AudioCodes Ltd (AUDC) 2025 Q4 法說會逐字稿

Greetings, welcome to AudioCodes fourth quarter and full year 2025 Earnings Conference Call. (Operator Instructions). Please note, this conference is being recorded. I will now turn the conference over to your host, Roger Chuchen, Vice President of Investor Relations. You may begin.

Thank you, operator. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer; 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 factors are forward-looking statements as the term is defined under US federal securities law.

Forward-looking statements are subject to various risks, 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 following, the effect of global economic conditions in general and conditions in AudioCodes' industry and target markets, in particular, including governmental undertakings to address such conditions, shifts in supply and demand; market acceptance of new products and the demand for existing products, the impact of competitive products and pricing on AudioCodes and its customers, products and markets, timely product and technology development; upgrades, the advent of artificial intelligence and the ability to manage changes in market conditions and evolving regulatory regimes as applicable, possible need for additional financing, the ability to satisfy covenants in AudioCodes financing agreements, possible impacts and disruptions from AudioCodes acquisitions, including the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes business, possible adverse impacts attributable to any pandemic or other public health crisis on our business and results of operations, the effects of the current and any future hostilities involving Israel, including in the regions in which we or our counterparties operate, which 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 any other factors described in AudioCodes filings made with the US Securities and Exchange Commission from time to time.

AudioCodes assumes no obligation to update the 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 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. An archived webcast will be made available on the Investor Relations section of the company's website after the conclusion of the call. With all that's 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 fourth quarter and full year 2025 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?

Revenues for the fourth quarter were $62.6 million, an increase of 1.7% over the $61.6 million reported in the fourth quarter of last year. Full year 2025 revenues were $245.6 million, an increase of 1.4% over the $242.2 million reported in 2024.

Services revenues for the fourth quarter were $34.6 million, an increase of 1% over the year ago period. Services revenues in the fourth quarter accounted for 55.3% of total revenues. On an annual basis, service revenues were $130.7 million, an increase of 0.4% over the $130.2 million reported in 2024.

Revenues by geographical region for the quarter were split as follows, North America, 47%; EMEA, 35%; Asia Pacific, 13%; and Central and Latin America, 5%. Our top 15 customers represented an aggregate of 58% of our revenues in the fourth quarter of which 41% was attributed to our 10 largest distributors.

The amount of deferred revenues as of December 31, 2025, was $84.2 million compared to $84.4 million as of December 31, 2024. GAAP results are as follows, gross margin for the quarter was 65.6% compared to 66.2% in Q4 2024. Operating income for the fourth quarter was $3.7 million or 6% of revenues compared to operating income of $4.1 million or 6.7% of revenues in Q4 2024.

Full year 2025 operating income was $14 million compared to operating income of $17.2 million in 2024. Net income for the quarter was $1.9 million or $0.07 per diluted share compared to net income of $6.8 million or $0.22 per diluted share for Q4 2024.

Full year 2025 net income was $9 million or $0.31 per diluted share compared to $15.3 million or $0.15 per diluted share in 2024. Non-GAAP results are as follows, non-GAAP gross margin for the quarter was 65.9% compared to 66.5% in Q4 2024. Non-GAAP operating income for the fourth quarter was $5.4 million or 8.6% of revenues compared to $7.5 million or 12.2% of revenues in Q4 2024.

Full year 2025 non-GAAP operating income was $21 million compared to non-GAAP operating income of $28 million in 2024. Non-GAAP net income for the fourth quarter was $4.5 million or $0.16 per diluted share compared to $11.6 million or $0.37 per diluted share in Q4 2024.

Full year 2025 non-GAAP net income was $18.1 million or $0.61 per diluted share compared to $27.3 million or $0.87 per diluted share in 2024. At the end of December 2025, cash, cash equivalents, bank deposits, marketable securities and financial investments totaled $75.7 million. Net cash provided by operating activities was $4.1 million for the fourth quarter of 2025 and $29.4 million for the year 2025.

