AUDC Q2 2023: Microsoft Teams Revenue Jumps 18%, Accelerating Shift to Recurring Services
Microsoft Teams-driven growth and surging managed services bookings marked a decisive shift for AudioCodes in Q2. Executives highlighted a stabilizing core, robust pipeline, and the first signs of operational leverage from cost actions. With the legacy decline now largely absorbed and new SaaS platforms scaling, AudioCodes is positioned for a more software-centric revenue mix through year-end and beyond.
Summary
- Teams-Led Expansion: Microsoft Teams and Live managed services drove core growth as legacy drag faded.
- Recurring Revenue Momentum: ARR and contract wins underpin improved visibility and margin leverage.
- AI and CX Upside: Voice AI and contact center offerings are setting up new long-term growth vectors.
Business Overview
AudioCodes provides voice networking, unified communications (UC), and customer experience (CX) solutions for enterprises and service providers, with a growing emphasis on software, cloud, and managed services. The company generates revenue from product sales (hardware, software), recurring services (maintenance, support, managed services), and advanced offerings like Voice AI, conversational analytics, and contact center integrations. Major segments include Microsoft Teams integration, Live managed services, and CX/AI solutions, with enterprise business now comprising 88% of total revenue.
Performance Analysis
Q2 marked a pivotal inflection as AudioCodes’ core business rebounded from Q1’s softness, led by a 12% YoY increase in Microsoft-related revenue and 18% YoY growth in Teams-specific business. Live managed services annual recurring revenue (ARR) exited the quarter at $40 million, up over 60% YoY, and total contract value for Live subscriptions exceeded $120 million, highlighting rising customer commitment to recurring models.
Gross margin improved sharply, attributed to a more favorable product mix and early realization of cost reduction measures, while operating expenses declined ahead of plan as headcount reductions flowed through. Non-core lines—service provider and IP phones—stabilized after prior declines, suggesting the worst of the legacy drag may be behind. Bookings and pipeline signals were robust, especially in North America and Asia Pacific, though EMEA remained subdued.
- Product Mix Shift: Higher margin software and managed services offset hardware drag, boosting gross margin to 64.5%.
- Live Services Acceleration: Live managed services TCV grew 75% sequentially, driving ARR and backlog growth.
- Legacy Stabilization: Declines in service provider/IP phones are now less material to overall trajectory.
AudioCodes’ performance reflected early success in its transformation to a SaaS and services-centric business model, with margin expansion and recurring revenue growth providing improved earnings visibility into the second half.
Executive Commentary
"We executed well in a challenging macro environment with key growth engines, namely Microsoft Customer Experience and Voice AI, growing nicely. We have also seen bookings experiencing measurable improvements relative to the last quarter."
Shabtai Allisburg, President and Chief Executive Officer
"We reiterate our guidance for revenues for 2023 to be in the range of $240 million to $250 million. We now raising our guidance for non-GAAP diluted earnings per share to be in the range of $0.55 to 70 cents compared to the original range of 50 cents to 70 cents."
Niran Baruch, Chief Financial Officer and VP of Finance
Strategic Positioning
1. Microsoft Ecosystem Penetration
AudioCodes’ deep integration with Microsoft Teams is now the primary engine of growth, with Teams-related business up 18% YoY and 20% sequentially. The company added 282 new Teams accounts, and the transition from Skype for Business to Teams is nearly complete, removing a multi-year revenue headwind. With over 17 million PSTN Teams users out of 300 million total Teams users, the addressable market for voice integration remains significant.
2. Recurring Revenue and Managed Services
Live managed services and subscriptions are scaling rapidly, with ARR and backlog both growing at double-digit rates. The Live platform’s multi-year contracts and high total contract value deals (including recent wins with Tier 1 service providers and global integrators) are creating multi-year revenue visibility and stickier customer relationships.
3. Voice AI and Customer Experience (CX) Expansion
Voice AI revenue grew over 15% YoY, with AudioCodes’ investment in AI-powered applications (like the newly certified VOCA Conversational Interaction Center for Teams) opening a second leg of growth in CX and conversational analytics. The company is leveraging its install base to upsell these solutions, targeting both SMBs and large enterprises with scalable, software-centric offerings.
