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Audiocodes Ltd (AUDC) Q1 2021 Earnings Call Transcript

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AUDC earnings call for the period ending March 31, 2021.

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Audiocodes Ltd (AUDC 0.67%)
Q1 2021 Earnings Call
Apr 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the AudioCodes First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Roger Chuchen. Please go ahead, sir.

Roger L. Chuchen -- Vice President, Investor Relations

Thank you. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer; and Niran Baruch, Vice President of Finance and Chief Financial Officer.

Before we begin, I'd 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, plans on 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 the term is defined under US Federal Securities Law.

Forward-looking statements are subject to various risks and 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 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 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 and operations of acquired companies into AudioCodes business, possible adverse impact of the COVID-19 pandemic on our business and results of operations and other factors detailed in AudioCodes' filings with the US Securities and Exchange Commission. AudioCodes assumes no obligation to update this information.

In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided a full reconciliation of the non-GAAP net income and net income per share to its net income and net income per share according to GAAP in the press release that is posted on its website.

Before I turn the call over to management, I would like to remind everyone that this call is being recorded and archived webcast will be available -- made available on the Investor Relations section of the Company's website at the conclusion of the call.

With all that said, I would like to turn the call over to the Shabtai. Shabtai, please go ahead.

Shabtai Adlersberg -- President and Chief Executive Officer

Thank you, Roger. Good morning, and good afternoon, everybody. I would like to welcome all to our first quarter 2021 conference call.

With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance at AudioCodes. 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 then discuss trends and developments in our business and the industry. We will then turn it into the Q&A session.

Niran?

Niran Baruch -- Chief Financial Officer

Thank you, Shabtai. And hello, everyone. As usual, on today's call, we will be referring to both GAAP and non-GAAP financial results. The earnings press release, that we issued earlier this morning, contains a reconciliation of the supplemental non-GAAP financial information, that I will be discussing on this call.

Revenues for the first quarter were $58.8 million, an increase of 13.1% over the $52 million reported in the first quarter of last year. Services revenues for the first quarter were $21.8 million, up 23.3% over the year-ago period. Services revenues in the first quarter accounted for 37.1% of total revenues. The amount of deferred revenue as of March 31, 2021 was $71.6 million, up from $64.2 million as of March 31, 2020.

Revenues by geographical region for the quarter were split as follows. North America 39%, EMEA 39%, Asia-Pacific 18% and Central and Latin America 4%. Our Top 15 customers represented an aggregate of 61% of our revenues in the first quarter, of which 49% was attributed to our 11 largest distributors.

GAAP results are as follows. Gross margin for the quarter was 68.4%, compared to 65.9% in Q1 2020. Operating income for the first quarter was $10.1 million, or 17.2% of revenues, compared to $6.2 million or 11.8% of revenues in Q1 2020. Net income for the quarter was $10 million, or $0.29 per diluted share, compared to $5.3 million or $0.17 per diluted share for Q1 2020.

Non-GAAP results are as follows. Non-GAAP gross margin for the quarter was 68.7%, compared to 66.1% in Q1 2020. Non-GAAP operating income for the first quarter was $13.2 million, or 22.5% of revenues, compared to $7.9 million or 15.2% of revenues in Q1 2020, an increase of 66.9%. Non-GAAP net income for the first quarter was $12.7 million, or $0.37 per diluted share, compared to $7.8 million or $0.25 per diluted share in Q1 2020.

At the end of March 2021, cash, cash equivalents, bank deposits and marketable securities totaled $182.5 million. Net cash provided by operating activities was $13 million for the first quarter of 2021. Days sales outstanding as of March 31, 2021, were 56 days. During the quarter, we acquired 350,000 of our ordinary shares for a total consideration of approximately $10.3 million.

We reiterate our guidance for 2021 as follows. We expect revenues in the range of $240 million to $250 million, and non-GAAP diluted net income per share of $1.45 to $1.65.

I will now turn the call back over to Shabtai.

Shabtai Adlersberg -- President and Chief Executive Officer

Thank you, Niran. We're very pleased to report strong first quarter '21 financial results ahead of our internal budget and continued progress in our business. Most important, we have been strong in the market. We have seen strong market for our three main growth engines namely, Microsoft business, Contact Centers and Conversational AI.

In the Microsoft business, Teams and Skype for Business, business grew above 20%. However, most notably, our US market showing increased activity in view of the decline in pandemic, we saw better environment for new credit accounts and businesses. Very stronger book-to-bill trend, which portends strong growth ahead. Contact Center, we have seen strong pickup in activity. Conversational AI growth of more than 100% year-over-year in total.