Days sales outstanding as of December 31, 2025, were 117 days. In October 2025, 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 April 27, 2026. During the quarter, we acquired 667,000 of our ordinary shares for a total consideration of approximately $6.1 million.

Earlier this morning, we also declared a cash dividend of $0.20 per share. The aggregate amount of the dividend is approximately $5.4 million. The dividend will be paid on March 6, 2026 to all of our shareholders of record at the close of trading of February 20, 2026.

Our guidance for the full year 2026 is as follows, we expect revenues in the range of $247 million to $255 million and non-GAAP earnings per share -- diluted earnings per share of $0.60 to $0.75. I will now turn the call over to Shabtai.

Thank you, Niran. I'm pleased to report another quarter of solid top line growth in fourth quarter '25. This performance shows our focused progress towards becoming an AI-driven hybrid cloud software and services company. 2025 marked a period of stabilization and growth for our company. After facing economic challenges in 2023 and 2024, that's affected our legacy and hardware business lines and have led to a decline in revenue in past years.

We saw 2025 a recovery of our connectivity business. Over the course of 2025, we saw promising signs of top line growth inflection. The rate of decline in legacy business has moderated, and we sell the newly invested voice AI strategic areas maintaining their robust upward trajectory.

This momentum in our strategic business has been driven by our two primary growth engines, our Live managed services and the emerging VoiceAI business. Combined, these two units contributed to $79 million annual recurring revenue exit 2025, representing growth of 22% year-over-year.

While holding the line in our connectivity business, we executed well on our VoiceAI initiative, growing revenues by 35% year-over-year. The transition in overall company business trajectory is a result of deliberate actions, reallocating our product development investments and efforts to high market potential areas and investing in sales and marketing to build market awareness to these innovative solutions.

Looking at 2026, we plan to maintain this formula for success, improving revenue growth driving steady margin expansion and strengthening our leadership in VoiceAI driven this application for the UCaaS and CX markets. Now to highlight for our business performance in fourth quarter '25 and full year 2025. Fourth quarter total revenue grew Niran mentioned 1.7% year-over-year.

As we have continued to build on the strength of our connectivity business and successfully leveraged our enterprise customer base, installed base to drive cross-sell of GenAI business voice applications that make up our conversational AI operations.

As discussed earlier, our solid fourth quarter results were marked again by strong traction in our dual growth engines, lab services delivery for UCaaS and CX and conversational AI business lines. Specifically, and on the heels of a previous quarter, our conversational AI business increased in over 50% year-over-year for both the fourth quarter '25 and also for the second half 2025.

Full year 2025 conversational AI revenues reached nearly $17 million and accounted for 7% of total revenues. As a result, we're growing ever more optimistic about the continued strong annual recurring revenue momentum for coming years.

This conviction is further reinforced by the growing backlog of live and managed services that we convert to revenues in coming quarters. Exit 2025, our backlog for live services reached a level of $75 million compared to $69 million at the end of 2024.

Now let me provide more visibility into how we operate so that our overall company financial results are better understood. As stated in previous quarters, we are now in a transition period from our main focus on connectivity solution to expand and build a new AI-first, VoiceAI led business application operations for enterprises. I believe this will also provide more clarity into our financials still.

At this stage, our business can be generally broke down into two business series. The long established and running connectivity business provides for about 93% of the company's revenue. It is a mature profitable business, which runs steadily over the past five years and which has delivered operating margin of above 14% in 2025.

On a longer-term basis, we target this business to deliver 16% to 18% operating margin. Relying on our success in these business along the past 10 years, we are confident in our ability to continue and drive long-term stable growth as we are the front runner in this connectivity business for both the UCaaS and the CX markets.

The second business, the VoiceAI business, focusing on Software as a Service recurring business model provided at the end of 2025, about 7% of the company revenue growing from $12 million plus in 2024 to close to $17 million exit 2025, yielding revenue growth of about 35% year-over-year.

Now that several product lines reach maturity and started to produce growing annual revenue, we are confident in our ability to keep growing this business line at a right of 40% to 50% annually in coming years and we plan to reach a revenue level of $50 million in 2028.

