AudioCodes Ltd (AUDC) 2014 Q1 法說會逐字稿

Greetings and welcome to the AudioCodes first-quarter 2014 earnings conference call.

(Operator Instructions).

I would now like to turn the conference over to your host, Mr. Erik Knettel, Investor Relations with AudioCodes.

Thank you, sir, you may begin.

Thank you, Melissa.

I would like to welcome everyone to the AudioCodes first-quarter 2014 earnings conference call.

Let me begin the call today with a brief 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 US 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 market conditions as needed; possible need for additional financing, the ability to satisfy covenants and the Company's loan agreement; possible disruptions 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 US 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 Mr. Shabtai Adlersberg, President and Chief Executive Officer, and Guy Avidan, Vice President, Finance and Chief Financial Officer.

I would now like to turn the call over to Shabtai Adlersberg.

Mr. Adlersberg, please go ahead.

Thank you, Erik.

Good morning and good afternoon, everybody.

I would like to welcome all to our first-quarter 2014 conference call.

With me this morning is Guy Avidan, Chief Financial Officer and Vice President of Finance.

Guy will start off by presenting a financial overview of the quarter.

I will then review the business highlights and summary for the quarter and then discuss trends and developments in the business and industry.

We will then turn it into the Q&A session.

Guy?

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 first-quarter non-GAAP pro forma results reflect adjustment for the following three non-cash items: stock-based compensation expenses, which totaled $621,000; amortization expenses relating to the acquisition of (inaudible); amortization expenses relating to be acquisition of Nuera, Netrake, CTI and the MailVision assets which totaled $339,000.

(technical difficulty) of deferred tax assets (technical difficulty)

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 first-quarter non-GAAP pro forma results reflect adjustment for the following three non-cash items: stock-based compensation expenses, which totaled $621,000; amortization expenses relating to the acquisitions of Nuera, Netrake, and MailVision assets which totaled $339,000; and utilization of deferred tax assets in the amount of $380,000.

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

First-quarter revenues were $36 million, which represent a year-over-year increase of 11.4%.

Looking at the sequential comparison, first-quarter revenue was down 0.8% sequentially, in line with the average seasonal decline in the first quarter and in line with our expectations.

We saw continuing demand for our core networking equipment business with an increase of 15% in revenues, compared to the year-ago quarter.

Sales of our Unified Communication Enterprise SBC, multiservice business router, enterprise application and our service offering continued to drive the increase following the growing demand for Lync Unified Communication and SIP trunk services.

In terms of revenue by business group, in the first quarter, our networking business group accounted for 85% of revenues and our technology business group accounted for 15% of revenues, in line with the business mix for the fourth quarter of 2013.

Revenues associated with our growing managed and technical service business line grew by 21.4% year over year and were 21% of total revenue or $7.4 million in the first quarter of 2014, up from $6.1 million in the first quarter of 2013 or 18.9% of total revenue.

Managed services and professional services helped further bind AudioCodes' high-value relationship with its customers.

Service revenues are also beneficial in that they are typically characterized by high gross margin and usually have recurring revenue.

Our services are based on our extensive experience and know-how accumulated in the Company.

As a percentage of revenues, sales in the Americas accounted for 51%; Europe, the Middle East and Africa 35%; and Asia-Pacific 14%.

Our top 15 customers accounted for 50% of our revenue, compared to 57% in the sequential quarter.

In the first quarter we had a single distributor in North America that accounted for 13% of revenue, compared to 22% in the sequential quarter.

GAAP net loss for the first quarter was $278,000 or $0.01 loss on a per share -- per diluted share basis compared with net income of $71,000 or breakeven on a diluted EPS basis for the year-ago quarter.

Sequentially, GAAP net income declined from the $2.8 million or $0.07 per diluted share in net income for the fourth quarter of 2013.

This quarter we recognized a non-cash utilization of our deferred tax assets of $380,000 compared to $1.8 million increase in our deferred tax assets the previous quarter based on statutory tax rate.

