Greetings! Welcome to AudioCodes' Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Chuchen, VP of Investor Relations at AudioCodes. Roger, over to you. Thank you, Jenny. 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 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 competitor products and pricing on AudioCodes and its customers, products, and markets. Timely product and technology development, upgrades, and ability to manage changes in market conditions as needed. Possible need for additional financing, the ability to satisfy covenants in the company's loan agreements, possible disruptions from acquisitions, the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes business. Possible adverse impact of the COVID-19 pandemic on our business and results of operations. The effects of the current terrorist attacks by Hamas and the war and hostilities between Israel and Hamas and Israel and Hezbollah, as well as the possibility that this could develop into a broader regional conflict involving Israel with other parties, may affect our operations and may limit our ability to produce and sell our solutions. Any disruption in our operations by the obligations of our personnel to perform military service as a result of current or future military actions involving Israel and other factors detailed in AudioCodes filings with the U.S. Securities and Exchange Commission. AudioCodes assumes no obligation to update this information. In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided 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'd 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's website at the conclusion of the call. With all that said, I'd 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 Third Quarter 2023 Conference Call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of AudioCodes. Niran will start off by presenting a financial overview of the quarter. I will then review the business highlights and summary for the quarter and discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran? Thank you, Shabtai, and hello, everyone. Before I start my formal remarks, I would like to remind everyone that in conjunction with our earnings release this morning, we will post shortly on our investor relations website an earnings supplemental deck. On today's call, we will be referring to both GAAP and non-GAAP financial results. The earnings press release that we issued earlier this morning contains a reconciliation of the supplemental non-GAAP financial information that I will be discussing on this call. Non-GAAP net income exclude share-based compensation expenses, amortization expenses related to intangible assets, expenses related to deferred payment in connection with the acquisition of Callresso, other income related to a payment made by the landlord of AudioCodes Inc., a subsidiary of the company, in connection with the termination of lease agreement for its offices in New Jersey, financial income related to exchange rate differences in connection with revaluation of assets and liability in non-dollar-denominated currencies, non-cash deferred tax expenses or income, and non-cash lease expense, which is required to be recorded during the quarter, even though this is a free rent period under the lease for the company new headquarters. To provide investors with a more accurate view of our current operating performance, we are adjusting lease expenses in our non-GAAP presentation. We calculate the non-GAAP adjustment by subtracting the non-cash lease expenses during the quarter for our new offices, which are currently under construction from our total lease expense. The exclusion of these non-cash lease expenses reflect the fact that we are not required to pay rent with respect to the new offices during the quarter, and we are not yet occupying the new offices. After this adjustment, lease expenses in the non-GAAP presentation for the quarter will be equal to the lease expense for our current occupied office. In the future, our non-GAAP presentation will reflect an upward adjustment for lease expenses over the life of the lease, for the amount of lease expenses excluded in our non-GAAP presentation during the free rent period. We will be comparing our third quarter 2023 results to the prior quarter, as we believe it provides a better gauge of our financial performance. Revenues for the third quarter were $61.6 million, an increase of 2.6% over the $60 million reported in the second quarter. Services revenues for the third quarter were $30.6 million, accounting for 49.6% of total revenues. The amount of deferred revenues as of September 30, 2023, was $77.8 million, compared to $77.7 million as of June 30, 2023. Revenues by geographical region for the quarter were split as follows: North America, 48%; EMEA, 33%; Asia Pacific, 14%; and Central and Latin America, 5%. Our top 15 customers represented an aggregate of 59% of our revenues in the third quarter, of which 48% was attributed to our 12 largest distributors. GAAP results are as follows: Gross margin for the quarter was 66.5%, compared to 64.1% in Q2 2023. Operating income for the third quarter was $5.8 million, or 9.4% of revenues, compared to $2.3 million or 