AudioCodes Ltd

NASDAQ:AUDC

Earnings Call Analysis

AudioCodes Reports Q4 and FY 2023 Earnings

AudioCodes ended Q4 2023 with revenues of $63.6 million, a slight increase from Q3, but overall annual revenues fell by 11.2% from 2022. Service revenues grew 8.7% yearly, helping offset the revenue drop. Geographically, North America led sales, contributing 44%. Gross margin remained stable around 66.7%, and non-GAAP operating income for Q4 surpassed Q3 by 1.4%. Full-year net income plummeted to $8.8 million from $28.5 million in the previous year. A key financial highlight is the non-GAAP net income per share for Q4 at $0.28, though annual figures dropped significantly. Looking ahead, AudioCodes projects 2024 revenues between $252 million to $267 million with non-GAAP diluted net income per share of $1 to $1.15.

Solid Financial Performance with a Shift Towards Software and Services

The company has made significant strides in transforming into a software and services organization, targeting a revenue mix of nearly 70% from these segments in 2023, up from 60% in 2022. This shift is paying off, with managed services business especially in the Microsoft Teams environment, showing a robust annual recurring revenue growth of 50% year-over-year, culminating in $48 million. A clear strategic focus for 2023 onwards is on subscription and recurring sales, combined with higher-margin cloud software solutions and services, driving the ongoing business expansion.

Growth in Customer Experience (CX) and Unified Communications (UC) Segments

The company's CX segment has experienced considerable success, with revenue now representing more than 20% of the business. Key growth areas include voice infrastructure for customer experience networks and the Voca CIC product, which has seen impressive initial wins. In the UCaaS market, the company reports a full-year increase of 7% in Microsoft UC business, with Microsoft Teams business specifically growing by 13% for the year, despite the decline in Skype for Business revenues.

Steady Market Leadership and Operational Efficiency

The company maintains its lead in the enterprise SBC market, boasting a 23.2% worldwide revenue share. Although there was a downturn in business from service providers, the firm has adapted to these changes and now anticipates a better performance year in 2024. The recovery in non-GAAP gross margins to 67.6% and improvement in non-GAAP operating margin to 16.9% by the fourth quarter underscores successful cost management and a focus on profitable growth.

Encouraging Future Prospects and Strong Sales Pipeline

With new Software-as-a-Service offerings forthcoming, the company's pipeline and visibility for 2024 appear promising, with indications of a good start to the year. This confidence is underscored by significant bookings in 2023 compared to the previous year, and an expectation of continued high-quality sales opportunities in the CCaaS space.

Looking Ahead to 2024: Revenue and Operational Guidance

The company has provided a 2024 revenue guidance of $252 million to $267 million, projecting a mid-range revenue growth of about 6% compared to 2023. Non-GAAP EPS is anticipated to grow by about 40% with a guidance of $1 to $1.15. These expectations build upon a continued conservative enterprise spending environment and assumed modest growth in networking, alongside high double-digit percentage growth in conversational AI.

Investments and Partnerships Paving the Way for Success

Investments in customer experience, UCaaS, and conversational AI markets, bolstered by strong bookings and strategic partnerships with leaders in the industry like Microsoft and Genesys, have positioned the company well for continued growth and market share gains. Key wins, including a 36-month contract with one of the world's largest PBX companies and large enterprise deals in North America, exemplify successful business strategies and provide a solid foundation for future expansion.

Strong Cash Flow and Commitment to Shareholder Value

In line with the company's improved operational performance, it forecasts a better operating cash flow for 2024 than in 2023. This financial health, coupled with disciplined hiring and a focus on strategic investment areas, promises a strong value proposition for shareholders looking into the coming years.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone, and welcome to the AudioCodes' Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.I will now turn the conference over to your host, Mr. Roger Chuchen, Investor Relations. You may begin.

