AFFILIATION D’UN SALARIÉ : COMMENT PROCÉDER ?
C’est à l’employeur de centraliser l’ensemble des documents nécessaires à l’affiliation de ses salariés pour les transmettre ensuite à l’organisme complémentaire.
Pour être affilié, un salarié remplir une déclaration d’affiliation à laquelle doit être jointe différents documents :
la photocopie de l’attestation de sa carte vitale et celle de chacun membre de la famille bénéficiant du contrat (selon dispositions prévues au contrat santé) ;
un relevé d’identité financier ainsi qu’à de caisse d’épargne.
Il éventuellement lui être demandé, selon la nature du contrat, de joindre :
photocopies des certificats de scolarité pour bambins de plus de 16 et pourquoi pas tout chemise justifiant de leur situation ;
son attestation de PACS ;
son certificat de union libre ;
le certificat de radiation de son ancienne mutuelle horodaté de moins durant une période de trois mois dans l’hypothèse ou le contrat santé prévoit un délai de carence.
LES MODALITÉS DE CHANGEMENT DE STATUT D’UN SALARIÉ
En de changement de protocole socio-professionnel d’un salarié d’or sein de l’entreprise, son régime de protection sociale peut aussi être modifié. C’est alors à l’employeur de se charger de l’ensemble des démarches auprès de d’assurance complémentaire.
RADIATION D’UN SALARIÉ : COMMENT DÉCLARER CETTE MODIFICATION ?
Lorsqu’un salarié quitte son entreprise, l’adhésion or contrat collectif santé et/ou prévoyance de laquelle il bénéficiait est résiliée de plein droit. L’ancien employeur doit alors informer l’organisme complémentaire de ce départ pendant écrit, dans plus brefs délais.
Pour clôturer le dossier santé du salarié et cesser les remboursements, le salarié remettre sa carte de tiers payant.
Selon le mobile de départ de l’entreprise du salarié, l’ancien employeur peut être tenu, a l’intérieur du cadre de la portabilité des droits santé et prévoyance, de lui maintenir les garanties dont il bénéficiait durant la rupture du contrat de travail à titre gratuit.
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COMMISSION SÉCURITÉ ET CHANGEMENT
D. C. 20549
MOINS DE 1934 Section 12 (b) ou (g) de la Securities Exchange Act
En 1934 CHAPITRE 13 OU 15 DE LA LOI SUR LES VALEURS MOBILIÈRES
|Pour l'exercice clos en 2019 31 décembre|
MOINS DE 1934 CHAPITRE 13 OU POINT 15 D DE LA LOI SUR LES VALEURS MOBILIÈRES
|¨||RAPPORT DE LA SOCIÉTÉ SHELL
MOINS DE 1934 CHAPITRE 13 OU POINT 15 D DE LA LOI SUR LES VALEURS MOBILIÈRES
exigeant ce rapport de société écran ________
|Pour transition de ________ à ________|
Numéro de dossier de commission 0-30070
(Nom exact de la personne inscrite comme indiqué dans ses statuts et traduction anglaise du nom de la personne inscrite)
(Juridiction d'enregistrement ou d'organisation)
(Adresse du siège)
(Nom, numéro de téléphone, e-mail et / ou fax et adresse du contact commercial)
Titres enregistrés ou devant être enregistrés en vertu de l'article 12 (b) de la Loi:
Le nom de chaque classe
Symbole (s) commercial (s)
Le nom de chaque échange
sur lequel inscrit
Actions ordinaires, valeur nominale
0,01 NIS par action
|AUDC||Nasdaq Global Select Market|
enregistrés ou enregistrés en vertu de l'article 12 (g) de la Loi:
(Nom de classe)
Titres à déclarer en vertu de l'article 15 d) de la loi:
(Nom de classe)
Indiquer le nombre d'actions en circulation de chaque catégorie ou action ordinaire de l'émetteur à la fin de la période couverte par le rapport.
2019 31 décembre L'inscrit détenait 29 569 083 actions ordinaires en circulation d'une valeur nominale de 0,01 NIS chacune.
Vérifiez si la personne inscrite est un émetteur expérimenté bien connu au sens de la règle 405 de la Securities Act.
Oui ¨ Non. x
Si ce rapport est un rapport annuel ou transitoire, cochez la case si le déclarant n'est pas tenu de soumettre un rapport en vertu de 1934. Securities Exchange Act Section 13 ou paragraphe 15 (d).