Non-GAAP net income for the first quarter was $1.1 million or $0.03 per diluted share, an increase of $371,000 versus the year-ago quarter and a decrease of $798,000 sequentially.

In the first quarter of 2014, on a GAAP basis, gross margin was 58.7%.

Non-GAAP gross margin was 59.5%.

GAAP operating expenses were $21 million in the first quarter compared to $19.6 million in the fourth quarter of 2013.

Our total non-GAAP pro forma operating expenses were $20.3 million compared to $19 million in the fourth quarter of 2013.

The increase in GAAP and non-GAAP pro forma operating expenses was predominately attributed to the growth in our workforce and the strengthening of the Israeli shekel versus the US dollar, partially offset by an increasing grant from the Israeli office of the chief finances.

Headcount increased this quarter by 12 employees to a total of 629 employees.

We continue to invest in growing our salesforce and adding new engineers that will develop the article of cloud delivery metric product.

Net cash providing by operating activities was $1.9 million this quarter compared to $5.7 million in the sequential quarter and net cash provided by operating activities of $2.7 million in the year-ago quarter.

Short-term and long-term cash balances at quarter end were $94 million compared to $62.3 million as of December 31, 2013.

The increase in cash balances in the first quarter was primarily attributed to the new capital rates and continuing providing cash by operating activities.

During the first quarter of 2014, the Company raised approximately $29.7 million in net proceeds from a public offering of 4,025,000 ordinary shares, including 525,000 shares sold pursuant to the underwriters exercise in full of their overallotment option at a purchase price of $8.00 per share.

DSL came in at 69 days compared to 66 days last quarter.

While we expect demand for our new product and solution to continue to grow at a double-digit compound annual growth rate over the next three to five years, within this largest growth trend for our new product and solution, we do anticipate some of this growth will be offset by a decrease in demand in our technology and legacy product, which account as 15% of our revenue in the first quarter of 2014.

We reiterate our guidance for 2014 as follows: on an annual basis we forecast revenue for 2014 to be in the range of $147 million to $152 million and non-GAAP earnings per diluted share are expected to be in the range of $0.18 to $0.22.

I will now transfer the call to Shabtai.

Okay.

Thank you, Guy.

We are very pleased to report strong financial performance for the first quarter of 2014, our seventh consecutive quarter of growing revenues.

We have been engaged in many important and productive activities in this quarter, most notably the markets of Lync environment.

They have been very active.

Same goes for One Voice initiative for the asset services and collaboration with BroadSoft.

But in view of some of the milestone activities this quarter, it's -- I am confident in stating that AudioCodes is now emerging a much stronger company at the end of this quarter and better positioned to be an industry leader in [a year of] unified communications, real-time communications, business services and mobility.

Most notably, our networking business line keeps growing.

We have been talking in the past about our plans to grow networking at a rate of 10% to 15% a year in each of the next three years.

I am glad to report that in the first quarter of 2014, we executed on our plan and grew 15% over the year-ago quarter.

Before I provide more details on our ongoing operations in the different business lines, I would like to touch on two most noteworthy unique and strategic lessons that we have achieved this quarter.

First is the offering.

I am glad to say that we have completed a public offering, have raised $29.7 million as needed capital for the Company.

Second (inaudible), the launch of the Cloud Delivery Network Architecture program and the approved budget and support from the office of the Israeli Chief Scientist for about $29 million over the next three years.

This will allow us to recruit 100 more engineers to fuel our developments in the emerging cloud and SDN and NFP areas and will allow us to become a leader in the industry.

As to the offering on March 5, we are now [surprising] a successful completion for public offering of about 4 million ordinary shares raising net proceeds of $29.7 million.

The funds raised will help strengthen our balance sheet and provide more adequate backing to our ongoing operations.

Additionally they will provide NIS flexibility to pursue strategic growth opportunities in the future.

Just as a note, I would like to note at this time that currently we do not have any needed such plans.