3.8% of revenues in Q2 2023. Net income for the quarter was $4.3 million, or $0.14 per diluted share, compared to $1.1 million or $0.03 per diluted share for Q2 2023. Non-GAAP results are as follows: Non-GAAP gross margin for the quarter was 67.3%, compared to 64.5% in Q2 2023. Non-GAAP operating income for the third quarter was $9.6 million, or 15.5% of revenues, compared to $5.7 million or 9.5% of revenues in Q2 2023. Non-GAAP net income for the third quarter was $8.3 million or $0.25 per diluted share, compared to $5.1 million or $0.16 per diluted shares in Q2 2023. At the end of September 2023, cash, cash equivalents, bank deposits, marketable securities, and financial investment totaled $102.5 million. Net cash provided by operating activities was $0.2 million for the third quarter of 2023. Day Sales Outstanding as of September thirty, 2023, were 96 days. In June 2023, we received court approval in Israel to purchase up to an aggregate amount of $25 million of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through December 27, 2023. On August 1, 2023, we declared a cash dividend of $0.18 per share. The aggregate amount of the dividend was approximately $5.7 million. The dividend was paid on August 31, 2023, to our shareholders. During the quarter, we acquired 880,000 of our ordinary shares for a total consideration of approximately $9 million. As of September 30, 2023, we had $10 million available under the approval for the repurchase of shares under, and/or declaration of cash dividends. Regarding headcount, as discussed last quarter, we undertook actions to reduce headcount to better align our cost structure to the current business environment. The full amount of previously announced headcount reduction and associated cost savings are reflected in our third quarter results. We ended the third quarter with 938 employees, down from 946 employees at the end of the second quarter. Now, to provide an update on our guidance. We reiterate our guidance for revenue for 2023 to be in the range of $240 million-$250 million. We are raising our guidance for non-GAAP diluted earnings per share to be in the range of $0.65-$0.75, compared to the previously updated range of $0.55-$0.70. I will now turn the call back over to Shabtai. Thank you, Niran. I'm pleased to report AudioCodes' third quarter 2023 results against a difficult macroeconomic backdrop, with ongoing strength in our core Enterprise business overall, but partially offset by softness in our Non-Core Service Provider segment. We continue to perform well in our Enterprise business, now reaching a record 90% of company revenues. Within enterprise, our UCaaS business continued to perform well, with Microsoft business up 13% year-over-year. Microsoft Teams business grew 20% year-over-year, and Live Teams annual recurring revenues grew north of 50% year-over-year, ending the quarter at $43 million. We thus expect Teams Live annual recurring revenue to grow approximately 50% in 2023, as planned earlier in the year. Customer experience business grew 13% year-over-year, and conversational AI business bookings grew over 50% year-over-year. Importantly, leading indicators, such as total amount of newly created opportunities, remained robust and new business booking had grown substantially above 2022, giving us increasing conviction about our business prospects for the rest of 2023 and into 2024. As referenced earlier, our Non-Core Service Provider segment remains challenged, down about 50% year-over-year. This is primarily attributable to customers adjusting CapEx plans, delayed projects, and tightened inventory investment amid the challenging macro environment. Important to note, however, that we have won several new projects with leading service provider that can provide incremental revenue contribution in 2024. Another positive development in the third quarter is the continued evolution in our conversational AI space as it emerges a key growth engine for the next years. Our investment in the conversational AI product innovation are paying off and have successfully positioned our UCaaS and CX segments for faster, sustainable top line growth. Conversational AI bookings grew over 50% year-over-year. Since our announcement of the Microsoft Teams certification of Voca CIC in July 2023, our lightweight AI-first Teams CCaaS platform, we have seen a step-up in customers' interest and engagement. The success with our CCaaS offering is having a pull-through effect on the rest of our conversational AI portfolio, in particular in our generative AI-powered recording services. We are stepping up our efforts in the cognitive services space with key investments in speech-to-text and generative AI and LLM technologies. In that regard, we believe that we own unique advantage in maintaining a very comprehensive knowledge in several key vital technologies, which are really vital to create efficient systems. We own technologies such as telephony, VoIP networking, and a variety of cognitive services technologies. Integrating these technologies with the vast experience we have in delivering full end-to-end solution and services, creates for us clear, unique advantage and capability to emerge a strong player in the