AudioCodes Ltd. (AUDC) Q4 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the AudioCodes Fourth Quarter and Year End 2019 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’s now my pleasure to introduce your host, Mr. Brett Maas Investor Relations for AudioCodes. Thank you, you may begin.

Thank you. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer; and Niran Baruch, Vice President of Finance and Chief Financial Officer. Before we begin, I’d like to remind you that the information provided during this call may contain forward-looking statements relating to AudioCodes’ business outlook, future economic performance, product introductions, plans 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 the 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 markets and pricing on AudioCodes’ and its customer 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 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; and other factors detailed in AudioCodes’ filings with the SEC, U.S. Securities & 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 now turn the call over to Shabtai. Shabtai, please go ahead.

Thank you, Brett. Good morning and good afternoon everybody. I would like to welcome all to our fourth quarter and full year 2019 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President for 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 then 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 $52.8 million, an increase of 2.7% from the prior quarter and a 15.3% increase when compared to the fourth quarter last year. Full year 2019 revenues increased by 13.7% to $200.3 million. Service revenues for the fourth quarter were $17.5 million, accounting for 32.2% of total revenues. On an annual basis, services revenues increased by 14.7% compared to the previous year. The amount of deferred revenues as of December 31, 2019 was $62.2 million compared to $49.2 million as of December 31, 2018. Non-paid deferred revenues as of December 31,2019 and the amount of $19 million was deducted from the trade receivables in the balance sheet. Revenues by geographical region for the quarter were split as follows; North America 39%. Central and Latin America 12% EMEA 36% and Asia Pacific 13%. Our top 15 customers in aggregate represented 63% of revenues in the quarter of which 51% are attributed to our 11 largest distributors. The variance between GAAP and non-GAAP is of particular importance this quarter because as announced in November 2019, we entered into a royalty buyout agreement with the IAA, the Israel National Authority for Technology and Innovation relating to certain grants we had received. The contingent net royalty liability to the IAA with respect to this grant at the time of the royalty buyout agreement was approximately $49 million. As part of the royalty buyout agreement, we agreed to pay approximately $32.2 million to the IAA to settle the $49 million debt in full, in three annual instalments starting in 2019. The $32.2 million expense is included in the GAAP cost of revenues for the fourth quarter of 2019 and impact GAAP results for the three months and full year, and then 31st of December 2019. Non-GAAP results exclude this expense. In addition, during the fourth quarter of 2019, we recorded a deferred tax asset in the amount of $20.5 million, which represents the approximate amount of net operating losses and temporary tax differences we estimate to be utilized over the next few years. GAAP net income for the fourth quarter and full 2019 year reflect the effect of the tax benefit associated with the certain of this deferred tax asset. Non-GAAP net income exclude this non-cash deferred tax benefit. With that understanding, let me discuss the results. GAAP gross margin for the quarter inclusive of this $32.2 million expense for the royalty buyout was 3.9% compared to 62.6% in Q4, 2018. GAAP operating loss for the quarter was $26 million compared to an operating income of $5.1 million in Q4, 2018. [ph] Full year 2019 GAAP operating loss was $9.6 million. GAAP net loss for the quarter was $8.2 million or $0.28 per share per share compared to net income of $4.5 million or $0.15 per share in Q4, 2018. Full year 2019 GAAP net income was $4 million or $0.13 per share. As noted above, results for the quarter and full year were impacted by the $32.2 million expense incurred in connection with the royalty buyout agreement. Pursuant to the royalty buyout agreement, we eliminated all the royalty obligations related to our future revenues with respect to these grants. This will have a positive impact on GAAP gross margin starting in the first quarter of 2020. Non-GAAP results are as follows; non-GAAP gross margin for the quarter was 65.1% compared to 63% in Q4 2018. Non-GAAP quarterly operating income was $8.3 million or 15.7% of revenues compared to an operating income of $6.3 million in Q4, 2018. Full year 2019 Non-GAAP operating income was $28.2 million. Non-GAAP quarterly net income was $8.1 million or $0.26 per share compared to $6.3 million or $0.20 per share in Q4, 2018. Full year 2019 non-government income was $27.8 million or $0.89 per share. Our balance sheet remains strong at the end of December 2019 cash, cash equivalents and bank deposits totalled $71.9 million. Net cash provided by operating activities was $2.4 million during the quarter and $23.2 million for the full year 2019. Both numbers were impacted by the $10.7 million payments made in December 2019, which was the first instalment pursuant to their royalty buyout agreement. Days sales outstanding as of December 31, 2019 were 48 days. In August 2019, we received court approval in Israel to purchase up to an aggregate of $12 million of additional ordinary shares pursuant to our share repurchase program. The court approval also permitted us to declare a dividend of any part of the $12 million during the approved validity period. This court approval will expire on February 3, 2020. As of today, we have used an aggregate of $3.5 million of these authorized amounts to declare cash dividend. In December 2019, we submitted a new application to the Israeli court requesting approval of an additional repurchase program for $12 million dollar of ordinary shares. The application also requested the court to permit us to declare cash dividends of any part of this amount. A decision on our application is expected during February 2020. We continue to expect top line revenue growth and operating margin expansion in 2020. We expect revenues in the range of $214 million to $222 million and non-GAAP diluted earnings per share of $1.08 to $1.12. I will now turn the call back over to Shabtai.

