Shirley Nakar - Director, Investor Relations Shabtai Adlersberg - President and Chief Executive Officer Guy Avidan - Vice President, Finance and Chief Financial Officer.

Rich Valera - Needham & Company Ittai Kidron - Oppenheimer Dmitry Netis - William Blair Mike Latimore - Northland Capital Markets Abba Horwitz - Old School Partners.

Greetings and welcome to the AudioCodes Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Shirley Nakar, Director of Investor Relations. Thank you. You may begin..

I would like to welcome everyone to the AudioCodes third quarter 2014 earnings conference call. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer; and Guy Avidan, Vice President, Finance and Chief Financial 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 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, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.

These risks, uncertainties and factors include, but are not limited to, the effect of current global economic conditions and conditions in general and in AudioCodes' industry and target markets in particular, shifts in supply and demand, market acceptance of new products and the demand for existing products, the impact of competitive products and pricing on AudioCodes and its customers' products and markets, timely product and technology development, upgrades and the ability to manage changes in the market conditions as needed, possible need for additional financing, the ability to satisfy covenants in company's loan agreements, possible disruptions from acquisitions, the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes' businesses and other factors detailed in AudioCodes' filings with the U.S.

Securities and Exchange Commission. AudioCodes assumes no obligation to update that information. In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share.

AudioCodes has provided a reconciliation of non-GAAP net income and net income per share to its net income and net income per share according to GAAP in its press release and on its website.

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 website at the conclusion of this call.

The call will also be archived on our Investor Relation app, which is available for free from the iTunes 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..

Thank you, Shirley. Good morning and good afternoon, everybody. I would like to welcome all to our third quarter 2014 conference call. With me this morning is Guy Avidan, Chief Financial Officer and Vice President of Finance. Guy will start off by presenting a financial overview of the quarter.

I will then review the business highlights and summary for the quarter and then discuss trends and developments in our business and industry. We will then turn it into the Q&A session.

Guy?.

Thank you, Shabtai, and good morning, everyone. Before beginning the financial overview for the third quarter, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP pro-forma results.

Our third quarter non-GAAP pro-forma results reflect adjustment for the following three non-cash items, stock-based compensation expenses, which totaled $648,000, amortization expenses relating to the acquisitions of Nuera, Netrake, and the Mailvision assets which totaled $339,000, and utilization of deferred tax assets in the amount of $1.3 million.

The full reconciliation of our results on the GAAP and non-GAAP basis is available in the earnings press release issued earlier today and on our website. Revenues for the third quarter were $38.9 million, a year-over-year increase of 11.2%.

Sequentially, third quarter revenues increased 3.7% from the prior quarter, reflecting continued demand for core networking equipment. Our networking equipment business continued to benefit from strong momentum and favorable market trends.

In fact, networking equipment revenues during the third quarter came in higher than our internal forecast and increased 14.7% compared to the same period last year. The increase in sales was driven by strong demand for new product lines, including Enterprise SBC and multiservice business routers.

Specifically, significant demand for Lync Unified Communications and SIP Trunk Services continued to be major growth areas for our business. Now we'll break down revenue by business groups.

In the third quarter, our networking business group accounted for 85% of revenues and our technology business group accounted for 15% of revenues compared to 88% in our networking business group and 12% in our technology business group in the second quarter of 2014.

Revenues associated with our fast growing managed and technical service business line in the third quarter grew by 38.8% year-over-year to $8.3 million and were 21% of total revenues. This compares favorably to the third quarter of 2013 when managed and technical service revenues were $6 million and accounted for 17.1% of total revenues.

As a reminder, service revenues are primarily recurring in nature and carry high gross margin. Our managed services and professional service strengthened the high-value relationship with our customers. We leverage more than 20 years of experience and technical know-how in the voice-over-IP and networking industries to provide excellent service.

In terms of geographical revenue breakdown, as a percentage of total revenues, sales in the Americas accounted for 48%; Europe, the Middle East and Africa 33%, and Asia-Pacific 19%. Our top 15 customers accounted for 54% of total revenues compared to 51% in the prior quarter.

