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 of AudioCodes and its customers' products and marketing, 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 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' filing 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 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.

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.

Thank you, Roger. Good morning and good afternoon, everybody.

I would like to welcome all to our fourth quarter and year-end 2021 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?

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 fourth quarter were $66.1 million, an increase of 12.7% over the $58.7 million reported in the fourth quarter of last year.

Full year 2021 revenues were $248.9 million, an increase of 12.7% over the $220.8 million reported in 2020. Services revenues for the fourth quarter accounted were $24.4 million, up 16.2% over the year ago period.

Services revenues in the fourth quarter accounted for 37% of total revenues. On an annual basis, services revenues increased by 24.4% compared to the previous year.

The amount of deferred revenues as of December 31, 2021 was $76.5 million, up from $69.2 million as of December 31, 2020. Revenues by geographical region for the quarter were split as follows: North America 44%, EMEA 40%, Asia Pacific 12% and Central and Latin America 4%.

Our top 15 customers represented an aggregate of 63% of our revenues in the fourth quarter of which 51% was attributed to our 12 large -- largest distributors. GAAP results are as follows.

Gross margin for the quarter was 67.2% compared to 71.4% in Q4 2020. Operating income for the fourth quarter was $9.3 million or 14% of revenues compared to $12.1 million or 20.7% of revenues in Q4 2020.

Full year 2021 operating income was $39.5 million compared to operating income of $38.4 million in 2020. Net income for the quarter were $7.3 million or $0.22 per diluted share compared to $8.4 million or $0.24 per diluted share for Q4 2020.

Full year 2021 net income was $33.8 million or $1 per diluted share compared to $27.2 million or $0.83 per diluted share in 2020. Non-GAAP results are as follows.

Non-GAAP gross margin for the quarter was 67.6% compared to 71.5% in Q4 2020. Non-GAAP operating income for the fourth quarter was $13.5 million or 20.4% of revenues compared to $15.4 million or 26.2% of revenues in Q4 2020.

Full year 2021 non-GAAP operating income was $53.8 million compared to operating income of $47.5 million in 2020. Non-GAAP net income for the fourth quarter was $13.4 million or $0.39 per diluted share, compared to $15.2 million or $0.44 per diluted share in Q4 2020.

Full year 2021 non-GAAP net income was $51.8 million or $1.50 per diluted share compared to $46.7 million or $1.41 per diluted share in 2020. At the end of December 2021, cash, cash equivalents, bank deposits and marketable securities totaled $174.8 million.

Net cash provided by operating activities was $4.3 million for the fourth quarter of 2021 and $47.3 million for 2021. Net cash provided by operating activities in both periods were impacted by the $12.2 million payment made in December 2021, which was the third and last installment pursuant to the royalty buyout agreement.

Days sales outstanding as of December 31, 2021 were 68 days. During the quarter, we acquired 314,000 of our ordinary shares for a total consideration of approximately $10.7 million.

In December 2021, we received court approval in Israel to purchase up to an aggregate amount of $35 million of additional ordinary shares. The court approval also permit us to declare a dividend of any part of this amount.

The approval is valid through June 19, 2022. Earlier this morning, we declared a cash dividend of $0.18 per share.

The aggregate amount of the dividend is approximately $5.8 million. The dividend will be paid on March 1, 2022, to all of our shareholders of record at the close of trading of February 15, 2022.

Our guidance for the full year of 2022 is as follows. We expect revenues in the range of $277 million to $285 million and non-GAAP diluted earnings per share of $1.40 to $1.60.

I will now turn the call back over to Shabtai.

Thank you, Niran. We are very pleased to report strong financial results for the fourth quarter and full year 2021.

2021 capped an exceptional performance for the company with revenue growth year-over-year, accelerating to 12.7% for both the fourth quarter and full year. Definitely nice achievement when compared to the annual revenue growth achieved in 2020, which was 10.2%.

