AudioCodes Reports Third Quarter 2007 Results

Quarterly Revenues Up 5.1 Percent Sequentially to $40.4 Million


LOD, Israel, Nov. 5, 2007 (PRIME NEWSWIRE) -- AudioCodes (Nasdaq:AUDC), a leading provider of Voice over Packet (VoP) technologies and Voice Network products, today announced financial results for the third quarter and nine months ended September 30, 2007.

Revenues for the third quarter were $40.4 million compared to $38.4 million for the quarter ended June 30, 2007 and $40.1 million for the quarter ended September 30, 2006. Third quarter revenues increased 5.1% compared to the second quarter of 2007 and increased 0.7% compared to the third quarter of 2006.

GAAP net income was $225,000, or $0.01 per diluted share, for the third quarter of 2007 compared to a net loss of $1.0 million, or $0.02 per diluted share, for the second quarter of 2007 and net income of $676,000, or $0.02 per diluted share, for the third quarter of 2006.

Non-GAAP net income was $2.8 million, or $0.06 per diluted share, in the third quarter of 2007 compared to non-GAAP net income of $1.4 million, or $0.03 per diluted share, in the second quarter of 2007 and $3.6 million, or $0.08 per diluted share, in the third quarter of 2006. Non-GAAP net income excludes (i) stock-based compensation expenses and (ii) amortization expenses related to the Nuera, Netrake and CTI Squared acquisitions. A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the tables that accompany the condensed consolidated financial statements contained in this release.

Cash and cash equivalents, short-term and long-term marketable securities, short-term and long-term bank deposits and structured notes were $134.2 million as of September 30, 2007 compared to $130.5 million as of June 30, 2007.

"We are pleased to report continued sequential growth of revenues and earnings for the third quarter of 2007," stated Shabtai Adlersberg, Chairman, President and CEO of AudioCodes. "This quarter's performance reflects sustained momentum and strength in our core networking business. We experienced success and growth in our sales of CPE products as well as in our mid-density media gateways and enjoyed increased recognition for the quality and value of our products and services. On the operations front, we were able to exhibit nice growth in our operating income compared to previous quarters this year, benefiting from higher revenues and the positive impact of our corporate wide cost reduction initiative of early 2007. With the VoIP market remaining one of the fastest growing segments of the telecom sector, our growing network of partners and customers and improved visibility in recent weeks, we believe in our ability to exhibit sustained growth in coming years."

"On the product and partner fronts, we highlight the recently announced launch of a new 'Basic Hybrid' Media Gateway product line that provides direct support for our relationship with Microsoft and its Open Communications Server 2007 and Exchange Server 2007 initiatives. We have also made progress and expanded our collaboration with key OEMs and application software partners in the enterprise space as well as with large system integrators and channels in North America and other countries," concluded Shabtai Adlersberg.

Conference Call & Webcast Information

AudioCodes will conduct a conference call on Tuesday, November 6, 2007 to discuss the third quarter 2007 financial results, which will be simultaneously Webcast at 9:00 A.M. Eastern Time. Investors are invited to listen to the call live via Webcast at the investor relations section of the AudioCodes corporate Website at www.audiocodes.com.

About AudioCodes

AudioCodes (Nasdaq:AUDC) provides innovative, reliable and cost-effective Voice over IP (VoIP) technology, Voice Network Products, and Value Added Applications to Service Providers, Enterprises, OEMs, Network Equipment Providers and System Integrators worldwide. AudioCodes provides a diverse range of flexible, comprehensive media gateway, and media processing enabling technologies based on VoIPerfect(tm) -- AudioCodes' underlying, best-of-breed, core media architecture. The company is a market leader in VoIP equipment, focused on VoIP Media Gateway, Media Server, Session Border Controllers (SBC), Security Gateways and Value Added Application network products. AudioCodes has deployed tens of millions of media gateway and media server channels globally over the past ten years and is a key player in the emerging best-of-breed, IMS based, VoIP market. The Company is a VoIP technology leader focused on quality and interoperability, with a proven track record in product and network interoperability with industry leaders in the Service Provider and Enterprise space. AudioCodes Voice Network Products feature media gateway and media server platforms for packet-based applications in the converged, wireline, wireless, broadband access, cable, enhanced voice services, video, and Enterprise IP Telephony markets. AudioCodes' headquarters are located in Israel with R&D in the U.S. Other AudioCodes' offices are located in Europe, India, the Far East, and Latin America. For more information on AudioCodes, visit http://www.audiocodes.com.