Importantly, first quarter industry dynamics further underlines the notion. This collaboration work-from-home remains center stage in 2021 and beyond, even post-pandemic and presents long-term growth prospects for us. Add to it, strong performance in our North America services operation and continued SBC business strength, the outlook for 2021 and onward is positive. Talking about the growth in services, AudioCodes Live continues on track with the initial plan, and we'll talk more about it later on. Also, with the return to office trend picking steam in several countries, our devices, IP phones, desktop phones, video conference devices showed meaningful improvement from 2020, though magnitude of recovery could be capped going forward by the well-known ongoing chip supply constraints and shortage.

So touching on the key highlights of the first quarter. Total revenue grew 15.1% year-over-year, an improvement as compared to the 11.7% growth back in the first quarter 2020. Growth driven mainly by a secular growth opportunity within the Unified Communication-as-a-Service and Contact Center markets. Service revenues grew 23.3% year-over-year. Service revenues were driven by strength in professional managed services offering. Most important, we made ongoing progress in pivoting to recurring revenues with strong traction experienced with our AudioCodes Live offering.

In terms of the first quarter 2021 revenue, let me go by segments. Referring to the 13.1% overall Company year-by-year revenue growth, it is important to note the growth in our key markets, UCaaS and Contact Center were substantially higher. UCaaS accounted for over 65% of revenue and grew above 15% year-over-year. Contact Center accounts for over 12% of revenue and grew above 20% year-over-year. So combined, and that is the enterprise operations we have, we now see more than 80% of our revenues growing at the rate of 15% year-over-year, which is substantial growth above the overall Company growth.

Two more segments. Voice.ai, as I've mentioned, grew over 100%, still less than 2% of revenue at this stage. The decline was seen in the service provider and technology, which finally make up the balance of revenues down in the quarter.

Now, to reiterate our three-year financial model targets growth, which was 15% in enterprise revenues in the first quarter provides strong support for our reiterated 2021 outlook as well with our long-term financial model. The model calls for 13% to 15% growth of revenues. We did 13.1%. Non-GAAP gross margin, we define in the range 67% to 70%. We ended up doing 68.7%. Opex as a percentage of revenue, we said we would cap it at 47%. It came to 46.3%. And then when we're talking about the non-GAAP operating margin, we said the range to be between 20% and 23%, we ended up at 22.4%.

Now let's focus on two more key developments in the quarter. This is the focus on real-time cloud communication and on transition to recurring revenue. A recurring theme in our operation for the past several years has been increased focus and rapid transition for our solution and services to real-time cloud communications. We continue to invest in cloud services automation, and in Software-as-a-Service solution development, and we see further growth in this space. Much was achieved in 2020. In the first quarter of '21, we have increased and accelerated investment in this area, driving the momentum in 2021 and beyond. On top of this, we have substantially moved our focus in sales toward recurring revenue model, and an increasing percentage of revenue now comes from recurring revenue sources versus the historical model of capex sales of our network in the year.

To further highlight this focus on transition to recurring revenues, in March 2020, we announced AudioCodes' Live initiative, which offers AudioCodes' voice expertise product and solution to enterprises via very flexible subscription-based managed services model. We have made good progress through the second half of 2020, and into the first quarter of '21, and now see the momentum growing and expanding. By mid-2021, we expect this line to cross the $10 million ARR mark and reach $15 million ARR by the end of the year, more than doubling 2020 levels.

Our booking or total contract value of this business on hand is already several tens of millions of dollars, and it is signed with large number of enterprises who have already started or about to start the UCaaS deployments with us.

This fast-growing business is a tangible proof to our superior technology in the areas of connectivity, management, automation tools, services and adjacent applications to the user solutions. I am confident that this business will keep growing and represent a very significant portion of AudioCodes' value in coming years as recurring revenue basis.

Now to Microsoft operations in the quarter. First quarter '21 business grew over 20% year-over-year. Microsoft business is now 45% of overall business. We target $120 million by the end of the year, growing about [Phonetic] 20% on top of 2020. We've seen accelerating opportunities in the market, some of which focus more in the mid-market. We have seen lot of activity around Direct Routing-as-a-Service, and we have seen dozens of opportunities in booking and in pipeline. We also enjoy a lot of success in our business development efforts in the field. We have seen increased success in the field, identifying new large enterprise opportunities. By now, we are getting several qualified deals every week. The average size is few thousands. Similar success now is picking up in certain countries of Europe, where we see cooperation with the local teams of Microsoft.