In the third quarter, we had a single distributor in North America that accounted for 13% of sales compared to 15% in the prior quarter. GAAP net loss for the third quarter was $708,000 or $0.02 per share on a diluted EPS basis compared with net income of $935,000 or $0.02 per share for the year-ago quarter.

This quarter, we recognized a non-cash utilization of our deferred tax assets of $1.3 million compared to $581,000 in the previous quarter based on statutory tax rate.

Non-GAAP net income for the third quarter was $1.6 million or $0.04 per diluted share, an increase of $177,000 versus the year-ago quarter and an increase of $12,000 to the prior quarter. In the third quarter of 2014 on a GAAP basis, gross margin was 57.7%, non-GAAP gross margin was 58.4%.

The sequential decrease in GAAP and non-GAAP 59.2% and 60% respectively, gross margin was primarily attributed to product mix. GAAP operating expenses were $21.4 million in the third quarter compared to $21.9 million in the second quarter of 2014.

Our total non-GAAP pro-forma operating expenses were $20.7 million compared to $21.1 million in the second quarter of 2014. We added net three employees during the third quarter and our total headcount as of September 30th was 654 employees.

Our strategic focus is to take advantage of growth opportunity in our new product and service business to gain market share. To that end, we have made investment in our sales and service team.

We will continue to add new engineers using grant received from the Israeli Chief Scientist to further develop our cloud delivery network and strengthen our new product business in line with our research and development plan.

Net cash provided from operating activities was $2 million this quarter compared to $386,000 cash used in the prior quarter and net cash provided by operating activities of $1.6 million in the year-ago quarter. Short-term and long-term cash balances at quarter end were $89.3 million compared to $91.8 million as of June 30, 2014.

The decrease in cash balances in the third quarter was primarily attributed to $2.7 million share repurchase and $1 million loan repayment. DSO came in at 71 days compared to 75 days last quarter. During the quarter, we began executing a share repurchase program that was authorized by our Board of Directors.

During the quarter, we repurchased 506,000 shares at an average price of $5.4 per share. Total cash spent on the program in the quarter was $2.7 million. We are waiting on approval from the Israeli district court to make additional share repurchase, which we expect to receive in mid-November.

The decision to expand our share repurchase underscores the confidence we have in the future of our business. We expect demand for our new product and solution to continue growing at a double-digit compound annual growth rate over the next three to five years.

However, we do anticipate some decline in our technology and legacy product, which accounted for 15% of our revenues in the third quarter of 2014. We are updating our guidance for 2014 as follows.

For the fourth quarter of 2014, we forecast revenue to be in the range of $39 million to $40 million and non-GAAP earnings per diluted share to be in the range of $0.05 to $0.07.

We anticipate lower OpEx in the fourth quarter and close to 50% increase in profitability compared to the third quarter as a result of more favorable US dollar to new Israeli shekel exchange rate situation, which we believe will be the basis for 2015 as well.

On an annual basis and based on revenues and earnings already reported for the first three quarters of 2014 and our guidance for the fourth quarter, we are increasing forecast revenue to be in the range of $150 million to $152 million and lower our non-GAAP earnings per diluted share which are expected to be in the range of $0.15 to $0.17.

Before turning the call over to Shabtai for final remarks, I would like to take a minute to address this morning announcement. After more than four years working at AudioCodes, I have decided to step down from my position as CFO to embark on a new journey.

It has been a pleasure working here and I would like to thank Shabtai, the Board of Directors, the finance team and the whole AudioCodes family for providing me the opportunity to grow professionally and be part of such an outstanding organization.

I had the opportunity to work with Shabtai and the Board to help identify my successor, and I have complete confidence that Ofer Segev is the right person at the right time for the job.

We have an efficient transition process in place and I'm certain that AudioCodes will be in good hands moving forward and there is a significant opportunity for the company to continue its strong momentum and create additional value for all its stakeholders. I would now transfer the call to Shabtai..

Thank you, Guy. This is the last time for us. We're very pleased to report continued momentum and strong revenue growth for the third quarter of 2014. This is our ninth consecutive quarter of growing revenues.

In the third quarter, we've seen strong demand across our networking business clients, which drove an increase in revenues in the networking business by 14.7% over the year-ago quarter.

