AUDC Q4 2025: Voice AI Revenue Jumps 35% as Strategic Shift Gains Scale
AudioCodes’ Q4 2025 marked a definitive inflection as Voice AI and managed services combined for $79M in annual recurring revenue, up 22% year over year, while legacy businesses stabilized. Management’s confidence in 40% to 50% annual Voice AI growth through 2028 signals a multi-year pivot from hardware to AI-driven software and services, with expanding product maturity and customer adoption laying groundwork for margin expansion and higher recurring mix.
Summary
- Voice AI Growth Engine Accelerates: Conversational AI and live managed services are driving recurring revenue momentum and outpacing legacy declines.
- Business Model Transition in Focus: Mix shift toward software and services is supporting margin stability and long-term scalability.
- 2026 Outlook Anchored on Recurring Revenue: Management projects strong Voice AI growth and stable connectivity, with recurring ARR targeted to reach up to $98M.
Performance Analysis
AudioCodes delivered modest top-line growth in Q4 and the full year as its core connectivity business steadied, but the quarter’s real story is the accelerating scale of its Voice AI and managed services segments. Voice AI revenue surged 35% year over year to nearly $17 million, now representing 7% of total revenue and demonstrating rapid adoption and product-market fit. Managed services and Voice AI together contributed $79 million in annual recurring revenue, up 22% year over year, underscoring the company’s pivot to a recurring, software-centric model.
Gross margin remained robust at 65.9% (non-GAAP), within the long-term target range, while operating income and net income compressed due to continued investment in sales, marketing, and R&D for Voice AI expansion. Tariff-related costs remained a headwind, but are projected to ease slightly in 2026. Cash flow from operations was healthy at $29.4 million for the year, supporting a dividend and share repurchases despite higher operating expenses tied to growth initiatives.
- Recurring Revenue Mix Shift: 55% of Q4 revenue came from services, and ARR from growth engines now approaches one-third of total sales.
- Legacy Stabilization: Connectivity business, still 93% of revenue, saw its decline moderate and remains a margin anchor.
- Margin Dynamics: Investment in Voice AI is dilutive near term but expected to reach break-even in two years as scale increases.
Overall, the quarter validates AudioCodes’ strategic reallocation toward AI-first applications, with early signals of sustainable growth in higher-value segments even as legacy hardware matures.
Executive Commentary
"After facing economic challenges in 2023 and 2024 that affected our legacy and hardware business lines and have led to a decline in revenue in past years, we saw 2025 a recovery of our connectivity business. Over the course of 2025, we saw promising signs of top-line growth inflection. The rate of decline in legacy business has moderated and we saw the newly invested voice AI strategic areas maintaining their robust upward trajectory."
Shabtai Allisberg, President and Chief Executive Officer
"Our guidance for the full year 2026 is as follows. We expect revenues in the range of $247 million to $255 million and non-GAAP diluted earnings per share of $0.60 to $0.75. This projection assume continuing strong growth of 40 to 50% of the voice AI business and a stable connectivity outlook, assuming no significant changes in the macro economic landscape."
Naran Baruch, Vice President of Finance and Chief Financial Officer
Strategic Positioning
1. Voice AI and Managed Services: Growth Engine Scaling
Voice AI, software that automates and augments voice interactions using artificial intelligence, is now AudioCodes’ most dynamic segment, posting 35% year-over-year growth and reaching $17 million in 2025. Live managed services, which provide enterprise customers with ongoing support and cloud-based voice infrastructure, have also gained traction. Together, these units produced $79 million in ARR, validating management’s focus on recurring, high-margin business lines and supporting a mix shift away from legacy hardware.
2. Connectivity Business: Margin Anchor and Cash Generator
The connectivity business, AudioCodes’ legacy segment providing telephony gateways and devices, now makes up 93% of revenue but has stabilized after multi-year declines. Management targets 16% to 18% operating margins for this mature segment, using it as a cash-generating base to fund Voice AI expansion. The business remains profitable and is positioned as a foundation for cross-selling new AI-driven applications to an established enterprise customer base.
3. Product Maturity and Market Expansion
Several Voice AI product lines reached commercial maturity in 2025, enabling broader customer adoption and higher spend per account. Notable wins include large deployments with universities and business process outsourcers, as well as government contracts in Israel. The launch of new features such as Agent Insights and the expansion of Meeting Insights to support multiple platforms (Teams, Zoom, Google Meet, and soon Cisco Webex) have broadened AudioCodes’ addressable market and increased stickiness.
