Audiocodes Earnings Call: AI Growth vs. Margin Squeeze

Audiocodes ((AUDC)) has held its Q1 earnings call. Read on for the main highlights of the call.

Audiocodes’ latest earnings call painted a company in transition, balancing solid momentum in strategic growth engines with pressure on near‑term profitability. Management highlighted strong advances in Voice AI, services and recurring revenue, as well as improving gross margins and healthy cash generation, but these positives were tempered by modest overall revenue growth, rising operating costs and declining GAAP and non‑GAAP earnings.

Modest Top-Line Growth

Audiocodes reported Q1 2026 revenue of $62.1 million, a 2.9% year‑over‑year increase from $60.4 million, underscoring only modest top‑line expansion. Management framed the quarter as another step in shifting the mix toward higher‑value services and AI offerings, even as overall growth remained constrained by flat product revenues and a still‑evolving demand environment.

Services and Recurring Revenue Momentum

Services remained the key growth engine, with services revenue reaching $34.0 million, up 4.3% year over year and accounting for 54.7% of total revenue. Combined Live Managed Services and Voice AI annual recurring revenue exited the quarter at $80 million, growing nearly 20% year over year and reinforcing the company’s pivot toward a recurring, subscription‑driven model.

High Growth in Voice AI

Voice AI continued to stand out, with conversational AI revenue growing more than 50% year over year and reaching $16.7 million in 2025, up from roughly $12 million in 2024. Management is targeting about 50% growth to $25 million in 2026 and aims to reach $50 million by 2028, with Voice AI already contributing around 8% of total revenue in the first quarter.

Strong Bookings and ARR Traction

The company reported more than 80% year‑over‑year growth in bookings and nearly 100% growth in new opportunities, signaling robust demand for its platforms. Live Hub annual recurring revenue climbed more than 20% sequentially and over 100% year over year, while Voca CIC invoicing rose more than 60% with notable wins in banking, retail and higher education.

Gross Margin Improvement

Audiocodes delivered stronger profitability at the gross margin line, with GAAP gross margin improving to 66.2% from 64.8% a year earlier. On a non‑GAAP basis, gross margin reached 66.3% versus 65.2% and sat comfortably within the company’s long‑term target range of 65% to 68%, reflecting the richer mix of software, services and AI.

Cash Generation and Capital Returns

The business generated $12.8 million in net cash from operations during the quarter, supporting a cash, equivalents and investments balance of $68.1 million. Management returned capital to shareholders via a $0.20 per‑share dividend totaling about $5.3 million and repurchased 1.7 million shares for approximately $13.7 million during the period.

Backlog Growth and Demand Visibility

Backlog ended Q1 at $79 million, up from $67 million a year earlier, representing roughly 18% growth and providing improved visibility for upcoming quarters. This strengthened backlog, combined with rising ARR, underpins management’s confidence in converting the growing pipeline into revenue and supports the decision to reaffirm full‑year guidance.

Product and Market Wins, Platform Expansion

Management highlighted several strategic wins, including a 48‑month contract with a Tier 1 carrier for SBC and gateway solutions and a multi‑year live platform migration for another carrier. The company also secured a 20,000‑user initial deployment of its high‑security on‑prem Live Pro, expandable to 70,000 users, and expanded Meeting Insights integration to Cisco WebEx, broadening coverage across major UCaaS providers.

Pressure on GAAP Earnings

Despite operational progress, profitability weakened, with GAAP net income falling to $2.0 million, or $0.07 per diluted share, from $4.0 million, or $0.13 per diluted share, a year earlier. The roughly 50% drop in net income and near 46% decline in earnings per share reflect higher operating expenses and investment spending as the company builds out its AI and services capabilities.

Non-GAAP Profitability and EBITDA Compression

On a non‑GAAP basis, operating income slipped to $4.8 million, or 7.7% of revenue, from $5.4 million and an 8.9% margin in the prior‑year quarter. Non‑GAAP net income declined to $3.8 million, or $0.14 per share, while adjusted EBITDA came in at $5.8 million with a 9.4% margin, down from $6.2 million and a 10.2% margin, underscoring near‑term margin compression.

Rising Operating Expenses from Investment

Non‑GAAP operating expenses climbed to $36.4 million from $34.0 million a year earlier, driven primarily by expanded R&D and sales and marketing efforts to scale Voice AI and cloud services. Management framed these higher costs as necessary growth investments, though they are clearly weighing on current profitability and delaying a return to higher operating margins.

Working Capital and Customer Concentration Risks

Days sales outstanding reached 104 days as of March 31, 2026, pointing to slower collections and potential short‑term pressure on working capital that investors will watch closely. Customer concentration also remained notable, with the top 15 customers contributing 53% of revenue and eight large distributors accounting for 34%, exposing Audiocodes to the performance and purchasing cycles of a relatively small group of partners.

Legacy Product Headwinds and Growth Mix

While services and AI revenues are expanding, product revenue was roughly flat, limiting overall growth to the low single digits. This split underscores that Audiocodes’ strongest momentum is in newer, software‑driven and cloud‑based offerings, while legacy hardware and product sales are not yet contributing meaningfully to top‑line acceleration.

Forward-Looking Guidance and Strategic Outlook

Management reaffirmed full‑year 2026 revenue guidance of $247 million to $255 million and non‑GAAP diluted EPS of $0.60 to $0.75, signaling confidence in the backlog and pipeline. The company is planning around 40% to 50% growth in Voice AI this year, targeting about $25 million of Voice AI revenue in 2026 and a multi‑year goal of roughly $50 million by 2028, with gross margins expected to remain within the 65% to 68% long‑term range.

Audiocodes’ earnings call revealed a business leaning hard into its AI and managed services transformation, accepting short‑term earnings pressure to secure recurring, higher‑margin growth. For investors, the story hinges on whether robust bookings, rising ARR and a solid backlog can translate into faster top‑line growth and improved profitability as Voice AI and services scale over the next several years.