Need to say that we rely extensively using GenAI technology and a solution to provide business voice application for the UCaaS and CX enterprise market. It is important to note though that the VoiceAI business is in investment mode currently and generates an annual budget burn of about $9 million to $10 million a year. With the 50% annual revenue growth plan for this business line, we believe we should reach breakeven in two years from today.

Before turning to detailed business line discussion, let's quickly shift into the fourth quarter profitability metrics. As mentioned before, fourth quarter total revenue grew 1.7%. Our non-GAAP gross margin for the quarter of 65.9% is within our long-term target range of 65% to 68% and a slight improvement sequentially from 65.8% last quarter.

Fourth quarter tariff-related cost headwinds accounted to $600,000 and aggregated to $2.7 million for the full year 2025. We expect the rate base impact to approximately get to $2.3 million in 2026.

Fourth quarter non-GAAP operating expense of $35.8 million compared to $34.7 million in the third quarter and $33.4 million from the year ago period. On a year-over-year basis, the higher expenses are attributable to targeted investment in marketing and sales tied to the VoiceAI business, allowing it to grow further and impact from the weakening US dollar against the euro in the first quarter.

Full year 2025 non-GAAP operating expense increased 6.2% versus the year ago period for the same reasons. In terms of workforce, we concluded 2025 with 981 employees, representing an increase from 961 in the previous quarter and 946 at the end of 2024.

Adjusted EBITDA for the fourth quarter was $6.5 million, reflecting a 10.4% margin compared to 6.9% or 11.2% in the prior quarter. For the full year, adjusted EBITDA reached $24.8 million or 10.1% margin. Non-GAAP EPS was 16%, in line with our plans in the year ago quarter. Net cash provided by operating activities were $4.1 million for the quarter and $29.4 million for the full year 2025.

On the guidance front, we expect 2026 to be a growth year. We expect 2026 revenues of -- I'm sorry, of $247 million to $255 million in the year and non-GAAP EPS of $0.60 to $0.75. This projection assumes continued strong growth of 40% to 50% in the VoiceAI business and a stable connectivity outlook, assuming no significant changes in the macroeconomic landscape.

Our overall annual recurring revenues, which encompasses our managed services or connectivity plus conversation AI is expected to grow from 79 exit '25 on growing 20% in 2026 and reaching a range of $92 million to $98 million in '26. Now let's move to the actual business line. Let's talk first about Microsoft.

During the fourth quarter, Microsoft business saw a sequential increase of 7%. This growth was largely driven by the continued strength of the connectivity franchise and rising attach rate for AI-first Voca CIC, which is our Teams-certified CCaaS solution.

The sell contract value signed in the fourth quarter remained consistent with previous quarters. On an annual basis, total contract value grew by 5% year-over-year, reflecting steady progress. The Microsoft Teams voice ecosystem continues to demonstrate very healthy situation.

Recently, it was disclosed that the number of PSTN users reached 26 million, up from 20 million stated in April 2024, which indicates an annual growth rate of 16% to 17%. Although Teams phone users represent less than 10% of total Teams' monthly active worldwide user, which is estimated at 320 million seats, there's potential of total of 80 million to 100 million pre-license users creating immediate large addressable market.

Looking at 2026, we anticipate an additional increase of 3 million to 4 million users, supporting the evolution towards an AI-powered workplaces as stated by Microsoft.

One notable was a win in the quarter was a 36-month contract signed with AT&T to support a large public university. The agreement provides for a comprehensive range of services, including managed gateway as SBC calling plans as well as icons, facilitating the migration to Teams from Cisco.

Another key contract was a 60-month deal with an international equipment manufacturer based in Europe. This engagement began with a live premium managed service for initial phase of 2,000 users, marking the start of a full migration to Teams voice from Cisco.

Upon completion of migration, the focus will shift to cross-selling additional business voice applications such as Voca CIC.

