October 25, 2018 | 9:27 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

Behind The Numbers – AudioCodes (AUDC)

AudioCodes is a leading vendor of advanced voice networking and media processing solutions for the digital workplace. It enables enterprises and service providers to build and operate all-IP voice networks for unified communications, contact centers, and hosted business services.

The Company provides a wide range of innovative, cost-effective products including Media Gateways, Multi-Service Business Routers (MSBRs), Session Border Controllers (SBCs), Residential Gateways, IP Phones, Media Servers, Value Added Applications and Professional Services.

Yesterday morning, the company reported its Q3 earnings results that ultimately saw its stock rise by over 20%. Here is a quick breakdown:

-EPS of $0.19 vs $0.12 estimate – Beat
-Revenue of $44.5M vs $43.1M estimate – Beat
-Revenues increased 2.3% Q/Q and 13.5% Y/Y
-Service Revenues increased 10.8% Y/Y

CEO Shabtai Adlersberg would comment on the conference call that one key development in the quarter was substantial improvement in their operating margin. “We have been many years below the 10% range. In the third quarter of 2018, we reached 13.5%. That’s compared to 8.8% over the year-ago quarter and 10.2% in the second quarter of 2018. We note that this result reflects the combination of both our networking business and the new investment in Voice. AI.”

Unified Communications – Session Initiation Protocol

*SIP is a signaling protocol used for initiating, maintaining, modifying and terminating real-time sessions that involve video, voice, messaging and other communications applications and services between two or more endpoints on IP networks.

Another major highlight from the call is when management highlighted the acceleration in their UC-SIP business. Just like in the first half of 2018, their third quarter 2018 UC-SIP business grew above 30% year-over-year against a beginning of the year plan or forecast to grow annually between 15% to 20%.

Needham analyst Richard Valera was out with a note this morning where he raised his price target on AUDC to $13 (from $10) and maintained his Buy Rating. In addition, the analyst would highlight the outperformance from the company’s UC SIP business, which is comprised of SBC, MSBR, IP phones and network management software. This segment grew 30% + Y/Y for the 3rd quarter in a row and now appears on track to hit nearly $90MM in C’18. Accordingly, management revised up its growth target for this business from 15-20% to 20% or better.

Finally, Needham would point out that “On the Microsoft (MSFT) front, management continues to see solid demand in SfB voice deployments. Teams-based voice deployments have been slower than expected despite some initial traction with MSFT’s new Direct Routing capability, (which enables simplified connections of Teams-based voice to a SIP trunk with an SBC), but management expects a pick up in the next 2 to 3 quarters as Teams matures.”

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