[Roger Chuchen, executive]

Thank you, operator. 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 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 the term is defined under U.S. 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 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 in the company's loan agreements, possible disruptions from the pandemic on our business and results of operations, the effects of the current terrorist attacks by Hamas and the war and hostilities between Israel Hamas and Israel and Hezbollah as well as the possibility that this could develop into a broader regional conflict involving Israel with other parties may affect our operations and may limit our ability to produce and sell our solutions. Any disruptions in our operations by the obligations of our personnel to perform military service as a result of current or future military actions evolving in Israel and other factors detailed in AudioCodes' filings with the U.S. 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 income per share to 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'd like to remind everyone that this call is being recorded. An archived webcast will be 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 Shabtai. Shabtai, please go ahead.

[Shabtai Adlersberg, executive]

Thank you, Roger. Good morning, good afternoon, everybody. I would like to welcome all to our fourth quarter and full year 2023 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of 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 discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran?

[Niran Baruch, executive]

Thank you, Shabtai, and hello, everyone. Before I start my formal remarks, I would like to remind everyone that in conjunction with our earnings release this morning, we will post shortly on our Investor Relations website an earning supplemental deck. 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. We will be comparing our fourth quarter 2023 results to the prior quarter as we believe it provides a better gauge of our financial performance.Revenues for the fourth quarter were $63.6 million, an increase of 3.2% over the $61.6 million reported in the third quarter of the current year. Full year 2023 revenues were $244.4 million, a decrease of 11.2% over the $275.1 million reported in 2022. Services revenues for the fourth quarter were $30.9 million accounted for 48.6% of total revenues. On an annual basis, services revenues were $120.4 million, an increase of 8.7% over the $110.8 million reported in 2022.The amount of deferred revenues as of December 31, 2023, was $82.8 million compared to $77.8 million as of September 30, 2023. Revenues by geographical region for the quarter were split as follows: North America, 44%; EMEA 37%; Asia Pacific, 14%; and Central and Latin America, 5%. Our top 15 customers represented an aggregate of 61% of our revenues in the fourth quarter, of which 46% was attributed to our 9 largest distributors.GAAP results are as follows: Gross margin for the quarter was 66.7% compared to 66.5% in Q3 2023. Operating income for the fourth quarter was $7.2 million or 11.4% of revenues compared to $5.8 million or 9.4% of revenues in Q3 2023. Full year 2023 operating income was $14.4 million compared to operating income of $31.3 million in 2022.Net income for the quarter was $3.7 million or $0.12 per diluted share compared to $4.3 million or $0.14 per diluted share for Q3 2023. The decrease was driven by $1.4 million in exchange rate differences expenses related to the revaluation of assets and liabilities denominated in non-dollar currencies compared to $767,000 in exchange rate differences income in the previous quarter. This shift in exchange rate differences resulted in a $0.07 negative impact on GAAP earnings per diluted share quarter-over-quarter.Full year 2023 net income was $8.8 million or $0.28 per diluted share compared to $28.5 million or $0.88 per diluted share in 2022.Non-GAAP results are as follows: Non-GAAP gross margin for the quarter was 67.6% compared to 67.3% in Q3 2023. Non-GAAP operating income for the fourth quarter was $10.7 million or 16.9% of revenues compared to $9.6 million or 15.5% of revenues in Q3 2023. Full year 2023 non-GAAP operating income was $28.9 million compared to operating income of $47.2 million in 2022. Non-GAAP net income for the fourth quarter was $8.9 million or $0.28 per diluted share compared to $8.3 million or $0.25 per diluted share in Q3 2023.Full year 2023 non-GAAP net income was $25 million or $0.77 per diluted share compared to $45 million or $1.35 per diluted share in 2022.At the end of December 2023, cash, cash equivalents, bank deposits, marketable securities and financial investments totaled $106.7 million. Net cash provided by operating activities was $9.3 million for the fourth quarter of 2023 and $14.9 million for the year 2023. Days sales outstanding as of December 31, 2023, were 98 days.In December 2023, we received court approval in Israel to purchase up to an aggregate amount of $20 million of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through June 18, 2024. Earlier this morning, we also declared a cash dividend of $0.18 per share. The aggregate amount of the dividend is approximately $5.5 million. The dividend will be paid on March 6, 2024, to all of our shareholders of the record at the close of trading of February 20, 2024.During the quarter, we acquired 595,000 of our ordinary shares for a total configuration of approximately $6.3 million. As of December 31, 2023, we had $19.2 million available under the approval of the repurchase of shares and/or declaration of cash dividends.Our guidance for the full year 2024 is as follows: We expect revenues in the range of $252 million to $267 million and non-GAAP diluted net income per share of $1 to $1.15.I will now turn the call back over to Shabtai.

