AudioCodes Ltd 2026 Q2 Earnings Call

Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer, and Niran Baruch, Vice President of Finance and Chief Financial Officer. Before we begin, I'd like to remind you that the information provided during this call may contain forward-looking statements relating to AudioCodes' business outlook, future economic performance, product introductions, plans and objectives related thereto. Statements concerning assumptions made or expectations as to any future events, conditions, performance, or other matters are forward-looking statements as the term is defined under U.S. federal securities laws. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties, and factors include, but are not limited to, the following.

The effect of global economic conditions in general and conditions in AudioCodes' industry and target markets in particular, including governmental undertakings to address such conditions, shifts in supply and demand, market acceptance of new products, and the demand for existing products. The impact of competitive products and pricing on AudioCodes and its customers' products and markets. Timely product and technology development upgrades, the advent of artificial intelligence, and ability to manage changes in market conditions and involving regulatory regimes, as applicable. Possible need for additional financing. The ability to satisfy covenants in AudioCodes financing agreements. Possible impacts and disruptions from AudioCodes acquisitions, including the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes business. Possible adverse impacts attributable to any pandemic or other public health crisis on our business and results of operations.

The effects of the current and any future hostilities involving Israel, including in the regions in which we or our counterparties operate, which may affect our operations and may limit our ability to produce and sell our solutions. Any disruption in our operations by the obligations of our personnel to perform military service as a result of current or future military actions involving Israel, and any other factors described in AudioCodes filings made with the U.S. Securities and Exchange Commission from time to time. AudioCodes assumes no obligation to update the information. In addition, during the call, AudioCodes will refer to non-GAAP net income and net income per share. AudioCodes has provided full reconciliation of the non-GAAP net income and net income per share to its net income and net income per share according to GAAP in the press release that is posted on its website.

Before I turn the call over to management, I'd like to remind everyone that this call is being recorded and archived webcast will be made available on the investor relations section of the company's website at the conclusion of the call. With all that said, I'd like to turn the call over to Shabtai. Shabtai, please go ahead. Thank you, Roger.

Good morning and good afternoon, everybody. I would like to welcome all to our second quarter 2026 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of AudioCodes. Niran will start off by presenting a financial overview of the quarter. I will review the business highlights and summary for the quarter and discuss trends and developments in our business and industry. We will turn it into the Q&A session.

Niran? Thank you, Shabtai, and hello, everyone.

Before I start my formal remarks, I would like to remind everyone that in conjunction with our earnings release this morning, we will post shortly on our investor relations website an earnings supplemental deck. On today's call, we will be referring to both GAAP and non-GAAP financial results. The earnings press release that we issued earlier this morning contains a reconciliation of the supplemental non-GAAP financial information that I will be discussing on this call. Revenues for the second quarter were $63 million, an increase of 3.1% over the $61.1 million reported in the second quarter of last year. Services revenues for the second quarter were $34.6 million, an increase of 6.2% over the year-ago period. Services revenues in the second quarter accounted for 54.9% of total revenues.

Revenue by geographic region was as follows: North America 50%, EMEA 33%, Asia Pacific 14%, and Central and Latin America 3%. Our top 15 customers represented an aggregate of 55 of our revenues in the second quarter, of which 37% was attributed to our 10 largest distributors. GAAP results are as follows. Gross margin for the quarter was 65.7% compared to 64.1% in Q2 2025. Operating income for the second quarter was $3.2 million, or 5.1% of revenues compared to operating income of $2.6 million, or 4.3% of revenues in Q2 2025. Net income for the quarter was $0.5 million, or $0.02 per diluted share, compared to net income of $0.3 million or $0.01 per diluted share for Q2 2025. Non-GAAP results are as follows.

Non-GAAP gross margin for the quarter was 65.8%, compared to 64.5% in Q2 2025. Non-GAAP operating income for the second quarter was $4.6 million or 7.4% of revenues, compared to $4.4 million or 7.2% of revenues in Q2 2025. Non-GAAP net income for the second quarter was $3.9 million or $0.15 per diluted share, compared to $4.1 million or $0.14 per diluted share in Q2 2025. At the end of June 2026, cash equivalents, short-term bank deposits, short-term marketable securities, and long-term financial investments totaled $64.2 million. Net cash provided by operating activities was $6.1 million for the second quarter of 2026. Days sales outstanding as of June 30, 2026, were 107 days. In May 2026, we received court approval in Israel to purchase up to an aggregate amount of $25 million of additional ordinary shares.

The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through November 12, 2026. During the quarter, we acquired 950,000 of our ordinary shares for a total consideration of approximately $8.9 million. Earlier this morning, we also declared a cash dividend of $0.20 per share. The aggregate amount of the dividend is approximately $4.8 million. The dividend will be paid on September 3 to all of our shareholders of record at the close of trading of August 19. Now to provide an update on our guidance. We reiterate our guidance for non-GAAP diluted net income per share for 2026 to be in the range of $0.60-$0.75. We are now raising our revenue guidance to a range of $251 million-$256 million, compared to the previous range of $247 million-$255 million.

I will now turn the call over to Shap.

Thank you, Niran. Second quarter financial results were solid. Most important, they reflect steady progress on our strategic initiative to transform and reposition AudioCodes as a valued AI-driven cloud and edge software and services company. Our top-line growth has maintained its track, driven by ongoing momentum in two primary growth engines, our Live managed services and VoiceAI. Combined, these two units contributed to $84 million annual recurring revenue exit second quarter 2026, growing 20% year-over-year and highlighting the increasing contribution of recurring high-quality revenue to our model. Annual recurring revenue has doubled in the last three years. That provides a strong foundation for future growth. We delivered strong performance in the Microsoft Teams Phone business. In addition to achieving 5% year-over-year growth, we saw pipeline expansion, increasing momentum in newly created opportunities, and growth in the total contract value of opportunities signed.

Performance across our two primary segments was in line with expectations, with our strong cash-generating connectivity business showing stability and VoiceAI business revenue growing again over 50% year-over-year. The strong growth puts us on track to achieve our stated goal of 40%-50% growth year-over-year for the VoiceAI segment for the full year 2026, targeting to reach $50 million by the end of 2028. Notably, the strong momentum in VoiceAI business with new opportunities, new emerging applications, and delivering state-of-the-art solution ahead of competition provides us with further incentive to continue and increase investments in this area. To highlights of the second quarter. Revenue growth accelerated to 3.1% year-over-year.