More important, beyond the success on the financial front, in 2021, we have successfully executed on our strategic priorities in our markets. We have built a more dominant position in our industry as a leading unified communication collaboration voice company.

We kept making progress in our key areas of focus, namely UCaaS contact center and CCaaS and the Voice AI world, and continue to pivot our business towards cloud communications and greater contribution from managed services and recurring revenues. On the net income side, we grew 10.8% compared to 67% in 2020.

This is mainly due to our calculated and conscious decision to increase investments in sales and marketing and R&D, in order to be able to capture the huge opportunity available for UC Voice in coming years in the UCaaS and contact center markets. Just to go and quote some data, in recent two market studies targeting UCaaS and contact center market, mentioned before, the Piper Sandler note, which talks about the global TAM of about 440 million endpoints.

UCaaS, next 5 years should show huge increase. Basically, we're talking about only 26 million endpoints at the end of 2021.

And the report projects 150 million at the end of 2026, way low from the TAM. Now, this forecast presents about 34% 5-year compound aggregate growth rates.

And therefore, for us, this is a time to invest. This is a time to take some of our profits in our ability to generate net income and operating margins that are above 20% a year and reinvest them in the business to create high annual growth.

Another report that just came out about 2 weeks ago from Baird, they've done a channel survey in the UCaaS and contact center market. They've talked to tens of different partners, some of them selling more than 10 million in the UC revenue annually.

When they've been asked about their expectation for performance over the next 3 months, they have said that they expect the business to grow up 30%, and above 53% of them have said that if I compare it to what was quoted on a year ago in December 2020, only 38%. So definitely a huge conviction among channels and more vendors, that this market is growing fast and represents a huge opportunity.

And this is again, why we've done that decision to invest more in growing annual revenues and keep profitability at 20%. Now, as a result of that, then we've done some modeling -- financial models not only for 2022, but also '23 and beyond.

And we can see that just based on organic growth, and we will be talking about an organic growth immediately, but just based on organic growth, we should grow this year as we have quoted somewhere around mid -- the mid-range at about 13%. Personally, I believe that we should do even better than that.

If we are good at executing on M&A strategy, we'd grow further into the 15% to 20% a year. So, expect growth and capturing market share in the markets.

This is the strategy and this is why we do invest in our sales and marketing R&D. Not less important as we grow revenues, we capture more market share against competition.

And I think this is really shown in the performance that we have presented in 2021. At the same time, we were able to achieve operating margin in 2021 of 21.6%, which is within the 20% to 23% range defined in our long-term financial models that we've presented to our analysts a long time ago.

This is a similar level of operating margin achieved in 2020. Other key achievements for 2021.

Gross margin expansion from 68.1% in 2020 to 69% in 2021, and substantial expansion of our core services offering. I will touch that when I will talk about our services offering.

In many ways, our performance in 2021 pretty much underlines the migration from our traditional gateway and SBC connectivity business, which was primarily hardware based towards a software and services offering, carrying substantially larger gross margin and innovative approaches to a part communications and collaboration. Now at the core of the success was our Microsoft go-to-market.

We are talking about growth of about 20% year-over-year in 2021. That was driven primarily by continued success for Microsoft Teams Solutions.

Sales of Microsoft Teams Solution, extended growth of above 70% year-over-year and lapping the clients from Skype for Business, which now represents only about 10% of the total Microsoft UC contribution. Additionally, our contact center quarterly business grew 12% year-over-year, and more than 15% for the full year.

As such, enterprise contributed nearly 85% of our revenue during the year, growing above 15% in 2021. Our AudioCodes Live managed services offering extended -- exceeded our internal expectation, with annual recurring revenues, ARR, exiting this year well above our target of 15 million and more than doubling from a year ago of about 7 million.

Services grew on an annual basis 24.4% and now they count for 37.7% of revenue. This is up from 34.2% in 2020.