In the fourth quarter, we actually -- we have been engaging in the front, extending and expanding our efforts in the UCaaS market. So on the UCaas front, yesterday we announced that we now offer an end-to-end portfolio of certified voice solution for Cisco Webex calling from Cloud Connect PSTN and connectivity to analog gateways and phones.

Webex calling is Cisco's cloud phone system and cloud PBX provides enterprise telephony business scaling features and PSTN connectivity delivered and managed to Webex cloud. For 2025, Cisco publicly stated in November that Webex calling serves now more than 18 million users worldwide.

So for us, this new evolving cooperation with Cisco represents a major new opportunity in expanding our connectivity and devices business for UCaaS in coming years. Now to our conversational AI activity. In the last 18 months, conversational AI move from experimentation to expectation.

In both UCaaS and customer experience, buyers are no longer asking should we use AI. They are asking which AI? Where does it run? Who controls the data and how fast can we scale it? That is exactly why we have been investing in past years in developing a rich portfolio of solutions.

Across UCaaS, this is about turning conversation into business assets, meeting into decision and voice interactions into actions. Across CX, it is about moving from basic self-service bots through automation, voice engines that can resolve route, summarize, comply and improve over time.

Pivoting towards a more intelligent enterprise, our conversational AI portfolio is already built for this reality. Our solution, namely VoiceAI Connect, Live Hub, Voca CIC, Meeting Insights Cloud Edition, Meeting Insights on-prem and more are all designed to connect voice and conversation to enterprise systems and to support multiple models and deployment options. But let me challenge one assumption.

I see here in the market that AI value comes from the model. True, the large language model matters. However, it is a durable value that comes from orchestration, security, integration and governance.

So combining our vast telephony technology base, with our conversational AI portfolio to bring your own AI approach to deploying solutions in various UCaaS and CX environments is our way to meet customers where they are ER, make adoption faster, reduce risk and expand what partners can deliver.

To summarize quarter, as mentioned earlier, fourth quarter '25 conversational AI revenue grew over 50% year-over-year.

Now let's start with the leading line, which is the VoiceAI Connect Live Hub line. This discussion focuses and evolves around the conversational AI platform market and the emerging VoiceAI agent sector, which gained significant contraction over the past two years.

Leading research firms estimate that the market for VoiceAI agent will reach between $8 billion to $15 billion by 2028, with expectation that it will double by 2030. Regarding our business activities, both VoiceAI Connect and the Live Hub business delivered robust results in the fourth quarter of 2025.

For the full year, this segment achieved growth exceeding 50% compared to 2024. This strong performance was driven by consistent acquisition of new clients across the US, Europe and APAC, as well as considerable expansion within our existing customer base.

Live Hub service, our voice CCaaS self-service cloud platform, empowering voice board developers to build solutions such as conversational IVR, VoiceAI agents, agent assist and real-time translation services. In late third quarter 2025, we announced enhancement to the Live Hub voice CCaaS offering notably the integration of newly developed voice agents.

By year-end 2025, Live app experienced a substantial increase in both number of developers and platform usage in minutes, while monthly recurring revenue approach 150% increase compared to the fourth quarter in 2024. Notably, many existing VoiceAI Connect, Live Hub customers have accelerated their consumption rates beyond the initial projections, reinforcing our belief that the adoption of GenAI enabled virtual -- an agent assist application is entering a phase of rapid growth.

A significant achievement in fourth quarter '25 was securing an initial order with a Tier 1 international carrier adopting our VoiceAI Connect service to support their call summarization solution. The deployment initially targets enterprise fixed line customers, with plans to expand to the entire mobile consumer and enterprise user base in late 2026.

We view this contract as an important entry point with substantial potential for further expansion as the service is scaled across current clients and new use cases are developed.

Now to Voca CIC. Voca CIC, which targeted sub-1,000 agent range recorded another quarter of strong revenue growth for both fourth quarter and full year.