Our networking business is now on track to make 2014 the second year in a row where we plan to achieve an annual growth for our networking business by 12% to 15% annually. And with a steady momentum in our business, we see 2015 as another year of seeing such growth and expansion of up to 15% in networking.

The key takeaway from the third quarter is the solid progress we are making in our enterprise, networking and business services market, which are at the core of the company's strategy in go-to-market.

As reported, we have made good progress and achieved new record of sales in the two most important business lines for us, the Microsoft Lync market segment and the Enterprise SBC market.

This further substantiates our leadership in the enterprise hosted networking in the areas of unified communication and collaboration, real-time business communication services and contact centers. It also serves to further validate the leadership and success for our strategy in the market.

Finally, before I step into our financial performance, we're glad to see that our strategy of placing substantially more focus on solution and services starts to prove itself. We've always been a best-in-class product company.

And this was evident in our second ranking specifically in the enterprise gateway space for many years and now ranking among top three class in the Enterprise SBC space. However, focusing more and more complete solutions will and already helps today in two major ways.

One in increasing sales, for example, of SBCs as customers who favor end-to-end complete voice network solution usually prefer a single vendor situation. Thus we're not competing in SBC on performance and features only, but we have the full solution backing us.

It'll also increase the scale of sales at each customer network as the total available budget for us will now include more products such as gateways, SBCs, phones management and quality management service and services. Let me touch on some of the more significant data relating to the financial highlights.

Quarterly revenues, as mentioned by Guy, totaled $38.9 million. This is an increase of 11.2% year-over-year and 3.5% quarter-over-quarter. More significant and relevant is our ability to grow the networking business by 14.7% over the year-ago quarter.

This is the fourth quarter in a row where our quarterly networking revenue is increase at a rate about 15% year-over-year. Gross margin came at 58.4%. This is a decrease of 1.6% compared to the previous quarter. This decline in gross margin is related to a less favorable product mix.

It is mostly related to a service provider related transaction, which is nothing to company core or focus, and therefore we believe that this case will not repeat itself in coming quarters. This decline in gross margin combined with our lower US dollar new Israeli shekel conversion rate led to less than favorable OpEx. Now let me touch the OpEx front.

As reported, OpEx came in at $20.7 million. As planned, we had better control of expenses in the third quarter and we witnessed about $400,000 OpEx lower than in Q2. Same with headcount, we had a good control of headcount. Headcount grew only three positions in Q3 to 654 employees.

We expect similar such small increase for Q4 of about five to six employees. Even more encouraging is the new FX situation in Q4 and is generally predicted for the whole 2015 as we enter it. At current level, the average US dollar new Israeli shekel exchange rate is about 7% to 8% higher than it was in Q2 and the beginning of Q3.

And thus as mentioned by Guy earlier in the call, we anticipate lower OpEx in the fourth quarter and close to 50% increase in profitability compared to the third quarter. We believe this will be the basis for 2015 as well. Now let me touch some of the most promising business lines we have. I'll touch first the Microsoft Lync opportunity.

We continue to expand our business in the markets of Lync segment. We have posted growth of more than 10% over the previous quarter and more than 40% over the year-ago quarter. This is in line with our stated plan to grow this market segment in 2014 by more than 40%.

We now expect this business to become close to 20% of company total sales by the end of 2014. With the momentum we have in that business, we see 2015 following that trend and we already can see an increase of at least 30% to 40% next year.

The launch of AudioCodes One Box 365 provides our partners and customers an effective solution to bring enterprise voice alongside Office 365 in both pure cloud and hybrid on-prem configurations.

This initiative is 100% aligned with Microsoft Office 365 initiative and based on Microsoft's product with where they report triple-digit growth having 1 million users a quarter, , we are sitting in a very nice market space.

One Box 365 provides seamless integration with Microsoft Office 365 and basically allows to add full PBX enterprise voice features and capability. As reported in our press release this morning, our solution has proven to be a success in the first few months of deployment.

We believe that One Box 365 product family will enable further expansion for our Microsoft Lync related business. To touch some points, North America again was the strongest region for us for good five, six quarters now where our sales of Lync in the North American market exceed 2.5 million.