Additionally, our pipeline continues to expand across core areas of our business, supported by long-term secular trends with migration of the voice infrastructure to the cloud, video enabled collaboration, hybrid work and enhanced customer engagement and experience solution powered by AI. Touching another focal area in the company, which is suffering from the pandemic for the second year in a row.

This is the service provider CPE activity. I'm glad to say that in the fourth quarter, we've seen improvement in our sales force CP business.

We saw nice recovery that contributed to growth of about 50% year-over-year, meaning demand is coming back coming, back at the end of '21, coming back for it 2020 -- 2022, I’m sorry. Still, in 2021, we have seen a decline of about 13% in revenue compared to 2020.

We continue to suffer in this line from shortage in components which is limiting our ability to deliver product and this disruption in the supply chain is now also forecasted to continue well into 2022. It will cause us with limited delivery capability and hard costs that will hurt our gross margin.

So, all in all, small area for business contributing about 13%, 14% and declining. Without that enterprise growing more than 15% that is where we invest in the company.

This is where growth should come from. Then I want to touch Voice AI and we'll talk about it later on.

But while being a very small percentage of our revenues, Voice AI bookings and revenues grew over 100% during the year. And basically, they've topped our projection of $5 million for the year.

We now project this business line to close to double again in 2022. Actually, I can clearly see that in about 2 years from today and with the acquisition we made, I will talk about immediately of Callverso.

We're looking at the line that should do between $20 million and $25 million in 2 years from today, very strong line, growing very fast. In the first quarter of 2021, we announced the acquisition of Callverso, a small Israeli private company which specializes in developing and deploying state-of-the-art virtual agent solution for the contact center market.

This acquisition further strengthens AudioCodes ability to help contact center improve their customer experience, while reducing operational costs. Still on the financial performance, let me touch a few more points, OpEx.

OpEx is a slow [ph] point. OpEx increased substantially about 1.5% sequentially, but 17.6 year-over-year, mainly due to the following key factors.

One is the impact of much lower U.S dollars -- new Israeli shekel exchange rate as compared to the 2020 rate, which was favorably edge. Then increase in headcount.

We will talk immediately about the increase in headcount. All in all, I think we have added more than 110 new position over the last year.

We keep growing, we keep adding about -- it's a right of about 30 new position every quarter. So, increase in headcount.

Also, rising salaries in the R&D space in Israel where the booming, the local high-tech industry, drives shortage in skilled manpower and drives high salaries. So, taking into account more headcount, higher salaries that impacts our OpEx.

Still, as I've mentioned before, we will plan our business such that we will keep generating operating margin that's north of 20% a year. Cash flow, we have generated $16.5 million in the quarter, bringing overall 2021 cash flow from provision to about $59.6 million, almost $60 million this year on the heels of close to $50 million previous year.

Deferred revenues also grew to $76.5 million compared to $69.2 million a year ago, an increase of about 10.5%. In terms of our long-term financial model, nothing has changed.

We still plan this year revenues to grow and rich between 13% to 15%. Non-GAAP gross margin to be in the range of 67% to 70%; OpEx to be not more than 47% to 50%.

Then operating margin as I’ve mentioned, the range plan for is 20% to 23%. We have announced in recent weeks about strengthening our corporate development efforts.

We've announced the joining of Mr. Dmitry Netis as Chief Strategy Officer effective immediately.

Mr. Netis joins us after a long career, 25 years in the technology sector, 15 years in Wall Street covering companies in the unified communication and collaboration, customer experience, among other sectors and most recently, Mr.

Netis work as a Managing Director and an investment banker with Q Advisors, and has been a senior equity research analyst at Stephens. So, we feel in 2022, we are creating substantially stronger, same of corporate development and planning.

And I'm confident that we'll be executing this year to allow non-organic growth to the company. Now let me go into some of the key areas of activities.

We've mentioned that Microsoft grew year-over-year about 20%. Growth is we leverage mainly on Live services, which help companies transform their UC or telephony services from another solution to Microsoft Teams.