Thank you Niran. We are pleased to report record financial results for the fourth quarter and the full year 2019. 2019 has been our best year ever and the fourth year in a row of continued growth in revenues and net income in every single year. And so, when discussing 2019, and looking forward to 2020 and beyond, it's clear that we are now reaping the fruits of success in our eye on investments we have been doing during the past five years, with the very focus on providing more comprehensive and larger scale solution and services to our partners and customers in the unified communication all-IP markets. Underlying our success in 2019 is the progress we've made in several key financial indicators which best demonstrates our success since 2015. Let me touch on each of them. Revenue growth, we saw double-digit revenue growth for the second year in a row. We grew 13.7% in 2019. We grew 12.4% in 2018. Margin expansion. Let me talk first on the gross margins. We saw steady progress in improving gross margins from 60% in 2015 to 63.7% in 2019. Planning for 2020, we expect further increase in gross margin. Operational margin improved in more impressive manner. We ended 2019 with operating margin of 14.1% compared to the year ago margin of 11.7% and compared to just 8.2% in 2017. For 2020, we target again meaningful increase of operating margin to well above 15%. Net income growth for four years in a row. We are delivering high double-digit net income growth in the range of 30% to 60% in every single year. In 2019, we delivered 38.9% growth on the heels of delivering 54.9% growth in 2018. Cash flow. We have demonstrated further consistent ability to deliver growing positive operating cash flow results in previous five years, generating $33.9 million in 2019, compared to the $25.6 million in 2018. Out of the funds generated in the fourth quarter of 2019, we've paid about $10.7 million to the Israel Innovation Authority as part of the royalty buyout agreement signed in November in 2019. Finally, to further revenues, we grew more than 25% in 2019 to a level of $62.2 million by the end of 2019 versus just $49.2 million in the first quarter of 2018. When we analyze what has driven to success in 2019, it is clear that the improved financial performance was achieved mainly due to the strong trend of PSTN transition to All-IP in North America and in about three or four countries in Western Europe with a handful of major Tier 1 service providers. We expect this migration trend to IP to continue in coming years and we plan to engage with more service providers in countries, which have yet to start at all transforming their networks and services to businesses to All-IP in the coming decade. We're talking about 5 years to 10 years going forward. But on a more general level, if I have to highlight the key fundamental reasons for the success we enjoy. I would say on a general level, that the strength of our business is primarily related to the very strong and healthy markets we serve, in obviously or execution capability. I have talked so far about the All-IP market. A bigger market that keeps growing for the past 10 years and we should keep growing for the next foreseeable future is the unified communication and unified communication as a service market. This market exhibits compound annual growth rate of about 18% for several years now and with wall penetration only at about 25% in North America and only 7% globally. These markets offer us a lot of room for expansion and growth for a voice infrastructure vendor like us. When you add to the mix, the leadership position we develop and the strong ties with our partners the picture gets rosier. Same growth trends apply to global digital transformation trends of businesses, gearing towards a digital workplace, and similarly such opportunity exist in the process of contact center migrating to the cloud into a SaaS model. So as long as we keep executing as we did in 2019 and in previous years, we should see positive results in coming years. On top of this and in order to keep the business momentum and allow further expansion of our business in the future, we are investing substantial efforts and resources in new growth engine such as the Voice.ai business announced two years ago and the new evolving making space market. Now to the business side. Key to the success in 2019 is the consistent progress in our networking business, which grew 17.7% year-over-year to $191.7 million accounting now to 96% of your overall business in 2019. The networking business comprises of two key business lines, the UC-SIP business line and the Gateway business line. The UC-SIP business line grew above 20% in first quarter 2019 and full year 2019, and provides now to about 55% of our business about $110 million in 2019. While investments have stabilized in size in this business line over the past several years, revenues continue to grow with about 15% to 20% annually. As a result, the business line becomes quite profitable. It first achieved profitability in 2018 and now it has more than doubled in 2019. As such, we now enjoy growing profit margins, say results of the operation of leverage. At this stage, we do not anticipate the change in this 15% to 20% annual growth in coming years for these business line. Quite