Statements concerning AudioCodes' business outlook or future economic performance; product introductions and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are "forward-looking statements" as that 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 effect of global economic conditions in general and conditions in AudioCodes' industry and target markets in particular; shifts in supply and demand; market acceptance of new products and continuing products' demand; the impact of competitive products and pricing on AudioCodes' and its customers' products and markets; timely product and technology development/upgrades and the ability to manage changes in market conditions as needed; possible disruptions from acquisitions; the integration of acquired companies' products and operations into AudioCodes' business; and other factors detailed in AudioCodes' filings with the Securities and Exchange Commission. AudioCodes assumes no obligation to update the information in this release.

AudioCodes, AC, Ardito, AudioCoded, NetCoder, TrunkPack, VoicePacketizer, MediaPack, Stretto, Mediant, VoIPerfect and IPmedia, OSN, Open Solutions Network, What's Inside Matters, Your Gateway To VoIP, 3GX and Nuera, Netrake, InTouch, CTI(2) and CTI Squared are trademarks or registered trademarks of AudioCodes Limited. All other products or trademarks are property of their respective owners.



 AUDIOCODES LTD. AND ITS SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 ---------------------------------------------------------------------
 U.S. dollars in thousands

                                           September 30,  December 31,
                                               2007          2006
                                           -------------  ------------
                                            (Unaudited)
  ASSETS

 CURRENT ASSETS:
  Cash and cash equivalents                  $  65,580     $  25,171
  Short-term bank deposits and structured
   notes                                            --        28,658
  Short-term marketable securities and
   accrued interest                             25,237        29,422
  Trade receivables, net                        29,591        30,501
  Other receivables and prepaid expenses         4,647         3,309
  Inventories                                   17,766        16,093
                                           -------------  ------------

 Total current assets                          142,821       133,154
                                           -------------  ------------

 LONG-TERM INVESTMENTS:
  Long-term bank deposits and structured
   notes                                        42,405        30,435
  Long-term marketable securities                1,000        19,942
  Investments in companies                       2,690         3,999
  Deferred tax assets                            4,078         3,742
  Severance pay funds                            9,044         7,231
                                           -------------  ------------

 Total long-term investments                    59,217        65,349
                                           -------------  ------------

 PROPERTY AND EQUIPMENT, NET                     7,334         7,847
                                           -------------  ------------

 INTANGIBLE ASSETS, DEFERRED CHARGES AND
  OTHER, NET                                    20,067        21,853
                                           -------------  ------------

 GOODWILL                                      119,855       108,853
                                           -------------  ------------

 Total assets                                 $349,294     $ 337,056
                                           =============  ============

  LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:
  Trade payables                             $   6,764     $   7,522
  Other payables and accrued expenses           31,195        28,139
                                           -------------  ------------

 Total current liabilities                      37,959        35,661
                                           -------------  ------------

 DEFERRED TAX LIABILITIES                        6,904         7,780
                                           -------------  ------------

 ACCRUED SEVERANCE PAY                          10,261         7,915
                                           -------------  ------------

 SENIOR CONVERTIBLE NOTES                      121,152       121,015
                                           -------------  ------------

 Total shareholders' equity                    173,018       164,685
                                           -------------  ------------

 Total liabilities and shareholders' equity  $ 349,294     $ 337,056
                                           =============  ============


 AUDIOCODES LTD. AND ITS SUBSIDIARIES
 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 -------------------------------------------------------
 U.S. dollars in thousands, except per share data

                                Nine months ended  Three months ended
                                  September 30,       September 30,
                                -----------------  -------------------
                                  2007      2006      2007      2006
                                --------  --------  --------  --------
                                   (Unaudited)          (Unaudited)
                                ------------------  ------------------

 Revenues                       115,395  $ 104,740  $ 40,408  $ 40,111
 Cost of revenues                50,512     43,118    17,631    16,861
                                --------  --------  --------  --------

 Gross profit                    64,883     61,622    22,777    23,250

 Operating expenses:
  Research and development, net  30,620     24,715    10,239    10,171
  Selling and marketing          32,082     26,446    10,332    10,266
  General and administrative      7,200      6,236     2,474     2,538
                                --------  --------  --------  --------

 Total operating expenses        69,902     57,397    23,045    22,975
                                --------  --------  --------  --------

 Operating income (loss)         (5,019)     4,225      (268)      275
 Financial income, net            1,886      3,063       616       711
 Equity in losses of affiliated
  companies                         751        672       218       286
                                --------  --------  --------  --------

 Income (loss) before taxes on
  income                         (3,884)     6,616       130       700
 Taxes (tax benefit) on income
  (loss), net                      (697)       410       (95)       24
                                --------  --------  --------  --------

 Net income (loss)              $(3,187)   $ 6,206     $ 225     $ 676
                                ========  ========  ========  ========