A very strong activity in direct routing as a service and full teams voice service. I can say that we are signing -- we've signed in 2021.

Total contract value north of $50 million in the year. As I've mentioned before, ARR grew from $7 million to well above $16 million, which was a target.

In terms of breakdown of Microsoft revenues. So again, we split it between Teams and Skype for Business.

Teams kept growing. Teams actually grew in the first quarter about 50% year-over-year.

Skype for Business on the other side declined about 50% year-over-year. All in all, Skype for Business is now -- it's a very small level.

Just to give you some visibility into our Microsoft sales. So, in the first quarter, we are at around $36 million out of which about $4 million were contributed by Skype for Business and the rest of it close to $32 million were contributed by Team.

In terms of creating new opportunities in Microsoft. So here the trend is even stronger.

If we look for new opportunities created in the Team space, we've seen growth of more than 76% year-over-year. So, all in all, if we compare the amount of potential revenues from created opportunities, there's a ratio of three to one when you compare creation versus build.

So, all in all, we do expect continued growth and definitely stronger acceleration of revenues from the Microsoft space. In terms of new accounts, lately, in the quarters of the last three or four quarters, we are roughly adding a few hundreds of new accounts to the Microsoft activity, about one quarter of them came from to transition of accounts from Skype of business to Team's three quarters of the new accounts or fresh new accounts.

As for Live, I've mentioned before that we basically done above $15 million. The plan for 2022 is to more than double that.

Now let me touch an important new activity in Microsoft, which is Operator Connect. Operator Connect targets to allow service provider in the world to offer Microsoft Teams to their business customers.

To do that, that needs to be a platform, an automated solution that will allow end users and customers to onboard Microsoft Teams through a sophisticated interface. We have announced earlier in January the introduction of our solution for Microsoft Operator Connect.

We've received a lot of interest, a few very large service provider approaching us. I can tell you that at this stage we are working with some Tier 1 names in the world.

And all this activity, our platform is one of few a very small number of platforms selected by Microsoft to help launch that activity. We expect the announcement of the platform by Microsoft in the first quarter of 2022, and we expect the business to start ramping up in the first half of 2022.

I'll mention more that we've seen pickup in our business in the IP phone area. Desktop phones in 2021 and more so in the first quarter.

This is partially as a result of the return to office. That's one activity that's picking up and growing very nicely in Microsoft.

Then there's a new area that we are confident we will start grow in 2022 and this is the meeting room area. We've introduced to our conference devices.

More than a year ago, we continue to build that client in 2021 from few hundreds of thousands of those made in 2020. We crossed the million between 1 million and 2 million in 2021, and we expect that line to more than triple or more in 2022.

We feel we are in a very good position, taking into account the product line itself or management capabilities or meeting insight processing solution. So, we believe that meeting space is going to be very important line for us from '22 and on.

All in all, we've covered substantially the Microsoft operation. I'll mention also that we became successful in 2021 in the Zoom marketplace.

So, Zoom is focusing more and more on Zoom Phone and I’ve stated strategic importance for that line. We have seen announcement of more than 2 million users in the space.

I can tell you that from our side, we have seen very nice increase. If I go back to the Piper Sandler report mentioned that Zoom is growing very fast side-by-side with Microsoft and they are expected to gain market share at the end of 2021.

It was estimated they hold 11% and they are plan to grow up to 15%. Just to give you an idea about the number of seats, we're talking about rising from 2.8 million seats to more than 60 million seats in 2026.

Similarly on Teams, we should be growing from a mere 4 million in '21 to 8 million in 2022, then to 30 million in 2026. So, lot of room to grow on both Teams and Zoom.

Getting back to one of our oldest and most important business line, which is the SBC, we've seen growth in the quarter and in the year. All in all, in the year we grew revenues from $100 million last year to $121 million in 2021.

