Earnings Call Transcript - AUDC Q2 2021

Operator, Operator

Greetings, and welcome to AudioCodes's Second Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Roger Chuchen, Vice President of Investor Relations. Thank you. You may begin.

Roger Chuchen, Vice President of Investor Relations

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 would like to remind you that the information provided during this call may contain forward-looking statements relating to AudioCodes' business outlook, future economic performance, product introductions, 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 Laws. 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 demand for existing products, the impact of competitive products and pricing on AudioCodes and its customers' products and markets, the timing of product and technology developments, 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, possible adverse impact from the COVID-19 pandemic on our business, and results of operations, and other factors detailed in AudioCodes' filings with the U.S. Securities and Exchange Commission. AudioCodes assumes no obligation to update this information. In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided a full reconciliation of the non-GAAP net income and 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 Web site. 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 Web site at the conclusion of the call. With all that said, I would like to turn the call over to Shabtai. Shabtai, please go ahead.

Shabtai Adlersberg, President and CEO

Thank you, Roger. Good morning, and good afternoon everybody. I would like to welcome all to our second quarter 2021 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance for AudioCodes. Niran will start off by presenting a financial overview of the quarter; I will then review the business highlights and summary for the quarter, and discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran?

Niran Baruch, CFO

Thank you, Shabtai, and hello everyone. On today's call, we will discuss both GAAP and non-GAAP financial results. This morning, we issued an earnings press release that includes a reconciliation of the non-GAAP financial information I will cover today. For the second quarter, revenues were $60.6 million, reflecting a 13.2% increase from $53.5 million in the same quarter last year. Services revenues were $22.8 million for the quarter, which is up 32.8% compared to the prior year. Services constituted 37.6% of total revenues for this quarter. Deferred revenues as of June 30, 2021, were $73.4 million, an increase from $65.1 million the previous year. The revenue distribution by region was as follows: North America at 43%, EMEA at 34%, Asia-Pacific at 17%, and Central and Latin America at 6%. Our top 15 customers generated a combined 62% of our revenues this quarter, with 47% coming from our 11 largest distributors. In terms of GAAP results, gross margin for the quarter was 69.4%, up from 66.7% in Q2 2020. Operating income reached $10.1 million, or 16.7% of revenues, versus $8.8 million, or 16.5% of revenues in Q2 2020. Net income for the quarter was $8.2 million, or $0.24 per diluted share, compared to $6.6 million, or $0.21 per diluted share in Q2 2020. Regarding non-GAAP results, non-GAAP gross margin was 66.9%, consistent with Q2 2020. Non-GAAP operating income for the second quarter was $13.6 million or 22.4% of revenues, compared to $10.7 million or 20.1% of revenues in Q2 2020, reflecting a 26.3% increase. Non-GAAP net income for the quarter was $12.7 million or $0.37 per diluted share, compared to $10.5 million or $0.32 per diluted share in Q2 2020. As of June 30, 2021, our cash, cash equivalents, bank deposits, and marketable securities totaled $191.9 million. Net cash from operating activities was $17.1 million for the second quarter. Days sales outstanding were 56 days as of June 30, 2021. During the quarter, we purchased approximately 236,000 of our shares for around $7.1 million. In July 2021, we received court approval in Israel to buy back up to $35 million in additional shares and to declare a dividend from this amount, valid through January 3, 2022. Earlier today, we declared a cash dividend of $0.17 per share, amounting to about $5.5 million, which will be paid on August 26 to shareholders of record by the close of trading on August 11. Now, regarding our guidance, we are raising our revenue forecast to a range of $243 million to $250 million, up from the previous range of $240 million to $250 million. We are reaffirming our guidance for non-GAAP diluted net income per share for 2021 to be between $1.45 and $1.65. I will now turn the call back over to Shabtai.

