AudioCodes Ltd. Q2 FY2025 earnings call

• Second consecutive quarter of top line growth. - Services accounted for 53% of revenues and grew 1.9% year-over-year. - Officially certified as a Cisco WebEx Cloud Connect enablement provider, enabling connectivity services of major UC platforms. - Launched next-generation live platform, a cloud-native, fully automated platform for launching and scaling voice services, with positive partner feedback. - Conversational AI segment expected to grow 40%-50% in 2025, with progress in product categories like Voca CIC, Meeting Insights, and Meeting Insights On-Prem. - Live managed services annual recurring revenues ended the quarter at $70 million, up 25% year-over-year. - Backlog of live managed services was $73 million at the end of Q2 2025.

Revenues for the second quarter were $61.1 million, an increase of 1.3% over the second quarter of last year. Services revenues were $32.6 million, up 1.9% year-over-year and accounted for 53.3% of total revenues. Geographically, North America made up 48% of revenues, EMEA 34%, Asia Pacific 14%, and Central and Latin America 4%. GAAP gross margin for the quarter was 64.1% compared to 65.5% in Q2 2024. Non-GAAP gross margin was 64.5% compared to 65.8% in Q2 2024. Operating income was $2.6 million (4.3% of revenues) under GAAP vs. $4.4 million (7.2% of revenues) non-GAAP. EBITDA was $3.6 million GAAP vs. $5.2 million non-GAAP. Net income was $0.3 million GAAP vs. $4.1 million non-GAAP.

• Postponed issuing financial outlook until better visibility on tariff rates. - Expect $3 million to $4 million of cost burden from tariffs for full year 2025. - Declared a cash dividend of $0.20 per share, to be paid on August 28.

• Effect of global economic conditions and industry-specific conditions. - Impact of competitive products and pricing. - Timely product and technology development. - Possible need for additional financing and loan covenant compliance. - Disruptions from acquisitions and integration of acquired companies. - Adverse impact of COVID-19, terrorist attacks, and military service obligations on operations.

Q: What are you seeing in terms of customer demand for virtual SBCs versus physical hardware following tariffs?

A: SBC design is typically specific to solution architecture; no real effect on business decision for SBC type due to tariffs, as it's a temporary extra cost.

Q: What's driving strength in the Microsoft business?

A: Teams Phone continues to grow at least 20% annually, AudioCodes has strong dominance in Teams Phone Managed Services, signed large multimillion total contract value projects, and improved live platform for deployment.

Q: Pipeline for WebEx opportunities?

A: Very early in the game, completed certification in Q2, have 5-10 new opportunities, expect growth to come in 2026.

Q: Conversational AI growth rate and differentiation?

A: Growth not linear, expected to be hyperbolic in second half. Differentiation comes from owning all technology, ability to deploy quickly, and tweak technologies for specific industries.