AudioCodes (AUDC) Q3 2026 earnings review
AudioCodes services revenue jumps 20%, but its operating profit falls
AudioCodes, a maker of enterprise voice software and hardware, grew its services business while hardware sales and operating profit fell. Services revenue jumped 20% from a year ago, but a 12% drop in product sales held total growth to 4%. Chief executive Shabtai Adlersberg kept his plan for healthy revenue growth, though profit excluding one-offs dropped 19% on higher sales spending.
| Revenue | $64.1M +4.2% from a year ago |
|---|---|
| Services revenue | $37.1M +19.9% from a year ago |
| Operating margin, excluding one-offs | 7.4% 9.5% a year ago |
| Top-line outlook | Unchanged continued healthy growth for 2026 and 2027 |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because rising services and artificial intelligence sales still come with falling operating margins. Live and VoiceAI recurring revenue reached $87 million, up 16%, showing steady customer demand. The bad news: heavy share buybacks and dividends outpaced cash generation and cut cash reserves to $47 million.
The question now is whether fast growth in recurring services can lift operating profit once the current sales push matures. Either higher-margin software subscriptions start expanding total profit, or shrinking hardware sales and marketing costs keep squeezing earnings. Fourth-quarter operating margin and full-year 2027 targets will settle it.
🐂 Bull Case
Services Growth Lifted Total Revenue
AudioCodes, a maker of enterprise voice software and hardware, relies on its services division to carry the whole business. Chief executive Shabtai Adlersberg highlighted the Live suite, which manages voice connections for unified communications (UCaaS) and customer experience (CX) systems. Services sales jumped 19.9% from a year ago to $37.1 million, lifting total revenue 4.2% to $64.1 million.
That acceleration matters because services grew only 4.3% in the first quarter and now bring in 57.8% of total sales, up from 50.3% a year ago by our math. Gross margin on services also rose 1.7 percentage points to 69.0% by our math, because recurring support contracts scale better than hardware shipments.
What to watch: the total services backlog on the fourth-quarter call. A rising backlog above the $79 million reported in the first quarter would show that multi-year managed service deals can sustain double-digit services growth.
Voice AI Products Expanded Across the Portfolio
AudioCodes is shifting from phone hardware toward artificial intelligence software that automates customer calls and summarizes meetings. Adlersberg pointed to "strong, broad-based demand across the portfolio" as VoiceAI sales grew 50% over the first nine months of 2026 from a year ago. Combined annual recurring revenue (ARR), the yearly value of active contracts for Live services and VoiceAI, reached $87 million.
- Combined Live and VoiceAI ARR: $87 million, up 16% from a year ago
- Voca CIC, its contact center software for Microsoft Teams: revenue up more than 40% from a year ago
- Meeting Insights and Mia Edge, its meeting summary tools for cloud and local servers: revenue up more than 100% from a year ago
- Microsoft Teams voice business: up 4% from a year ago
These software gains show customers are buying newer applications, but the 16% ARR increase is slower than the 22% pace at the end of 2025 and the 20% pace in the first quarter.
What to watch: year-end ARR against the $92 million to $98 million target range set at the start of the year. Hitting that range requires adding at least $5 million in the fourth quarter.
🐻 Bear Case
Higher Sales Spending Cut Operating Profit
Adlersberg reported "strong financial results and continued business momentum for the third-quarter 2026", and said "we achieved our operational and financial targets for the third quarter period". Yet profit excluding one-offs went down while revenue grew. Operating margin excluding one-offs fell 2.1 percentage points from a year ago to 7.4%, and net income excluding one-offs dropped 18.9% to $4.0 million.
Selling and marketing expenses drove the drop, rising 2.3 percentage points of revenue by our math to 33.1%, or $21.2 million, as the Israeli company spent more to promote its software. Reported net income rose 33.2% to $3.6 million only because foreign-exchange revaluations created $1.1 million of financial income, which the results excluding one-offs strip out.