emerging voice AI space. As an example to the advantage we have developed with our, conversational AI in the UCaaS space, we are now seeing rising interest and progress made with our Meeting Insights, workflow productivity application for meetings in the enterprise space. Coupling Meeting Insights with the line of devices we have developed for the meeting rooms position, position us with a unique leading solution for the emerging meeting space. Few more notable developments in the third quarter are the following: We saw professional and managed services continue to evolve at a meaningful pace. Services accounted for 49.6% of revenues and grew 13.8% year-over-year, compared to mere 2.4% in the previous quarter, with an acceleration in growth rate primarily related to timing of professional services completion. What has fueled our ongoing momentum in services is primarily our Live subscription business, which ended the third quarter at $43 million annual recurring revenues, up from $40 million last quarter. Additionally, we ended the quarter with total contract value for our Live subscription growing close to 10%, up from over $120 million in second quarter, and providing us with increasing level of revenue visibility. We expect strong momentum in live services to continue for the balance of 2023 and beyond, and reiterate our annual recurring revenue target of $46 million-$50 million by the end of 2-- this year. Few more notable developments in the third quarter are the following. We see a shift in our product mix to software and services. Non-Core Hardware-related product percentage of our revenues are now down to around 20%, contributing to increasing gross margin in our revenue. Non-Core Hardware relates to business lines such as the service provider, CPE, IP phones, and technology legacy. As we continue to add new value-add voice software application and services, we expect hardware-related percentage in our product mix to decrease below 20% and to contribute to the continued increase in gross margin in coming years. Another major trend in our sales operation is the shift from CapEx selling to recurring revenue sales, a trend that will affect our long-term financial model and relating mainly to both the top line and the bottom line results. On the top line or the revenue line, we expect annual revenue growth to moderate to the range of 6%-12% compared to the previous years, where annual, growth rate was, range was between 10%-13%. This decline is a direct result of moving to recurring revenue, where recognition is spread, over 36-60 months, rather than recognizing in a single quarter. However, the bright side of it is that on the earnings side, this trend contributes to key results. Better visibility in future quarters, revenue basis is being built up, sequentially, quarter-over-quarter, and then higher profitability is a result of the ability to add managed services on top of selling products. This, in return, will contribute to higher annual earning growth rate, which we estimate to settle at the 25%-50% range annually. As an example to the overall, strong operational progress and execution, I would like to provide some details of a couple of major wins in the U.S. government space, which positions us to emerge as a major player in the vertical. We're talking about a federal agency that issued an RFQ for IP phone and associated services as part of its long-term migration plan from Cisco to Microsoft Teams platform. After 18 months of extensive testing, we recently received an initial award of Teams-certified IP phone and OVOC, or infrastructure device management software, and wrapped up with our professional services support. This contract covers the option to purchase over 25,000 IP phones and associated software and services over the period of 5 years. While long-term dollar value of this contract could be significant, I would like to emphasize the strategic nature of this win. First, the deal establishes direct relationship with the end customer and establishes a beachhead from which we can push through other products in our portfolio, in furtherance of our land and expand strategy that we have successfully executed upon over the past several years. Second, after completing additional accreditation and certification steps, which are expected in the next couple of months, we-- this solution will be available for purchase to the broader federal agency audience, expanding our market reach by many multiples. In addition to our direct sales efforts in the federal vertical, we recently won a $1.2 million contract over 36 months with a tier one system integrator, providing white glove Live premium services to another federal agency. In support of its migration of 4,000 users to Microsoft Teams Phone from legacy suppliers. The decision is driven by desire to upgrade from TDM to IP-based voice services and to create an end-to-end Teams UC experience, which, in the process, enables the customer to terminate its high-cost maintenance contracts with legacy PBX vendors. For background, this is a large federal agency with over 50,000 employees, with many bureaus spread across the U.S. The recent win includes the headquarters of this agency, and we