 Basic net earnings (loss) per
  share                          $(0.07)     $0.15    $ 0.01    $ 0.02
                                ========  ========  ========  ========

 Diluted net earnings (loss)
  per share                      $(0.07)    $ 0.14    $ 0.01    $ 0.02
                                ========  ========  ========  ========

 Weighted average number of
  shares used in computing basic
  net earnings (loss) per share  42,572     41,596    42,885    41,985
                                ========  ========  ========  ========

 Weighted average number of
  shares used in computing
  diluted net earnings (loss)
  per share                      42,572     43,971    43,676    43,733
                                ========  ========  ========  ========


 AUDIOCODES LTD. AND ITS SUBSIDIARIES
 NON-GAAP PROFORMA STATEMENTS OF OPERATIONS
 ---------------------------------------------------------------------
 U.S. dollars in thousands, except per share data

                                Nine months ended  Three months ended
                                  September 30,       September 30,
                                -----------------  -------------------
                                  2007      2006      2007      2006
                                --------  --------  --------  --------
                                   (Unaudited)          (Unaudited)
                                ------------------  ------------------

 Revenues                       115,395  $ 104,740   $40,408  $ 40,111
 Cost of revenues *) **)         48,119     42,104    16,948    16,099
                                --------  --------  --------  --------

 Gross profit                    67,276     62,636    23,460    24,012

 Operating expenses:
  Research and development,
   net *)                        28,239     22,490     9,444     9,312
  Selling and marketing *) **)   28,601     23,687     9,238     9,101
  General and administrative *)   6,561      5,145     2,191     2,122
                                --------  --------  --------  --------

 Total operating expenses        63,401     51,322    20,873    20,535
                                --------  --------  --------  --------

 Operating income                 3,875     11,314     2,587     3,477
 Financial income, net            1,886      3,063       616       711
 Equity in losses of affiliated
  companies
                                    751        672       218       286
                                --------  --------  --------  --------

 Income before taxes on income    5,010     13,705     2,985     3,902
 Taxes on income, net               337        701       201       315
                                --------  --------  --------  --------

 Non-GAAP net income            $ 4,673   $ 13,004   $ 2,784   $ 3,587
                                ========  ========  ========  ========

 Non-GAAP diluted net earnings
  per share                      $ 0.11     $ 0.29    $ 0.06    $ 0.08
                                ========  ========  ========  ========

 Weighted average number of
  shares used in computing
  non-GAAP diluted net earnings
  per share                      43,668     50,651    43,677    50,414
                                ========  ========  ========  ========

*) Excluding stock-based compensation expenses related to options granted to employees and others as a result of the adoption of SFAR 123R as of January 1, 2006.

**) Excluding amortization of intangible assets related to the acquisitions of Nuera and Netrake during the third quarter of 2006 and to the acquisition of CTI Squared during the second quarter of 2007.

Note: Non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP. The Company believes that non-GAAP information is useful because it can enhance the understanding of its ongoing economic performance and therefore uses internally this non-GAAP information to evaluate and manage its operations. The Company has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company analyzes its operating results and because many comparable companies report this type of information as well.



 AUDIOCODES LTD. AND ITS SUBSIDIARIES
 RECONCILIATION BETWEEN GAAP NET INCOME AND NON-GAAP NET INCOME
 --------------------------------------------------------------
 In thousands, except per share data

                                Nine months ended  Three months ended
                                  September 30,       September 30,
                                -----------------  -------------------
                                  2007      2006      2007      2006
                               --------  --------  --------  --------
                                   (Unaudited)          (Unaudited)
                               ------------------  ------------------

 GAAP Net income (loss)        $ (3,187)  $ 6,206  $    225   $   676
                               ========   =======  ========   =======
 GAAP Diluted earnings (loss)
  per share                    $  (0.07)  $  0.14  $   0.01   $  0.02
                               ========   =======  ========   =======

 Cost of revenues:
  Stock-based compensation *)       482       420       151       168
  Amortization expenses **)       1,911       594       532       594
                               --------   -------  --------   -------
                                  2,393     1,014       683       762
 Research and development, net:
  Stock-based compensation *)     2,381     2,225       795       859

 Selling and marketing:
  Stock-based compensation *)     2,698     2,504       833       910
                                                      
  Amortization expenses **)         783       255       261       255
                               --------   -------  --------   -------
                                  3,481     2,759     1,094     1,165
 General and administrative:
   Stock-based compensation *)      639     1,091       283       416


 Income tax effect **)           (1,034)     (291)     (296)     (291)
                               --------   -------  --------   --------

 Non- GAAP Net income          $  4,673   $13,004  $  2,784   $ 3,587
                               ========   =======  ========   ========
 Non-GAAP Diluted earnings per
  share                        $   0.11   $  0.29  $   0.06   $  0.08
                               ========   =======  ========   ========

*) Stock-based compensation expenses related to options granted to employees and others as a result of the adoption of SFAR 123R as of January 1, 2006.

