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01/11 11:08
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reflects a positive outlook with strategic growth plans, particularly in the conversational AI segment and Microsoft Teams business. Despite a slight decline in some financial metrics, the company shows strong revenue growth potential and a stable financial position. The dividend declaration and share repurchase program further enhance shareholder value. The Q&A session highlights favorable pricing power in the emerging Voice AI market. Overall, these factors suggest a positive stock price movement in the near term.
Revenues $61.5 million, an increase of 2.2% over the $60.2 million reported in the third quarter of last year. The increase is attributed to growth in the company's strategic business lines.
Services Revenues $30.9 million, a decrease of 4.8% over the year-ago period. The decline is due to shifts in the company's revenue mix.
Deferred Revenues $81.6 million as of September 30, 2025, compared to $78.6 million as of September 30, 2024, reflecting a year-over-year increase.
Gross Margin (GAAP) 65.5% compared to 65.2% in Q3 2024, showing a slight improvement due to favorable product mix and lower tariff-related costs.
Operating Income (GAAP) $4.1 million or 6.6% of revenues, compared to $4.9 million or 8.1% of revenues in Q3 2024. The decline is attributed to increased expenses, including a $0.5 million tariff cost.
EBITDA (GAAP) $5.2 million compared to $5.9 million for Q3 2024, reflecting a decrease due to higher operating expenses.
Net Income (GAAP) $2.7 million or $0.10 per diluted share, compared to $2.7 million or $0.09 per diluted share for Q3 2024, showing stability in net income.
Gross Margin (Non-GAAP) 65.8% compared to 65.6% in Q3 2024, showing a slight improvement due to favorable product mix and reduced tariff costs.
Operating Income (Non-GAAP) $5.8 million or 9.5% of revenues, compared to $7 million or 11.7% of revenues in Q3 2024. The decline is due to increased investments in the conversational AI business and currency impacts.
EBITDA (Non-GAAP) $6.9 million compared to $7.9 million for Q3 2024, reflecting a decrease due to higher operating expenses.
Net Income (Non-GAAP) $4.9 million or $0.17 per diluted share, compared to $4.9 million or $0.16 per diluted share in Q3 2024, showing stability in non-GAAP net income.
Cash and Financial Investments $79.7 million as of September 30, 2025, reflecting the company's strong financial position.
Net Cash Provided by Operating Activities $4.1 million for the third quarter of 2025, indicating positive cash flow from operations.
Annual Recurring Revenue (ARR) $75 million, up 25% year-over-year, driven by growth in the company's UCaaS and CCaaS connectivity business and conversational AI applications.
Backlog $76 million, growing 13.4% over the year-ago backlog of $67 million, indicating strong future revenue potential.
GenAI business applications: AudioCodes has successfully leveraged its enterprise customer base to drive cross-sell of its fast-growing GenAI business applications, which make up its Conversational AI division. The Conversational AI business increased by 50% in the quarter, with a projected 40%-50% growth for the full year 2025.
Live platform: AudioCodes launched the next-gen live platform, which has driven demand for productivity-enhancing GenAI value-add services. A strategic agreement was signed with a global Tier 1 system integrator to provide managed services and cross-sell Teams-certified Voca Contact Center.
Mia OP (Meeting Insights on-prem): This GenAI-powered meeting intelligence platform has gained traction in the Israeli market, particularly in the government sector, and was awarded a contract under Project Nimbus. It is also being marketed outside Israel with positive initial responses.
Agent Insights: Planned for launch in Q4 2025, this product will bring advanced conversational AI and generative AI to the Voca CIC platform, providing AI summaries, sentiment analysis, and CRM updates.
Global Tier 1 system integrator partnership: A strategic agreement was signed with a global Tier 1 system integrator to expand market reach and scale go-to-market execution in the enterprise space. This agreement is expected to generate low single-digit millions in recurring revenue during the first year.
Project Nimbus: AudioCodes was awarded a contract under Project Nimbus, the Israeli government's cloud migration initiative, to provide meeting intelligence services in the non-SaaS category for 2026.
Voice bot market: The voice bot market is projected to grow from $4.3 billion in 2024 to over $25 billion by 2034, with a CAGR of 20%. AudioCodes is capitalizing on this growth through its Voice AI Connect and Live Hub services.
Revenue growth: Revenues for Q3 2025 were $61.5 million, a 2.2% increase year-over-year. Annual recurring revenue (ARR) reached $75 million, up 25% year-over-year.
Profitability: Non-GAAP gross margin improved to 65.8% in Q3 2025, compared to 65.6% in Q3 2024. Non-GAAP operating margin was 9.5%, and non-GAAP EBITDA margin was 11.2%.
Cash and investments: Cash, cash equivalents, and financial investments totaled $79.7 million as of September 2025. Net cash provided by operating activities was $4.1 million for Q3 2025.
Shift to AI-driven hybrid cloud: AudioCodes is undergoing a long-term transformation to an AI-driven hybrid cloud software and services company, with a focus on GenAI business applications and conversational AI.
Focus on conversational AI: Conversational AI is a key growth driver, with a projected annual growth rate of 40%-50% in the coming years. Investments in R&D and sales have led to record bookings in this segment.
Microsoft partnership: AudioCodes continues to grow its Microsoft business, with a 4% increase in the first nine months of 2025. The pipeline of opportunities remains robust, supported by Microsoft Teams Phone and Copilot initiatives.