What to watch: fourth-quarter earnings per share excluding one-offs against the full-year target of $0.60 to $0.75. Reaching the bottom of that range requires at least $0.16 in the fourth quarter.
Product Revenue Dropped 12% From a Year Ago
AudioCodes sells hardware gateways, session border controllers and software licences in its products segment. Product sales fell 11.7% from a year ago to $27.0 million, after growing 1.3% in the first quarter. By our math, product gross margin also dropped 2.4 percentage points from a year ago to 61.1%, pulling down total gross profit growth.
The drop shows that customers are buying fewer upfront hardware devices and perpetual licences as they shift to monthly managed service subscriptions. Because products still make up 42.2% of revenue by our math, a double-digit decline there offsets much of the 19.9% gain in services and keeps total company growth below 5%.
What to watch: fourth-quarter product revenue against last year's $28.0 million. Another double-digit drop would keep total annual revenue growth in the low single digits even if services stay near 20%.
Buybacks and Dividends Drained Cash Reserves
AudioCodes returns cash to shareholders through semi-annual dividends and regular share buybacks. During the third quarter, the voice specialist spent $15.1 million to repurchase 1.52 million shares and paid a $4.8 million cash dividend. Over the first nine months of 2026, buybacks of $37.7 million and dividends of $10.1 million exceeded free cash flow by $28.1 million by our math.
Because cash payouts ran more than double the $19.6 million of nine-month free cash flow, total cash and investments fell 37.7% from December 2025 to $47.1 million. An Israeli court approved another $30 million for buybacks and dividends in September, leaving $26.7 million available, so the cash drain can continue.
What to watch: fourth-quarter share repurchases against operating cash flow. Spending the remaining $26.7 million allowance without higher cash generation would push cash reserves close to $20 million.
💲 Other KPIs
Total deferred revenue — cash customers have paid for services not yet delivered — rose to $65.4 million by our math, up 11.4% from $58.8 million at the end of December 2025 and up from $62.5 million in the first quarter. Adding $2.2 million from operations this quarter supports future services revenue.
The voice technology group reduced its diluted share count excluding one-offs by 14.4% from a year ago, down from 29.4 million shares, after buying back 1.52 million shares this quarter. That lower share count cushioned earnings per share excluding one-offs, which fell 5.9% to $0.16 even though net income excluding one-offs dropped 18.9%.
Free cash flow — operating cash flow of $4.1 million minus $1.1 million of property and equipment purchases — rose 21.7% from $2.5 million a year ago by our math, helped by $0.5 million lower capital spending. It remains down from $11.6 million in the first quarter because receivables and payables absorbed working capital.
🔮 Guidance
Unchanged. Adlersberg expects "continued healthy top-line growth throughout the rest of 2026 and 2027", keeping the qualitative phrasing from the first-quarter release and extending it into 2027. The press release did not print dollar ranges for full-year 2026 revenue ($247 million to $255 million on the first-quarter call). By our math, the middle of that earlier $251 million range leaves $61.8 million for the fourth quarter, down 1.4% from a year ago.
❓ Key Questions
Did management keep the 2026 revenue and profit ranges?
On the first-quarter call, finance chief Niran Baruch reiterated full-year 2026 targets of $247 million to $255 million in revenue and $0.60 to $0.75 in earnings per share excluding one-offs. The third-quarter release gave no dollar numbers, leaving fourth-quarter targets unclear.
What caused the 12% drop in product revenue?
Product revenue fell 11.7% from a year ago to $27.0 million after holding steady at $28.1 million in the first quarter. Investors need to know whether customers delayed hardware orders or shifted faster from upfront software licences to monthly services.
Where do the services backlog and collection days stand?
AudioCodes reported a $79 million managed services backlog and 104 days sales outstanding on its first-quarter call, but does not print either figure in its press releases. Those numbers show whether cash collection and future service demand are improving.
How much did US import tariffs cost this quarter?
At year-end, management estimated US tariffs would cost $2.3 million in 2026, down from $2.7 million in 2025. With product gross margin down 2.4 percentage points from a year ago by our math, the tariff bill for the quarter matters.