**) Amortization of intangible assets related to the acquisitions of Nuera and Netrake during the third quarter of 2006 and to the acquisition of CTI Squared during the second quarter of 2007.

Note: Non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP. The Company believes that non-GAAP information is useful because it can enhance the understanding of its ongoing economic performance and therefore uses internally this non-GAAP information to evaluate and manage its operations. The Company has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company analyzes its operating results and because many comparable companies report this type of information as well.



 AUDIOCODES LTD. AND ITS SUBSIDIARIES
 CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
 --------------------------------------------------------------------
 U.S. dollars in thousands

                                Nine months ended  Three months ended
                                  September 30,       September 30,
                                -----------------  -------------------
                                  2007      2006      2007      2006
                               --------  --------  --------  --------
                                   (Unaudited)          (Unaudited)
                               ------------------  ------------------
 Cash flows from operating
  activities:
 -------------------------
  Net income (loss)             $(3,187)  $ 6,206     $ 225     $ 676
  Adjustments required to
   reconcile net income to net
   cash provided by (used in)
   operating activities:
   Depreciation and
    amortization                  5,922     3,628     1,873     1,904
   Net loss from sale of
    marketable securities            --        15        --        --
   Amortization of marketable
    securities premiums and
    accretion of discounts, net      50       173        (3)       51
   Equity in losses of
    affiliated companies            751       672       218       286
   Increase (decrease) in
    accrued severance pay, net      204       233       (23)      162
   Stock-based compensation
    expenses                      6,200     6,240     2,062     2,353
   Amortization of senior
    convertible notes discount
    and deferred charges            151       149        51        50
   Decrease (increase) in
    accrued interest on
    marketable securities,
    bank deposits and
    structured notes               (535)      345      (216)      597

   Decrease (increase) in
    deferred tax assets            (336)      (43)       11       166
   Decrease (increase) in
    trade receivables, net        1,027    (4,621)   (4,099)   (2,657)
   Decrease (increase) in
    other receivables
    and prepaid expenses           (526)     (340)      107       565
   Decrease (increase) in
    inventories                  (1,673)   (1,687)    2,056       126
   Decrease in trade payables      (822)   (1,080)   (1,254)   (2,105)

   Increase (decrease) in other
    payables and accrued
    expenses                     (2,768)   (3,423)    2,045    (4,034)

   Decrease in deferred tax
    liabilities                  (1,033)     (291)     (299)     (291)
                               --------  --------  --------  --------

 Net cash provided by (used in)
  operating activities            3,425     6,176     2,752    (2,151)
                               --------  --------  --------  --------

 Cash flows from investing
  activities:
 -------------------------
  Investment in short-term and
   Long-term marketable
   securities                        --   (20,000)       --   (20,000)
  Proceeds from sale and
   maturity of marketable
   securities                    22,600     4,979     6,000     3,000
  Proceeds from sale of bank
   deposits                      28,700    51,300     3,700    28,300
  Investments in companies       (1,006)   (3,799)     (468)   (1,686)
  Payment for acquisition of
   Nuera*)                           --   (82,520)       --   (82,520)
  Payment for acquisition of
   Netrake*)                         --   (10,019)       --   (10,019)
  Payment for acquisition of
   CTI Squared*)                 (4,897)       --        --        --
  Purchase of property and
   equipment                     (2,055)   (1,720)     (703)     (724)
  Investment in long-term
   deposit                      (11,000)       --        --        --
                               --------  --------  --------  --------

 Net cash provided by (used in)
  investing activities           32,342   (61,779)    8,529   (83,649)
                               --------  --------  --------  --------

 Cash flows from financing
  activities:
 -------------------------
  Repayment of loan from bank        --    (1,666)       --    (1,666)
  Proceeds from issuance of
   shares upon exercise of
   options and employee stock
   purchase plan                  4,642     8,964     1,912     1,605
                               --------  --------  --------  --------

 Net cash provided by (used in)
  financing activities            4,642     7,298     1,912       (61)
                               --------  --------  --------  --------
 Increase (decrease) in cash
  and cash equivalents           40,409   (48,305)   13,193   (85,861)
 Cash and cash equivalents at
  the beginning of the period    25,171    70,957    52,387   108,513
                               --------  --------  --------  --------

 Cash and cash equivalents at
  the end of the period        $ 65,580  $ 22,652  $ 65,580  $ 22,652
                               ========  ========  ========  ========

 *) Excluding cash and cash equivalents


            

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