We also saw nice increase in Lync business in Asia-Pacific and in Western Europe countries. We have seen One Box 365 creating positive buzz in the market. We see Microsoft teams actively promoting that helps them promote Office 365 E4 licenses. We have had during the month of October a North American road show. We went with seminars to eight series.

We have seen big attendance. We've seen a lot of interest. And we obviously will continue to invest in that space. Another bright point in the Microsoft area was the start of ramping for our IP phones. We have completed certification a few months ago.

We can already report nice increase in number of units delivered to the IP phone application in the Lync environment. And definitely for us, this is just the beginning. We already see a pipeline of few millions coming to that. We've seen notable wins and recurring business and some of it was mentioned in our press release earlier this morning.

Now let me touch the Enterprise SBC space. As mentioned, we have experienced record sales of SBC. We grew more than 100% year-over-year and more than 5% over the previous quarter.

We mentioned the Infonetics Research report published in August 2014, which recognized AudioCodes to be the fastest growing vendor in the Enterprise SBC market in second quarter '14. We have been able to capture the number two position, which is significant. We have been really coming from the bottom.

We have been at the market share only 6.4% a year ago. We're now at 12.2%. We have been able to unseat other players like Sonus from that second ranking. Our SBC offering continues to lead the Lync space. And as I mentioned, we've been successful by being selected by several large enterprises.

Among them, a global level chain company, a pharma company, a youth organization and we enjoy this.

All that relates to the fact that these days after two, three years of investment, we have a much more complete broad portfolio in terms of capacity, in terms of targeting both enterprise and access applications, in terms of software solutions, a much richer feature set.

Also, as I mentioned before, going the solution way of much to sell SBCs and the fact that we are embedded in some leading vendors' ecosystems such as Microsoft Lync and Genesis helps to ramp up the business. Highlights in Q3, we've seen record sales for the SBC.

Product increased 20% from previous quarter and support and professional services increased. Now let me refer to a much broader category that we designate as new products. Basically, this is what represents a proxy for our new growth engines. In the new product category, we combine sales of SBC voice-enabled routers and IP phones.

And I'm glad again to know that we've grown in the third quarter of 2014 more than 30% over the previous quarter. We are now at a rate that's above $25 million in the first three quarters of 2014. Just to give you some reference, we did $10 million in 2012. We did $18.6 million in 2013. And right now for the three quarters, we are at $25 million.

So we definitely large ramp-up in new product sales as a result of huge investment made in the past three to four years. In the new product category, the enterprise has received a leading product and I should mention that we have seen also some very nice ramp-up in the routers and IP phones.

Touching the routers, this was a record quarter for the MSBR product, increased to a level of few millions a quarter. This is new to us. This increase really comes from the fact that we have introduced to the market six to nine months ago a new very cost-effective product for that market segment.

On the IP phone front, we've seen a record quarter for AudioCodes high-definition series IP phones. We grew more than 50% in IP phones quarter-over-quarter. And I'm glad to report that we also already saw some very nice deals on the Microsoft Lync front. This is just the beginning.

We do believe that the potential for our IP phones in the Microsoft Lync environment is tremendous. With that, I've concluded my review of the business and the industry, and I'll now turn the call to the Q&A session.

Operator?.

(Operator Instructions) Our first question is coming from the line of Rich Valera with Needham & Company..

Just wanted to understand the lowering of the EPS.

Is that just due to this large transaction that you've referenced in the third quarter that brought down your gross margin or are there any other factors in that?.

We added the first three quarter. And based on the accumulated earnings up to the end of Q3 and based on our projection of about $0.06 in the fourth quarter, we basically came to the conclusion that EPS for the full year will be lower than anticipated. Obviously the two key factors for that were. A, the FX.

It should pressure in the first three quarters of the year and will not be there in Q4. And second is that indeed service provider transaction mode in Q3 that we see it as a one-off case, then we believe that it will not repeat itself in Q4 or any of the coming quarters..

So that was just a single transaction that pressured that gross margin?.

It's not a single transaction. It's a combination of transactions..

But you don't expect to have any of those going forward or just less of them?.

