Executive Summary / Key Takeaways

• Strategic Transformation Underway: AudioCodes is successfully executing a long-term pivot from a traditional VoIP connectivity provider to an AI-driven hybrid cloud software and services company, aiming for renewed growth and profitability in 2025 and beyond.
• Differentiated AI & Cloud Platforms: The company's proprietary Live platform and specialized conversational AI solutions like Meeting Insights On-Prem and Voca CIC offer unique, rapid deployment capabilities and enterprise-grade security, creating a strong competitive moat against broader market players.
• Robust Recurring Revenue Growth: Live managed services and conversational AI are driving significant annual recurring revenue (ARR) expansion, with Live Teams ARR reaching $70 million in Q2 2025 and the Voice AI segment projected for 40-50% growth in 2025.
• Financial Reversal Expected: After a period of stabilization in 2024, AudioCodes anticipates a return to top-line growth and increased profits in 2025, with revenue guidance of $246 million to $254 million and non-GAAP EBITDA of $34 million to $38 million.
• Navigating Headwinds with Strength: Despite tariff-related cost burdens and geopolitical risks, a strong balance sheet, proactive mitigation strategies, and a robust pipeline position the company to capitalize on the expanding UCaaS and CX markets.

The Hybrid Cloud Horizon: AudioCodes' Strategic Pivot

AudioCodes Ltd., established in 1992, has evolved from its roots in VoIP infrastructure to become a pivotal player in the advanced communications software and services landscape. The company is currently undergoing a significant long-term transformation, strategically shifting its focus towards becoming an AI-driven hybrid cloud software and services provider. This pivot is designed to capitalize on the burgeoning Unified Communications as a Service (UCaaS) and Customer Experience (CX) markets, where voice-centric AI applications are becoming increasingly critical for enterprise productivity and intelligence.

The company's overarching strategy is bifurcated: first, to sustain and grow its highly profitable connectivity business, which historically accounts for the vast majority of its revenue, and second, to aggressively invest in and expand its conversational AI initiatives and AI-powered voice services. This dual approach leverages AudioCodes' established market presence and deep domain expertise to "land and expand" within its extensive enterprise customer base. By offering a comprehensive portfolio that integrates connectivity with value-added AI services, AudioCodes aims to enhance its competitive standing and drive sustainable long-term growth.

Technological Edge: The Foundation of AudioCodes' Moat

AudioCodes' competitive advantage is deeply rooted in its differentiated technology, which offers tangible benefits to its enterprise customers. The company's core strength lies in its Session Border Controllers (SBCs) and voice network management solutions, which provide secure, scalable, and reliable voice connectivity. This foundational technology underpins its newer, more advanced offerings.

A cornerstone of AudioCodes' innovation is the Live platform, officially launched in Q2 2025. This cloud-native, fully automated SaaS solution is designed for launching and scaling voice services, particularly for Microsoft Teams and Operator Connect deployments, but also supporting Zoom Video Communications Phone and Cisco Systems Webex Calling. The platform offers zero-touch automation, SBC as a service, routing, billing, reporting, and provisioning workflows, all integrated into one system. This comprehensive integration significantly reduces deployment time and operational complexity for channel partners, service providers, and system integrators. The platform's ability to seamlessly layer GenAI-powered business voice applications and third-party solutions on top of core connectivity is a key differentiator, as AudioCodes is "not aware of other competing platforms" offering such integrated capabilities.