We then have seen even more promising activity and created opportunities. So, we've seen a lot of new opportunities created.

We've seen growth of 36%. So, growing from $100 million in 2020 to $136 million in 2021.

All in all, very important line. Also, I should mention that the transition to software-based solution continues and we are close to 40% in '21 from just 30% in 2020.

At the same time, we are investing in our SaaS infrastructure and managed services. In 2022, we plan to expand our investment in SaaS solution for our key target markets, Microsoft Teams, Zoom Phone, contact center, bring your own carrier, work-from-home, click to call and multiple use cases of conversational AI, such as virtual agents, agent [indiscernible], intelligent IVR solution, et cetera.

So, we plan to aggressively migrate more function of our successful fast growing recurring revenue in managed services to the SaaS platform. Just to touch again services.

Services grew in '21 16.2%. However, more important, we've seen decline in support and maintenance services as a result of the move from CapEx sales into recurring sales.

But at the same time, we've seen huge, huge increase in sales of professional and managed services. So, in managed services and professional, we grew 44.9%, almost 50% in '21, which means a lot of growth in managed services.

It's actually that kind of sets the direction for us to excel in managed services going forward. Touching on some background on the Voice AI stuff.

So, as I mentioned, booking as -- grew more than 100%, actually topped or focus for $5 million. In the fourth quarter, we actually seen booking growing to $3 million versus $1 million the year before.

Some of the key components of Voice AI are as follows: SmartTAP, which is compliance recorder. So, in 2021, revenues grew nicely about 70%, and booking actually grew another 60%.

So, all in all, the transition to Teams obligates companies who have compliance obligations to move their solution to a Team based solution. And this is where we come shining.

We keep investing in the line. We do intend to come up with a multi-tenant SaaS solution towards the second half of the year.

So, all in all, very successful line of recording business. If I touch our Voca operation, Voca is a rich IVR application that is substantially more advanced than the previous product.

We started to develop a very advanced product, which allows conversational IVR. We have launched that solution second half of last year.

We do see huge growth. And I can tell you that if we compare a number of opportunities created, we are starting to compare about 50 new opportunities versus just 14 in the year before.

All in all, we do expect the client to generate more than double revenues in 2022. Then coming to a very lucrative solution, we're talking about Voice.ai Connect.

Voice.ai Connect enables chatbots to use voice input and output for the conversational AI platform. We have very intensive activities with many partners in the market, most notably with Google and Microsoft, both.

We just had a webinar with Microsoft about 2 weeks ago, where we hosted more than 1,000 participants from all over the world. That Webinar was run together by Microsoft and AudioCodes.

We then have seen a new Magic Quadrant Gartner report coming out a few weeks ago. I consider that out of the leading pack in the upper right quadrant, we've seen two partners that use us extensively.

One is integrating our Voice.ai Connect into their platform now serving many enterprise -- large enterprises solutions for bots, capable of handling both text and voice. And then the other partner is very strong, relying on us on many different technologies relating to voice and actually they are building an AI First contact center around our contact center and Voice.ai Connect.

So, all in all, more than 50 customers, more than 30 productions, we expect this line to almost triple in 2022. So now you can understand the basis for being so optimistic that line that is gross booking of $5 million this year, we'll get to $25 million in the next 2, 3 years.

This is just organic growth at this stage. Talking about customers coming from -- talking about solution being deployed in the insurance, banking, automotive, energy service provider space.

Now, two words about our acquisition made last November. We have acquired, as I mentioned, a private company developing virtual agents in Israel.

This is now part of our business line in the contact center in the company. We already started integration.

It goes very nice, we added resources. We have starting to employ product management, a few more operational procedures just to make their operation very efficient.

Very active in the last pandemic with the omicron wave that basically triggered huge amount, volume of calls into contact center of medical service provider. Callverso virtual agent were very efficient in tackling just mentioned that on a daily basis, normal [indiscernible] usually, you have like 100,000 calls during the last few weeks.