Now to the mix of revenues in the Microsoft space. In terms of mix revenue -- the mix of revenues, Microsoft Teams witnessed growth of 170% year-over-year, while Skype for Business declined moderately less than 10% sequentially, and about 50% year-over-year. All in all, we see much success in growth in the Microsoft business.

We -- talking usually about revenues, but I think it's more important to talk about what's evolving, about what I would call a book-to-bill ratio. So we have seen an acceleration of overall Teams business opportunities in the US in the first quarter having increased over 100% on a year-by-year basis and over 30% relative to the prior quarter. This metric is good leading indicator, pointing to ongoing momentum in our Microsoft business. So, all in all, substantial new Teams opportunity developing for us going forward.

As to the mix of accounts, where does they come from? So, we are around about 100 give or take opportunities per quarter coming from our old Skype for Business installed base, but growing number on Teams. So all in all, comparing first quarter '21 to the first quarter 2020, we have seen an increase of more than 50% year-over-year in terms of number of accounts moving to Teams.

To highlight some top wins in the first quarter in the Microsoft space. Talking about a large private company from food industry. This is a long-term AudioCodes customer that started with us with Skype for Business. We have a gradual journey from Skype for Business to Teams. We had a huge PO for desk phones replacing competitor phones. Also we are providing their Direct Route-as-a-Service through the live essential service. Another big account in the US, a company well-known in the financial space. They are basically on track with the Teams migration project from Skype for Business. We have done large professional services project for augmenting in-house capabilities.

Talking about a project in Asia Pacific, we are talking about a bank in APAC. We have provided a mixture of products and services including gateways, session border controllers, management, central management, routing capability, management capability for subscribers and professional services. Fairly competitive win against a competitor from this space, and we -- in that specific deal we have been partnering with a local large service provider.

So how do grow from here? We have a clear plan. We are going to grow the number of AudioCodes Live users. We are going to scale up in revenue to AudioCodes Live professional and premium services. We are going to introduce new business application services in upselling. So that would include recording services, contact center services, analytics, meeting space services, and Conversational AI services.

Now, going to the second large market, Contact Center, that is a very fast-growing market. Revenue is now about 15% of our business. We target growth of above 15% year-over-year. This market is going through several disruptions. Firstly, the transition to cloud, also work from home evolved as a main trend. So WebRTC becomes the mainstream to maintain quality of service when communication goes over the internet lines. And then we are engaged in investing in the new emerging intelligent contact center, and there we have a greater role to our Conversational AI.

All in all, this breadth of different technologies allows us to expand our business in the past. We have been much more focused on working very closely just with Genesys. These days we are expanding our work to work with more contact center vendors and also working with end users. So, the focus on contact center end users, in contrast to the past contact center vendor focus help us a lot in expanding the business. All in all, Conversational AI gets big boost for automated and doing self-service customer engagements.

So all in all, a very successful quarter for Contact Center. As I have mentioned before, we've grown in revenues of more than 20% over the year-ago quarter. As I have mentioned, we have expanded beyond the Genesys environment. So we are now selling into some other large contact center vendors in a meaningful way. EMEA was very strong this quarter, and we do see the same developing in the second quarter, the current quarter. We also engage much in new Voice.ai technology that we call, VoiceAI connect that helps to connect with voice to chatbots and that activity is becoming fairly successful.

Let me touch, for a second, on our SBC operation, which is our most important product. Last year, sales reached short of $100 million. We plan to grow this year another 20%. Quarter was very successful. We grew 30% above the year ago quarter. We have seen a very strong booking growth, more than 40% year-over-year. We, all in all, see lot of activity in the space on various different projects, different technologies. For us, this space represents a lot of opportunity. Microsoft revenues in this space continued to grow 70% year-over-year. In terms of geo split, the majority of revenues came from Europe about 40%, about 25% and above from North America, 13% from APAC and the rest from CALA and Israel.

Now let me get to the smallest growth engine, but still very important and very exciting, I am talking about Conversational AI, our next-gen growth engine. Our Conversational AI business includes the following lines. It includes recording services, [Indecipherable] for Teams and Meeting Insights. It includes also the VoiceAI connect to connect, voice to chatbots and then we have the Voca for Conversational IVR.

