Audiocodes Earnings Call Balances AI Hopes and Margin Strain

Audiocodes ((AUDC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Sentiment around Audiocodes’ latest earnings call was cautiously optimistic: management highlighted accelerating traction in Voice and Conversational AI along with expanding managed services ARR and a strong cash and capital-return profile, yet acknowledged that the transition toward higher-growth platforms is suppressing GAAP and non-GAAP profitability, leaving investors juggling growth promises against immediate margin pressure, tariff and FX headwinds, and lingering concentration risks.

Modest Top-Line Growth

Audiocodes posted Q4 revenue of $62.6 million, a 1.7% year-on-year increase, while full-year 2025 revenue reached $245.6 million, up just 1.4%, underscoring a company-wide revenue base that is stabilizing but still expanding only in low single digits outside the faster-growing AI segments.

Strong Momentum in Voice AI / Conversational AI

Conversational AI revenue climbed roughly 35% in 2025 to about $17 million—roughly 7% of total sales—and surged more than 50% in the second half, with management reiterating expectations for Voice AI growth of 40%–50% annually through 2028 and targeting about $50 million in revenue from this vertical by the end of that horizon.

Managed Services and ARR Expansion

Combined live managed services and Voice AI now deliver $79 million in annual recurring revenue, up 22% year over year, while the live services backlog expanded to $75 million, signaling resilient demand for subscription-based offerings even as legacy hardware businesses decelerate.

Product Momentum and New Wins

New multiyear contracts—including a 36-month AT&T-managed services engagement for a major public university and a 60-month international manufacturer deal—paired with surging Live App platform activity, where monthly recurring revenue nearly tripled versus Q4 2024, point to a strengthening sales pipeline.

Healthy Cash Position and Capital Returns

The company ended 2025 with $75.7 million in cash and investments, executed about $6.1 million in share repurchases under a refreshed $25 million authorization, and declared a $0.20 per-share dividend, illustrating management’s confidence in liquidity despite ongoing investments in growth initiatives.

Profitability Metrics in Range and Adjusted EBITDA

Non-GAAP gross margin held at 65.9% in Q4, within the 65%–68% target band, while adjusted EBITDA reached $6.5 million for the quarter and $24.8 million for the year (around a 10% margin), showcasing operational discipline even as the company funds new platforms.

Significant Decline in GAAP and Non-GAAP Profitability

GAAP net income fell 72% year over year to $1.9 million in Q4 and 41% for the full year to $9 million, while non-GAAP net income dropped 61% in Q4 and 34% for 2025, reflecting heavier Voice AI investment, tariff costs, and currency pressures that are compressing bottom-line performance.

Operating Income Compression

Operating income declined to $3.7 million (6% margin) in Q4 and $14 million for 2025, with non-GAAP operating income also sliding, highlighting how incremental spending on AI talent and platforms is suppressing operating leverage in the near term.

Low Single-Digit Revenue Growth Company-Wide

The broader business continues to post only modest gains—1.7% in Q4 and 1.4% for the year—underscoring the transitional nature of Audiocodes’ portfolio as high-growth niches offset stagnation in legacy connectivity products.

Tariff and Currency Headwinds, Elevated DSO

Management cited $2.7 million in tariff costs during 2025, a weakening dollar versus the euro, and stubborn Days Sales Outstanding stuck at 117 days, all of which hamper working capital and profitability progress.

Customer Concentration Risk

Revenue concentration remains a watch item, with the top 15 customers representing 58% of Q4 revenue and the 10 largest distributors delivering 41%, leaving the company exposed to contract timing and procurement shifts among a handful of partners.

Voice AI Investment Burn and Path to Profitability

Voice AI currently carries an annual investment burn near $9–$10 million, and management expects breakeven roughly two years out, meaning the segment’s rapid growth still drags consolidated margins until scale efficiencies kick in.

Slight Gross Margin Erosion Year-over-Year

GAAP gross margin slipped 60 basis points year over year to 65.6% in Q4, mirroring a similar non-GAAP contraction, signaling that mix shifts and incremental costs are nibbling at the company’s otherwise resilient margin profile.

Guidance Reflects Continued Growth in 2026

Management projects 2026 revenue between $247 million and $255 million and non-GAAP EPS of $0.60–$0.75, assuming 40%–50% Voice AI growth and stable connectivity demand, while targeting ARR of $92 million–$98 million, maintaining 65%–68% gross margins, absorbing a smaller $2.3 million tariff hit, driving Voice AI toward breakeven, and leveraging a $25 million buyback authorization plus dividend payments supported by $75.7 million in cash; investors are also urged to monitor DSO, which remains elevated at 117 days.

Audiocodes’ latest call underscores a company in mid-transition: momentum in Voice AI, managed services, and ARR is encouraging, yet profitability erosion, macro headwinds, and revenue concentration temper enthusiasm, leaving investors weighing near-term pressure against long-term AI-driven upside.