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Operator
Greetings and welcome to the AudioCodes fourth-quarter and fiscal-year 2015 earnings conference call.
(Operator Instructions).
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Collin Dennis, Investor Relations.
Thank you, sir.
You may begin.
Collin Dennis - IR
Thank you.
I would like to welcome everyone to the AudioCodes fourth-quarter and fiscal-year 2015 earnings conference call.
Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer, and Niran Baruch, Vice President, Finance, and Chief Accounting Officer.
Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to AudioCodes' business outlook, future economic performance, product introductions and plans and objectives related thereto, and statements concerning assumptions made or expectations of any future event, conditions, performance, or other matters are forward-looking statements as the 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 global economic conditions and conditions in general 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 developments; upgrade in the ability to manage changes in market conditions as needed; possible need for additional financing; the ability to satisfy covenants in the Company's loan agreements; possible disruptions from acquisitions; the ability of AudioCodes to successfully integrate the products in operation from acquired companies into AudioCodes' business; and other factors detailed in AudioCodes' filings with the SEC, the US Securities and Exchange Commission.
AudioCodes assumes no obligation to update information.
In addition, during the call AudioCodes will refer to non-GAAP net income and net income per share.
AudioCodes has provided 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.
Before I turn the call over to management, I would like to remind everyone that this call is being recorded and an archived webcast will be made available on the investor relations section of the Company's website at the conclusion of this call.
The call will also be archived on our investor relations app, which is available for free from the iTunes App Store and the Google Play market.
With that said, I would now like to turn the call over to Shabtai Adlersberg.
Shabtai, please go ahead.
Shabtai Adlersberg - President, CEO
Thank you, Collin.
Good morning and good afternoon, everybody.
I would like to welcome all to our fourth-quarter and full-year 2015 conference call.
With me this morning is Niran Baruch, Chief Accounting Officer and Vice President of Finance.
Niran will start off by presenting a financial overview of the quarter.
I will then review the business highlights and summary for the quarter and the full year and discuss trends and developments in our business and industry.
We will then turn it into the Q&A session.
Niran?
Niran Baruch - VP Finance, Chief Accounting Officer
Thank you, Shabtai, and hello, everyone.
As usual, we will be referring to both GAAP and non-GAAP numbers on the call.
The non-GAAP P&L metrics exclude recurring non-cash items.
Today's earning press release contains a reconciliation of supplemental non-GAAP financial information.
Revenues for the fourth quarter were $35.6 million, up 4.2% from the prior quarter.
Full-year 2015 revenues totaled $139.8 million.
Revenue from networking products and services increased 3.2% from the prior quarter, accounting for 89% of revenues for the fourth quarter.
Revenue from our technology products increased 12.6% from the prior quarter.
Services revenues increased by 3.4% from the prior quarter, accounting for 28% of total revenue for the fourth quarter.
On an annual basis, services revenues increased by 14.4% from the previous year.
Revenues by geographical region for the quarter was split as follows -- North America, 42%; Central and Latin America, 8%; EMEA, 34%; and Asia-Pacific, 16%.
Our top 15 customers in aggregate represented 62% of revenues in the quarter, of which 50% are attributed to our nine largest distributors.
Non-GAAP gross margin for the quarter was 60.5%, compared to 60% in Q3 2015.
Operating income for the quarter was $2.5 million, compared to an operating income of $0.97 million in Q3 2015.
Full-year 2015 operating income was $2.7 million.
On a non-GAAP basis, quarterly operating income was $3.2 million or 8.9% of revenues, compared to an operating income of $1.9 million in Q3 2015.
Full-year 2015 non-GAAP operating income was $6.3 million.
Net income for the quarter was $2.8 million or $0.07 per share.
Full-year 2015 net income was $0.37 million or $0.01 per share.
On a non-GAAP basis, quarterly net income was $2.8 million or $0.07 per share, compared to net income of $1.7 million or $0.04 per share in Q3 2015.
Full-year 2015 non-GAAP net income was $5.9 million or $0.14 per share.
Our balance sheet remains strong.
At the end of December, cash, cash equivalents, and marketable securities totaled $80.4 million.
Days sales outstanding as of December 31 was 65 days, compared to 70 days in the prior quarter.
Operating cash flow generated during the quarter was $7.7 million and $17.6 million for the full-year 2015.
During the quarter, we acquired 1.1 million shares for a total consideration of $4.5 million.