We've seen strong business. As I've mentioned, revenue grew more than 100% year-over-year. Our rise in this area stems from the fact that technology relies a combination of ungrown cognitive services technologies such as speech-to-text, text-to-speech, machine learning, NLU, NLP, and then cloud cognitive services and SBC networking telephony expertise, which sell for competition just in the cognitive service area lack some of these components. Long-term growth potential. That business fund ended up in 2020 at about $3.6 million. We now target to grow more than 50% this year and we target to reach $10 million by the end of 2022. Growth is driven by trends in the UCaaS and Contact Center, and meeting industry and the trend for self-service and customer call automation in the contact center markets.

SmartTAP, which is our solution for complex recording, enjoyed a lot of success. We just got certification for Teams about three months ago. We are one of the few got that certification. We have seen pipeline growing significantly, driven by the increased compliance recording needs from using number of Teams users in the enterprise space. So very successful operation there. I've mentioned also VoiceAI Connect, our industry-leading voice-enabling chatbot technology plays a vital role in enabling contact centers to support the increasing call volume arising from the ongoing secular shift to digital engagements. We are preparing for production with several customers and are on track to achieve $1 million ARR by the end of 2021. We will continue to provide update on this exciting emerging business going forward. So all in all, a very successful operation.

With that, I have concluded my presentation, and like to move the call to the Q&A session. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is coming from Samad Samana from Jefferies. Your line is now live.

Samad Samana -- Jefferies -- Analyst

Hi. Good morning and congrats on the strong results. It's good to see you could figure off with strong numbers. So, Shabtai, maybe first, Team's growth continues to be very exciting. And I know you dug into it -- about the quarter somewhat in your prepared remarks. But when you think about the go-to-market motion, are you guys hiring more sales reps to sell into that Microsoft installed base to drive voice into Team's or maybe what's AudioCodes is doing as an organization to address that opportunity from a go-to-market perspective?

Shabtai Adlersberg -- President and Chief Executive Officer

Thank you, Samad. I'm really glad you brought that up. I didn't mention headcount. And headcounts really changed dramatically. We grew 6% over the last year. So we added another 45 employees to the 745 employees we had then. A majority of these positions are with our sales and services organization. And as you can expect, because we see a lot of growth in the U.S., most of it is really occurring in the U.S. So, yes, and I can tell you just in the past two weeks, we have approved between 10 and 15 new positions for the sales and services organization. There's a lot of activity and we're going to support that.

Samad Samana -- Jefferies -- Analyst

Great. And then, maybe on the pipeline again, your confidence in the environment definitely ran through on the prepared remarks. But when you think about how you measure it in terms of either a client inbound request or sign-ups for demos, anything that maybe kind of tangibly that AudioCodes measures that points to what the pipeline looks like or how healthy the pipeline for Team's related deals is?

Shabtai Adlersberg -- President and Chief Executive Officer

Yes, we are. We definitely track that internally. We have analytics. Each of these deals -- as we're moving more and more into recurring revenues, we're measuring the pipeline. We're measuring the contract value that is accumulated and we measure obviously the execution of how much was deployed, how much -- you need also to -- by the way to simulate that. In every organization, it's tough to move into AudioCodes Live and our managed services is really deploying only a very small portion of its operation initially. So, it will be very natural for an organization to start with just few hundreds, right. The proof-of-concept may start with 100 or 200. But at the end of the day, this organization is about 3,000 or above.

So, what we basically tell you is that, and I have driven in terms of total contract value. We have not counted the thousands, we have counted only the hundreds. So there's a lot of accumulated potential there. And as we continue to deliver well on our promises, we basically see growth, I've mentioned tens of millions of contract value that is what's developing within the scope of the year now. So, a lot of activity.

Samad Samana -- Jefferies -- Analyst

Great. Maybe just one last one for me, for either of you, but the profitability continue to be nicely above our expectations. And so, I saw that AudioCodes repurchased $10 million worth of shares in the quarter. Maybe how should we think about the rest of what's left in terms of that $30 million buyback? And if there is any appetite to maybe expand the buyback level given the current valuation?

Shabtai Adlersberg -- President and Chief Executive Officer

Right. So, right now, I mean, by -- we are taking a position where we need to relaunch a new purchasing effort every six months. So, the current one basically adds like $25 million in total, out of which we already executed some $10 million. So we are left with about $14 million for the rest of the six months that will end somewhere in July. Again, based on the situation there, based on what makes sense for us, I think that we see lot of value in this buyback, because we definitely want to invest where we believe the investment makes sense. And right now, that is what's happening.