important to note is that the steady annual increase of sales of more softer products, and growing services in the UC-SIP business line, we experienced substantial improvement in the gross margin of this business line. And please remember, at this stage this is 110 million line, 55% of our revenue in 2019. Now let's talk a bit about our gateway business, which led to the growth in use of UC-SIP, we enjoyed in 2019, a strong year in our gateway business which grew above 10% compared to 2018 and reached a level of about $70 million. As mentioned before, this is substantially due to the ongoing strength in the multi-year continued migration of service providers PSTN networks to all-IP. The other services also demonstrated a very solid growth and strength. I'll touch on that later on. Providing a quick snapshot into the first quarter of 2020. I'm glad to know that at this stage the trend in our business continues in January, the first month of the first quarter of 2020. Touching on the highlights of sales in the fourth quarter in 2019, generally sales performed very well to and above the targets we set for them. So very good performance, remarkable performance primarily in North America in the DACH region, which is Germany, Switzerland and Austria, in the U.K. in CALA, Russia and Asia Pacific. On an annual level, and those were mainly in North America, the DACH region and South Europe, that provided most of the revenue. To mention some of the notable deals in the quarter, we won a huge multimillion project CALA, we are talking about project managed by Telefonica, and which provide solution to a large company, I’ll refer to more details about that later. Also, on the business services side, we had very large purchase order with the North American service provider that’s some buying customer for several years now. Same since, I already mentioned the name Deutsche Telekom, Deutsche Telekom was a very strong for us overall 2019 and also in the quarter a few hundreds of thousands of dollars. Touching on the contact center space, I’ll -- two deals, one in Brazil, one in Canada both true, both deals relied on using or sessions for the controls and gateways with Genesis and others. To give you some examples so to our customer wins. Let me with more color and share a few examples of customer wins and shares that we have secured part of this score, outlining several of the examples you can get a sense for how is our business, our enterprise business, how it is evolving with large opportunities in large corporations, and how our strategy is aligned and growing with cloud adoption. Let me first start, touch on that South America multi million project. Last year, sorry last quarter, we presented a multi-million dollar win in the healthcare care space in the U.S. This quarter, we were awarded an even bigger multimillion Microsoft team deal at the Latin American government agency. This agency, which is a part of the local ministry of labor. Obviously, it’s a large national chain of schools for developing employees’ skills. In this bid, we have positioned our entire portfolio of products and services including devices, networking, management tools and implementations services. We are proud to win such deals as they demonstrate again that our strategy of single stop shop solutions bodes tremendous value for the customers and end users. This deal validate our ability to offer a networking solution for over 100 branches together with over 10,000 of IP phones. It clearly sets a part from competition in our ability to balance and offer a broad value proposition to the customer. Second, and staying on the Microsoft Teams' program and exploring the dynamics of market for very large enterprises, we started to rollout a Teams' deployment at one of the world largest consumer goods companies. This company was referred to us by Microsoft, it's one of [Indiscernible] shows. This was because we were highlighted at that show as the vendor empowering the rollout of hundreds of thousands of Skype for Business sits across four multinational enterprises. This large consumer goods company has thoroughly vetted the Microsoft Solution, and it's just getting started with their global rollout. At first phase, we are providing our session border controllers, and professional services. This deal is representative of many such large enterprises globally that we work with on their Microsoft Teams' journey. Third and last, a very large project in the U.S. related to All-IP migration solution for service provider, a very important multimillion win came from a Tier 1 service provider in the U.S. where we were engaged to provide gear and services in a multimillion dollar deals, combining SD-WAN and UC services to nationwide health care company. In this deal, our unique offering of Universal CPE combining Wireless and Ethernet access with voice functionality was chosen as the SD-WAN platform in order to reduce the number of several CPUs down to only one product. This product combined with our gateways phones, centralized management and professional services were the deciding factor that got us this feasible deal. Now let me touch on Microsoft. Revenue was about 40% of the quarter revenue. In terms of growth, we saw 16% growth above the year ago quarter. On an