are working on several similar opportunities at the bureau level concurrently. Before turning to detailed business segment discussion, let's quickly shift to profitability metrics and guidance. Our third quarter 2023 non-GAAP EPS was $0.25, significantly, significantly exceeding our internal budget on the back of higher-than-expected non-GAAP gross margin and lower OpEx. Third quarter non-GAAP gross margin was 67.3% versus previous quarter of 64.5%. The improvement is primarily attributable to higher utilization of service resources and more favorable service product mix. Third quarter non-GAAP OpEx was $31.9 million, down from the $33 million level in the prior quarter and in line with the $2 million quarterly step down in OpEx, planned from the first quarter of 2023, all in connection with our previously announced cost-cutting measure. We ended the quarter with head count of 938 employees, down from the 978 people we had in the first quarter. We will continue to align our OpEx to current market environment and business line performance, with the aim of executing to our commitment of delivering significant operating leverage in 2024. On the guidance front, we are reiterating our 2023 revenue guidance of $240 million-$250 million, and adjusting non-GAAP EPS guidance to $0.65-$0.75, to reflect better-than-expected third quarter earnings results and ongoing momentum. This outlook builds in continued conservative enterprise spending environment and cost-saving impact from our previously announced cost-cutting initiative. In addition, we expect our OpEx to decline the next two years. As a result of hedging the US dollar against the Israeli new shekel, where steps we took in the previous periods will contribute nicely towards lower expenses. Getting to our main business line, let's talk first about Microsoft. Microsoft business or bookings increased 13% year-over-year in third quarter, within which Microsoft Teams grew 21%. At the same time, Skype for Business was down 75%. Skype for Business, now at less than 2% of overall Microsoft business, is now at a minimum level of less than $5 million annually. Starting in 2024, we will no longer break out mix of Teams versus Skype for Business. From a geo perspective, North America was again the standout performer, while EMEA seems to have stabilized. For the first nine of 2023, Microsoft Business grew 7% year-over-year. Overall, we added 284 new Teams accounts in quarter, a slight increase from 282 in the second quarter. With a robust year-to-date growth in our pipeline or created opportunities, we remain optimistic about the long-term growth potential for our Microsoft business. As a reminder, Microsoft recently disclosed over 17 million PSTN users, representing 45% growth year-over-year. However, still representing just a fraction of the overall 320 million Teams monthly active users. We believe the low Teams Phone voice penetration provides us with ample multi-year runway to drive ongoing penetration gains. We also saw recovery of our IP Phone business, where demand from end users recovered significantly over what we experienced in first half of 2023 as a result of inventory plays. One key area for us in the Microsoft business is, is Teams Live enterprise deals, which represent each a high total contract value. I'm glad to inform that in the third quarter, we were able to sign and close three accounts, valued each above $1 million, and five more accounts with an average total contract value of about $500,000. This success rate helps us to build a very stable, growing backlog of monthly recurring revenues for the next 36 months and beyond. Moving to customer experience, third quarter Contact Center business or bookings grew 13% year-over-year, with strengths in North America and APAC. Conversational AI bookings grew more than 50% year-over-year. While we are pleased with the ongoing momentum in our customer experience segment, what may be less apparent to investors is the underlying transformation in this business line. If we look back the past period of similar growth in customer experience in 2020 and 2021, revenue growth then was driven primarily by our OEM operations and core SBC and connectivity solution, often sold on a CapEx basis. At that time, we had benefited mainly from increased volume of calls going into the contact centers during the pandemic. Fast-forward to today, our growth vectors are multifaceted, benefiting not only from increasing customer experience call volume, but also product innovation and introduction in conversational AI, particularly our Voca CIC service offering. Clearly, the heavy R&D investment we have made in these emerging areas over the past couple of years are now starting to bear fruit. WebRTC Click-to-Call, Voice AI Connect, those platforms are among the new sources of growth. This transformation for our customer experience business has not only improved the percentage of recurring mix, but also added additional growth drivers, which ultimately should position this segment for more sustainable long-term growth. At this stage, I should mention that Microsoft Teams and Microsoft Business account for almost two-thirds of our quarterly business, while CX now contribute