Samad Samana -- Jefferies -- Analyst

Great. I'll turn it over. But congrats again on the quarter and thanks for taking my questions.

Shabtai Adlersberg -- President and Chief Executive Officer

Sure. Thank you, Samad.

Operator

Thank you. Our next question today is coming from Raimo Lenschow from Barclays. Your line is now live.

Raimo Lenschow -- Barclays -- Analyst

Hey. Thanks for taking the question and congrats from me as well. Can you talk a little bit about the strength in the call center market, like how much of that do you think is that you see there kind of more like pandemic, kind of one-off emergency versus really strategic changes to what's going on in the industry?

Shabtai Adlersberg -- President and Chief Executive Officer

I think pandemic really puts a lot of weight on the issue of moving the agents from the facilities into working from home, right? There was no other choice. So -- but during that process, I think many of the vendor -- the end-users actually found out that the cost of using agents at home is substantially lower than the cost of maintaining data protection on-prem, on facilities. So, there is a natural saving when that force is sitting at home. So, obviously that is a driver that's going to stay.

Beyond that, the production of the cognitive services technology and industry, I think, help moving from human agents operations. This was 100% two years ago, 80% now and according to research, people believe that in three years from today, only about 30% of the agents will remain human. So it's really the evolution of the technology, completely [Indecipherable] to the pandemic that is driving that shift. Beyond that, there is the shift from the premises to cloud, which makes sense usually for a smaller company, but then provides a lot of efficiency for the vendor.

So, not all of it. I think it's mainly the work-from-home. It's the WebRTC, quality monitoring end-to-end over the internet, those are technologies that evolved due to the pandemic, but they are going to stay with us.

Raimo Lenschow -- Barclays -- Analyst

Okay. Okay, perfect. And then, if you think about your ongoing migration like toward more software away from hardware, can you talk a little bit about, like are there any more active steps you need to do as an organization to kind of achieve that or do you think it's just a natural evolution?

Shabtai Adlersberg -- President and Chief Executive Officer

It's an evolution. I mean, we have started that journey like three years ago. We've done great steps. We are improving quarter-to-quarter. And I believe that today, there's no single application that's developed internally that does not rely on cloud communications -- built in cloud communication. So, everything that needs to take into account, DevOps, Software-as-a-Service, automation tools, etc, analytics, all of that is being developed as we go into 2021. So, I assume that in less than two years, we will be fully cloud-based.

Raimo Lenschow -- Barclays -- Analyst

Okay, perfect. Thank you.

Shabtai Adlersberg -- President and Chief Executive Officer

Sure.

Operator

Thank you. [Operator Instructions] Our next question is coming from Greg Burns with Sidoti & Company. Your line is now live.

Greg Burns -- Sidoti & Company -- Analyst

Good morning. You gave the relative growth rates between Team's and Skype for Business. But can you just give us the mix of revenue like, how much revenue from Microsoft is still for Skype for Business?

Shabtai Adlersberg -- President and Chief Executive Officer

Yeah. I can tell you from the pro forma, so all in all, I think revenues topped $25 million or above. Out of that, Skype for Business accounted for give-or-take about $8 million and the rest of it came from Team's.

Greg Burns -- Sidoti & Company -- Analyst

Okay, great. Thanks. And then, when you look at the Team's market in terms of voice penetration within the user base, can you just give us an update on where that stands? And have you seen any change in the trajectory or the pace of voice adoption within the Team's user base?

Shabtai Adlersberg -- President and Chief Executive Officer

Yeah. I think we're seeing in 2021 greater emphasis on voice. It may relate to competition coming from other companies making voice more important this year. Also, if you want to play on the top-line of the vendors of UCaaS, you really need to have all of the different components. And this drives some other companies to invest a lot in voice. I would mention also by the way, this did not came up during the discussion that we have made some very nice steps in selling also into the Zoom environment. Zoom Phone, which was less visible in our operation last year, started to pick up end of last year. First quarter was really strong, above more than double the business we had in the fourth quarter.

So, I guess, that greater emphasis by all of the other players, I think, 8x8 and RingCentral announcing services that combine their offering with Team's. I think, all in all, the voice space is getting more importance these days.

Greg Burns -- Sidoti & Company -- Analyst

Okay, great. And then, in terms of Live, can you maybe -- what is embedded in those ARR targets, the $10 million by mid-year, $20 million [Technical Issues] by the end of the year and also maybe the number of seats, the relative seismic counts and ARPUs?