The volume got to almost more than double and virtual agents were very efficient in tackling that. So, we do intend, obviously to extend their operation, but also take the technology and deploy it worldwide.

With that, I believe I've exhausted my presentation for the session, and we will be turning the call into the Q&A. Operator?

Ryan MacWilliams from Barclays. So, thanks for taking the question, guys.

It looks like the midpoint of your initial revenue guidance implies similar growth of this year. And the guidance going into next year stronger than the guidance you gave when headed into fiscal 2021.

So, Shabtai, given that there are investor concerns around a pull forward and cloud communications growth due to COVID, but then in light of this stronger guidance, can you talk about some of the indications you are seeing of an improved market opportunity as we head into this year? Thanks.

Right. Yes, unfortunately with the COVID, we all move to be kind of hybrid workers.

In a hybrid mode, you need to be able to work from anywhere, not only from home, but from office and you need to travel between the two. Huge demand for UCaaS solution.

It's growing, we've seen, we’ve quoted numbers. Those trends both in UCaaS and contact center, we keep see them coming up.

And I can tell you that actually one of the question later on would be regarding headcount and the great resignation or ability to deliver, I'll tell you that our issues going forward and I think everybody in the world will be much more concentrated about the ability to deliver having enough people on board. It's another demand.

The demand is there, very strong. And we constantly adding people.

I've mentioned, we added 110 last year, 30 every new quarter. It's all in the race to be able to deliver the demand that we are seeing.

Excellent. And then one for Niran.

Niran, it looks like fourth quarter service revenues were slightly lower than the prior quarter. Just any puts and takes to call out there would be helpful.

Thanks.

Yes, I wouldn't read too much into quarterly fluctuation in the service revenue growth loan. As you know we have professional services training in the service line.

There can be fluctuation and can screw the quarterly growth rate. Our 2021 service revenues grew 24%, which is an improved growth rate from 16% in 2020.

So, there are fluctuations between, but I suggest not to look on a quarterly basis.

Excellent. Then last one for me.

Shabtai, congrats on bringing on Dmitry. I may be a little biased here.

But you mentioned the future for -- the potential future for more inorganic acquisitions going forward. Any specific areas of the market that seem interesting?

Or are there any, like software capabilities or things that your customers are asking for? Thanks.

Thank you. Well, we are focusing on our strategic market direction.

And I think we have defined that to be the Microsoft Teams space. As such, and since we deliver managed services, I think our highest priority would be in that area to supplement and augment our ability to deliver more services in that specific space [indiscernible] Teams Voice.

Obviously, we are working also on the Voice AI, working also on contact center. We will be looking more for market reach rather than technology.

We will be adding few smaller technology pieces, but that's not the focus. The focus is really gaining more market share.

Appreciate the color. Thanks, guys.

Thank you.

Good morning. Greg Burns with Sidoti and Company.

So, I'm going to follow-up on the service line just in terms of the gross margins. This might be similar -- a similar answer in terms of quarterly fluctuations, but what was driving the gross margin down on the service line this quarter?

Is that kind of how we should expect? What we should be looking for in '22?

Yes, it's a result of increasing our manpower at the customer service department. That's the main reason.

With regards to gross margin at all, we are facing like all over the world an ongoing supply chain disruption. And this quarter we had made one-time purchases of components cost in the open market at higher cost to fulfill demand.

So, we estimate the gross margin impact from product sold carrying this higher component cost to be roughly 100 basis point in Q4. So, that's what we had in terms of gross margin both in service and as a total.

Okay. And Shabtai, you mentioned some shift in the revenue mix, given you're moving away from hardware to more like recurring service sales.

So the -- that the recurring revenue, I'd say if you sell a Live solution, does that go into the service revenue line item? Or is that product line revenue?

Like -- where's that falling out on the income statement?

Yes, it's definitely going into services. It's part of our managed services.

And as you have said, it's growing. It's growing fairly fast.