Revenue for the year grew over 55% compared to previous year. 2025 was very proactive in terms of progress in the Voca business line. During the year, we have developed cooperation with regional channel partners as well as with global system integrators. Activity has been fairly positive. By now, Voca CIC has more than 200 enterprise customers worldwide.

We saw extremely successful -- we are extremely successful in the education space, especially in North America, UK and other regions, where Microsoft Teams is dominant in the vertical. We have now more than 15 universities accounts acquired in 2025.

We have introduced new out-of-the-box practical AI experiences, such as agency insights and AI receptionist, some of which extends beyond the Microsoft Teams install cell based. We are productizing on-prem survival version of Voca CIC to act as a backup in case of cloud outage.

Q4 quarter highlights include extending our momentum in higher education markets, not only in the US but also outside the US We can talk about a large university in South Africa, selected Voca CIC contact center as part of their overall Microsoft teams. You see CX deployment, success in other major winning successful large-scale enterprise deployment with a top five global BPO provider.

During the quarter, we issued a press release highlighting the deployment of Voca CIC with Atento on a deal, one in the prior quarter.

The new conversational AI voice solution supports more than 500 concurrent AI voice agent for a large stare organization and was delivered in just few weeks compared to a typical three- to six-month deployment time line for a project of this scale.

New product was introduced Agent Insights, as discussed earlier, last quarter. We recently launched Agent Insights, which brings GenAI into the Voca CIC platform. Argentine side provides contact center with customizable AI summaries, sentiment analysis and one-click CRM update built natively in agent workflow.

Looking ahead, we expect 2026 to be another year of strong revenue growth, driven by continued traction in both direct sales and channel partnerships.

Moving on to Meeting Insights, Cloud Edition. Meeting Insights Cloud Edition maintained impressive momentum throughout this quarter, seeing consistent increases in new customer acquisitions. Record numbers were again achieved in metrics such as general meetings and unique active users, leading to substantial year-over-year, mostly recurring revenue growth as of December 2025.

This strong performance was driven by continued product innovation, posting demand both across wider markets and within customer workflow solutions designed for specific verticals such as higher education, local governments HR, finance and more. Meeting Insights now works independently of any particular use systems, expanding its flexibility.

In fourth quarter 2025, support was added for Google Meet and we do expect integration with Cisco Webex in the current quarter, that adding to the existing compatibility we have with Microsoft Teams and Zoom. This updates enable GenAI meeting summaries for interactions on a major UC platform, as well as in-person meetings. Beyond allowing customers to customize prompt for their precise requirements.

The platform now offers prebuilt templates created for specific enterprise roles and persona, including those legal and HR. This feature is expected to further streamline how efficiently customers can extract useful insights in meetings.

Additionally, the platform's mobile app enables on-demand recording, action item management, meeting preparations and chat-based search of meeting records. These features make the meeting on the mobile app essential for daily office operations.

Now to another derivative of the Meeting Insights solution, which we call Mia OP, Mia on-prem. Let's talk first about the cloud repatriation trend emerging. The proportion of businesses planning to retain users on-prem is jumped from 5% to 15% over two years, driven primarily by data sovereignty concerns in European markets and regulated sectors such as legal, finance and defense.

Even cloud committed the enterprise now scrutinize where data is hosted and processed. This trends validates hybrid deployment capabilities and position data residency controls is competitive differentiators, countering pure cloud narratives that dominate previous market cycles.

In fourth quarter '25, we continue to make good progress with newly introduced Mia OP solution with a growing number of wins in the government and defense market in Israel, positioning the business line to account for a meaningful growth in our conversational segment in 2026.

Following last quarter, Israeli Nimbus contract award, which streamlines procurement for meeting intelligent services for all Israel government ministries and agencies, we have already signed one first deal and currently, I have several more additional proof-of-concept engagements across various ministries. We also received Nimbus Layer 5 approval certifying that our solution meets the highest standard of security and compliance standards under the Nimbus Israeli Nimbus framework.