[Shabtai Adlersberg, executive]

Thank you, Niran. We are pleased to cap off 2023 with a solid fourth quarter results and with healthy growth in the strategic areas of our business, namely UCaaS and customer experience. At the same time, we've seen improved and accelerated development and nice rise in opportunities relating to conversational AI, which grew more than 50% year-over-year and is quickly becoming a new growth engine for success in the areas of Microsoft Teams and CCaaS.Altogether, when we combine the progress in our operation in the UCaaS, customer experience and conversational AI segments, it is clear to our focus on the enterprise space, where our business reached a level of 90% of company revenues for the quarter and the full year, starts to bear fruit and drive continued business expansion in the enterprise space going forward.With continued focus in 2023 on shifting to our business model into subscription and recurring sales and the shift to higher-margin cloud software solutions and services, we are making significant progress in our transformation to become a software and services company.As in previous years, services revenue evolved to contribute about 50% of our business. We have built throughout the past 4 years, a profitable managed services business, exiting 2023, with 50% growth year-over-year in reaching a level of $48 million annual recurring revenues for our Live business. We expect continued Live business growth in 2024, which currently is planned to grow on the order of another 40%. As a result, we have made significant progress in our strategic initiative to increase our software and service revenue mix to nearly 70% in 2023, up from 60% in 2022.Shifting our focus in '23 to AI-First, voice-related sovereign application and more so for 2024, we're now adding a new strong leg in form of Software as a Service solution in the conversational AI space, which should further drive expansion for our business and profits in coming years.To recap on our success in the past 15 years, we have built a very strong voice mode position in the industry. Our partnership with leading application vendors such as Microsoft in the UCaaS space and Genesys in the customer experience market is a testament to our success. Said success has been focused in the past on voice network infrastructure, and we became top connectivity player in both the gateway space and the enterprise SBC market. We are now shifting our focus towards a first business voice application for the UCaaS and CCaaS markets, which represent both huge opportunity in terms of tens and ultimately hundreds of minions of seats to serve.Combining our assets and capabilities in the areas of telephony, voice networking and infrastructure with the new emerging conversational AI solution, we believe we are creating a rather unique position in the industry, which we believe would be hard to compete with and/or replicate by competitors. In 2023, we have already seen good signs of growing SaaS in this space, which should further pave the future for business expansion.Another key accomplishment in 2023 relates to our growth in the customer experience market. We are now investing in 2 key areas. First one is taking advantage of our strong offering of voice infrastructure for the customer experience networks and deployed solutions. We saw much success working with leading CX vendors in helping to transform legacy on-prem solution, which are gradually becoming less efficient and progressing to new evolving cloud-based modern CCaaS solutions. In this space, we saw much success in our Live CX services and enjoyed growth of about 20% year-over-year for the full year.Secondly, we saw huge success related to the penetration of the customer experience market, winning new opportunities with our Voca CIC product or a new leading initiative for AI-First Azure-native CCaaS solution for the Microsoft Teams environment.We saw initial large wins with the enterprise with enterprise customers in North America, among them, who is one of the largest units for us, and the second one who is Fortune 500 global manufacturer. In both cases, Voca CIC solution has displaced an incumbent team certified CCaaS vendor, which serve both as proof points that Voca CIC is ready for prime time. We expect this initiative to further increase CCaaS market penetration in 2024 and beyond.All in all, we ended fourth quarter in the CX area with record business level of over 40% year-over-year and close to 20% for the full year. Exit 2023, customer experience revenue now represents more than 20% of [ organs ] going forward. As such, we have high confidence in the customer experience segment emerging a second major growth pillar for our business in addition to our Microsoft Teams UC Voice success.Now to UC. Within Enterprise, our UCaaS business continued to perform well. Business in the markets of UC grew 5% year-over-year in the fourth quarter. Full year Microsoft UC business increased 7%. Microsoft Teams business grew 10% year-over-year for the quarter and 13% for the full year. At the end of 2023, Teams business is now more than 95% of the Microsoft business.Skype for Business revenue continued to decline in the fourth quarter with related revenue declining above 40%. For the full year, they declined approximately $8 million or 55%. So exiting 2023, Skype for Business declined to less than $1 million in the fourth quarter, which means that Skype for Business revenue will no longer weigh on the Microsoft business going forward. And thus, we shall see the full impact of Teams growth in terms of expansion.On the