Shabtai Adlersberg -- President and Chief Executive Officer

Right. So, basically we're talking about companies -- our target is mainly thousands of fits, but the projects do start with type of a hundreds. In terms of services, we do provide the first -- most basic services Direct Route SBC. On top of that, we provide management. On top of that, we provide other routing services, call recording services in the future also some cognitive services. So, it's a stack of technology. Actually we start to push it as Team's Voice-as-a-Service. And when you're deploying voice like Team's voice, you really need a stack of technologies to provide overall processing. So, it's SBC, it's routing, it's management, it's devices, it's meetings, etc. And then, that's what's consist the Team's Voice-as-a-Service, as we will discuss, call it before AudioCodes Live.

Greg Burns -- Sidoti & Company -- Analyst

Okay. When you look at that stack of the [Technical Issues] technology stack required to stand up like a seat and then also these -- some of these incremental applications you're talking about cross-selling or selling into that universe, where you think -- where do you think ARPU will get to or where do you see it may be starting?

Shabtai Adlersberg -- President and Chief Executive Officer

Okay. It's a great question. We can start as low as $1 when the service is the most basic one. But when you stack up all of the different capabilities, or when you need to connect to the local PBX or to provide more advanced services, the ARPU can go up to $4, $6, $7, etc. So, you can make the average yourself, but this is the range where, I would say, $1 to $7 is the range where we should on off [Phonetic].

Greg Burns -- Sidoti & Company -- Analyst

Okay. Great. And then, just lastly, how are you going to market with Live? Do you have any like direct or internal sales force selling that or are you just going all through the channel?

Shabtai Adlersberg -- President and Chief Executive Officer

So, we are working with the channels. I mean, we have not changed anything in our go-to-market. We actually include our partners in the game. Obviously we help them where the -- like the knowledge and/or the expertise, but the go-to-market is indirect still for some very large customers who have hundreds of thousands of employees, in some cases, we do have some direct touch. But the majority of the service is indirect.

Greg Burns -- Sidoti & Company -- Analyst

Okay. Thank you.

Shabtai Adlersberg -- President and Chief Executive Officer

Sure.

Operator

Thank you. The next question today is coming from Ryan Koontz [Phonetic] from Needham & Company. Your line is now live.

Ryan Koontz -- Needham & Company -- Analyst

Thanks for the question and thanks for all the color on the Microsoft ecosystem. Are you seeing any -- within that area, are you seeing any shifts in the competitive landscape? Are you seeing new vendors get approved? And then, second question on the product side, are you seeing any shifts toward more of a SaaS model there or is it still more kind of a license approach? Thank you.

Shabtai Adlersberg -- President and Chief Executive Officer

Sure. So, generally there are not too many newcomers, right? We have seen announcements from companies like 8x8, RingCentral and Vonage offering services like that throughout. Nothing more than that. So, all in all, in terms of providing a full technology stack for Team's, I think we do not see much competition at this stage.

I'm sorry, the second question related to, growing the SaaS?

Ryan Koontz -- Needham & Company -- Analyst

Yes, changes in the product model. Are you seeing just more of a license model?

Shabtai Adlersberg -- President and Chief Executive Officer

Yeah. Obviously, yeah, it was that. Right, actually we did deploy -- actually I'm happy that [Phonetic] you mentioned it because in the first quarter, we have deployed a new service that we call Live Essentials or Azure. This is a completely SaaS solution that we're going to offer management Solution-as-a-Service, etc. The trend again is indeed to move substantially more from services and managed services into SaaS solutions, yes.

Ryan Koontz -- Needham & Company -- Analyst

Thanks so much.

Shabtai Adlersberg -- President and Chief Executive Officer

Sure.

Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Shabtai Adlersberg -- President and Chief Executive Officer

Thank you, operator. I would like to thank everyone for attending our conference call today. With continued good business momentum and execution in the first quarter of 2021 and previous quarters, we believe we are on track to achieve another strong year of growth and expansion in 2021. We look forward to your participation in our next quarterly conference call.

Thank you all. Have a nice day.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Roger L. Chuchen -- Vice President, Investor Relations

Shabtai Adlersberg -- President and Chief Executive Officer

Niran Baruch -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Greg Burns -- Sidoti & Company -- Analyst

Ryan Koontz -- Needham & Company -- Analyst

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