AudioCodes Earnings Call: AI Growth Amid Challenges

AudioCodes’ latest earnings call revealed a mixed sentiment, with the company showcasing moderate revenue growth and significant strides in its conversational AI business. Despite these advancements, challenges such as decreased services revenue, increased tariff-related costs, and stagnant growth in its Microsoft business were evident. Revenue Growth In the third quarter, AudioCodes reported revenues of $61.5 million, marking a 2.2% increase from the $60.2 million reported in the same quarter last year. This moderate growth reflects the company’s efforts to maintain a steady financial trajectory amidst a challenging economic environment. Conversational AI Business Growth The company’s conversational AI business experienced a remarkable 50% growth in the quarter, positioning it on track to achieve a 40% to 50% growth for the full year 2025. This highlights AudioCodes’ strategic focus on AI-driven solutions as a key growth area. Annual Recurring Revenue (ARR) Increase AudioCodes’ annual recurring revenue reached $75 million, a 25% increase year-over-year. This positions the company well to meet its full-year target of $78 million to $82 million, underscoring the strength of its recurring revenue streams. Strategic Agreement with Global Tier 1 System Integrator The company signed a significant live platform agreement with a global Tier 1 system integrator. This partnership is expected to generate low single-digit millions in recurring revenue during the first year, enhancing AudioCodes’ market presence. Project Nimbus Contract in Israel AudioCodes was awarded a contract under Project Nimbus, making it the exclusive provider of meeting intelligence services in the non-SaaS category for 2026 in Israel. This contract underscores the company’s strategic positioning in the Israeli market. Voca CIC Achievements Voca CIC recorded another strong quarter, with major wins including a deployment at a major APAC airport and gaining Microsoft Unified certification. These achievements highlight the division’s robust performance and strategic importance. Decrease in Services Revenue Services revenues for the quarter were $30.9 million, a decrease of 4.8% compared to the same period last year. This decline indicates challenges in maintaining service revenue streams amid changing market dynamics. Increased Expenses Due to Tariffs AudioCodes faced increased expenses due to new U.S. import tariffs, which accounted for approximately $0.5 million additional costs in the quarter. This highlights the external economic pressures impacting the company’s financials. Flat Microsoft Business Growth The company’s Microsoft business remained almost flat year-over-year, affected by seasonality and purchase order delays. This stagnation points to challenges in expanding this segment of their business. Non-GAAP Operating Income Decline Non-GAAP operating income for the third quarter was $5.8 million or 9.5% of revenues, compared to $7 million or 11.7% of revenues in Q3 2024. This decline reflects the financial pressures faced by the company. Forward-Looking Guidance Looking ahead, AudioCodes provided guidance for the full year of 2025, projecting revenues between $244 million and $246 million, with non-GAAP earnings per share expected to range from $0.60 to $0.64. The company emphasized its strategic shift towards AI-driven solutions and cloud-based services, positioning itself for continued growth despite current challenges. In summary, AudioCodes’ earnings call painted a picture of a company navigating both opportunities and obstacles. While the conversational AI business and strategic partnerships offer promising growth avenues, challenges such as decreased services revenue and increased costs due to tariffs remain. The company’s forward-looking guidance reflects cautious optimism as it continues to adapt to the evolving market landscape.