about 20%. Let's move to discuss our recently introduced Voca CIC CCaaS platform for the Microsoft Teams environment. Since the announcement of Microsoft Teams certification for our lightweight AI first Teams CCaaS platform, we have seen a step up in customer interest and engagements. The success with our CCaaS offering is having a breakthrough effect on the rest of our conversational AI portfolio, in particular in our generative AI-based value-add solution. Let's talk about a recent contract win that demonstrates our success in diversifying our revenue streams beyond our traditional business of selling Session Border Controls and connectivity. This win relates to a very large auto service firm with broad distribution of local affiliates across the United States. The customer is on a legacy platform, routing in from incoming customer calls from centralized hotline to appropriate local branch. Working closely with a tier one system integrator, we were recently selected to provide our conversational IVR system in a deal worth over $1 million total contract value over the next 36 months. The significance of this deal is twofold. One, this is one of the largest total contract value contracts in our Voca CIC product to date. This year, we think very steep increase in bookings in that line. Second, when fully implemented, the 400 concurrent channels to be deployed demonstrates scalability of the Voca CIC platform, which should better position us to target progressively larger deal opportunity. And third, this deal demonstrates the flexibility of the platform, as customers can purchase the lightweight CCaaS system, including conversational AI or IVR, on a standalone basis. Now moving to our Voice AI Connect platform. A major communication platform-as-a-service customer recently unveiled an innovative new service powered by our Voice AI Connect solution, which enables its enterprise end customers to expedite rollout of virtual agents, thereby driving productivity improvement and cost savings. Our solution provides seamless backend integration and connection to both Frameworks, Contact Centers, and to the CPaaS customer. Separately, we recently received from a multinational healthcare company large follow-on purchase of our Voice AI Connect solution, providing connectivity services to various conversational AI platforms in support of virtual agent and virtual assistant use cases. This customer, now it's over $1 million annual recurring revenue to AudioCodes, is an early adopter of conversational AI. We believe that the advent of generative AI can help accelerate time to market with this technology and look forward to working with other customers in their journey to drive productivity improvements. Lastly, I'll speak about our Meeting Insights solution. We see ramping interest in our platform for handling meetings and calls across the organization. Among those functions, recording, transcription, analytics, sharing, distribution, and archiving. To date, we have tens of new accounts onboarding to the platform for processing enterprise voice interactions in meetings and calls. In terms of wins, I'll mention that we recently scored a significant win with an Israeli government branch for a large number of users. Additionally, we are gearing up toward a cloud-based, multi-tenant software-as-a-service application with full generative AI integration, which is expected for GA early next year. Now to the geopolitics situation. Before I conclude, I'd like to briefly address the impact on our operation from a war and recent developments in Israel. AudioCodes is a global organization providing sales, support, and maintenance, spanning all major geographies. We have not seen any material impact, short-term or long-term disruption from this conflict. There have not been any delays in our logistical challenges, as our operational systems are cloud-based, we are assured solid business continuity. Around 10% of overall employees in Israel, mostly in R&D position, have been called up to the army duty. Aside from few weeks delay in a small number of projects in R&D, there's no impact to our productivity. For the rest of the employees based in Israel, work is conducted in hybrid mode to ensure everyone's safety and security. Today, I'm heartened by the fact that all of our employees and families are safe. I would like to state that our hearts and thoughts are with all who were impacted by this terrorist attack. We hope and pray for the full recovery of those who were wounded and for the safe return of those who are still missing. We wish for days of long-lasting peace in the region and around the world. To wrap up my presentation, over the last six months, we have navigated well in an ongoing, difficult macro environment, deftly balancing the achievement of short-term milestones while maintaining laser focus on our long-term transformation to a software and services company. In the short term, we have accelerated growth in key strategic areas of our business, Microsoft Teams Phone, comprehensive voice solution, customer experience, and conversational AI, and successfully executed on cost-saving program, both of which have contributed to significant expansion in our