Shabtai Adlersberg, President and CEO

Thank you, Niran. We're very pleased to report strong financial results and continued progress in our business in the second quarter of 2021. This is the second quarter in a row where our revenue grew 13% year-over-year. As a comparison, growth in the second quarter of 2020 was about 8.2%, so quite a leap in terms of revenue growth rate. Now, the majority of this growth came from the enterprise business which has provided close to 85% of the company's revenue in the second quarter. To remind us all, the enterprise business consists of our UCaaS and Contact Center market operations. Bottom line of this is that while the company's revenue grew 13.2%, enterprise-related revenue grew above 20% year-over-year, which clearly points to the potential of increasing our company's annual revenue growth rate in coming years well beyond 13% a year. During the quarter, we continued to execute in all of our three strategic business areas in the enterprise space. First, Microsoft Teams business grew well above 20% year-over-year. I should add that, in general, we saw robust demand in the U.S. enterprise market, much along the same trend we saw in the first quarter of 2021. This is a direct result of the decline in the pandemic in the U.S. and in other markets. Contact Center operations grew nicely year-over-year. We'll touch on some developments later on, and we will talk about some developments that we have seen in certain areas. And in conversational AI, we saw nice progress in several business lines, most importantly, booking and revenue growth of more than 100% year-over-year. In summary of the progress made in the UCaaS and Contact Center and in view of similar trends in several past quarters, the second quarter industry dynamics further underscore the fact that collaboration, hybrid work, and work from home remain key industry trends, not only in 2021, but well beyond. And thus they present for us long-term growth potential. Also, it's important to say that our decision made at the end of last year to increase our investment in R&D, sales and marketing, and services on account of trading off for lower operational margin and profitability proves to be working well, and should fuel our success in the market in coming years. And much along the same line reported in the previous quarter, we experienced strong demand and performance in our North America services operation and continued to see business strength. The outlook for 2021 in the second half of the year looks positive and promising. Going back to the various business line performance during the second quarter, here is a breakdown. UCaaS and UC, which contribute about or above 70% of revenue, grew above 20% year-over-year. Contact Center, which provides for between 10% and 15% of revenue, grew above 25% year-over-year. All in all, if we take enterprise as a whole, which provides close to 85% of revenue, we grew above 20% year-over-year. In view of that, we should have been growing faster. However, there's one business area, the service provider CPE business, which really suffered substantially from the pandemic, much along the same lines that we have seen in previous quarters. So service provider CPE, which was top of $10 million a quarter last year, was substantially below that in the second quarter. If you take service provider CPE, that's about between 10% and 15% of revenues. So that's basically the difference between the growth of 20% plus in the enterprise and the overall company growing only about 13%. Last, I'll mention two other business lines which are really minor at this stage. First is the voice AI business which is just about 1.5% of business, but grew year-over-year 100%. Technology business continued to decline. It is now about 2% to 2.5% of overall revenues, and has declined about 15%, but overall, a very strong quarter in terms of our enterprise performance. Now, getting to our long-term financial model that we presented in the last two quarters, we are looking for the current three years, '21 to '23, to provide for revenue growth of 13% to 15%, non-GAAP gross margin 67% to 70%, OpEx as a percentage of revenues we said it would be capped at 47%, and then non-GAAP operating margin to be in the range of 20% to 23%. If we look at second quarter performance, we seem to be well within those ranges except for OpEx. OpEx came at 47.3%. We believe that indeed going forward, we will keep targeting that range, and I think we will probably target 47% to 49% or even 50%. It all comes to investing more in areas where we feel that there's a lot of potential and we should increase our investment in this area. Now, touching on several important financial data points for the quarter, OpEx increased substantially more than 5% sequentially, mainly due to two key factors. One is increasing headcount, I'll touch that immediately, and then the impact of much lower new Israeli shekel versus the U.S. dollars exchange rate. Basically, I should say that we were hedging at that conversion rate up to the end of the first quarter of 2021, and we enjoyed a very good rate of 3.7% new Israeli shekels per dollar. However, in the second quarter, it was available, and therefore, we were at 3.3%. So, there's a big gap of about 11% between the exchange rate used up to the second quarter and in the second quarter. That explains a surge of more than a $1 million in our OpEx expenses. Headcount increased by 31 positions to 821 full-time employees in second quarter '21, growing 9% year-over-year and 3.9% sequentially. Obviously, adding more than 70 positions over the year-ago quarter clearly demonstrates our confidence in our continued expansion for our business. Cash flow from operating activities, we generated $17.1 million in the second quarter, and more than $30 million in the first half of 2021. That compares with just $17.5 million in first-half of 2020. On an annual level, we can now plan on annual cash flow from operating activity of $55 million to $60 million in 2021, generating a lot of cash and allowing us to allocate capital for various targets that we see. Deferred revenue continues to grow, and amounted to $73.3 million versus $65.1 million a year ago, an increase of 12.6% over the second quarter last year. Now let's go