We expect this designation to expand both the number of agencies, we can serve and the range of services we can provide. The Mia OP solution suppose currently English and the US English and Hebrew in languages. We expect to substantially grow that number of supported languages to 10 basically already in this first quarter. So we expect deployment of Mia OP in more countries already in the second quarter and beyond.

So to wrap up my presentation, we exit 2025 with good operational momentum. The connectivity business has stabilized in second half of the year. VoiceAI business grew 35% on a yearly basis and about 50% in the second half of the year with the continued pace of investment in our live managed services activity, and in the VoiceAI area, we expect continued momentum in 2026 and beyond. And I'd like to move over the call to the Q&A session. Thank you.

(Operator Instructions) Joshua Reilly, Needham & Company.

Maybe just starting off on the updated financial target for conversational AI growth through 2028. Is the 40% to 50% annual growth, is that intended to be a CAGR growth rate through 2028? And then along with that, should we think about the primary driver being customer growth or higher spend per customer driving that conversational AI growth?

So do you expect to get a lot more new customers or sell more of the new conversational AI products to existing customers?

Right. Thank you, Josh. Yes, actually, we're looking for both. As I've mentioned before, several of our conversational AI business voice application reach maturity in 2025, which really says that we just started out with a few hundreds of customers. We expect that this number will grow substantially as we're adding more capabilities and more features and also investing our sales operations.

I would say that in 2025, our sales ability was a bit restrained simply because we didn't want to move too quickly into the sales phase without having a more mature, more complete product. Now we feel fairly confident with -- and we get the feedback from customers.

So yes, the number of potential customers should grow, I would say -- I'll use the word, I'm not using usually, it will grow dramatically, I expect in certain areas. Also, the utilization of new capabilities and new features, we do expect that per customer expand on our solution will grow simply because we intend to bring more capability. So yes, growth should come from both.

And I'll tell you that I'm talking now about 50% growth. But as we talk, there are new applications popping up on a weekly basis, talking to customers. And again, our ability to combine our vast telephony capabilities with the very large investment we made in conversational AI, just to give you a data point. We are known to be a company that's investing -- reaching R&D out of about 1,000 employees. We have 350 employees doing R&D work.

We are moving vastly into -- moving big portion of that R&D force into VoiceAI. So when we started out back in 2018, we had only about 40 to 50 employees on this line. Now we have 150 out of those 350 employees. So all in all, big investment. We see success.

That gives us all the reason to continue to invest and believe in growth such as 50% and could be more.

Got you. And then you mentioned there has been a shift in market expectations around AI. Can you just help us understand how has that maybe positively impacted your pipeline visibility in size now that we're moving past the kind of a testing phase for customers with some of these VoiceAI products and now moving into broader adoption. Do you feel that your pipeline visibility and size is improving and increasing?

Yes. As I've mentioned, we are increasing our sales force. We're spreading our operation into more countries. Some of these applications are fairly easy to use, SaaS applications that a company can test, do a proof of concept for 30 to 60 days and then moving into production.

And with some of the more compelling capabilities we're bringing to the game, we do have better visibility compared to take networking deals or connectivity deals which being larger, but still usually takes substantially more time could turn to be anywhere between three months to nine months.

Got you. And then last question for me is, how should we think about any impact from tariffs to the 2026 financials and gross margin and any other items to be considering regarding tariffs in 2026?

Right. So gross margin, we believe, will step up simply because our product -- mix of products will turn substantially more into software and services. So we do expect to keep that range of 65% to 68% operating margin -- I'm sorry, gross margins and gross margin. And then -- I'm sorry, what was the second one? Yes.

The tariff was about $2.7 million in 2025. We currently estimate it to be a bit lower, probably around $2.3 million in '26.

(Operator Instructions) We have reached the end of the question-and-answer session, and I will now turn it over to Shabtai for closing remarks.

Thank you, operator. I'd like to thank everyone who attended our conference call today. With continued good business momentum in our live managed services operations and continued growth in our VoiceAI business, we believe we are on track to grow revenue and profitability in the next coming years. We look forward to your participation in our next quarterly conference call. Thank you all. Have a nice day.

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