I can tell you that --- just give you a rough idea that at this stage, I've mentioned that Teams grew this year almost 70% compared to last year. And Live is now in the full score, rising to more than 2020 between 20%, 25% of total Teams revenue.

So, if Teams grows, Live will grow, managed services would grow.

Okay. And then lastly, you talked about Operator Connect, but Microsoft also launched Teams Essentials, kind of going more for the SMB space.

How might that impact your business? Is that something that could further accelerate growth for you in the Microsoft ecosystem?

Yes, as a matter of fact, Microsoft essentially is really a plan targeting to lower prices of Microsoft Teams or small organization in that regard, it's definitely a boost to the Operator Connect. Operator Connect will allow those businesses to connect to Teams, but if to make it even more attractive, they have lowered subscription rates for the smaller businesses.

Okay, great. Thank you.

Sure.

Hi. Great.

With Jefferies. Thanks for taking my questions.

So, I kind of want to unpack one of the comments you made, Shabtai, about the growth expectations, right. I know the formal guidance, but your view was that you guys should do better than that.

And I bring it up because I just -- if I think about last year, the initial guidance for 2021 was I think, like $240 million $250 million. And you guys are kind of squarely at the high-end of that initial range.

So maybe what gives you the confidence that you guys can outperform kind of the initial guidance set today versus when you think about your guidance last year, historically when you've guided. Just is there any -- is there a change in the guidance framework?

Maybe just help us understand what underpins it?

Actually -- yes, thank you Samad. Yes, actually, I think I gave you a hint and let me go and get into the details, okay?

So, we were kind of [indiscernible] last year to see Microsoft's revenues growing 20% a year, right. However, we didn't always -- we mentioned always, the Teams is growing and then Skype for Business coming down.

But we have never talked about the interrelation between the two when you compute growth. But now Microsoft call -- let's talk about the fourth quarter.

So, in the fourth quarter, Skype for Business got to some very low level of about $4 million and Teams got to about $32 million. Now remember that Skype for Business, let's say, declined let's say quarter-over-quarter by 10%.

10% decline in $4 million is $400,000. On the other end, if Microsoft is growing -- sorry, if Teams is growing, say north of 20% quarter-over-quarter, you take now 32, you at 20% of that you get another 6.4.

So, all of a sudden, you'll find that while we have suffered from decline of Skype for Business in previous years, in 2022, even more going forward is not going to overlay or overhang [ph] or impact growth at Microsoft. So actually, I can tell you that if you do the math you will reach -- and assuming that growth will continue in Teams as we continue to invest in it, we will see growth in Microsoft, that's also 30%.

So that gives you some flavor as to why we are more optimistic about the ability to reach those revenue levels and beyond.

Got you. And then just maybe one last question for me.

When you think about the growth versus investment philosophy, I think you definitely touched on it on the call, but how should we think about -- actually think about it kind of like, what's the -- I know you gave guidance, but what is the end goal growth level that you're trying to drive for? Is it to sustain in this low teens?

Is it with the OpEx investments meant to get you to a range that's closer to 20%? I guess I'm just trying to understand how we think about the reinvestment philosophy, especially given the EPS guidance for 2022 to the growth level that you're actually trying to get to that's a durable growth level.

Right, thanks. Yes, if you take a step backwards, right, and you'll take a higher-level perspective over several years, right, starting from, let's say, 2020 and looking into 2025.

Up to 2020, we have been very cautious with growing our OpEx. So just to give you an idea, in 2020, our OpEx grew only about 3.5% over the previous year.

however, as planned in 2021, we have invested heavily and actually we grew OpEx in '21 14.6%. And in our plan, we are planning not less of an effort in 2022.

So, just think about a huge investment that we will be applying, we've applied half of it already in '21. We'll be doing that as well in '22.

But you will see according to our internal business model, we predict that we'll keep revenues growing at least 50% and above organic. We should be growing given 16 and 17, but we need to be well into the year to be more confident about that.