Regarding the cloud delivery network architecture, on April 9, we announced that the Israeli office of the Chief Scientist has approved in principle a three-year plan 2015, 2016 for AudioCodes for approximately NIS100 million, which translates into about $29 million, in order to establish an advanced and innovative research and development center for cloud technologies.

The Israeli office of the Chief Scientist approved a budget of approximately [$6.4 million] full year 2014 of which nearly 2/3 will be supported by the Chief Scientist.

AudioCodes Cloud Delivery Network Architecture program includes the establishment of infrastructure for a new research and development center in hiring engineering storage and R&D staff 100 engineers by the end of 2016.

Under that program we intend to develop technologies, infrastructure, platforms, and services that will be designed to operate in challenging cloud environments and will enable delivery of real-time communication as well as value-added services.

These platforms and products will utilize principles of NFV and SDN architectures.

This will allow our business partners to be able to focus on the application and rely on our abilities to provide them with internetworking capabilities in the areas of unified communications, connectivity to [work RTC] security, antifraud, quality of service monitoring, [an announcement] of selection of advanced cloud-based services such as mobility, recording, speech recognition, et cetera.

Now for some of the financial highlights in the quarter.

As Guy has mentioned, quarterly revenues increased 11.4% over the quarter last quarter and basically that's -- I'm sorry, 11.4% over the year-ago quarter.

More significant and relevant is our performance on networking where we achieved 15% growth as I mentioned before.

We have been able to achieve gross margin growth and improve it nicely to 59.5 from 58.1 in the previous quarter.

We believe the differences sustainable across margin range are better, given our focus on transitioning to better mix of products including software solutions and services.

Glad to say that net cash provided by operating activities were $1.9 million.

At the end of quarter we ended with $94 million in cash and cash equivalents about of which $80 million are net.

Also in terms of deferred revenues we have been able to grow them just like in the previous quarter.

And they are now 43% higher than those of the same quarter a year ago.

New product sales continue to ramp up.

We have grown new product sales more than 20% over the previous quarter and, as compared to the quarter a year ago, we grew more than 50%.

That proves that our investment in new products including session border controllers, IP phone, and market service routers is proving to be beneficial for the Company.

We saw strong momentum in revenues from session border controller services in Microsoft Lync-related activities and I will touch that in a few minutes.

Let me go first to -- I will give you some highlights on the sell side.

Generally sales were in line with the original plan for the quarter.

All in all, we saw nice contribution from across all regions.

The one region that stands out for weakness was Russia, and I think we all can assume that is related to the latest political events surrounding Russia and its neighbors.

In terms of some more notable deals in the quarter, in the Lync, Microsoft Lync market we had two nice deals.

One in North America with a large company in the biotech area.

With another new contribution for a completely new area for us, we started to see China looking into Microsoft Lync.

We have been able to sign up with a living (inaudible) in China and I think we will see more Microsoft Lync activity coming from that area, too, which is good, going forward.

So that is on the Microsoft Lync.

On the micro service routers I will mention that we -- I will mention two deals, one in Europe, one in Latin America.

Nice reception for our new micro service routers which represent a unique capability, mainly in the area of adding voice capabilities and certification with leading software vendors with their traditional data multiservice routers players.

Further I will mention, I will go and mention too at the end, is we had a nice deal signed up with a tier 1 service provider in the mobility space and we expect that our activity and success in mobility for service provider will pick up nicely in coming quarters.

Now to some of the most important (inaudible) in the Company.

Let me first touch Microsoft Lync.

All in all we had a great quarter.

We had close to 40% growth over the year ago in the Microsoft Lync activities.

Lync growth territories remains substantially United States and Western Europe.

We have seen noticeable pickup in Western Europe.

We have seen that long-term efforts, development efforts we have invested in Western Europe so to stay back we have also seen some activity growing in Canada and I have mentioned before China.

We kept working with some of the strategic enterprise accounts, continuing adoption of Microsoft Lync, and we have seen nice pickup in that area.

We want you also to know that during the month of February we had a very successful Lync Circle of Excellence event in Las Vegas in conjunction with the Microsoft Lync Conference.