As of December 31, 2015, and since we began to repurchase our shares in August 2014, we have acquired an aggregate of 5.8 million shares for an aggregate consideration of approximately $24.8 million.
In January 2016, we received court approval in Israel to purchase up to an aggregate of $50 million of additional ordinary shares.
The current court approval for the share repurchases will expire on May 19, 2016.
On December 31, 2015, we entered into a definitive agreement to acquire Active Communications Europe.
The consideration for this transaction consists of payments of $3 million in cash, plus an earnout arrangement.
Following the transaction, Active Communications Europe became a wholly-owned subsidiary of AudioCodes.
We continue to expect topline revenue growth and operating margin expansion in 2016.
We expect revenues in the range of $142 million to $149 million and non-GAAP diluted earnings per share of $0.20 to $0.25.
I will now turn the call back over to Shabtai.
Shabtai Adlersberg - President, CEO
Thank you, Niran.
We are very pleased to report continued momentum and record financial and business results for the fourth quarter and the full year 2015.
In several aspects, the fourth quarter presents the best quarter delivered in the past two years in our progress in strategic business lines such as Skype for Business and the SBC product and related solution will represent the growth trajectory for the Company for coming year.
As announced earlier this morning, AudioCodes' 2015 performance was underlined by a successful execution of our plan to focus on the growing markets of unified communications, SIP trunking, SBC, and network transformation into an all-IP world.
We enjoyed strong business momentum related to our Microsoft Skype for Business and the sessions with the controller activity, which provided each sequential revenue growth of more than 20%.
The business success has led to record performance on the financial side, where we enjoyed a record gross margin -- quarterly gross margin of 60.5%.
Combining this increase with the continued good control of operating expenses, which came in better than expected, allowed us to achieve another record performance in operating margin, which increased to 8.9% of revenues.
This and the continued success in our services operations drove a very positive -- strong positive cash flow of $7.7 million for the quarter and $17.6 million for the full year.
During the year, we continued to make good progress and to invest in our UC and SIP related activities.
We now call them the UC-SIP area.
We intend to further invest in the transition to a world of all-IP networks and solidify our leading position in connecting businesses to the emerging cloud-centric world.
These investments, coupled with increased service on software products, solution, and services, are expected to provide further strength and support for our success in coming years.
As already reported in previous quarters, 2015 has been about transition and change in our business.
Between 2014 and 2016 and maybe also 2017, our business is transitioning from being a gateway-centric Company to a Company fully focused on the new all-IP world.
In 2016, we expect to see similar transitional trends which will continue to affect our ability to grow the topline, as already provided in our guidance.
However, please make no mistake.
Our key business of UC-SIP continued to grow at 20% plus rate annually and now that it has reached an annual level above $45 million, compared to less than $10 million in 2012, we are confident in our ability to grow revenue and earnings on a sustained basis going forward.
To summarize 2015 from a revenue perspective, and as we all know, we declined in 2015 compared to 2014, let me give you a rough breakdown which may help capture the big picture.
First, in our main strategic UC-SIP business, comprising both SBC and related solutions, market service business drivers, IP phones, network management software, CloudBond, and services, we grew above 20% in 2015 to a level of above $45 million.
We plan for another year of 20% growth in 2016 in the UC-SIP business.
Second, in our ongoing CPE gateway business, which provides close to $60 million annually, we saw almost stable revenue, declining between 1% to 2% in 2015.
In view of the strength in the UC-SIP service market which grows above 20% a year and the network transformation project with service provider, we expect similar such trend into 2016 with a possible upside.
On the other hand, we experienced continued decline in our legacy business, but more severely we saw sharp decline in our trunking gateways business in 2015, a decline of above 40%.
Combined, the legacy and trunking gateway lines declined more than 30% in 2015, reaching now a combined level of around $35 million.
We expect another 10% to 15% decline in 2016.
In fact, this decline in legacy and trunking gateway is the key reason for the shortfall in our revenues in 2015 compared to -- in 2015 compared to 2014.
I can provide further details in the Q&A session.
All in all, we expect that the increase in the UC-SIP business will more than compensate for the decline of legacy and trunking gateways in 2016 and the CPE gateway business will continue to provide stability.
Looking ahead to 2016, we see much new potential starting to build for us in the NFV and the SDN world.
I will just mention [this our SBC] technology is already being delivered as a software and as a VNF for virtual CPE solutions.