services side, we continue to experience continued strong momentum for our AudioCodes Live managed services business mainly in the Microsoft Teams environment with annual recurring revenue growing 50% year-over-year, ending the quarter at $48 million, consistent with our expectations.On the SBC product line front, we enjoyed a very strong fourth quarter, ending above $35 million of revenue. For the full year, we ended the year with revenue of close to $130 million. In December 2023, research from Omdia ranked AudioCodes as the market leader for enterprise SBCs for the third quarter of 2023 with a worldwide revenue share of 23.2% in its enterprise SBC and voice over IP gateway market tracker.Our Mediant SBC line is key in winning Microsoft Teams direct route business and for connectivity in more market areas such as Zoom Phone, Genesys Cloud CX, Microsoft Dynamics 365 and other leading UCaaS and CCaaS solutions.While growing nicely on the enterprise space, we have witnessed rather soft business in the service provider space. During the fourth quarter, business in this space declined above 50% year-over-year and over 40% for the full year. With economic slowdown across the board in 2023, the effect of growing inflation coupled with high interest rates has affected materially sales of hardware-related products, which in return had an impact on sales of equipment gear provided to service providers worldwide. It is important to understand that though the longer-term plans and definitely with the shift we are making towards more software and services, this decline was anticipated to occur over the period of the next 3 to 5 years.Due to the accelerated economic slowdown in early 2023, we saw acceleration of this trend. And thus have seen major impacts already in 2023, which should have occurred anyway in coming years. As such, we believe that the pressure and impact on our growth from the decline in the service provider space early 2023 will be substantially relieved in 2024 and beyond. While visibility in this segment remains limited, revenues did stabilize sequentially in the quarter, which may point to a better 2024.On the operations side, I'm glad to report solid progress in non-GAAP gross margin, which has recovered from early first quarter with 62.1% in 2023 to reach in fourth quarter, 67.6%. Coupled with disciplined expense management, non-GAAP operating margin has also improved dramatically from 4.9% earlier in the year to reach 16.9% in the quarter, which is in the range we defined for our long-term financial model.With continued focus on shifting our business model into subscription and recurring sales and shift to higher-margin cloud software solutions, we expect operation margin to keep inching forward in coming years.On the cash flow side, we have witnessed a very successful quarter. Operating cash flow grew to $9.3 million in the quarter and $14.9 million for the full year. Regarding headcount, all in all, we are fairly disciplined in hiring, mainly in our networking business. However, we are adding select position in the growing areas of customer experience and conversational AI. We ended the fourth quarter with 950 employees compared to 938 employees in the previous quarter.As for the guidance that Niran provided earlier, we are initiating 2024 revenue guidance of $252 million to $267 million for the full year. We anticipate mid-range revenue growth of about 6% compared to 2023. Non-GAAP EPS guidance of $1 to $1.15, that's anticipating mid range earning growth of about 40%. The top line outlook builds in continued conservative enterprise spending environment and assumes modest growth in networking and high double-digit percentage growth in conversational AI backed by ongoing healthy pipeline funnel.As to key wins in the quarter, we have signed a 36 months Live contract with one of the world's largest PBX companies, enabling the vendor to use AudioCodes as a de facto solution when provisioning its end [ assignments ] with Microsoft Teams Voice. We have signed a 36-month contract with one of the largest U.S. universities, providing Voca CIC Azure-native Teams certified contact center solution and SmartTAP compliance recording as competitive displacement of a Teams CCaaS incumbent.We also signed a 60-month contract with Fortune 500 global manufacturer, providing Voca CIC Azure-native Teams certified contact center solution and SmartTAP compliance recording as compared to again as a competitive displacement of Teams CCaaS incumbent.To wrap up my introduction, we had solid first score and strength across the board in strategic areas of our business, having navigated well in an ongoing difficult market conditions. We are gaining market share against our primary competitors, having scored multiple land market deals in both the UC and the CX space, which serves as validation of the successful execution of our land and expand strategy.This sector coupled with core business leading indicators, such as pipeline remaining robust, gives us conviction that we have the right strategy in place and on the right path to execute on our commitment of returning to revenue growth and driving operating margin improvement in 2024. With increased focus in investments in technologies and services for the UCaaS, customer experience and conversational AI markets, backed by strong Live bookings, mainly in the Teams Live CX and Voca CIC, we believe we are on the right path to execute our plan to achieve revenue growth and drive improved profitability in 2024.And with that, I've concluded my introduction, I would like to move over the call to the operator.