annual level, revenue in the Microsoft ecosystem grew about 12% to over $80 million in 2019. Key in the quarter was seemingly better environment for Microsoft Teams' voice. While as we've planned during the first three quarters of 2019, we saw more large end users embracing Teams in the fourth quarter of 2019, a trend we continue to see in January 2020. Also, some customers are continuing in parallel with Skype for Business end Teams. For Microsoft announcement, we all know that Teams' daily active users is growing rapidly in 2019, and so, we expect the side-by-side with this dramatic growth in users -- number of users and with the expected completion of gaps on the voice side in Teams, which are expected in this half of 2020, we should see better overall market in 2020. Gradual progress in developing market awareness to our meeting solution, Rx Suite of Conferencing Devices and Dolby partnership is another positive development in the quarter, and we all look for 2020 to be the first year of our greater penetration in the conferencing space with our devices and solutions. I'd like to mention also on our session border controllers’ line, which is the leading and most promising line at the stage within the UC&C business line. In the fourth quarter, revenue grew 18.4% year-over-year, looking on overall 2019, we grew more than 20%. We also saw very strong booking. Booking grew in the first quarter by 28%. This business line is characterized by extremely high gross margin that's above 85%, growing in comparison to the previous quarter. This is mainly to the fact that a quarter for our sales of product is now in software. So, we are being deployed generally substantially more in cloud, in software solution, in virtualized version, in data centers, all-in-all, very successful fast growing and high profit margin line. On terms of geo split, we saw nice use, both almost equal between North America and Western Europe. Also saw some 10% in Asia Pacific and less than that in CALA. To mention the type of few customers that we serve in that business line. So we had one very large North American service provider using our SBC. We sold SBC for more than $1.5 million. We sold two large banks. One in Brazil. One in Russia, consuming our session border controllers for we're about to see and our solution for software device -- software-defined voice networks. Also, in the Asia-Pacific large service provider is using our session border controllers within Azure as a hosted solution for Teams direct route SBC. All-in-all very successful quarter for SBC business line. Last, let me touch on global services. In the press release you saw the recognition side of the business. Let me talk about the booking side of the business. So, on a quarterly basis, we saw the following; we saw an increase of 26.2% in the fourth quarter for the total services. We've seen 19.2% growth in maintenance contracts, but we have seen more than 60% growth in professional services, all that in the fourth quarter. When we go to the annual level and talking about what has changed. So, overall booking of services reached above $70 million in the year. We grew about 19% on an overall services level, close to 18% on the maintenance contracts, 24% on the professional services. So, all-in-all quite successful and rapid growth here. Substantially, we saw -- to give some color on that we saw substantial growth in North America professional services mainly the Team there is doing a fantastic job. We keep winning new managed services contracts mainly in desire products SBC area. Also, we see growing number of requests to deploy and manage the Teams' voice on the Office 365 sites. Now to our guidance for 2020. First, the general comments. We have not factored in any possible impact of the potential economic developments in 2020 as a result of the corona virus. It is simply too early for that for us. Now let me touch on revenue and earnings. Revenue, based on current plans and data we have, we guide for another year of growth with revenue range set for 215 to 222. The mid-range guidance is set at about 218 and that represents a growth of about 9% compared to 2019. This is pretty much in line with the 10% growth we guided for year ago for 2019. Now let me touch on earnings. Before I present our guidance for the year, I'd like to touch on a key factor affecting it for us as a company at core and based mostly in Israel. I'm talking about the much different U.S. dollar versus the new Israeli shekel conversion rate environment, which is now expected for 2020 versus what we had in 2019. Based on current rates for budget and planning purposes, we assume a rate of 3.45. In 2019, the average conversion rate is being about 3.57. So we are talking about an increase of about 3.4% regarding all expenses nominated in new Israeli shekel which are about 45 million new Israeli shekel a year, translating to an impact of about $1.6 million or $0.05 impact on our bottom-line compared to 2019. Now to the guidance. As a result of that, we now guide for continuing growth in the earnings of more than 20% in 2020, and we are setting the range to $1.08 to $1.12. With that, I've basically completed my introduction for this session. Thank you very much. Operator, would you take us to the Q&A session.