We had a private session with close to 20 large enterprises, North America enterprises.

And I think it was beneficial both for honors for our customers and ourselves in terms of discussion and exchanging knowledge and ideas during that event.

We have that type of event and it is an ongoing activity.

We just had about two or three weeks ago another such meeting here in Israel where we brought in substantial number of [ponners] from Europe.

And now a point to mention is that during the quarter, we have certified our Mediant 9000 session border controllers.

Microsoft, just to remind you that this is a high-density [60,000] high-capacity SBC.

Now let me go to the SBC operations.

Again, a very good quarter which grew more than 10% quarter over quarter and, again, when comparing to a quarter a year ago, we grew about 40%.

In the quarter we have released a new release for the software SBC and the Mediant 9000.

As I have mentioned before, we now provide 60,000 concurrent SIP trunk services.

In our plans for fourth quarter of this year, about six months from now, we will scale up density to about 30,000 SIP trunk services.

We will also announce our excess SBC capabilities and we will support the industry emerging with RBC technology.

In terms of environments in which we sell our session border controllers, we focus substantially in the ecosystems of our partners, namely Microsoft, Genesys, BroadSoft and Avaya with a big focus on collaborating with BroadSoft and I will [talk] to that in a second.

We have basically announced One Voice for our sub services at the end of 2015.

During February, we had an event in Europe where we met with BroadSoft personnel, myself and the CEO of BroadSoft.

We also have been there and we have been working with our teams and selected partners and customers on providing a comprehensive outlook for combined offerings.

Articles is now being added into the broad cloud offering.

In terms of products, BroadSoft is now pushing more and divesting more [user phone] products to their clients.

Among those products are session border controllers, IP phones, voice quality props and telephony adapters.

We started to work with BroadSoft on collaborating with some of their largest partners.

We cannot name specific names at that time, but I can tell you that we are dealing with some of the largest tier 1 service providers in the world.

Now to our services.

Again, we enjoyed a very good quarter.

Revenue associated with our growing management and technical services.

[Unifying] grew by 21% year-over-year and were about 20% of total revenues.

That translates to $7.4 million in the first quarter, again compared to $6.1 million in the first quarter of 2013.

I would like to mention also that service revenues are also beneficial in that they are typically characterized by very high gross margin and usually have recurring [net earn] of revenue.

Services are based on very excessive extremes and we believe that that will make a difference for us and grow in coming quarters.

Just to mention that we have been able to exceed in terms of invoicing -- services invoicing.

We were able to exceed our plan this quarter by more than 5%.

Again, comparing to the quarter a year ago we saw invoicing growing 8.5% in the technical support and maintenance and more than 40% in the professional services year-over-year.

And before I conclude my part, let me talk a bit about mobility.

We believe mobility will emerge to be a very important growing area for AudioCodes in coming quarters and years.

As you know, right now, our activity is comprised of mobility for service providers supporting consumer products.

We just released a business addition that targets enterprises.

And then we have the voice dialing solution that is named VocaNOM.

In February -- on February 20, AudioCodes has introduced new cloud-based enterprise mobility services delivered from the Amazon Web services cloud.

We have announced both the mobility cloud business addition for enterprises and the VocaNOM application which enables mobile and office voice dialing.

Those solutions are pretty complicated technologically or basically where we provide mobile clients coupled with the delivery platform for secured connectivity management and monitoring and that enables service provider to offer their business customers a anywhere, anytime, any device type of mobile communication services with data networks while reducing total cost of phone machine.

The new application for enterprise leverages AudioCodes' existing tier 1 service provider customers for the over-the-top solution.

We are providing that technology for more than four or five years now with some leading names that we have mentioned such as Telefonica in South America, Liberty Global, GVT (inaudible) and others.

We believe that our solution for mobility and for dialing will basically be superior to other solutions in the market.

It will leverage the success of our various technologies, including voice compression, SIP technology, SBC technology, and a few more.

And we believe that we will see substantial growth in our soft users in coming quarters and we believe that, in coming quarters, we will start quantifying that product.