We do intend to announce already in the first quarter of 2016 our plans for the UC centric SD, WAN, and for the Virtual CPE market later.
As we own several of the key technologies which are required to deliver a unified Virtual CPE product, we believe we will emerge a leading vendor in this space.
Now let me touch on some significant data points in our financial front, both of which are non-GAAP numbers.
Again, all in all, the fourth quarter was the second quarter in a row where we grew in revenue, strong quarter.
We have been climbing back from the deep of the second quarter of 2015, executing well on our guidance with the second half of 2015 revenue and excelling on the earnings front.
Quarterly revenue increased 4.2% over the previous quarter, $35.6 million as planned.
Quarterly service revenues increased 3.4% quarter over quarter to $9.9 million.
On a full-year basis, 2015 service revenues totaled $37.8 million, showing an increase of point four -- [14.4]% over 2014.
The services business provide a very sound and stable growth [current] over the past four or five years and we believe it will continue to do so going forward.
Quarterly gross margin was a record 60.5%.
Full-year 2015 gross margin totaled 60%, another record.
As an indication to the strength of our business, let me know that the gross margin step-up in the 2013/2015 period from 58% to 60%.
As we increase focus on cloud services, NFV, server solutions and services, we assume it will keep growing in coming years.
On the OpEx front, we have done a good job controlling expenses and did better than planned.
OpEx came at $18.4 million, compared with the planned budget of $19.4 million.
This positive lower expense is attributed to different than anticipated changes in accrual for vacation and severance.
As a result, operating income was a record $3.2 million versus $1.7 million in the previous quarter.
More important, operating margin grew to a record 8.9% versus 5.4% in the previous quarter, very much in line with our target, strategic target, to achieve above 10% operating margin in second-half 2016.
Quarterly net income was $2.8 million or $0.07 per diluted share for the quarter and $0.15 for the full year, hitting guidance both on the annual and quarterly level.
Cash flow from operating activities was very strong, $7.7 million for the quarter and $17.6 million for the full year.
Again, a very important result and support for our ongoing buyback program.
Let me touch on a few of the business areas here in closing.
First, let me speak a bit about the UC-SIP new product area.
As mentioned, this is the key business line we invest in, with SBC contributing about 60% of this line revenue and the rest of the products, among them our multi-service business routers, IP phones, network management, services, providing the rest, 40%.
That line is focused and we're working to provide the most advanced business voice connectivity solution for the emerging UC-SIP service market, SIP trunking market.
This is the basis for our collaboration with Microsoft, [bronto], the over-the-top players, et cetera.
This is the basis for the projects we do in the all-IP service provider network transformation area, the basis for our NFV and virtual CPE activity and for the future SDN activity.
In the fourth quarter of 2015, revenue of UC-SIP grew above 15% compared to the third quarter, and overall 2015 revenue grew above 20% compared to 2014.
This is very close to 90% of our investment go into and which provide for continued growth of 20% annually going forward.
Touching on our SBC activity, the SBC product line activities are strategic to the future of the Company and our ability to succeed in coming years, and we are glad to report a very successful year of growth in 2015.
In the fourth quarter, as we see, revenue grew above 20% quarter over quarter, more than 30% when compared to the year-ago quarter.
On a yearly basis, we ended the year growing about 25%.
As reported by Infonetics Research, we continue to hold 13% market share, right up to Cisco, together with Oracle and other product companies.
We have seen strong take-up for our software SBC sales, which grew more than 200% in 2015, reaching a level of $2 million, and we believe that our NFV SBC solution has reached maturity in several virtualized cloud environments.
We also grew at similar growth rates in the cloud data center access SBC category, again crossing the $1 million figure.
We believe we have a very advanced technology in leading this space.
All in all, we have a very broad portfolio of partnership with the leading UC vendors, such as Microsoft, Genesys, BroadSoft, and others.
It does well to our business there.
We have a growing number of application offered to the market and we see growing success with the leading service providers.
All in all, we have seen good growth in the service provider SBC space, both active in peering and [asset connect] centers.
The UC-SIP service market strength opens the door for the core SBC market as well.
I will also mention that in the OEM category, our investment starts to pay off.
We announced Genesys several years ago.
We have two more new OEM [honors] in SBC OEM.
Now coming to the most important line at AudioCodes, which is the Microsoft SfB activity.
We ended 2015 with $30 million of revenues in that ecosystem.