4. Operational Leverage and Cost Discipline
Headcount reductions and cost actions announced in Q1 are flowing through, with further OPEX declines expected in Q3. This operational discipline is driving margin improvement and supporting the raised earnings guidance.
5. Multi-Platform, Multi-Partner Channel Strategy
AudioCodes is extending its Live Cloud Pro and CX services to cover not just Microsoft Teams, but also Zoom and WebEx, positioning the company as a multi-platform enabler for service providers and enterprise customers seeking unified, simplified communications solutions.
Key Considerations
Q2 demonstrated AudioCodes’ ability to execute on its SaaS and managed services strategy, but also surfaced several strategic watchpoints for investors:
Key Considerations:
- Microsoft Dependency: Growth is increasingly tied to Microsoft Teams adoption, making platform risk and Microsoft’s own priorities a key variable.
- ARR Scaling Pace: Sustaining 50%+ ARR growth in Live and Voice AI will require continued pipeline conversion and upsell into the large Teams user base.
- Geographic Divergence: North America and Asia Pacific are driving growth, while EMEA remains a laggard, introducing regional performance risk.
- Legacy Drag Fading: Stabilization in non-core lines reduces near-term headwind, but future growth must come from new platforms and services.
- AI Productization: The ability to monetize new AI-driven CX and analytics offerings will determine whether AudioCodes can build a durable second growth engine beyond Teams integration.
Risks
Platform concentration risk is rising as Microsoft Teams becomes the core growth driver, exposing AudioCodes to shifts in Microsoft’s strategy or market share. Recurring revenue momentum is positive, but ARR growth is still in early innings, and any slowdown in enterprise IT spending, delayed migrations, or competitive pressure from other UCaaS vendors could impact trajectory. Regional weakness in EMEA and potential overreliance on large deals are additional watchpoints. Inventory normalization in IP phones is expected, but channel or demand shocks remain a risk.
Forward Outlook
For Q3 2023, AudioCodes expects:
- Further margin expansion as cost reductions are fully reflected
- Continued growth in managed services ARR and Teams integration
For full-year 2023, management reiterated revenue guidance of $240 million to $250 million and raised non-GAAP EPS guidance to $0.55 to $0.70, citing improved margin and cost execution:
- Revenue: $240M–$250M
- Non-GAAP EPS: $0.55–$0.70 (up from $0.50–$0.70)
Management highlighted several factors that will shape the rest of the year:
- Robust pipeline in Live and Voice AI, with backlog supporting multi-quarter visibility
- Ongoing transition to higher-margin, recurring revenue streams
Takeaways
AudioCodes is emerging from a transition period with clear evidence of SaaS and managed services traction, a stabilizing legacy base, and a deepening focus on AI and CX solutions.
- Recurring Revenue Scaling: Live ARR and contract wins are providing both visibility and margin leverage, with the Teams ecosystem as the main growth vector.
- AI and CX Pipeline: Voice AI and CX solutions are moving from R&D to revenue, but the pace of monetization will be critical to sustaining long-term growth.
- Execution Watchpoints: Investors should monitor ARR conversion, Microsoft platform dependency, and the ability to extend offerings beyond the current install base.
Conclusion
Q2 marks a turning point for AudioCodes as its SaaS and managed services strategy delivers tangible financial and operational progress. With the Microsoft Teams transition largely complete and new AI/CX products gaining traction, the company is set up for improved visibility and margin expansion into 2024.
Industry Read-Through
AudioCodes’ results highlight a broader industry shift toward recurring, software-centric business models in unified communications and CX. The strong momentum in Teams integration and managed services suggests that enterprises are prioritizing cloud migration, vendor consolidation, and AI-driven productivity. Vendors with deep platform integrations, robust managed services, and the ability to support multi-platform environments (Teams, Zoom, WebEx) are best positioned to capture enterprise wallet share as legacy hardware demand fades. The rapid scaling of ARR and backlog in managed services is a bellwether for other UCaaS and CX providers, while the early monetization of Voice AI signals growing enterprise appetite for AI-powered communications solutions.