With that, I have concluded my part and will now turn it to the Q&A session.

(Operator Instructions).

Rich Valera, Needham & Company.

Good morning, gentlemen.

It sounds like you are seeing good strength in both your Lync and new products areas in terms of growth.

Can you give us a sense of what those two product areas represented in percent of revenue for the quarter?

Hello?

Can you guys hear me?

Yes.

Can you please repeat?

Yes.

So the question was related to your two -- the Lync product area which you called out as showing strong growth and that you products product category.

Both sound like they are seeing very strong year-over-year growth trends.

And I was wondering if you could share with us roughly what percentage of revenue each of those categories represented in the quarter?

Well, actually, we are not giving the exact number.

But I can say is that we saw some increase in being quarter-over-quarter and very good increase in new product Q1 over Q4.

You mean as a percent of revenue or just in absolute dollars?

Absolute dollars.

Got you.

Fair enough.

And then, with respect to the pipeline for your One Voice and I guess it's clearly Lync and BroadSoft, if you could characterize how that pipeline looks.

It sounds like you are talking more about BroadSoft then you have maybe in some recent calls so it sounds like that has strengthened.

So can you give us some color on the pipeline activity for both Lync and for BroadSoft and how it might compare to a couple of quarters ago?

Right.

This is Shabtai.

So, yes, there is definitely pick-up in activity with BroadSoft.

We started further working about eight or nine months ago.

Since then we have been working with them.

It looks like our ability to provide a combined offering that will lower the development of [performership] of the customers is a driver for those relationships.

And we have been working with BroadSoft closely to make that that end already active in the field to.

So you should see at this stage although BroadSoft has been a great partner for us for many years, none of the new activities reflected the IN revenues which means that we believe that the fruits of that renewed cooperation will start to be seen only in about a quarter or two going forward, but that means that you will see much increased sales in that environment.

Great.

Thank you.

Guy, with respect to gross margin, you saw quite strong gross margin this quarter pretty well above your recent couple of quarters.

Can you give us a sense of where we should think about gross margin going forward?

Is there anything unusually favorable in that first-quarter gross margin?

The high gross margin this quarter was pretty much based on high gross margin from product mix Shabtai mentioned before.

We saw very good business in service and support, professional services that usually [appear] higher gross margin than average and we expect this trend to continue along the year.

As mentioned before, we are not changing topline and bottom line guidance, but we expect gross margin to be a bit higher and OpEx will be a bit higher as well.

Great.

And then wanted to touch on your new OCS grants.

I know you gave a very broad outline of the types of products you plan to develop under that grant in sort of the cloud architecture topic.

Is there any other details or color you can share with us in terms of specific products or when these products might start hitting the market?

Is this something that we should really be thinking of more products hitting the market in 2015, 2016 from that initiative, or is there something that might happen any sooner?

And then a follow-up.

Is it possible that this could have an incremental impact?

I know you don't guide for beyond the 2014 year, but could have a positive incremental impact on your bottom line as we look to 2015 and beyond.

Thanks.

Right.

Yes.

As a matter of fact I think you are right on the [pony].

We are growing SC -- you know, listening to what we just described we see growth all over the place.

We are growing in Lync, we are growing in session border controllers, we are growing in IP phones, we are growing in (inaudible) service providers.

We will have to invest in mobility.

We have been somewhat limited in our ability to invest in the current P&L, I would say, scenario we are in.

The fact that we have been granted that firm will allow us to pour much more resources into various areas.

I can name the multiservice routers.

That is an area we will invest substantially more.

We are talking about our operation center, which gives huge value for customers in any voice solution be it Lync, it BroadSoft, be it Genesys contact centers.

It comprises of an element management system, a voice quality monitoring, advanced routing, a SIP analysis.

So our ability to invest was somewhat limited previously.

Now with the infusion of a grant from the Chief Scientist, it seems that we will be able to make those investments.

Mobility will be another area for us to invest.

So, basically I just give you an idea originally for the year we are planning on ending the year with about 630 employees.