We planned for increase of 30% due to the announcement for Cloud PBX.
As reported, we have seen some [solid] confusion in the market in the first half of the year.
Finally, we closed 2015 at 25% upward, short of the 30% we were looking for.
But just to give you a number, because it was that activity back in 2009, it is $1.5 million.
We are glad to report that we have provided close to $38 million in 2015 and we plan for another similar size growth in 2016.
As to where we stand in this market, our One Voice solution continues to provide edge over our competition and our end-to-end solution approach proves beneficial to the end user.
Our bundle of gateways and SBCs, together with our IP phones and (inaudible) management software and services, creates an incomparable value proposition.
We enjoy a good market.
We saw a recovery from the beginning of the year where the market was stalled.
It now seems that enterprises are continuing their on-prem deployment with potential possible adoption of Cloud PBX services for main site and branch offices.
As such, we still maintain that over the next three to five years we will see hybrid implementation as the key go to market in a solid portion of the deployment.
Getting to the numbers, in the fourth quarter Microsoft Skype for Business -- ecosystem revenue grew 20% quarter over quarter and 30% over the quarter a year ago.
On an annual basis, we ended the year growing close to 25%.
And just in terms of a geographical split, we saw strength in both North America and western Europe with large enterprises.
We also saw some new nice beginnings in Japan.
Now to two announcements that we made lately on the Microsoft front.
On December 2, 2015, we announced CloudBond, which is the successor of One Box 365.
CloudBond 365 is a hybrid appliance with full Skype for Business server infrastructure and complemented by specialized management (inaudible) cloud connectivity tools.
The solution facilitates a smooth migration of users from on-prem leading to Skype for Business.
This idea for hybrid implementation for main site and branch offices in support of providers hosting and managed services.
Integrated within the CloudBond 365 is AudioCodes' session for the controllers, our gateway capabilities, phones, and management tools.
We have seen very nice reception of the CloudBond 365 solution by integrators and service providers in the past two months since it was announced.
Going to our announcement of January 5, where we announced the acquisition of Active Communications Europe, this acquisition extends our product portfolio and capabilities for the Microsoft Skype for Business online.
Active Communications Europe is a software house based in the Netherlands and focused on Microsoft Skype for Business communications solutions.
As announced, the acquisition brings AudioCodes' deep expertise with Microsoft software architecture for both Cloud PBX and on-premises Skype for Business server, along with [scale pro] and hybrid cloud solutions.
AudioCodes' CloudBond 365 solution is to benefit from that acquisition and to enjoy first-rate deployment in advanced capability.
To summarize our call, we're entering 2016 with a very solid approach with very solid assets.
We are sitting on large and expanding markets.
We have a successful global [partnering] strategy that has proved itself throughout the past five to 10 years.
We have strong brands and execution record, a growing customer base, both enterprises and service providers.
We believe that we are positioned to lead the new cloud connect with CloudBond market.
We saw some weakening competition in certain area and we believe we will work hard to increase that gap.
We own the technology, the products, the organization, and the human capital assets.
At this stage, management is in place for more than several years, very experienced (inaudible) with the organization, and, as Niran mentioned before, we have got a very strong and financially sound operation.
So I think we are sitting well to capture the opportunities in 2016 and beyond.
And with that, I have concluded my introduction and I will turn the call back to the operator.
Operator
(Operator Instructions).
Rich Valera, Needham & Company.
Rich Valera - Analyst
Just wanted to try to understand what percent of your total revenue the UC-SIP business comprised?
Niran Baruch - VP Finance, Chief Accounting Officer
I roughly tried to give you a breakdown.
In 2015, it amounted to more than $45 million out of the $140 million we did.
Rich Valera - Analyst
Got it, and you expect that to be a 20% type of grower going forward?
Is that correct?
Niran Baruch - VP Finance, Chief Accounting Officer
Correct, yes.
Rich Valera - Analyst
Got it.
And then, just looking at the Skype for Business, that has obviously been a little volatile this year, I think, around the launch of the rebranding and the cloud version of that.
I think a quarter ago you had said you thought that your total Skype for Business revenue might grow as low as 15% to 20%, and now I think you are thinking that it could grow significantly faster than I think you are talking about, maybe that growing 25% going forward.
Can you just talk about what has happened over the course of the year, particularly what has led you to be more optimistic now about the ability to grow that business in that kind of mid-20%s range?
Thanks.