to the key business area that presents the most potential for us. Let's talk first about Microsoft. So, Microsoft business grew above 20% in the second quarter. We've seen accelerating mid-market opportunity that we had access to. We have been leveraging AudioCodes Live Services. I'll talk more of that later on for Microsoft Teams, mostly around back routing as a service. And at this stage, the total contract value pipeline equals several tens of millions going forward. So, we have generated quite a potential going forward. Within the Microsoft Teams space, the IP phone business came back from 2020, and was stable and showing plenty of room for growth. That was a very nice comeback compared to 2020 where we all suffered from the pandemic and the fact that there were no purchases of devices for premises. Although the magnitude of the recovery is somewhat encouraging, we all know about the ongoing chip supply constraints, and therefore we believe that we could be hurt in the third quarter from a shortage of chips. We continue to certify our devices for video conferencing in the Teams environment, also invested quite a lot in the Microsoft Teams environment, and we've been investing in a new proprietary development for that ecosystem, invested substantial R&D to come up with an offering that's new to the market, with Zoom that we'll talk more about as we launch it early 2022. About our Live Cloud operation, where we try to provision and help our service providers provide live service themselves, we saw some progress in that space. We are releasing a major release in the September timeframe that will allow us to add multi-tier and reporting to make it more powerful for the go-to-market. We have one big OEM that signed up to Live Cloud and is now introducing it in their channels. Our program that is very important to us is Microsoft Operator Connect. Microsoft introduced an API for Teams, allowing operators to integrate into the Teams marketplace and offer their plans in the IDs. Lab cloud testing with Operator Connect API started already, and we expect an introduction to the market in the first half of 2022. In terms of growth, we've seen definitely growth in the Teams space; Teams has grown 90% year-over-year, compared to the second quarter in 2020. Skype for Business continued to decline. All in all, if we compare it to the second quarter of 2020, the decline was about 45% year-over-year. Overall, we continue to grow on our overall Microsoft business 20% year-over-year. This says Skype for Business really is down to a level where further decline will not contribute much to the decline of Microsoft. It was also a very successful quarter in terms of new business created. We've seen a lot of business created mainly in the Teams space. We've seen an increase of more than 100% year-over-year, and more than 20% sequentially. So, definitely quite an active area for us. In terms of some of the wins we enjoyed, I can talk about one big win in Western Europe, where we provided a managed services solution in that space. The significance is that many service providers find AudioCodes Live to be an easy way for them to accelerate time for service. We also enjoyed a large contract with a leading Tier 1 operator in Asia-Pacific. Basically, we believe that large service providers continue to roll out Teams to the SMB and mid-market accounts through those types of services. Also, we've seen large enterprises, which we acquired, customers in Skype for Business many years ago, they keep placing purchases and expansion as they migrated to Teams, and we've got such examples both in Japan and the U.S. Now, to our live offering, which is really key to our success going forward; Teams Voice-as-a-Service is our best offering today in the market. In 2021, we have significantly stepped up our efforts and accelerated the introduction of AudioCodes Live Teams, Voice-as-a-Service, addressing critical challenges faced by mid and large-sized businesses as they adopt Microsoft Teams phone system. Teams Voice-as-a-Service removes complexity from the integration of Teams collaboration, Unified Communication and Enterprise Telephony, and provides a seamless, rapid and cost-effective migration to Teams. In building this service, we have brought together our SBC, network and user management products and a complete set of automations are delivering them on a per-user per-month software-as-a-service model. This allows our customers to quickly integrate SIP trunk contracts, integrate with legacy solutions, and roll out globally, including on-premises devices such as phone, video rooms, and analogue adapters. Our consulting services team can help address planning, design and discovery together with the partners, or to complement the capabilities of some Office 365 partners who have expertise in the Microsoft software solution, but select telephony knowledge. Since introducing the concept of Live mid last year, we experienced good reception to the offering. We talked about this in the following, grossing our annual recurring revenues from this activity. It is important to know that using this software-as-a-service offering, we are able to extend the software to other markets. We have already won first accounts for assuming such service with Zoom Phone customers; I'll talk about Zoom in a minute. We're also successful in winning for such offering in the context of the market. So, AudioCodes Live is the key to our success going forward. As we continue to grow very fast, our recurring revenues made good progress in the second quarter '21, we have exceeded by more than 10% our stated $10 million ARR target for June 2021. We now expect this type of business to go above the target of $15 million ARR by the end of the year, growing 2.5 times above 2020 levels. Our booking or total contract value of this business on end is already several tens of millions of dollars by a large number of enterprises that have already started or are about to start their UCaaS deployments with us. Also, there's a nice pipeline that's growing steadily and building up. This fast-growing business is tangible proof of our superior technology in the areas of connectivity, management, automation tools, services, and adjacent application to the UC Solution, the majority of