work in the lab is one thing, having it work in the field with multiple different vendor parts is another world. Audiocodes has actively worked with the majority of vendors over the years and as a result is familiar with all the products on the market and is experienced in mixing and matching these products in a heterogeneous network.
Multi Service Business Router (MSBR) - A new product with a few key wins on the service provider side. This product is an all in one product for the small to medium business market. Audiocodes feels it has found a niche where it can see sustained growth at the expense of market leaders Juniper Networks and Cisco Systems whose business routers have been based solely on data and has given very little attention to voice. With the movement to the cloud and renewed attention to voice this new product should become a nice growth market for them.
Mobile - Audiocodes' technology allows smartphone users to make VoIP calls over WiFi networks. For example Audiocodes provided Vonage with the technology so that its subscribers can go on Facebook and call anyone from around the world on their friends list by simply clicking on their name. Growth and revenues in this field are coming as corporate businesses become more familiar with the technology and now want their workers making VoIP calls through the company intranet.
Management also spoke about their four key partners and how its relationship with each is evolving to the point where it now believes it is an integral part of how each one connects with the end user. Management believes that it is the intellectual property built into its devices that gives it an edge and has made it a valued partner of Microsoft , Avaya, Broadsoft (BSFT) and Genesys. Each of these unified communication (UC) players needs Audiocodes expertise and technology to become a one stop shop in the UC market.
I personally believe the world is unifying all its communications via the internet. In doing so, it may be perceived that it's a plug and play solution but the reality is that there are a lot of complexities in having voice and data travel across the same lines. This is where Audiocodes is going to see a lot of interest and activity in the future. In the very near term I'll do my best to report why I believe Audiocodes is in a very solid position in the short and long term and how we all should benefit from its position in the market place. Stay tuned. As always, investors should do their own homework and due diligence before making any investment decisions.
Disclosure: I am long AUDC.