margins in third quarter. At the same time, we achieved all of this without losing sight of longer term objective of expanding our total addressable market. Some of the accomplishments include, one, gained significant traction into the unified communication space with U.S. federal agencies, a vertical that we've previously pursued only opportunistically. And second, successfully transformed our CX segment into a dynamic business with multifaceted growth drivers. These developments, backed by core business leading indicators such as pipeline remaining robust, give us increasing confidence in returning the company to top-line growth with ongoing operation leverage, improvements in 2024. And with that, I've concluded my presentation for the session. Operator? Thank you very much. We will now be conducting our question-and-answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For For participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please pause a moment while we poll for any questions. Thank you. Your first question is coming from Ryan MacWilliams of Barclays. Ryan, your line is live. Hey, thanks for taking the question, and congrats to you and the AudioCodes team for the strong execution during this difficult period. Shabtai, do you think products like Microsoft Copilot for Enterprise could drive more enterprise customers to put their communications on Microsoft Teams, and then in turn utilize, you know, your solutions at AudioCodes to help them do that, you know, for things like voice? Yeah. Thank you, Ryan. Yeah, indeed, that is, that is the play, and, and I believe, you know, just as Microsoft thinks that, you know, moving from one telephony solution partner, like in the past, like could be Cisco or Avaya or any- anyone else into Teams, it will be really desirable, mainly if on top of Teams, you can provide high-valued applications. And this is indeed what Copilot provides, and this is indeed what we're trying to do with our valued voice authorized application, right? I mean, Voca CIC is a contact center and our IVR on top of Teams phone. Same goes for Meeting Insights, same goes for SmartTAP. So yeah, I definitely believe that with Copilot becoming useful and contributing to gaining more insight into the phone system and voice interaction, you know, resulting from it, yes, that will definitely help in the future to the growth of Microsoft Teams Phone. Excellent. And you guys have pretty strong exposures in terms of facing off against the macro with, you know, federal customers and large enterprises, and the tie into Microsoft are things that I think have been a little more resilient, at least so far, during this earnings season. As you talk to some of your largest customers, or potential customers, what are they saying right now about next year? Like, do they think they can grow next year, or do. Are they still, you know, because they're on better footing, being more enterprise, more comfortable continuing with, you know, large enterprise telephony deployments? Just love to kind of hear how they're thinking about their budgets and their place in the macro at this point. Yeah. I'm less in a direct touch and quite frankly, we're deeply, you know, looking to make 2023 successful, and have not yet. I mean, we're entering our planning phase normally in November and December. We can, though, judge by their actions and, you know, from what we can see, I think, definitely, Microsoft Teams is an essential platform for collaborating both, you know, on-prem and remotely. And I think it is really, they'll do exactly what, you know, we just answered on the previous questions. They will simply look to enhance their productivity. Definitely, generative AI will be there to drive more voice-based software applications. So we've not seen a decline. I'm not aware of, you know, substantial, you know, uptake. We see the business continuing developing. I mean, Microsoft should grow for us this year around the 10-ish, 10, 12%, and we expect to see that next year. I think that the increasing maturity and more value from applications will definitely help drive, will help, definitely help drive usage of the system. So, no decrease, you know, modest increase. Appreciate it. That's what I was looking for. Thanks, guys. Thank you very much. Your next question is coming from Greg Burns of Sidoti & Company. Greg, your line is live. Morning. I appreciate the improved momentum or execution you had quarter- over- quarter. But can you just remind us what is the primary drivers of the year-over-year decline, particularly around, I guess, on the product side of the business? Can you just give us a little bit more color on the primary drivers of the year-over-year decline and I guess, you know, the outlook for getting back to revenue growth? Yeah. It has to do primarily with the split of our business between enterprise and service provider. As we can see, and definitely in third quarter, we've seen that more than before, Enterprise business is well on its growth, and we have not seen a, you know, except for a slight decrease in the first quarter in Microsoft, the rest of the year we see, you know, growth. The other side of the business, which is service provider, really