Thank you. [Operator Instructions] Our first question comes from the line of Rich Valera with Needham and Company. Please proceed with your question.

Thank you. I'd like to open with a question on the Microsoft Business. Looks like you saw a nice pickup in the fourth quarter, the Microsoft businesses, I guess, Teams is starting to gain some momentum. Can you talk about what is still in the pipeline for Teams in terms of features that you see that could help further accelerate Teams? And how you're thinking about the overall Microsoft Business in 2020 versus the 12% growth that you saw in 2019? Thanks.

Right. Thank you, Rich. First, you know, we know there are several features missing for the voice implementation within Teams. From our ongoing discussion with Microsoft we know that the plan is now to complete them in the first half of this year. So all-in-all, we know that much will start happening in the second half. Second, as I have mentioned before in the beginning of 2019, we've seen lot of potential end users, large corporation sitting on the fence. People were hesitant. The transition from Skype for Business to Teams has just started. Teams was not complete yet. And there was much delay. That gives some explanation to why we grew only 12% in 2019 versus more than 30% in 2018 [ph]. Now, we do expect and we've seen that that's where we have a much more comprehensive portfolio and you can apply that to more funds that will be introduced during 2020. We can talk about the conferencing devices that we just -- end of the year we just sent the first few hundred devices for evaluation by customers. So, a much more complete portfolio in 2020. Also we are increasing the set of services we offer. And as I've mentioned or maybe it was not emphasized enough, we now start to deal substantially with more deployments where we not only deliver the products, but also provide services and in several cases, lately managed services, meaning large companies, a few hundreds and sometimes thousands of companies will rely on AudioCodes to provide their ongoing daily Microsoft Teams operation. So all-in-all, we're very optimistic regarding that could be a definite change in 2020 compared to 2019 and we will just have to wait and see for the next two quarters to see that indeed happening.

Great. And I want to move on to Voice.ai. This has been an area of significant investment for you. We just hoping you get a little -- put a little more color on kind of one, how much revenue contribution you've actually seeing from that to-date? How much investment you've put into that on an annual basis? And how you're thinking about the potential growth of that business over the next couple of years?

