AudioCodes Ltd. Q3 FY2025 earnings call

• Solid third consecutive quarter of top line growth with revenues up 2.2%.
• UCaaS and CCaaS connectivity business accounts for over 90% of revenue, with conversational AI business up 50% in the quarter, on track for 40%-50% growth in 2025.
• Annual recurring revenue exited third quarter at $75 million, up 25% year-over-year, targeting $78M-$82M full year.
• Ended third quarter with backlog of $76 million, up 13.4% year-over-year.
• Signed a live platform agreement with a global Tier 1 system integrator, leveraging GenAI for enterprise customers.
• Conversational AI business line saw growth, with Meeting Insights on-prem (Mia OP) gaining traction, including a contract under Project Nimbus in Israel.
• Voice AI Connect and Live Hub businesses grew, with Live Hub introducing Agentic AI capabilities and ARR growing above 30% sequentially.
• Microsoft business was almost flat year-over-year, but pipeline of opportunities remained robust.
• CX business grew 13% year-over-year, with a landmark agreement with a global Tier 1 system integrator.
• Voca CIC had strong invoicing and booking growth, including a win in aviation and progress in higher education, with Agent Insights to launch in Q4.
• Meeting Insights Cloud Edition continued growth with new customer acquisitions and vertical-specific workflow solutions.

Revenues for the third quarter were $61.5 million, an increase of 2.2% over the third quarter of last year. Services revenues were $30.9 million, accounting for 50.3% of total revenues. Geographically, North America made up 48%, EMEA 33%, Asia Pacific 15%, and Central and Latin America 4%. Top 15 customers represented 53% of revenues. GAAP gross margin was 65.5% vs 65.2% in Q3 2024. Operating income was $4.1 million or 6.6% of revenues vs $4.9 million or 8.1% in Q3 2024. EBITDA was $5.2 million vs $5.9 million in Q3 2024. Net income was $2.7 million or $0.10 per diluted share vs $2.7 million or $0.09 per diluted share in Q3 2024. Non-GAAP gross margin was 65.8% vs 65.6% in Q3 2024. Non-GAAP operating income was $5.8 million or 9.5% of revenues vs $7 million or 11.7% in Q3 2024. Non-GAAP EBITDA was $6.9 million vs $7.9 million in Q3 2024. Non-GAAP net income was $4.9 million or $0.17 per diluted share vs $4.9 million or $0.16 per diluted share in Q3 2024. Deferred revenues as of September 30, 2025, were $81.6 million. Cash, etc., totaled $79.7 million. Net cash provided by operating activities was $4.1 million. Days sales outstanding were 122 days. A dividend of $0.20 per share was declared and paid. Tariff costs added ~$0.5 million in Q3, with expected ~$3 million for full year 2025.

• For 2025, expects revenues of $244 million to $246 million and non-GAAP earning per share of $0.60 to $0.64.
• Anticipates a shift to positive top line performance in 2025, reversing the declining trend of 2023-2024, with 2026 expected to be even higher.
• UCaaS and CX connectivity business stabilized, with a service agreement with a global system integrator and increased engagement with Cisco providing confidence for future performance.
• Conversational business expected to grow over 40% annually in coming years.

• Effect of global economic conditions and industry-specific conditions.
• Shifts in supply and demand, market acceptance of new products.
• Impact of competitive products and pricing.
• Timely product and technology development, including with AI.
• Possible need for additional financing and ability to satisfy covenants in financing agreements.
• Impacts from acquisitions and integration of acquired companies.
• Adverse impacts from pandemics or public health crises.
• Effects of hostilities involving Israel, including on operations and military service obligations of personnel.

Q: Could you give more color on the global Tier 1 system integrator win from a product perspective?

A: The Live platform is a services delivery platform for UCaaS and CX that includes connectivity, management, business applications, and AI-first features like contact centers and meeting intelligence, making it an advanced platform attractive to large system integrators.

Q: How does pricing power look for new AI solutions compared to price-sensitive older products?

A: Voice AI business applications are in an emerging market, so early adopters are not price-sensitive, and as features are enhanced, pricing power can be maintained; legacy business is price-sensitive but competition is less powerful there.

Q: What's the trend in Microsoft business?

A: The UCaaS market has flattened in recent 12 months, but there's still room to grow as much of the market is still served by legacy PBX technology; our services should drive growth in non-UCaaS areas.

Q: What outperformed on product revenue side in the quarter?

A: Product recognized revenues were driven mainly by software in the voice AI solution.