But even more you will see the net income line all of a sudden leaping from '23 and beyond, because at some point there will be no more in need to invest that much. So, it's major investment than in '21, '22.

Now the result of it would be, revenue growth 15%, 70% annual organic and beyond. And then obviously improved net income line.

Great. Thank you so much.

I'll pass it on to the next analyst. Appreciate it.

Thank you.

Sure. I'm with Needham & Company.

Obviously, the Teams ecosystem really gaining momentum here globally. I wonder if you could share any color you have on different segments where you are seeing they're having success.

Is it primarily in U.S where the core of their business is coming from and how they're doing outside the U.S and moving down market? I know you mentioned that the new SMB offering, but any color you can offer on kind of how Teams is faring across different market segments, would be really helpful.

Thank you.

Right. Thank you, Ryan.

Again, Ryan, I don't think does any specific vertical that shines out. But definitely, as you have mentioned, U.S is substantially leading in deployment of Teams more in Western countries such as the U.K., Germany and few more countries, Canada, France, etcetera, the Scandinavian.

So, it's still in the infancy. Again, if I relate to the Piper Sandler report, a very small portion has been deployed so far.

So, a lot of things to come. But then again, the western world is leading by far.

Okay, that's super helpful. And I get one quick follow-up, I could.

Any call you have on deal size in terms of seats. Are you seeing very, very large enterprises start to opt more into the UCaaS offerings now, or are we still kind of in the smaller enterprise and mid-market that's the fast adopters today?

No, Teams is by far deploying in the S&P in a major way. I think we are deployed in close to, I think we have heard Teams deployed in over 90% of the S&P 100.

So, the focus is really on large enterprises and lately on mid-market. It's only now that they're starting to try to attract to the smaller businesses, but that that's where the focus is.

Super helpful. Thanks a lot.

Sure.

Hi, Shabtai and Niran. This is Tal from Bank of America.

I have two questions. First one, it's on the margins.

Your R&D and G&A went up 15% and 20%. So, your EPS is going down, while your revenues are going up.

What's the outlook? Can you explain?

What are you investing in? What are the projects and then what's the outlook for expenses?

And the second thing is I wanted to also ask you about the margins. Any impact of, I think you touched on it when you spoke about gross margin, but any impact of supply constraints, any impact on your ability to deliver at least on the legacy side, and what's the status of you getting enough components?

Thanks.

Yes, hi, Tal. So indeed, OpEx on an annual basis increased 14% year-over-year.

If we split it between R&D sales and marketing and G&A, R&D was 13%, sales and marketing 17% and G&A 6.8%. So, all in all, we are planning to, as Shabtai mentioned, we are planning to invest more in OpEx to support our revenue growth mainly in the area of sales and marketing and customer service.

So that's with regards to the OpEx. With regards to the gross margin, as I mentioned, we are -- as you know, everybody is suffering from the supply chain disruptions.

Specifically for this quarter, we had an impact of about 100 basis points since we had to buy some components at the open market at higher cost. While we expect a similar gross margin impact at the first quarter of 2022, we do believe this is a temporary issue.

Got it. So, going back to your first answer about expenses, is it the one-time phenomenon that your expenses are going up or it's going to stabilize after or do you envision that margins -- operating margins keep coming down next year?

No, for 2022, we are planning to increase OpEx. And that's why our guidance for the EPS, the midpoint of that was flat and by that if we jump to 2023, we will definitely need to invest less in terms of growth year-over-year than we add this year and in 2022.

Got it. Great, thank you.

You're welcome.

Thank you, operator. We would like to thank everyone who attended our conference call today.

We continued good business momentum and accelerate growth in 2021 and strong underlying market trends in our industry. We believe we are on track to another year of growth in 2022.

We look forward to your participation in our next quarterly conference call. Thank you very much.

Have a nice day. Bye-bye.