Right. So, first, let me put an overall framework on this. We have at this stage about 60 people employed in the Voice.ai business, which we officially announced two years ago. The business is still growing. Last year we did above $2 million of sales in that line. We do expect an increase of at least 50% to 100% this year in 2020. The investment basically, we have two parts of the business. One is the recording services, the other one is more, the speech recognition and NLP services. So, in the recording side of the business we have an compliance recording application which is growing and starts to grow further and now the Teams is a new market for them. We've also discussed few months ago, launching meeting insights, which will allow us to record the interactions in the office. We're talking about meetings, which will be recorded then we'll later allow management and other people to analyze them and look for facts automated -- automate action item taking, identify speakers, you'll have no great repository of voice interaction in the office that are searchable, pretty much compared to when you go for your outlook to look for a mail or a data message that was sent. Then we substantially improved our stack of technologies in the voice recognition area. We have developed a very strong Nuera network solution. It's now deployed in two languages. At this stage, it's Hebrew and German. Also going to be deployed shortly with U.S. English. NLP has been developed. We've been working substantially on opportunities in the customer engagement area, virtual assistant and we definitely start to pick up in the number of projects that we performed. So all-in-all, we're very -- while investing a lot, by the way, the expense on that business in 2019 was about $4.5 million, meaning that, it's quite a large investment, but we do feel that within the next three years this operation will become fully successful growing fast. I mentioned also that, we did a very unique development that we call Voice.ai gateway and that technology allows you to voice-enabled chatbots and with chatbots and both being used increasingly in the enterprise and in other places the ability to add voice channels to it both in the recognition side and then in the synthesizing side is a great solution. This solution is already being implemented with two or three large corporations. There are five or more in the pipeline. So all-in-all very encouraged by the progress we're making on the Voice.ai.

Got it. Thank you for that. And then, I wanted to just talk about your -- the seasonality of your business into the first quarter. Sounds like it's -- you continuing to see pretty good momentum. In the last couple of years, you've actually seen a modest seasonal uptick Q4 to Q1. So just wondering how we should think about from a modeling perspective that the Q1 revenue relative to the Q4 revenue?

Yes. I've learned in the past not to rely on miracles, enjoy them. So, for planning purposes I usually planned on a down quarter it will be roughly around 2%. But if you'd mentioned, rightly, yes, in past years, so we've been able to beat that and actually grow. So, we try to stay modest. I think we saw that in our guidance for the revenues and profits and then we'll now start a New Year just as we did in 2019.

That's great. And then just wanted a clarification on the royalty agreement. Understanding that will have a positive impact on the gross margin. I believe starting in first quarter of 2020, did it have any impact on the non-GAAP gross margin in the fourth quarter of 2019?

Yes, definitely. You are so right. Yes. Already in the fourth quarter of 2019 we had a contribution of several hundreds of thousands of dollars in the quarter, but we do expect that in 2020 we will have close to a million contribution on each and every single quarter.

Got it. And then just one more from me if I could. The non-GAAP share count for the quarter, you have a GAAP share count, but I couldn't find the non-GAAP share count for fourth quarter of 2019?

The non-GAAP share count for diluted EPS is 31.4 million shares.

3.14 million. Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from line of Mike Latimore with Northland Capital Markets. Please proceed with your questions.

Thanks very much. I'm just curious on the cloud, UC-SIP, UCaaS, CcaaS, that whole kind of market segments. How much of your revenue comes from kind of the cloud market today?

So, it's growing. It's not substantial as these days. It's growing. We are deployed with our session border controllers and the management, centralized managed suite and the routing application in both AWS and Azure. We grew actually in fourth quarter. We grew very nicely with our SBC and Azure and in Teams that is related to the SBC direct route. We are basically putting all efforts towards that. So, it's a process, but it will take time.

Got you. And then, it sounds like obviously Microsoft's sort of the biggest platform environment into which yourself. Who would be sort of number two and three in the list there after Microsoft?