Shabtai Adlersberg - President, CEO
Right, so, yes, as we said in previous calls, we saw some confusion in the market in the first half of it.
We experienced the same delay that other vendors acting in that environment felt.
I think it took the month -- six months or maybe up to nine months to assimilate the meaning of the Cloud PBX announcement.
I think it is now believed that all of the large enterprises, while recognizing the value in our PBX, will definitely continue to invest in their on-prem solutions.
So we have seen all those enterprises that we won in the past three, four years continuing, as I already comment, and we have not seen any major change.
As I have mentioned on the call, we do believe that Cloud PBX will help our play on -- initially, at least, with the large enterprises on the skirts as the functionality provided there is in fear to the Skype for Business on-prem solution.
Second half was actually just back on track with the previous years, and we have seen customers coming back.
The market was good.
We see increased interest.
As I've mentioned, Cloud PBX 365 just before the call looking for more (inaudible) come.
We have seen many new orders in the past two months.
Initial evaluation orders, but we do believe that that product line will grow 100% in 2016.
So all in all, we regained the share of optimism we had at the end of 2015.
I think we're back to business, understanding better the role of Cloud PBX was in the overall Skype for Business solution.
Rich Valera - Analyst
That's great, and just one on the model.
Obviously, a nice job on your OpEx in the fourth quarter.
Can you give us a sense of where you would expect them to trend sequentially into the first quarter of this year, relative to the fourth quarter?
Shabtai Adlersberg - President, CEO
Yes, as we have guided before, we believe that for the first quarter we will see around $19.5 million.
Rich Valera - Analyst
Okay, very good.
Thanks very much, Shabtai.
Operator
Dmitry Netis, William Blair.
Dmitry Netis - Analyst
A couple of questions.
First, Active Communications, was there any revenue associated with it and what do you expect that business to generate going into 2016?
Shabtai Adlersberg - President, CEO
Yes, the business will generate somewhere between $0.5 million to $1 million in 2016.
We really do not count much on that revenue.
The acquisition was a pure technology acquisition and some relationship that company had with few service provider in Europe.
Dmitry Netis - Analyst
Okay, great.
And then, as I look at the guidance of $122 million to $149 million, how am I thinking about it as I go through the year?
Is it front-end loaded, back-end loaded ramp?
Because I know you bucked seasonality trend in March quarter of last year, and then also in 2014 you had pretty decent seasonality or better seasonality in the March quarter.
So can you tell us what you think that seasonality will look like in March and maybe first half of the year and then the back half of the year?
Niran Baruch - VP Finance, Chief Accounting Officer
Yes, well, very similar to previous years.
In our model, we do plan for a decline of 2% to 3% in the first-quarter revenue compared to the first quarter of 2015, and from that point and on, we do plan for linear growth.
Dmitry Netis - Analyst
Okay.
All right, great.
And then on the margin front, this 60.5%, how are you thinking about the margins for 2016?
Are they pretty stable, in your opinion, or are we going to see some fluctuation in that line?
Niran Baruch - VP Finance, Chief Accounting Officer
We do not expect -- well, if I would have to bet on where it's more trending, then I would probably bet on an increase on the gross margin, simply because we are gradually selling more and more software solutions.
Some of our very low margin products were eliminated lately or are going to a very low level, like the residential gateways.
So all in all, I do expect gross margin to be strong and would not be surprised to see it rising up to 1 point in 2016.
Dmitry Netis - Analyst
Okay, great.
And then my last question is just, can I get a little sense of your revenue distribution in the mix?
I think you'd answered Richard's question on the UC-SIP.
Just to clarify, is that the old new products category, as he used to call it?
Is that the right way to think about it?
Because I think all the elements going in there (multiple speakers)
Shabtai Adlersberg - President, CEO
Correct, yes.
I tried -- let me expand on it.
I tried to provide you better understanding because when I'm meeting with investors and analysts, usually questions come about our gateway business, and rightly, people refer to the gateway business as a whole.
Now what I have tried to do on that call is really tell you that actually you should look on the gateway business as comprising of two key elements, the tracking business and the CPE business.
The CPE business, which accounts roughly close to $60 million a year, seems to be very stable.
It went down about 1% to 2%.
We expect similar such trend.
We may be surprised because of increased UC-SIP service activity.
But all in all, that portion, about $60 million, is quite stable.