Further enhancing its technological moat are AudioCodes' specialized conversational AI solutions:

• Meeting Insights On-Prem (Mia OP): Introduced in April 2025, Mia OP targets regulated industries and security-sensitive environments. This industry-first solution uses Gen AI on local servers, completely detached from cloud or internet services, to automatically produce secure, accurate, and efficient meeting recaps. This addresses the "cloud repatriation trend," where customers prefer on-premise solutions for security, latency, and cost reasons. A significant quantifiable benefit is its rapid deployment, taking "a matter of a day" compared to "weeks or months" for other solutions that lack AudioCodes' infrastructure. This speed of deployment has already garnered substantial customer interest, with a robust pipeline and close to 10 customers in production and over 20 proof-of-concept projects in Israel, with international expansion underway.
• Voca Conversational Interaction Center (CIC): This AI-first, Microsoft Teams-certified contact center platform leverages AudioCodes' dominance in the Teams voice ecosystem. Built natively on Azure Communication Services (ACS), a standard co-authored by AudioCodes, Voca CIC offers comprehensive calling and contact center capabilities. It has demonstrated superior speed and execution, successfully porting a customer to its IVR in just "three weeks versus standard implementation time line of three to four months" against a major premium CX vendor. Voca CIC achieved Microsoft Teams Unify Integration Certification and won the UC Today 2025 Best Microsoft Teams Contact Center Award in August 2025.
• Voice AI Connect: This solution enables large enterprises to seamlessly adopt and scale various conversational use cases, such as agent assist and voicebots. Its pre-built integrations with major bot frameworks, speech-to-text, and text-to-speech solutions allow customers to preserve their existing investments while adopting new AI models.

These technological differentiators contribute directly to AudioCodes' competitive moat by enabling faster, more secure, and more integrated solutions than many rivals. This translates into stronger customer loyalty, higher attach rates for value-added services, and the potential for improved margins through efficient operations and cross-selling opportunities. The company's significant R&D investment, approximately one-third of its R&D budget dedicated to conversational AI, underscores its commitment to maintaining this technological leadership.

Competitive Landscape and Strategic Positioning

AudioCodes operates within a dynamic and competitive industry, facing both large, diversified technology giants and specialized niche players. Its strategic positioning is characterized by a focused expertise in voice communications and AI, allowing it to carve out significant market share in specific segments.

In the Microsoft Teams Phone market, AudioCodes holds a dominant position, with "more than 60% or 70% market share" in enterprise connectivity. This leadership is sustained by its comprehensive portfolio and the Live platform, which facilitates seamless integration with Microsoft Teams. While Microsoft itself is a formidable competitor with its broad ecosystem and AI advancements, AudioCodes differentiates by offering specialized voice-centric solutions that provide greater efficiency in deployment and management. The company has observed "one competitor leaving the space" in this area, further solidifying its strong standing.

AudioCodes is also expanding its reach into the Cisco Systems Webex Calling ecosystem, having achieved official certification as a Cloud Connect enablement provider in June 2025. This move positions AudioCodes to capture a share of Cisco's projected "above 15 million subscribers — new subscribers migrating in 2025-2026 period" to Webex Calling. While Cisco Systems offers a broader, integrated suite of networking and collaboration tools, AudioCodes' agility and specialized focus on voice connectivity and managed services provide a competitive edge, particularly given that other enablement partners are "relatively smaller in size."

In the broader UCaaS and CX markets, AudioCodes competes with players like RingCentral (RNG), which specializes in cloud-based communications. AudioCodes' strength lies in its hybrid deployment capabilities and its ability to offer notably lower operating costs for on-premise integrations compared to RingCentral's pure cloud approach. The Live platform, by integrating connectivity solutions for multiple UCaaS vendors, offers a unique value proposition that few competitors can match.

For its conversational AI solutions, AudioCodes differentiates from personal productivity note-takers (e.g., Author, Avama, Firefly) by offering an enterprise-level, UC-agnostic solution. Meeting Insights, for instance, centralizes meeting data across various platforms (Microsoft Teams, Zoom Video Communications (ZM), Cisco Systems Webex Calling, Google (GOOGL) Meet), providing organizational knowledge retention and advanced analytics with custom prompts, which goes beyond the basic summarization offered by solutions like Zoom AI Companion. This focus on large enterprises with "finer requirements" allows AudioCodes to deliver "substantially more extensive and providing more detailed solutions."