4. Channel and Ecosystem Leverage
AudioCodes is deepening partnerships with Microsoft and Cisco, leveraging its position in the Teams and Webex voice ecosystems to drive incremental growth. The company’s solutions are certified and integrated into both vendors’ cloud telephony platforms, creating a pathway for cross-selling AI applications to a large, installed enterprise base. Channel partnerships and system integrator relationships are also expanding global reach.
5. R&D and Talent Allocation
Management is aggressively reallocating R&D resources to Voice AI, with 150 of 350 R&D employees now dedicated to this segment (up from 40-50 in 2010). This shift underpins the company’s confidence in sustaining 40% to 50% annual Voice AI growth and achieving break-even in this segment within two years, as scale and product depth increase.
Key Considerations
Q4 2025 marks a visible pivot for AudioCodes, with the company executing on a multi-year transition from hardware to software and recurring services. The quarter’s results and management commentary highlight several critical themes for investors evaluating the durability and upside of this shift.
Key Considerations:
- Recurring Revenue Expansion: The growing share of ARR and services revenue is improving visibility and reducing cyclicality, positioning AudioCodes for more resilient growth.
- Voice AI Investment Mode: The Voice AI business is not yet profitable, with a $9 to $10 million annual budget burn, but management expects break-even in two years as revenue scales.
- Tariff and FX Headwinds: Tariff-related costs remain a drag but are expected to moderate in 2026; currency fluctuations also impacted expenses in Q4.
- Customer and Product Diversification: New product launches and expanded integrations (e.g., Meeting Insights for Google Meet and Webex) are opening new verticals and geographies.
- Capital Allocation Discipline: Share buybacks and a cash dividend reflect underlying cash flow strength and management’s confidence in future growth.
Risks
Execution risk remains high as AudioCodes accelerates its shift toward Voice AI, with profitability in this segment dependent on sustaining high growth rates and successful customer adoption. Tariff exposure, macroeconomic uncertainty, and potential disruptions from regional hostilities in Israel are additional headwinds. The company’s ability to manage the pace of investment and maintain margin discipline while scaling new business lines will be critical to long-term value creation.
Forward Outlook
For Q1 2026, AudioCodes guided to:
- Continued strong growth in Voice AI and managed services, with ARR targeted to grow 20% in 2026.
- Stable revenue in connectivity business, barring major macro shifts.
For full-year 2026, management provided guidance:
- Revenue of $247 million to $255 million.
- Non-GAAP EPS of $0.60 to $0.75.
Management highlighted several factors that will drive results:
- Voice AI annual revenue growth of 40% to 50% driven by new customer wins and increased spend per account.
- Expansion of recurring revenue base and continued product innovation.
Takeaways
AudioCodes’ Q4 2025 results confirm that the company’s Voice AI and managed services pivot is gaining traction, with recurring revenue and product innovation offsetting legacy headwinds and supporting higher margin potential.
- Strategic Shift Validated: Voice AI and managed services now account for a material share of revenue, with growth rates well above the company average.
- Legacy Stability Enables Investment: The mature connectivity business provides margin and cash flow to fund rapid expansion in higher-growth segments.
- Forward Focus on ARR and Profitability: Investors should watch for continued Voice AI adoption, break-even progress, and the evolution of recurring revenue mix as key drivers of future upside.
Conclusion
AudioCodes exits 2025 with clear momentum in its AI-driven business lines, leveraging a stable legacy base to fund ambitious growth in software and services. The company’s ability to sustain high growth in Voice AI and execute on its margin targets will define its long-term trajectory and valuation re-rating potential.
Industry Read-Through
AudioCodes’ results highlight a broader industry trend: legacy hardware vendors in unified communications are rapidly pivoting to AI-enabled software and recurring services, seeking to capture higher-margin, stickier business. The company’s success in expanding ARR, deepening ecosystem partnerships, and accelerating product innovation signals that enterprises are moving beyond AI pilots to at-scale adoption, especially in voice and collaboration workflows. Vendors that can combine deep telephony expertise with AI-driven applications and flexible deployment models (cloud, hybrid, on-prem) are best positioned to benefit from this secular shift. Watch for similar transitions and margin expansion efforts across the UCaaS, CCaaS, and enterprise communications landscape.