Global Economic Conditions: The company is exposed to risks from global economic conditions, including shifts in supply and demand and market acceptance of new products. These factors could adversely impact the company's performance.
Tariff Costs: The implementation of new U.S. import tariffs has increased expenses by approximately $0.5 million in Q3 2025 and is expected to result in a $3 million cost burden for the full year 2025.
Geopolitical Risks: Hostilities involving Israel, where the company operates, could disrupt operations and limit the ability to produce and sell solutions. Obligations of personnel to perform military service could also impact operations.
Regulatory and Compliance Risks: Evolving regulatory regimes and the ability to manage changes in market conditions pose challenges to the company's operations and strategic objectives.
Supply Chain Disruptions: Potential disruptions in the supply chain could impact the company's ability to deliver products and services effectively.
Competitive Pressures: The impact of competitive products and pricing could affect the company's market position and financial performance.
Customer Concentration: The top 15 customers represent 53% of revenues, with 38% attributed to the 10 largest distributors. This concentration poses a risk if any major customer reduces or ceases business with the company.
Deferred Revenues: Deferred revenues increased to $81.6 million as of September 30, 2025, which could indicate potential challenges in revenue recognition or cash flow management.
Economic Uncertainties: Economic uncertainties, including currency fluctuations and weakening of the U.S. dollar against the euro, have impacted operating expenses.
Strategic Execution Risks: The company's transformation to an AI-driven hybrid cloud software and services model involves significant R&D and marketing investments, which may not yield the expected returns.
Revenue Expectations: For 2025, the company expects revenues of $244 million to $246 million, marking a reversal of the declining annual revenue trend experienced in 2023 and 2024. Growth is expected to continue into 2026.
Non-GAAP Earnings Per Share: The company projects non-GAAP earnings per share of $0.60 to $0.64 for 2025.
Annual Recurring Revenue (ARR): The company anticipates reaching an ARR of $78 million to $82 million for 2025, with a 25% year-over-year growth in the third quarter and strong momentum expected to continue.
Conversational AI Business Growth: The conversational AI business is expected to grow by 40% to 50% annually over the coming years, driven by strong demand for GenAI-powered applications and services.
Voice Bot Market Growth: The voice bot market is projected to grow from $4.3 billion in 2024 to over $25 billion by 2034, with a compound annual growth rate of 20%, supporting the company's growth in Voice AI Connect and Live Hub services.
Mia OP Expansion: The Mia OP solution is gaining traction in Israel and globally, with significant opportunities in government, healthcare, and utilities sectors. The company expects momentum to accelerate in Q4 2025 and into 2026.
Profitability Metrics: Non-GAAP gross margin for Q3 2025 was 65.8%, with expectations for similar tariff-related cost impacts in Q4 2025. Non-GAAP operating margin reached 9.5%, and non-GAAP EBITDA margin was 11.2%.
Strategic Partnerships: The company signed a strategic agreement with a global Tier 1 system integrator, expected to generate low single-digit millions in recurring revenue during the first year. Additional partnerships with Tier 1 integrators are anticipated in the coming quarters.
Microsoft Business Growth: The Microsoft business pipeline grew 20% year-over-year in Q3 2025, with strong market adoption of Teams Phone and related services expected to drive growth in the coming years.
Court approval for shareholder return: In July 2025, the company received court approval in Israel to purchase up to an aggregate amount of $25 million of additional ordinary shares. The approval also permits the declaration of a dividend of any part of this amount, valid through December 30, 2025.
Dividend declaration: On July 29, 2025, the company declared a cash dividend of $0.20 per share, amounting to approximately $5.6 million. The dividend was paid on August 28, 2025, to shareholders of record as of August 14, 2025.
Share repurchase program: During the third quarter, the company acquired 1,267,000 of its ordinary shares for a total consideration of approximately $12.7 million.
The earnings call reflects a positive outlook with strategic growth plans, particularly in the conversational AI segment and Microsoft Teams business. Despite a slight decline in some financial metrics, the company shows strong revenue growth potential and a stable financial position. The dividend declaration and share repurchase program further enhance shareholder value. The Q&A session highlights favorable pricing power in the emerging Voice AI market. Overall, these factors suggest a positive stock price movement in the near term.
The earnings call presents a mixed picture. Positive aspects include growth in services revenue and strong cash flow generation. However, there are concerns about declining margins, increased operating expenses, and tariff-related costs. The withdrawal of revenue guidance also adds uncertainty. The Q&A section reveals optimism about future growth, especially in AI and partnerships, but lacks specific data. Overall, the sentiment is balanced by positive long-term prospects and short-term challenges, leading to a neutral rating.
The earnings call summary highlights several concerns: AudioCodes missed EPS expectations, faces geopolitical risks affecting operations, and acknowledges various uncertainties such as economic conditions and competitive pressures. The Q&A revealed plans to move manufacturing out of China, which might mitigate some risks, but unclear responses about pricing and tariffs add uncertainty. Overall, the negative earnings miss, geopolitical risks, and operational challenges outweigh potential positives, suggesting a likely negative stock price movement.
The decision to withdraw guidance due to tariff and macroeconomic uncertainties, combined with the potential need for additional financing, raises concerns. The slight revenue increase and share buyback are positive, but geopolitical risks and unclear management responses in Q&A add to the negative sentiment. The dividend declaration is overshadowed by the broader uncertainties.
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