AudioCodes' brand trust, built over two decades, is a significant competitive advantage. Its voice solutions are deployed in mission-critical UCCX voice infrastructure for "65 out of the Fortune 100 companies and four out of the top 10 multinational banks." This deep penetration and proven track record with marquee clients, such as AT&T (T) North America and the University of Central Florida, underscore its credibility and facilitate its "land and expand" strategy.

Financial Performance and Strategic Momentum

AudioCodes' financial trajectory reflects its strategic transformation and resilience in a dynamic market. After an "exceptional" 2022 with record revenue of $275 million and $45 million in non-GAAP EPS, the company experienced an 11% revenue decrease in 2023 due to challenging economic conditions, high interest rates, and the shift from perpetual hardware sales to a recurring cloud services model.

However, 2024 marked a period of "significant stabilization," with a minimal revenue decline of about 1% and comparable effects on earnings. The company demonstrated robust cash flow generation, with net cash provided by operating activities reaching $35.3 million for the full year 2024.

The momentum continued into 2025, with AudioCodes reporting its second consecutive quarter of top-line growth in Q2 2025.

• Q1 2025 Revenue: $60.4 million, a 0.5% increase year-over-year. Services revenue grew 3.4% to $32.6 million, accounting for 54% of total revenues.
• Q2 2025 Revenue: $61.1 million, a 1.3% increase year-over-year. Services revenue increased 1.9% to $32.6 million, representing 53.3% of total revenues.

Profitability metrics in Q2 2025 were impacted by external factors. Non-GAAP gross margin was 64.5%, slightly below the long-term target range of 65% to 68%, primarily due to approximately $1 million in tariff-related cost headwinds and several hundred thousand dollars from a weaker U.S. dollar against the euro. Non-GAAP operating expenses rose to $35 million in Q2 2025, up from $32.5 million in Q2 2024, reflecting increased investments in marketing and sales for the conversational AI segment. Despite these pressures, net cash provided by operating activities remained healthy at $7.7 million for Q2 2025.

The shift towards a software and services model is evident in the declining hardware contribution, which accounted for approximately 30% of revenues in Q1 2025, down from 45% in 2020. This transition is bolstering recurring revenue streams.

• Connectivity Business: This segment, which generated approximately 95% of 2024 revenue with non-GAAP operating margins between 16% and 18%, remains a stable and profitable core. The Microsoft business, a key component, grew 6.5% year-over-year in Q2 2025. Live managed services, a critical recurring revenue stream within connectivity, saw its annual recurring revenue (ARR) reach $70 million by the end of Q2 2025, a 25% year-over-year increase. The backlog for Live managed services also grew significantly, reaching $73 million in Q2 2025, up from $67 million in Q2 2024.
• Voice AI Business: This emerging segment, while still in an investment phase (incurring approximately $9 million in losses in both 2023 and 2024), is demonstrating strong growth. Bookings for Voca CIC surged 150% year-over-year in Q2 2025, with revenue growth moving towards surpassing 50% year-over-year. Meeting Insights Cloud Edition is experiencing record levels of new customer acquisition and user engagement, while Meeting Insights On-Prem has already secured close to 10 customers in production and over 20 proof-of-concept projects.

AudioCodes maintains a strong liquidity position, with cash, cash equivalents, bank deposits, marketable securities, and financial investments totaling $95.3 million at the end of June 2025. The company actively returns capital to shareholders, having acquired 715,000 ordinary shares for approximately $6.6 million in Q2 2025 and declaring a cash dividend of $0.20 per share in July 2025.

Outlook and Guidance: A Trajectory of Growth

AudioCodes anticipates 2025 to be a "year of reversal," with renewed revenue growth and increased profits, driven by its strategic transformation. The company has provided specific guidance for the full year 2025:

• Revenue: Expected to be in the range of $246 million to $254 million.
• Non-GAAP EBITDA: Projected to be between $34 million and $38 million.