Much less. We had a particular case. We cannot go into details. As you can imagine, a decrease of 1.6% in our gross margin translates in terms of profit margin to a decrease of $600,000, $700,000. And this is a fact that this is probably the main reason for coming up with $0.04 instead of $0.05 or higher number..

I think last quarter we talked about that 60% gross margin as being a pretty reasonable baseline level for the business going forward.

Do you still think that's the case putting aside those sort of one-off transactions?.

We've done some analyses. I think I would probably speak more to about 59%. And then obviously on a quarter-by-quarter basis, this number can fluctuate. But all in all, I think our modeled called for a 59% gross margin..

Just want to ask some questions about Lync. So it sounds like you're doing very well there. Sounds you got to 20%-ish of sales this year. I just want to follow up on your comment. I think you said you see visibility towards 30% to 40% growth in Lync next year.

Wanted to make sure that was accurate and if you could just give some color around what gives you the confidence of growing that business, what do you see in your pipeline to grow it at that rate next year?.

Well, there are a few factors that pull that forecast. First, this is the second year in a row where we grew in Microsoft Lync environment for more than 30% to 40%. Second, anyone operating in that segment can specify that deployments are really just turning out.

Much of the deployments or either initials, either partial, those that already bolt on Microsoft Lync are in the process of increasing the deployment. It's an enterprise, could be nationalized or global deployment. So there's more phases to it.

Then just add to the fact that we're growing on several very important components in our solution, SBCs growing very fast for us in Microsoft Lync, IP phone just starting to ramp up, and services which I haven't mentioned so far which is a very solid lead, growing on a steady base, all of that basically tells us that this is going to be a great base, all of that basically tells us that this is going to be a great year.

And add to that new deployment, the launch of the Office 365 One Box solution, which also provides a lot of confidence in continuing ramping up for ourselves in that space..

The next question is coming from the line of Ittai Kidron with Oppenheimer..

Shabtai, I think you mentioned on the call that your networking business exceeded your expectations in the quarter, although from just a pure dollar standpoint, correct me if I'm wrong, this was a flat quarter-over-quarter performance for the unit.

So was your original expectation for a decline quarter-over-quarter in networking? Clearly you're seeing strong growth in the new products and you're selling on track to deliver on your more than $30 million target for the year for that group.

But can you talk about the media gateway business? Is that kind of declining at a faster pace than you've expected?.

I think regarding the first point, my comment was on the growth year-over-year. Indeed quarter-over-quarter, networking business was flat. But again, we've been growing 50% initially through this quarter. So we take this as natural that this quarter we did not grow compared to the previous one. We have compared the first three quarters of 2014 to 2013.

It's flat. We've seen slight decrease in the third quarter of 2014. So all in all, we had stronger Q1 and Q2 in 2014 with slight decrease in 2014. But compared to the previous year, it's flat..

When you quote the revenue for new products, the $10 million, $18.6 million and $25 million, is that product and services or just the product revenue?.

Product and services..

As you think about 2015, I don't know what will be your philosophy. You gave a full year guide. I would assume that you'll do the same for 2015.

But maybe you can help us think about the priorities that you see in your business? And where is the focus going to be, do you think, in 2015? And I'm trying to compare that between topline growth and margin and bottomline leverage.

I mean that was the main challenge for you this year to show operating leverage and you clearly invested a lot from a headcount standpoint at the first half of the year. It seems like that that's decelerating.

Would it be fair to say that operating leverage and bottomline are going to be a much greater focus in 2015? How do we think about your investment priorities next year?.

As I mentioned before in terms of revenues, we do expect momentum in the business to continue, and we believe that we will see another good year of growth between 12% and 15% on networking.

In terms of focus, as you can imagine from this call, most of the emphasis would go into the Microsoft Lync environment sales, would go into the enterprise sales, would go into complete solutions that span gateways as this is IP phone network management, quality management and services as a full solution, and services. Services is a very steady.

So that is the focus. So it's not as focused compared to 2014, but it will be probably much more concentrated on Microsoft Lync and SBCs. Now in leaving 2014, we've been great on the revenue side. And you'll recall, we just upgraded our guidance for the year from $147 million to $152 million to $150 million to $1.52 million.