[Operator]

Thank you very much. We will now be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Ryan MacWilliams of Barclays.

[Unknown Analyst]

This is [ Damon Codman ] on for Ryan MacWilliams. How does your pipeline visibility now compare to what it was in 3Q? Were there any green shoots that you could point to for improving demand trends late in the quarter?

[Shabtai Adlersberg, executive]

Ryan, this is Shabtai, I'm sorry. It was hard to hear you. Can you please repeat the question?

[Unknown Analyst]

Just a question on your pipeline visibility, how that compares now to the end of 3Q at the last earnings call and just if you were seeing any green shoots leaving the quarter?

[Shabtai Adlersberg, executive]

Yes. Well, largely, I would say that there's no much difference. Although I must point out that usually fourth quarter is the strongest quarter in the year. I think that in 2023, that phenomena has kind of been emphasized because budgets were less used earlier in the year due to the slowdown and delay of projects. So I think we enjoyed a strong fourth quarter. I therefore expect that first quarter just like in many previous years will be probably down like 2% or 3%. But all in all, the pipeline looks good. I didn't mention that, but we had a very high score of bookings done in 2023 compared to 2022. So all in all, we believe we are fairly effective.I would also add one more point, which I've not mentioned in my introduction that we do intend to add in the first half of 2023, new Software-as-a-Service additions, new cloud multi-tenant solution for recording services in the form of compliance recording and meeting space. And we believe that our Live platform will become substantially more competitive. We do not see any close competitor with such capabilities. So all in all, we believe that pipeline and visibility for '24 should be good.

[Unknown Analyst]

Got it. And then how did CCaaS demand fare in the quarter? And are you seeing increased attention for buyers on Voice AI?

[Shabtai Adlersberg, executive]

Yes, definitely. Actually, we do see a rise in number of opportunities in the CCaaS space or our Voca CIC product. We actually, as I've mentioned, won 2 large deals, one that's close to $1 million, that's above $0.5 million in North America. We have a range of more opportunity coming up. Also, we plan on an Analyst Day in about a month from today or more 6 weeks from today, dedicated primarily to Voca CIC. And obviously, we will present that at Enterprise Connect in March. So a lot of activity in the CX space.

[Operator]

Our next question is coming from Greg Burns of Sidoti & Company.

[Gregory Burns, analyst]

The growth rates from Microsoft have slowed a little bit from where they were maybe a year ago. Could you just talk about what's driving that? Is it mix with Live gaining greater traction? Or is it macro? Because it seems like in the CX market, you're still posting solid growth there, a little stronger than what you're seeing on the UCaaS side of the business.