suffers badly. Give you some rough numbers. We, you know, looking on the overall 2023, you know, you take one line, the service provider, CPE, we reached about $40 million level of revenue last year. This year, we do not expect more than $30 million. So the major decrease in product value comes from product that, you know, used by service provider, namely, gateways and service provider and MSBR. Also, there was an issue of inventories of IP phones, which due to, you know, high interest rates, you know, drove partners to hold less inventories. However, let me give you one perspective that we have not mentioned so far about the, you know, say, the decline in gateways and MSBR. You know, as the world moves from PSTN to IP increasingly, you know, I would tell you that in our longer term plans, we assumed that in the next three to five years, we will see a decline in sales of hardware products, mainly gateways and MSBR. But that was primarily based on the thought that the process would be linear. You know, unfortunately, due to the global crisis in 2023, this process has accelerated, and I believe that we've seen the majority of that decline occurring already in the first three quarters of 2023. So, basically, think what we should have went through the next 3-5 years, part, you know, substantial part of it we go, we went through in 2023. So that's, that's what drove our product decline. Also, IP phones, I think, you know, I mentioned the high cost of inventory, but we're seeing a comeback. One area that we have not touched and mentioned just briefly is the MTR, the meeting rooms. We do expect we've invested heavily in the last two years to prep it, and we believe that we will start to see the benefit of it already in 2024. This is a huge market. We know there was a big push by Microsoft into the MTR space in 2022, which subsidized a bit because of the inflation, the high inflation and interest rates, which affect, you know, hardware cost. Hopefully, if we see that changing somewhere in mid-2024 or towards the end of the year, I believe that already in 2025 we will see a big ramp-up in that. So we will then probably go up in products. Okay, thank you. And you mentioned, I guess, the hardware mix on the non-core piece, and I guess you just kind of discussed some of that. But in the core, on the enterprise side, what's the mix of hardware versus software on that part of the business, particularly around SBCs? Yeah, the good news on that, you know, SBC is a major line for us. The annual level of revenues for SBCs give or take about $120 million. Now, we constantly move more to software, so many for new SBC solution, you know, or cloud-based. And even more than that, you know, while in small branch offices, you need to use some hardware, we now in the process of moving from proprietary designed hardware that we engaged with in the past, we're now moving into using software that's embedded in service we purchase from other parties. So all in all, majority of our SBC is going to become software-based and that's the trend, and therefore, you know, the very high gross margin that we will enjoy. Thank you. Thank you very much. Your next question is coming from Ryan Koontz of Needham & Company. Ryan, your line is live. Ryan, your line is live. Sorry about that. My bad, I was muted. Oh, okay. I'm back. Nice quarter. I wanted to see if you could unpack the gross margin strength on the nice job you did there. You talked about product mix and software and services. Is the shift to subscription and software kind of the key driver there on gross margins, or is there more to kind of understand if you could help us unpack that? Thank you. Hi, Ryan. No, it's, it's mainly related to the improvement in, in our, service revenues, which is now about 50% of total revenues, and, and also relates to, more software as part of the product, and high gross margin, product. As Shabtai mentioned, the SBC was very strong this quarter, and it, it's in a better gross margin than the, other, products such as the MSBR and IP phones. So it's mainly relates to the product mix. Got it. That's helpful, Niran. And, with regards to that, the software services revenue at 50%, is there further upside in margins in that business as you continue to scale, or do you feel like you've really achieved your goals there within that mix and that margin? No, if you will look at the supplemental deck that we published with our results on our website, you will see that our long-term target for gross margin is 65%-68%. So there is more room for improvement in gross margin. All right, great. Thanks. And one follow-up. On the AI products and your kind of strategy around pricing and, maybe your cost advantages you have from bringing that technology in-house. You know, considering the different commercial strategies out there, on one side, you've got Microsoft Copilot charging a very hefty premium for their capabilities. You've got Zoom, who's, you know, essentially giving away. You know, what's your approach to your AI feature set with regards to costs and price? And then, how do your costs compare to maybe others that are dependent on using outsourced models? Thanks. Okay. Thank you, Ryan. I think