Greetings, and welcome to the AudioCodes Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Chuchen, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, operator. 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, and 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 law. 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 event of artificial intelligence and the ability to manage changes in market conditions and evolving 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 a 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 an 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 third quarter 2025 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance at AudioCodes. Niran will start off by presenting a financial overview of the quarter. I will then review the business highlights and summary for the quarter and discuss trends and developments in our business and industry. We will then 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 third quarter were $61.5 million, an increase of 2.2% over the $60.2 million reported in the third quarter of last year. Services revenues for the quarter were $30.9 million, a decrease of 4.8% over a year ago period. Services revenues in the third quarter accounted for 50.3% of total revenues. The amount of deferred revenues as of September 30, 2025, was $81.6 million compared to $78.6 million as of September 30, 2024. Revenues by geographical region for the quarter were split as follow: North America, 48%; EMEA, 33%; Asia Pacific, 15%; and Central and Latin America, 4%. Our top 15 customers represented an aggregate of 53% of our revenues in the third quarter, of which 38% was attributed to our 10 largest distributors. In the third quarter of 2025, we experienced increased expenses due to the implementation of the new tariff of U.S. imports accounting to approximately $0.5 million additional cost, which impacted on both GAAP and non-GAAP. GAAP results are as follows. Gross margin for the quarter was 65.5% compared to 65.2% in Q3 2024. Operating income for the third quarter was $4.1 million or 6.6% of revenues compared to operating income of $4.9 million or 8.1% of revenues in Q3 2024. EBITDA for the quarter was $5.2 million compared to EBITDA of $5.9 million…

Thank you, Niran. I'm pleased to report solid third consecutive quarter of top line growth in the third quarter and execution for our strategic objectives amidst our long-term transformation to an AI-driven hybrid cloud software and services company. In the quarter, we continued to build on the strength of our UCaaS and CCaaS connectivity business, accounting now for over 90% of our revenue and successfully leveraged our enterprise customer base to drive cross-sell of our fast-growing GenAI business applications that make up our Conversational AI division. In fact, in many ways, we can say that as of now, AudioCode has put Voice AI front and center going forward in our operations in terms of sustained growth. Our solid third quarter results were marked by strong traction in our dual growth engines, namely the Live family of Unified Communication and Collaboration and customer experience connectivity services and conversational AI business line. In fact, our conversational AI business increased 50% in the quarter, putting us on track to reach the 40% to 50% growth for the full year 2025. Together, these 2 units drove our annual recurring revenue exit third quarter to $75 million or up 25% year-over-year, which positioned us to reach our full year target of $78 million to $82 million. We are growing ever more optimistic about the continued strong ARR momentum and growth prospect for the overall company, fueled by a strong pipeline of opportunities catalyzed by recent launch of the next-gen live platform and the growing demand for productivity-enhancing GenAI value-add services. This is further reinforced by the growing backlog of live and managed services that will convert to revenue in the coming quarters. We ended third quarter backlog at $76 million, growing 13.4% over the year ago backlog of $67 million. Let me share some key…

[Operator Instructions] We have a question from Joshua Reilly with Needham.

All right. Nice job on the quarter here. On the global Tier 1 system integrator win, maybe you could give us some more color on what helped you win that deal from a product perspective or any other factors that you think would be relevant to give to investors here.

Right. Well, I need to go back to the significance of our Live platform, which is a services delivery platform for UCaaS and CX. I think by now, this is the only platform that allows large system integrators, which serve large enterprises around the world, deliver all of the different services that are needed in order to move to modernizing the enterprise and to move to enhanced, I would say, communication and collaboration. Starting from connectivity, which connects all of the sites of a company across the globe. And then adding on top of that management, management of users, management of sites. And then on top of that, a list of business application and among them, an advanced and AI-first contact center, coding solution, meeting intelligence platform and now we're coming with voice bots and Gen AI applications. So, all in all, this is the most advanced platform these days. And for a large system integrator that operates globally, this would be a great services delivery platform to serve its customers. And I think from that stems the recognition and the importance of that platform.

Got it. That's helpful. And then you're obviously building a lot of these kind of adjacent AI solutions for the communication landscape. If you look at the older products that you have in the market, whether it's FPCs or some of the gateways and all the older products that you sell, those are typically in pretty price-sensitive markets. What are you seeing with some of these new AI solutions and your ability to drive pricing power relative to the UCaaS market, which is historically a pretty price-sensitive market.

Right. Well, voice AI is a emerging market and therefore, those organization which are early adopters and quick to implement workflows and solutions that will substantially enhance their productivity are not less concerned with the cost. So, we do not see any price pressure at this point on the Voice AI business application. And we believe that as we will continue to enhance and add more features and make the solution substantially richer, we can still keep that. So, you have identified correctly the difference between the legacy business, which is price sensitive. But again, there, we enjoy the fact that competition is becoming less and less powerful. But then we enjoy relatively convenient price environment, I would say, for Voice AI business application.

Got it. That's helpful. And then on the Microsoft business, I believe last quarter, it grew 6% year-over-year, and I think you said it was flat this quarter. Is there any change in the trends there? Or is that just really around the year-over-year comparison dynamics for the growth rate?

Right. So, I think overall UCaaS market is kind of flattening out in recent 12 months. We've seen that trend. It's been fairly strong up until '22, '23, then it becomes the expansion rate really decreased. It's a good market. It's a great market, right? Just take into account that out of -- if you go back to like 15 years ago and you talk about 400 million endpoints overall in the enterprise world served in the past by PBX'. So these days, UCaaS I believe, is serving less than $100 million. So, a lot of room to grow. And again, we all need to acknowledge that the majority of the growth occurred more in the U.S., U.K., Western Europe, Canada, Australia, maybe, et cetera. But there's a huge -- actually above 50% of the $400 million market that's still served by the old PBX technology. So, there's a lot of room to grow. So -- but pricing is such that I would assume that UCaaS will grow, but our services should be applied to the non-UCaaS market at a lower range. And I think that would be basically the driver for increased growth going forward.

Got it. And then last question for me is, if you look at the mix of revenue in the quarter, I would say that the product revenue was pretty strong, above what my estimate was and what I would have expected. Can you just help us understand maybe what outperformed on the product revenue side in the quarter?

Yes. As you've seen, first, we had a great quarter in terms of product recognized revenues. It was driven mainly at the software, which is part of the voice AI solution. So that's where the product growth came from.

As we have no further questions on the lines at this time, I'd like to turn the call back over to Mr. Adlersberg for any closing remarks.

Okay. Thank you, operator. I would like to thank everyone who attended our conference call today. With continued good business momentum in our UCaaS and CCaaS operations and continued growth in our emerging voice AI business, we believe we are on track to grow revenue and profitability in the next coming years. We look forward to your participation in our next quarterly conference calls. Thank you all. Have a nice day.

Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.