We are now targeting about 665 employees, 35 more employees.

Again, since this is an R&D grant, all of the infusion goes into R&D.

So you can imagine that accelerating our developments in R&D and products of those area will definitely contribute to incremental revenues in 2015 and going forward.

Okay, that's helpful.

Thank you.

George Iwanyc, Oppenheimer.

Following up on the headcount addition.

Can you give us a sense of the pace of additions and how we should look at modeling as the year goes through?

We expect -- and, again, this is based on the grant that we are about to receive from the government so we expect to grow additional 10 to 20 engineers this year.

And this is based on the program.

Most of them are actually more than 60% financed by the grant.

So it will not impact the P&L.

And as mentioned, we are not changing the guidance.

We are going to be very straight in keeping expenses and not changing the OpEx dramatically.

Okay, thank you.

When you look at the FX impact, do you see very big swings?

Have you hedged as much as you can when you are looking at the expenses over the next quarter?

Again, we do not know what is going to be the FX next quarter, but as we see right now, it will not change dramatically.

Q2 will not be dramatically changed from Q1, FX basis.

Okay and can you give us an overall update on the competitive environment?

Yes, I think we are not seen much difference in the competitive environment.

Luckily enough, we don't see much competition.

Obviously we see more in the LDC market.

We see some competition in the Lync market, but again our ability to grow our offering and basically offer a more complete solution make of bettering that space.

We will be stepping into mobility and we believe that we come up with some innovative solutions.

So, again, I think we will be quite competitive in that area.

So, and I don't see any worsening in that area.

Actually I think that growing our ability to invest will basically improve our competitiveness.

Thank you.

Dmitry Netis, William Blair.

I wanted to touch again on OpEx.

What was the rough impact from the shekel appreciation versus the dollar as you went through the year?

Can you square that out for us and maybe take that out of the total OpEx line?

That would be great.

So if you compare Q1 2014 with Q1 2013, so a year ago the US dollar versus the Israeli shekel would be a rate of roughly 1 to 4. And Q1, this year it was close to 1 to 3.5.

If you take all the Israeli shekel expenses and multiply with that GAAP, you will get something like $1 million a quarter, which is $0.02 to $0.03.

And that is the impact assuming this quarter we had the year ago FX rate.

Okay.

So that could partially explain the difference between the $20 million this quarter and I guess $18 million in last, right?

So that is about a half of that was related to foreign and foreign translation?

Right.

So there are three points.

One was the FX.

The same direction was new personnel and there was some offset by increased grant from the Chief Scientist office.

All right, okay.

And then to touch on that last point, could you give us any more color as far as the investments you guys will have to make?

I understand [that has gone], but can you quantify that in terms of what the spend will look like, incremental spend would look like versus what you had projecting starting the year before you had the grant in hand?

And how was that applied to benefit the grant money that you are getting?

Most of the investment and most of the grant are actually attached to personnel, facilities leased.

So it is not really material.

And leasehold improvement will just click in next year and will be depreciated over the period of the lease.

It will not be material as well.

So it is predominantly high-end engineers and the large majority of the expense is granted by the government.

I understand that.

But I guess what I was getting at is it you could talk about the net benefit from that grant is this year and if you walk us through the next two years as well.

Since this is a three-year grant, what should we be expecting here?

Thank you.

And I asked this question because I think you have kept your non-GAAP EPS basically flat, but sustained with product guidance for the year.

So I am trying to see what the impact from that line would be and we do understand the currency stuff that is happening as well.

So if you could put that all in perspective for us, that would be great.

Thank you.

Right, okay, I got it.

So, if you look at three years plan with $30 million expense budget over three years let's assume grant is going to be 2/3 like 66% out of it.

So it's $4 million the first year, $6 million the second year and $9 million to $10 million at the third year in terms of grants.

The first year is 2014.

Okay, but that is the grant money, right?

That's not the (multiple speakers) net benefit you see.

So what would be the net benefit then?

What will you project when you anticipate your (technical difficulty)?