it for voice, Teams voice-as-a-service. I'm confident that this business will keep growing and represent a significant portion of AudioCodes value in the coming years. Now, let's talk a bit about Zoom. Zoom is starting to show up in our activities in 2021; we already reported in the first quarter about growth in the Zoom Phone area. The second quarter was also a good one. We all know that Zoom reported about two months ago that they have grown from 1 million Zoom Phone users to 1.5 million Zoom Phone users. Although we made quite a big leap over 2020, the quarter would have been substantially higher, except for one big deal that has lifted the third quarter. So, all in all, we're building our presence in the Zoom Phone area; the amount of new opportunities developed in the second quarter was substantially above anything we saw ever in the Zoom Phone area, amounting to several millions just in the second quarter. Just to remind you that also in the first quarter, we had about $1 million of business created. Overall, we start to see some Enterprise Zoom Phone deals that are running out over a prolonged period. We're also talking about introducing more of what we do in the Microsoft Voice space to be applicable to the Zoom Phone area. Basically, we tried to position ourselves as the best voice go-to partner for successful collaboration players such as Microsoft, and now we start to see that with Zoom too. Talking a bit about SBC business, which was great in the second quarter, we grew above 20%. Actually, at this stage we are well into our plan to reach $120 million of SBC revenues in 2021. Side-by-side with our ability to deliver a good quarter, we've seen nice growth in booking going forward both in live and non-live environments. We've seen similar phenomena in the contact center and in the Microsoft business. Overall, a very good quarter; from a geographical split, I'll mention that it is split almost one-third in North America, one-third in Western Europe, about 17% in APAC, and the rest in Eastern Europe. Overall, we are well on plan to execute our growth strategy this year by more than 20%. Most importantly, our services business, as we've mentioned before, grew above 32% year-over-year; the majority of the growth really comes from the professional services area, mostly for managed services. Very strong; I would say that the complexity of launching a new voice service within an enterprise, our ability to provide those services along with both the products and the accompanying services means that we can provide the enterprise with quick time to deployment and operation which is much appreciated by our customers. We already have a very nice pipeline of opportunities in this area. So, professional services and managed services are becoming key. Overall, it represents about 38% of our revenues in the second quarter. Just to touch on some of the developments in the contact center market, we're starting to see WebRTC as a key successful technology. As we have mentioned before, when you start to place agents at home or a lot of the communication goes from home, there's a need for good high-quality voice solutions to be transported over Internet lines. WebRTC provides that; it's being used mostly in the contact center area, and we have seen a record quarter in terms of WebRTC operations. We are focusing in the contact center market mainly on collaborating with Genesys. We have invested quite heavily in transitioning some of our solutions into the Cloud environment. We have already registered for leading application in Genesys AppFoundry solution in the cloud, namely voicebot connectivity, WebRTC, Teams integration, and Advanced Bring Your Own Carrier. Overall, we're starting to see some developments here already, with some first few projects with our WebRTC and live operations in the contact center. Lastly, I'll touch on the development in the Voice AI area or conversational AI. We have been able to grow revenues and bookings by more than 100%. I would talk mainly about our VoiceAI Connect activities, which have shown great growth; I'll touch on that immediately and also a lot of success for SmartTAP or compliance recording solution. The transition of communication and collaboration platforms into Teams really will make it necessary to move all of the old compliance recording solutions to Teams too. We enjoy a lot of business in that area. SmartTAP has been growing fairly fast and has shown almost 100% year-over-year growth. Touching on VoiceAI Connect, as I've mentioned in the past, this is a solution that connects the voice world telephony contact centers, SIP trunks, and PBXs to cognitive services such as speech-to-text, text-to-speech, and more. We made significant progress in the second quarter in terms of revenue; we have doubled first quarter revenue, and bookings grew 10 times more than the same quarter in 2020. We have created a lot of opportunities, and roughly we are well above our expectations at the beginning of the year. At this stage, we're in a fairly accelerated mode in that, out of all the different projects we have in that space. I'd like to touch on one very specific which is key to our success going forward. I'll talk about Vodafone. Vodafone has a bot called TOBi. TOBi is Vodafone's channel digital assistant that is in use in multiple Vodafone countries across many markets. It is used by Vodafone to engage constantly with its customers, offering persistent assistance and enhancing customer experience. Vodafone has selected AudioCodes VoiceAI Connect to enable its customers to talk to TOBi, their chatbot. VoiceAI Connect not only facilitates voice interaction with TOBi but also integrates with Vodafone's multi-vendor customer support system including Genesys, Avaya, and Cisco. Initial rollout started earlier this year in South Africa, with positive feedback and plans for rapid expansion to additional countries. Additionally, other use cases include agent assist, speaker verification, and outbound calls. The solution is provided as a managed service in Vodafone datacenters in a subscription-based model, and it is expected to be used all over the world. With that, I have completed my introduction to this call, and we would like to take the call into the Q&A session. Operator?