this was a very interesting question. I, I'll tell you, you know, usually when you go to market, you know, cost is less important, so you drive with, you know, let's call it quick and dirty, using many, you know, cloud-based services that may cost a bit. Once you become successful, and cost becomes an issue, I think you need to include in your strategy the ability to move to solution, including generative AI solution, that will owned by yourself. You know, there's huge, fast running forward in industry that provides, you know, a lot of open source solutions for generative AI in our plans for the future. And, you know, we definitely would like to decrease costs based on our solution developed internally. I would also add that, due to the issue of security, you'll find many large, you know, corporations, enterprises and entities, government entities, et cetera, that are forbidden from using, you know, a cloud solution. And therefore, mastering those technologies and bringing them, you know, into your development team and potentially developing on-prem solution, will result both in, you know, obviously security, but then with, substantially lower costs. So one needs to navigate among all those options and find out the one that's best, you know, suitable for him. That's great. Thanks for the insights. That's all I have. Thank you. Sure. Thank you very much. Your next question is coming from Samad Samana, from Jefferies. Samad, your line is live. Hey, guys, this is actually Billy Fitzsimmons on for Samad. You guys talked about how the leading indicators are robust and new business bookings have grown substantially over last year. Maybe double-clicking and asking in another way, you talked about last quarter how bookings experienced a measurable improvement over Q1. And in terms of an update on that, how did bookings track over the course of Q3, and how did that compare to Q1 and Q2? And kind of a follow-up, can you kind of rank order and speak to the products and offerings that are driving that bookings and pipeline activity, and maybe the products and offerings that have been maybe a little less successful and potentially a headwind to that activity? Right. Yeah, so, you know, in our conversational AI, I would, you know, split the discussion into two. We have, you know, currently two lines, which are already up and running and generating revenues and profits, but are, I would say, mildly in scope of, you know. And those are, you know, the SmartTAP and Voice AI Connect. We do have a major focus and emphasis on two fast-developing business lines in this, you know, conversational AI, and those would be Voca CIC, a CCaaS platform for Teams, and second one is the Meeting Insights platform for enterprise voice interaction processing. But we definitely see, you know, maturity is driving the evolution of these, obviously the need in the market. So, booking is growing definitely, due to the fact that there's increased need in the market for this type of solution, and we're glad to be among the front runners who can provide it. Got it. And then if I can sneak a second one in there. I want to ask Ryan's question in maybe a different way. How should we think about the sustainability of gross margins over the next, call it, handful of quarters? Should we expect a lot of quarter-over-quarter variability, or should we expect that the product mix will be generally similar or potentially improving compared to the Q3, the quarter you just reported in subsequent quarters? Right. You know, we haven't done yet, you know, a detailed analysis, but I'll tell you that basically, you know, I, I think we've seen some of the worst in the hardware side of the business, mainly, you know, the service side, the CPE and the phones. So, we do not expect those lines to grow, and therefore, you know, the hardware part of the mix will not affect gross margins. We see growth coming from, you know, software and services related business, mainly in, in, in Microsoft Teams Phone, in, in, in Customer Experience and Conversational AI, all are majority, which is software. So I do expect gradual growth going forward and, you know, we in our long-term financial model basically try to basically target the range of 65-68 or even, you know, I would dare to say that in two, three years from today, we'll reach to 70. So we will not see big, you know, change in the trends. I think we would see gradual increase towards the 68 and thereafter. So that's what we plan. Got it. Thank you very much. Thank you. Just a reminder, if there are any remaining questions, you press star one on your phone keypad now. Okay, that appears to be the end of the question and answer session. I'm going to hand back over to the management for any closing remarks. Thank you, operator. I would like to thank everyone who attended our conference call today. On the heels of good third quarter and solid pipeline this quarter, fourth quarter, we have high confidence in our ability to successfully expand our business this year and in coming years. We look forward to your participation in our next quarterly conference call. Thank you all. Have a nice day. Thank you very much. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.