The portion of gateway that was impacting our revenues is really, in 2016, is a trunking gateways, and that line was declining for the past several years, but took a very sharp decline in 2015.
Actually at the end of the year, we're at about $15 million.
So that gives you, if you take gateways to be in 2015 about $75 million, $60 million are stable, $15 million should undergo another 10% to 15% decline next year.
Now on the overall Company revenues, now to provide clarity, I divided them into three categories -- the UC-SIP category, the CPE gateways category, and the legacy and tracking gateway category.
So yes, to your questions.
What I have been calling before new products, which comprised of SBCs, routers, and IP phones, we added to it CloudBond and we also added to it what the One Voice operation center software because it belongs to the whole package.
So now I call that UC-SIP and it comprised of SBCs, routers, IP phones, network management, and CloudBond.
So that's (multiple speakers) -- that was 45; it should grow 20%.
Dmitry Netis - Analyst
Right, okay, that's helpful.
And then, so the only two other categories I wanted to touch upon, and I will go add up all these numbers to try to get to your revenue level in 2015, but I assume these are all products you're talking about, so the leftovers we have of that mix would be services and (multiple speakers)
Shabtai Adlersberg - President, CEO
Yes, yes -- no, services (multiple speakers) -- Dmitry, services is really attached to the product line.
So when we talk about UC-SIP, SBC, services are attached to the SBC.
And when we talk about the gateways, service is attached to them as well.
Dmitry Netis - Analyst
I got you.
Okay, you are including services in all of that, okay.
Now if I were to split services, which is how you report that, how do you think services are going to track -- or trend, sorry, going forward?
You did about 14.5%, 14.4%.
There was 30% growth last year -- sorry, last year meaning -- 2015, you did 14%, 14.4%.
2014 was close to 30%.
What is your expectation for service revenue growth into 2016?
Shabtai Adlersberg - President, CEO
So for 2016, separating services from all of the other product activity, we believe it will be in the 10% range increase.
Dmitry Netis - Analyst
Great, and what about technology revenue?
Just a separate category where you have UPCs and all those legacy (multiple speakers)
Shabtai Adlersberg - President, CEO
That's -- I don't have it on the top of my head, that stuff.
We will come back to you, Dmitry.
But technology is really becoming less and less meaningful.
I will tell you that in the last quarter, it was about $3.5 million level.
Okay, that gives you roughly $14 million running rate.
I assume we will experience another 10% to 15% decline in 2016.
Dmitry Netis - Analyst
Okay.
Yes, that's about all I have.
Thank you very much, Shabtai.
Operator
(Operator Instructions).
Greg Mesniaeff, Drexel Hamilton.
Greg Mesniaeff - Analyst
I just had one quick question on the UC-SIP segment.
As your customers continue to deploy smaller locations and sites, can you talk about any changes to your sales model as far as how you sell the product on a licensed basis versus otherwise?
Thank you.
Shabtai Adlersberg - President, CEO
Sure.
We do see steady, if not increasing, sales into small size.
That is a result of -- if you think about the over-the-top guys growing from the SMB segment to the midmarket, when you're talking about midmarket companies you always end up with company headquarter and tens, if not hundreds, of small locations.
So, we believe that will affect positively our sales in the CPE gateway segment.
Greg Mesniaeff - Analyst
And that should translate, I would think, to a higher-margin profile?
Is that correct?
With some revenue, different types of revenue characteristics, right?
Shabtai Adlersberg - President, CEO
I am not sure that it will increase.
It will definitely continue to be stable.
We don't see -- we have seen in 2015 a very interesting phenomena where several companies we (inaudible) we talk to are seizing an end-of-life their gateway products, so we do expect to become, quote, unquote, the consolidator in that space, which means we will see less pressure on margin.
So if that will happen, then yes.
We may see some increase, but we really do not believe on that.
Greg Mesniaeff - Analyst
Okay, thank you.
Operator
It appears we have no further questions at this time.
I would now like to turn the floor back over to management for closing or additional comments.
Shabtai Adlersberg - President, CEO
Okay, thank you, Operator.
I would like to thank everyone who attended our conference call today.
Based on the strong business momentum and execution in the past two quarters, we believe we are on track to achieve another year of growth and progress in 2016.
We continue to build a sustainable, profitable business in coming years.
We look forward to have you on our next quarterly conference call.
Thank you very much.
Bye-bye.
Operator
Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time.
Thank you for your participation and have a wonderful day.