[Shabtai Adlersberg, executive]

Right. Yes, I think your observation is correct. Well, I think that the moderated growth results partly as we all know from the slowdown in global economy. So projects has been pushed, et cetera. However, our specific business in the space relates directly to the success of what we call Microsoft Teams phone, which is the connection of the enterprises to the public network. Now we believe that up to now, there was limited benefit from adding the phone functionality over other functionalities of Microsoft Teams, such as chat, presence, conferences, et cetera. We do believe that in 2003, we started to see the impact of conversational AI on the use of Teams phone, right? We have seen, obviously, generative AI technology being put to work. Our solutions, including Meeting Insights, is making use of generative AI, which in order to provide benefit in the Microsoft phone space, you really need to have a Teams phone license. Similarly, the introduction of Microsoft of CoPilot and Teams premium. And you can see a lot of more applications. So once there will be new business voice application that will provide value on top of the Teams phone license, we will start to see increase in our business. And we believe that we've already seen [ transfer ] rate at the end of '23. And we believe that going forward, with the, I would say, emerging adoption of Meeting Insights, recording of meetings, CoPilot, we will see definitely rise. So we believe that's kind of a valley in 2023, but we should see and expect to see growth coming back in '24 and beyond.

[Gregory Burns, analyst]

Okay. So what are the penetration rates of Voice licensing in the Teams environment now? Is it still less than 15% or 10%?

[Shabtai Adlersberg, executive]

Yes. Well, the last numbers that I remember being quote were that around July of '23, I believe the number that was quoted was about 17 million or 18 million PSN breakouts. I mentioned, 17 million or 18 million. The runway is obviously substantially larger, right? Microsoft 365 paid licenses are close to 400 million. Teams as a whole, without the phone, is nowadays quoted to be at least 80 million. So there's a huge, huge runway expected. So again, when there will be more applications that drive value on top of the Teams phone license. I think you'll see increase in number of sets using Teams phone.

[Gregory Burns, analyst]

Okay. And Niran, the cash conversion for this year, do you expect it to be stronger than what it has been in the last 2 years?

[Niran Baruch, executive]

Yes, you saw the operating cash flow at the fourth quarter, which was close to $10 million, an improvement from previous few quarters, and we believe the operating cash flow for 2024 will be better than in 2023.

[Operator]

Your next question is coming from Ryan Koontz of Needham & Company.

[Ryan Koontz, analyst]

Thanks for the question and nice quarter on the margins, particularly there. Really great to see that. I hope we could circle back to contact center and your CX there. You talk about a really nice inflection to 40% growth. Can we drill in there? And what's behind that? Is it product improvements? Is it focused on go-to-market? Is it some of your key partners seen inflection on sales growth? Any of those would be helpful. And just a quick follow-up. Can you clarify what those wins were again? The audio was breaking up a little bit on I think your 2 CX wins you mentioned.

[Shabtai Adlersberg, executive]

Right. So on the CX space, as I mentioned, there are 2 key activities, one which is supporting in deployment of Voice networks. As the world of contact center is moving from on-prem to cloud, there's a need to basically shift from the old networks to new networks, which are global in nature, different architecture. So we are providing usually SBC gear and managed services and more components in order to enable the transition from on-prem to CCaaS. The large growth in CX is related to participating in several such large deployments of large CX vendors. So take a leader in CX who now wins against an incumbent that's kind of legacy and less powerful. When you move from an old supplier architecture, it's on-prem, to a new cloud-based vendor, there's a whole huge network, you're talking about hundreds of locations around the world. And in order to achieve that with high quality, high security and efficiency in our SBCs and managed services like CX come into play. So that explains the success we enjoy.And it's the trend of moving from on-prem to cloud continues, I believe that this we will continue to win such project. And so the 2 wins that I've mentioned. So the first one is a very large university in the U.S. who use our Voca CIC in our compliance recording to replace incumbent solution at that time, that specific transaction was close to $1 million in bookings. Second one with the large manufacturer, one of the S&P 500 companies, who again chose to use our Voca CIC and replace an incumbent certified solution in the markets of Teams space.

[Ryan Koontz, analyst]

All right. Great. That's somewhat helpful. I guess, prem to cloud is not really a new trend. It's going up for many years. So any commentary on why you're specifically seeing this inflection of growth for AudioCodes in terms of your efforts in that market, which has been humming along pretty healthy for years.