So, again, for 2014 we already made the budget.

So it is pretty much a wash because we are going to have some recruiting expenses et cetera.

Next two years is, we are going to see that profit but we are not guiding for that year.

Okay, great.

Fair enough.

And then, I wanted to touch on the top line as well.

You guide on an annual -- you provide annual guidance.

I wanted to see if as you progress through the year, how should we be thinking about your quarterly fluctuation there on the top line?

Is it more of a back end loaded year?

Is it on a loaded, prorated (technical difficulty) throughout the year?

Give us a sense so we can model that potentially properly (technical difficulty).

Right.

So let's take the meat of the guidance in terms of topline to the area of $150 million annually.

So, Q1 is usually flat over the previous Q4 and that is what we saw this quarter.

And we expect around $1 million increase quarter over quarter.

So it is 36, 37, 38, 39.

That's very roughly and as mentioned we are not guiding for the quarter.

Okay, thank you.

I appreciate that.

And my last question would be, I think Rich mentioned the BroadSoft initiative; on the One Voice you are starting to see some traction there.

Is it something you are going to be able to quantify for us going forward just like you did with Lync?

Not sure we are.

Again, I think the only way for us to provide information would be maybe to identify extra revenues coming from new service providers that have not been on board before we launch that initiative.

So yes, I assumed that at some point in time, yes, we will be able to refrigerate between revenues from new accounts that's related to the One Voice BroadSoft [platform], yes.

Okay, thanks, Shabtai.

I guess the last one would be on the mobility side.

Wanted to touch on that tier 1 deal you guys mentioned.

Is that the CMAS product or is that the new business edition that you launched in February?

Can you provide some color there and where the most stressful come from in that category going forward?

Is that going to be on the enterprise side or will it still be getting some consumer traction there?

Right.

Yes.

It is VMAS.

It is on the service provider side.

Right now we enjoyed much success in that area.

We have more than 10 large customers.

That win was in that space.

We are actually looking to upgrade our offering and believe that we will be able to have repeated and increased sales.

Just tell you that at this stage, penetration rate is very low.

We did some internal analysis.

It turns out to be (inaudible) percent, much less than 5% which means good news because service providers are priced today by over-the-top players providing calls and messaging solutions.

And there's probably no choice for the service provider including the tier 1s other than to offer if you can't beat them, join them.

So they will need to offer much more comprehensive over-the-top solution.

That creates for us a lot of momentum.

As to the business addition, which targets enterprise, we are adjusting the beta stage now.

So still no revenues to report.

Okay.

Thank you very much.

Les Sulewski, Sidoti & Company.

Good morning.

First, you now have a much larger cash base to work with and any possibilities of a potential acquisition that we could see in the near-term?

Again, we have done that step to become capital, but there's no any such plan immediately.

We have so much on our plate from the existing activities.

So, we will be fairly choosy.

I assume that we will not see anything in 2014, unless -- I will be surprised.

But at this stage there's no plan.

Okay.

Regarding your full-year expectation on the non-cash deferred tax expense.

I know it was $380,000 this quarter.

What will be the impact for the full year?

Actually what is going to happen is we are going to utilize the asset during the quarter and then probably increase it again at the end of Q4.

So, on an annual basis we will almost have lower impact.

So this is why we are taking out of the pro forma -- not to confuse you guys.

Okay.

Then last one, any updates on the development with Dell Services?

No specific updates.

It is an ongoing effort, joint sales in the markets, and it is going on.

But there is nothing specific to note at this time.

Okay.

Thank you.

I would now like to turn the call back over to management for closing remarks.

Okay, thank you, operator.

I would like to thank everyone who attended our conference call today.

(inaudible) momentum in our execution in the first quarter of this year.

We believe we are on track to achieve growth and success this year and in coming years.

And we are in position to continue to build a very sustainable, profitable operation for coming years.

We look forward to meet you and we look forward to have you on our next quarterly conference call.

Thank you very much.

Bye-bye.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

We thank you for your participation and have a wonderful day.