But we had some headwinds from the exchange rates. We had some headwinds from the new investment. We were notified about the approval for cloud delivery network architecture only during the period of March/April. So originally we did not plan investing that much in 2014. But since the budget was approved, we're looking to build for the future.

So we took a heat in terms of more headcounts, about 20 positions, in 2014. That will not repeat itself in 2015. And then we believe that the fruits of the investments we made with that project in 2014 will start to see more sales increases in 2015.

So for us, FX, the cloud program and the unfortunate gross margin issue in the third quarter, those are the factors that lowered our ability basically to lower the guidance for the OpEx and as a result for the bottomline.

I would just say that we believe that the projection for Q4 of about $0.06 is something that we believe is a good basis for starting 2015. So as you can imagine, we believe that 2015 is going to be substantially a better year..

Our next question is coming from the line of Dmitry Netis with William Blair..

I did catch Rich's question, which I wanted to follow up on, and that's on this gross margin issue, and I think the way you answered it, Shabtai, as you said, there were a combination of different things.

Could you walk us through those things, explain exactly? Can you give us some of the drivers that went into that gross margin pressure and what gives you confidence that will not recur in the next quarter or 2015, because you are saying that 59%, it sounds like 59% is now the going rate in gross margin. I just want to clarify that..

Indeed we do plan on targeting 59% as our ongoing gross margin. Coming back to the slipping gross margin, in the third quarter, we had several non-core sales provider related transactions in which we had lower gross margin and that relates to products that we have. So that has hit us in the third quarter..

When you say non-core, what exactly do you mean? I mean usually you give a discount to core customers.

So this was not related to any specific discount to a service provider customer?.

No. Gross margin either in the gateway and/or the SBC and/or in the Lync space, the needle has not moved there. It's really much more a high-volume service provider related transaction in which the resulting gross margin was lower..

Was it related then to gateway business?.

Well, one of them is on gateway business, if you will..

How many people do you have in this new facility right now and what is the plan for the fourth quarter?.

We have there about 45 people. Until the end of the year, the plan is to grow by another three to five employees there. For 2014, I think we'll add about 20 employees, some of which will be moved from the facility. So as I have said before, we have done most of the hiring and the expense in 2014 and we do not expect that to impact us in 2015..

Guy, for the grant, is there any update as far as how much money you have gotten from them year-to-date and what you're expecting maybe in the fourth quarter and then next year? Is there any update to how that's progressing?.

We are not really changing the forecast. We started the plan, we said we're expecting all the three years' grants in the amount of $4 million, $6 million and $9 million, and that goes for 2014, '15 and '16 respectively. And Shabtai mentioned again that we advanced some of the personnel recruited to that side.

In terms of grant, this is the expectation..

Can you talk to your decision or company's decision for separation? Is there any color you could provide of what drove your separation from the company here?.

As I mentioned in the prepared remark, AudioCodes is a great place, perfectly positioned to compete with the other companies you're covering in our space. The solution type of approaching the market will be killer and definitely we'll win the other companies. And this is basically it..

Our next question is coming from the line of Mike Latimore with Northland Capital Markets..

If these transactions aren't going to repeat, why would you have a little bit lower gross margin?.

The very simple answer is that the gross margin is changing naturally quarter-over-quarter. In the second quarter of 2014, we had a favorable mix of more software solutions that helped raise that gross margin. It may happen again, but we cannot plan on it. So we prefer to be more conservative and basically plan 59%..

Is your mix of enterprise versus service provider, has that changed sort of materially in the last six or nine months at all?.

Yes, we believe that the needle moves more towards the enterprise market. Our emphasis on Microsoft Lync, our emphasis on Enterprise SBCs and the IP phone and services, I think all that points to us investing substantially more in the enterprise market..

SIP trunking as a driver, has that accelerated, slowed, same to same relative to, say, six to nine months ago?.

Actually we see very nice developments in that area. I think that our superiority in SBC and SIP related transactions will definitely help push more sales of SBCs voice-enabled branch office routers, et cetera. So yes, SIP trunking is growing. We see it in the field and we believe we are sitting fairly well..