[Shabtai Adlersberg, executive]

Yes. It's definitely a healthy market, and we've actually seen expansion in that segment. Actually, we just discussed prospects for the first quarter of 2024. It seems that it continues. I believe that probably with more maturity and reliability of contact center operation from the cloud, that may become an incentive for end users to move. Also, I would add that usually, we're talking about contracts that last several years. And usually, when such a contract is becoming to an end, this is a time when transition from on-prem to cloud will occur. So that is an ongoing process. And as the world of CCaaS matures and becoming more successful, we believe that we'll see more projects like this.

[Ryan Koontz, analyst]

Great. That's really helpful. Just a quick follow-up. You've talked about Zoom phone in a while. Any quick commentary on Zoom in terms of their progress with their phone products and your selling opportunity? Are you seeing much traction with Live there?

[Shabtai Adlersberg, executive]

Well, we do continue to work with them. We had enjoyed a few opportunities. But at this stage, I would not say that we believe Zoom will become a growth engine for us in the UCaaS space.

[Operator]

Your next question is coming from Samad Samana from Jefferies.

[Unknown Analyst]

This is [indiscernible] on for Samad. Maybe backing up and taking a higher level view here. Can you guys remind us what you're seeing on the macro front? How did things like lead times and close rates evolve over the course of 2023? And do they get better or worse in the fourth quarter? Any customer verticals looking particularly strong or weak at this point?And then I want to double-click on what's kind of assumed on macro in terms of the 2024 guide?

[Shabtai Adlersberg, executive]

Right. Actually, it's a great question for CEOs and CFOs. 2024 is still kind of foggy. We have not seen any dramatic change from the end of 2023. We have seen good pipeline, as I've mentioned before, Q4 was strong, but it's the last quarter in the year, so that's kind of expected. So no change. At this stage, it's hard to make a call as to whether 2024 will be substantially better or better than 2023. But all in all, I think for us as a company, while we have put aside the whole issue of service providers, which has impacted our operations early 2023, we're glad to focus on contact center, which is growing conversational AI, which is a very fast-growing these days, other opportunities. And also UCaaS, which, again, we believe that conversational AI will contribute to the growth of our business. So all in all, we believe enterprise space will be good and no other indication at this stage.

[Unknown Analyst]

Got it. And then it's probably still early, but on the strong conversational AI bookings demand, can you relay some of the initial feedback you're seeing and hearing from customers? Any color on the initial wins? And how should we think about the materialization of that offering on the revenue line going forward?

[Shabtai Adlersberg, executive]

Right. So we do focus, again, I mean we live in a world where, on one hand, there are some very strong, big technology providers, such as Microsoft, Google and AWS on one hand. So lots of technology out there in the cloud. On the other hand, you have every company, every successful enterprise company adopting fast AI to improve its operation productivity. So in the middle, you need solutions that will tunnel the AI, gear to those end users. Usually, that's done by applications such as you can take CoPilot, you can take Salesforce, you can take other unknown Google application. But then there are specific implementation, which required a combination of a lot of those technologies. So I'll give you an example, we have implemented a very important solution for an emergency service that needs to pick up calls in real time, record them, transcribe them, derive insights from them and act upon apply automation on top of it and display it and send alerts. So you're basically talking here about a new grid of applications that will be AI-first enabled and which combine a lot of areas, including telephony, networking and cognitive services. And this is why we shine when we bring a combination of all of these technologies that we have developed around the year, right? There's another, these days with versatility everywhere in the world, because increased needs to understand what's being said, where, for what purpose and act upon it. That is a rising application in many areas and that is something that has budget for. So those are the type of solution that we see currently.

[Operator]

Thank you very much. We appear to have reached the end of our question-and-answer session. I will now hand back over to Shabtai for any closing comments

[Shabtai Adlersberg, executive]

Thank you, operator. I would like to thank everyone who attended our conference call today. On the heels of recovery in our business in the second half of 2023, we have high confidence in our ability to successfully expand our business in 2024 and the following years. We look forward to your participation in our next closer conference call. Thank you very much. Have a nice day. Bye-bye.

[Operator]

Thank you very much, everyone. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.