We have number of partners. We have mentioned in the past few names like RingCentral, Amazon, Zoom and a few others. So obviously, we had, in the past also brought of now Cisco, so that's a partner. If I have to call number two in terms of volume of sales, it's Genesys at this stage. All of the others are still not comparable in size to either Microsoft Genesys in our brought of Cisco.

Got you. And then Teams obviously, the Teams subscriber counts grown rapidly. I think it was over 20 million in the September quarter. Do you know like what percentage of those Teams users are also using some form of Microsoft voice and where might that go?

So, you touch on a interesting point. We do see actually, obviously, there's a large installed base Skype for Business users and some of we have seen fourth quarter a number of them starting to move some of their users to Teams. So, I assume that going forward there will be pure new Teams accounts. But at the same time, we will see some of our AudioCodes base Skype for Business adding Teams users.

Got you. And then you talked about a number of large Teams win I believe in the quarter. I assume those deployments will be in a cloud delivery model?

Yes. When we're talking about Teams, we're talking about cloud deployments. We're talking -- but then, some of the components maybe installed on-prem and session border controllers could be placed either in a cloud and/or on premise. But all-in-all the maturity or the whole implementation is meant to be cloud based. Yes.

Right. And just last one. How important are acquisitions to your sort of medium-term strategy?

Good question. Well, we keep growing nicely on the top line, 13.7% this year on the bottom line more than 30%. It's not crucial. We will -- if there's one area I'd like to look at it would be more the Voice.ai business where we would like to inject larger, bigger operation into that business unit then we would maybe look more for M&A. So it's not by all means, we have very nice organic growth and we'll keep doing that. It's not crucial. But we will definitely be helpful growing the new business.

Got you. Great. Thanks. Good luck.

Sure. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Greg Burns with Sidoti & Company. Please proceed with your question.

Morning. You had mentioned the expectation for UC-SIP to continue growing at about 15% to 20%, based on the guidance I think that's implying like a flattish year for gateways, but can you just maybe give your outlook for the Gateway business in 2020 based on your revenue guidance? Thanks.

Yes. UC-SIP will keep growing as a right we have mentioned. Gateways, we enjoyed a very unique year of up 10%. Obviously, we have done our bottom-up analysis for 2020. It looks like we'll continue to grow on. But on a more modest mode, whether the line will stay flat or grow and/or decline by you know several percent that is still to be seen throughout the year. So, we do bid on our growth on UC-SIP mainly and in on gateways to hold the line for us, a very profitable business line. But we do not expect some growth from that.

Okay, thanks. And then in terms here your partnership with Dolby and you're entering the meetings market. What's been the early reception, what are you hearing from customers and maybe what gives you confidence as we go into 2020, and your ability to gain share in that market.

Okay. So this is a bit premature and we announced the launch in around September, October of last year. We did send the first product, that's a joint product by us and Dolby to several large companies at this stage some hundreds of units. We know this interesting those units. We [Indiscernible] probably expected to run down February or March this year.

Can you just update us on your tax status in both the U.S. and Israel? You know with the tax status in both the U.S. and Israel you know with the tax asset that at the feet of water. What do you expect your full tax payer industry [Indiscernible] I think you're paying in the U.S. already, but [technical difficulty]

If you’re referring to the expected tax payment in the next one or two years, we do not expect more than $1 million in terms of cash tax payment. We have NOLs and we created the deferred tax asset for that, and that will offset any future tax payment both in Israel and in the US.

Okay. Great. Thank you.

Thank you. Ladies and gentlemen that concludes our question and answer session. I'll turn the floor back to Mr. Adlersberg burg for any final comments.

Thank you, operator. We would like to thank everyone who attended our conference call today. We've continued good business momentum and execution in 2019. We believe, we are on track to achieve another strong growth here in 2020 in our business. We look forward to your participation in our next quarterly conference call. Thank you very much. Have a nice day. Bye, bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.