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Samad Samana with Jefferies. Please proceed with your question.

Samad Samana, Analyst

Hi, good morning, and thank you for taking my questions. Maybe first, Shabtai, I appreciate all the detail that you gave in your prepared remarks. But just it sounded notable to me that you're seeing Zoom Phone more often. That felt like something incremental or new. Can you maybe just help us understand how the economics of that partnership work? And are you seeing customers decide between Zoom Phone and Microsoft Teams for telephony or just maybe what are you seeing from those two head-to-head?

Shabtai Adlersberg, President and CEO

So, Zoom as far as we know right, much of what I'll tell you really comes from the market. Zoom was very successful, is and will continue to be successful mostly in the lower-end of the market. They're working their way up to the mid-market and the large enterprises. Obviously, we have more value to offer when it comes to enterprise. So, if Zoom steps into more deals with large enterprise and mid-market companies, collaboration with Zoom will pick up. And that's really the source of our better performance in the first half of 2021.

Samad Samana, Analyst

Great. And then maybe just a follow-up question on the guidance. We saw the bump up in the revenue outlook, but EPS was held in the same range. I'm curious how much of that is due to the FX weakness versus the ramping of actual growth investments? Just can you help us maybe bifurcate that? And if it hadn't been for FX, would you have raised that EPS guidance?

Shabtai Adlersberg, President and CEO

Yes, so we had a step function in terms of the FX. So, all the impact of the U.S. dollar exchange rate going down from 3.7 to 3.3 is now fully embedded, and therefore we do not expect any further change in coming quarters. On the other end, I can tell you that we have pressure from both partners and some big customers to perform certain developments. Some of our partners come to us with requests to invest and develop new capabilities. Us serving them says yes, we will evaluate it and we will invest in it. So, basically this is really what drives our investments. I can tell you that most of the investments really were made in three different areas: R&D, developing those solutions itself, and marketing to attract and achieve more sales in the market. And then service, because once we focus more on managed services, we need to increase personnel that helps customers deploy those managed services. Beyond that, I think that we need to take, again, into consideration two phenomena; one is the shortage in components which may hurt sales going forward, in the third quarter. We already know that some deals were pushed from the third quarter because of a shortage of components. And then there's also the pandemic, which we thought we were out of it, and now we have the fourth wave. So, trying to be a bit more conservative, I can tell you that we will keep pushing on all cylinders on growing revenues. But as far as profitability, we need to be more conservative. But that's where it is.

Samad Samana, Analyst

Okay, great. And then just one housekeeping question. I didn't hear if you said Teams growth specifically for the quarter. Can you just tell us what Teams-related growth was, please?