If the One Box 365 is successful next year, would that be $1 million to $2 million, sort of $5 million of revenue? What will the success of that new product be?.

Well, it's too early to provide an answer. But I would say it probably falls in the middle of what you just mentioned..

Our next question is coming from the line of Abba Horwitz with Old School Partners..

You've announced another share repurchase program to extend it.

And I'm wondering how much of that do you want to complete at these levels? And also, given the fact that the business itself is actually quite healthy, would you have any insight into as why your company is selling at such a discount to any of the competitors to effective almost 50% discount in comparison to the valuations of anybody else out there? And I'm just wondering would it not even behoove you to be more aggressive with this share repurchase program, given the valuation?.

We have been active at much higher levels of the share price previously. And therefore we see the current price as pretty attractive. We have allocated, as we've mentioned on the press release, more $15 million for it. And again, based on market conditions, share price and our business momentum, our Board of Directors will take decision.

But I think the fact that we took such a decision three months ago tells you about us, believing in the future of the company and the potential we have and the fact that the current share price is attractive.

As to the second question, compared to the other companies right now, if you take a look into the institutional ownership, you'll find that there is a big difference between AudioCodes and the other companies. All of the other companies are spaced to enjoy an institutional ownership based of about 50% and above.

We're currently only 20%, meaning the share is usually traced by retailer. I think that gives you one part of the answer. The second answer is that AudioCodes is a much more complex company. We have went through some transition from the old business to a new business just ramping.

The new product category gives you an idea on coming out for the past three years of investment. The company value will probably be seen much better. It should have been seen in 2013, but then we were hit by the FX issue and the fact that that we decided to invest in the cloud program.

But put aside those investments, AudioCodes has been a profitable company for the past 10 years. I don't recall any other competitor in our space that's even got close to us. So the company is very strong, is very profitable, is investing on a constant basis in its future. And we're not in a rush to capture the fruits momentarily.

So I believe that us being able to grow a investment base that will understand those basics, the greatness of the business who will probably help cure that share price issue..

Is there any initiative to get the company in front of fund managers and sort of wane the brokers off the stock? Certainly the volatility and the huge trading volatility of the stock is due to the brokers or retail.

What is being done to make sure that fund managers see this idea and get it on their desks?.

Until March of this year, we really had no analysts. We did the secondary during the months of March that helped raise funds, but even more important, that helped bring trading new analysts on board. Since then we had another analyst joining.

We do believe that the addition of now analysts covering the stock and the fact that AudioCodes is the leading company in the Microsoft Lync environment and growing to second place in SBCs, I think we'll have to start acknowledge that AudioCodes is a stronger company than see by its share price.

And we've been here for a long time, myself about 21 years. And I'm confident that this time AudioCodes is stronger than ever in the company's history. So yes, we will invest in growing our investor base and in supporting stock price..

We do have a follow-up question coming from the line of Dmitry Netis with William Blair..

In that $0.05 to $0.07 guidance you gave for Q4, what are you assuming for foreign exchange? Are you baking in shekel depreciation here?.

Q4 is already almost completely from a budget point of view secured. So that gives us the basis for our quoting that range. At the current level, the company is already hedged. So therefore, we believe we have secured OpEx range for the quarter. That allows us to quote that $0.05 to $0.07 earning range..

So you're using current rates basically to come up with that guidance?.

Correct, yes..

It appears there are no additional questions at this time. I would now like to turn this floor back to management for any additional or concluding comments..

Thank you, operator. Before we conclude the call, I would like to take this opportunity and thank, Guy Avidan, for his tremendous contribution to the company. Guy has played an important role in the development of the company.

In the past four years, he has done an excellent job in leading our financial activities and has built a strong and capable financial team. Myself and behalf of the AudioCodes' management and Board of Directors, wish Guy good luck in his future endeavors. I would like to thank everyone for attending the conference call today.

Based on the good business momentum and execution in the third quarter, we believe we are on track to achieve our business growth objectives for the full year and continue to build a sustainable profitable operation for coming years. We look forward to have you on our next quarterly call. Thank you very much. Bye-bye..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time..