This outlook is predicated on several key assumptions and strategic initiatives:

• Conversational AI as a Growth Engine: The Voice AI segment is projected to grow by a robust 40% to 50% in 2025, with bookings anticipated to increase by over 40% year-over-year, exceeding $17 million. Management expects "hyperbolic" growth in the second half of 2025 as these applications mature. The annual recurring revenue (ARR) for the Voice AI business is targeted at $17 million to $18 million for 2025, with "very substantial higher growth in '26, '27 and beyond."
• Connectivity Sector Expansion: The connectivity business is expected to sustain 20% to 26% growth in 2025, targeting an annual recurring revenue of $78 million to $82 million. The Microsoft business, in particular, is forecast to achieve double-digit growth in 2026 as the growing Live Teams segment increasingly outpaces the declining capital expenditure-based Teams business.
• Live Platform Impact: The recently launched Live platform is expected to significantly enhance the growth of AI-powered services in the second half of 2025, accelerating sales cycles and strengthening market footprint.
• Cisco Systems Webex Opportunity: While early, the Cisco Systems Webex Calling certification is expected to contribute approximately $5 million in total contract value over the next three years, with initial revenue contributions anticipated in 2026.
• Controlled Operating Expenses: Despite increased investments in sales and marketing for conversational AI, overall OpEx growth for 2025 is budgeted at a modest 1% to 2%.

The company's guidance assumes "no significant changes in the macroeconomic landscape" and a resolution regarding tariff rates. AudioCodes had temporarily withdrawn its annual guidance in Q1 2025 due to the "fluidity of the tariff situation and associated macroeconomic uncertainty," indicating a cautious yet optimistic approach to its forward projections.

Risks and Challenges

While AudioCodes' transformation presents compelling opportunities, investors should consider several key risks and challenges:

• Tariff-Related Costs: The company anticipates a direct cost burden of $3 million to $4 million for the full year 2025 due to new tariffs on U.S. imports. While AudioCodes is proactively mitigating this by moving manufacturing out of China and raising prices, these costs could impact gross margins.
• Geopolitical Conflict: The ongoing "war and hostilities between Israel and Hamas, and Israel and Hezbollah" poses a risk of developing into a broader regional conflict, potentially disrupting operations and limiting the company's ability to produce and sell solutions, particularly given its base in Israel.
• Investment Phase in Conversational AI: The Voice AI business is currently in an investment phase, incurring losses (approximately $9 million in both 2023 and 2024). While expected to drive future growth, this initial unprofitability could weigh on overall earnings in the short term.
• Decline of Legacy Business: The legacy gateway and SBC hardware business continues to decline, with an estimated impact of $5 million to $10 million on revenues in 2025. Although this impact is diminishing, it remains a headwind to overall revenue growth.
• Market Adoption of New Platforms: While the Live platform and new AI solutions are gaining traction, it "may take time for these Live platform wins to be material revenue contributors," implying a lag between strategic initiatives and significant financial impact.
• Intense Competition: Despite its specialized advantages, AudioCodes operates in a highly competitive market against large players like Microsoft (MSFT) and Cisco Systems (CSCO), as well as agile cloud-native providers. Maintaining its competitive edge requires continuous innovation and effective go-to-market strategies.

Conclusion

AudioCodes is at a pivotal juncture, successfully executing a strategic transformation that positions it for renewed growth and enhanced profitability. By leveraging its deep expertise in voice connectivity and its innovative AI-powered hybrid cloud platforms, the company is building a robust portfolio of value-added services that resonate with enterprise customers. The strong growth in Live managed services and the accelerating momentum in conversational AI, particularly with solutions like Meeting Insights On-Prem and Voca CIC, underscore the effectiveness of its "land and expand" strategy.

While facing headwinds from tariffs and geopolitical uncertainties, AudioCodes' proactive risk mitigation, strong balance sheet, and clear strategic roadmap provide a solid foundation. The company's unique technological differentiators, enabling rapid deployment and secure, enterprise-grade AI applications, are critical in maintaining its competitive standing against both large and niche rivals. As AudioCodes continues to transition towards a higher mix of recurring revenue and capitalize on the expanding UCaaS and CX markets, its disciplined investment in AI is poised to unlock significant long-term value for investors.