Shabtai Adlersberg, President and CEO

Yes, we've mentioned, yes. Yes, I've mentioned the Teams revenue grew 90% year-over-year, 90%.

Samad Samana, Analyst

Okay, great. Great, thank you. I'll turn it over to the next analyst. Appreciate the questions this morning and congrats on the quarter.

Shabtai Adlersberg, President and CEO

Thank you, Samad. Thank you.

Operator, Operator

Thank you. Our next question comes from Greg Burns with Sidoti & Company. Please go ahead with your question.

Greg Burns, Analyst

Morning. Is there any potential benefit for you from Zoom's acquisition of Five9?

Shabtai Adlersberg, President and CEO

Good question, Greg. On first glance, not sure, however, should Zoom be successful in integrating with Five9 in terms of their customer base, they may help Zoom to win those mid-market players. Now, if that happens, the answer is yes; meaning that if Zoom is successful in acquiring more mid-market customers of Five9, that would be good for us.

Greg Burns, Analyst

Okay. Regarding OpEx and the increased investments you're making, I didn't quite catch it. Did you raise your target for OpEx above 47%? How should we think about that moving forward?

Shabtai Adlersberg, President and CEO

Yes, good question. Okay, good question. Originally, when we have established the range for OpEx to be capped at 47%, that was made at the end of last year. We have not anticipated that the U.S. dollar would depreciate against the new Israeli shekel that much. I'll tell you that the guiding line for us is really increasing investments where needed, be it in services, be it in R&D, and in other areas, sales positions. So, in view of that we'd rather change what we have said, that OpEx will be capped by 47%. We want to expand it to be capped by 50%, an increase of 3%. That would mean that if that happens, then operating margin will go down towards the 20% rather than stay as they are today, above 22%. So, that's the compromise. We give priority to increasing investments over profitability.

Greg Burns, Analyst

Okay. Okay, and then in terms of the declines you're seeing in the service provider, the CPE area, pretty significant decline this quarter. What's the outlook for that area for the year? And do you expect it to stabilize or to kind of continue on the same downward trajectory?

Shabtai Adlersberg, President and CEO

Second quarter represented stability. We have received some signs of a better market in the third quarter. Already, some of the customers; some of the service providers did not place purchase orders with us for a long time. We've started to see, towards the end of the quarter, some new purchase orders. However, with the rise of the fourth wave, it's hard for me to say. I'll tell you that our plans, because the enterprise market goes well, software and services goes well, most of the company priority and strategy lies in that area. At this stage, the service provider is still a 10% to 15% revenue source for the company, but we place less importance on that. We'll have to live with what the market provides us.

Greg Burns, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Our next question comes from Ethan Etzioni with Etzioni Portfolio Management. Please proceed with your question.

Ethan Etzioni, Analyst

Yes, I wanted to ask about the interest expense. Why would you have an interest expense when you have so much cash and no debt?

Shabtai Adlersberg, President and CEO

Hi. First, we are investing in marketable securities that are mostly at an yield of 1%, because we don't want to take any risk about our cash investments. With some exchange rate differences, it comes close to zero for this quarter and previous quarter. Of course, if the interest rate for marketable securities or bonds raises, we should expect more.

Ethan Etzioni, Analyst

Do you have IFRS 16? Are you affected by it or is GAAP not subject to IFRS 16?

Shabtai Adlersberg, President and CEO

No. We are subject to U.S. GAAP, not to IFRS.

Ethan Etzioni, Analyst

Okay. So, this has nothing to do with leasing or something like that?

Shabtai Adlersberg, President and CEO

Correct.

Ethan Etzioni, Analyst

Right. So, we should expect a positive financing income over the long-term?

Shabtai Adlersberg, President and CEO

Yes.

Ethan Etzioni, Analyst

Okay. Thank you very much.

Shabtai Adlersberg, President and CEO

Okay.

Operator, Operator

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

Niran Baruch, CFO

Thank you, Operator.

Shabtai Adlersberg, President and CEO

Thank you, Operator. I would like to thank everyone for attending our conference call today. With continued good business momentum and execution in the first half of 2021, we believe we are on track to achieve another strong year of growth and expansion in 2021. We look forward to your participation in our next quarterly conference call. Thank you very much. Have a nice day.

Operator, Operator

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