Oui ¨ Non. x
Vérifiez si le déclarant (1) a soumis tous les rapports requis en vertu de la loi de 1934. Chapitre 13 ou 15 décembre de la Securities Exchange Act. Au cours des 12 derniers mois (ou de la période plus courte pendant laquelle le déclarant était tenu de soumettre ces rapports) et (2) les 90 derniers jours ont été soumis aux exigences de soumission suivantes.
Oui x Non. ¨
Vérifiez si le déclarant a soumis par voie électronique chaque fichier de données interactif qui doit être soumis en vertu de la règle 405 du règlement ST (article 232405 du présent chapitre) au cours des 12 mois précédents (ou pendant la période plus courte que le déclarant était tenu de soumettre). cas).
Oui x Non. ¨
Vérifiez si le déclarant est un grand enregistreur de données accéléré, un enregistreur de données accéléré, un enregistreur de données non accéléré ou une entreprise émergente. A voir
La définition de «accélérateur élevé», «accélérateur» et «société en croissance émergente» dans les règles 12b-2 de la loi sur l'échange.
filer accéléré ¨
|Entreprise en croissance émergente ¨|
En cas d'émergence
société en croissance qui prépare ses états financiers conformément aux PCGR des États-Unis, cochez la case si l’inscrit a
choisi de ne pas utiliser une période de transition prolongée pour respecter les normes de comptabilité financière nouvelles ou révisées †
prévue à l'article 13 (a) de la loi sur l'échange. ¨
† L'expression «norme de comptabilité financière nouvelle ou révisée» désigne toute codification de ses normes comptables par le Financial Accounting Standards Board après 2012. 5 avril
En cochant la base comptable utilisée par le registraire pour préparer les états financiers inclus dans cette demande:
|US GAAP x||
Publication des normes internationales d'information financière
par l'International Accounting Standards Board ¨
Si la réponse à la question précédente était "Autre", cochez la case que le registraire a sélectionnée dans la rubrique des états financiers.
Point 17 ¨
Point 18 ¨
S'il s'agit d'un rapport annuel, cochez la case pour voir si le déclarant est une société écran (au sens de la règle 12b-2 de la loi sur l'échange).
Oui ¨ Non. x
Ce rapport annuel
sont des "déclarations prospectives" telles que définies en 1933. L'article 27A de la Securities Act, ou les valeurs mobilières
Loi et article 21E de la Securities Exchange Act ou de la Exchange Act. Ces déclarations prospectives peuvent généralement être identifiées
parce que le contexte de la déclaration contiendra des mots tels que "peut", "sera", "prévu", "prévu"
Croire, Attendre, Attendre, Estimer, Prédire, Potentiel,
"Continuer" ou "opportunité", un négatif de ces mots ou des mots similaires. De même, les déclarations
qui décrivent nos perspectives commerciales ou nos résultats économiques futurs, nos revenus, dépenses estimés ou autres questions financières,
progrès du développement de produits, plans et objectifs connexes et hypothèses formulées
ou les attentes concernant des événements, conditions, activités ou autres questions futurs sont également des énoncés prospectifs. Pour l'avenir
les déclarations sont sujettes à des risques, des incertitudes et d'autres facteurs qui peuvent faire en sorte que les résultats réels diffèrent sensiblement de ceux
indiqué dans ces déclarations. Les facteurs qui peuvent provoquer ou contribuer à de telles différences comprennent, mais sans s'y limiter, les suivants
Voir le paragraphe 3.D du présent rapport annuel – Contexte – Facteurs de risque.
Nos résultats réels
L'exécution des opérations et notre stratégie commerciale peuvent différer sensiblement de celles exprimées ou implicites à l'avenir
déclarations. De plus, les résultats financiers et / ou d'exploitation passés ne sont pas nécessairement un indicateur fiable des résultats futurs
et vous ne devez pas utiliser nos performances historiques pour prédire les résultats ou les tendances futures. Nous ne pouvons pas garantir cela
tout événement dans les déclarations prospectives se produira ou, le cas échéant, quel effet ils auront
nos résultats d'exploitation et notre situation financière. Vous devez tenir particulièrement compte de nos déclarations prospectives
les risques et incertitudes décrits à la section 3.D du présent rapport annuel – Contexte – Facteurs de risque.
Sauf dans le contexte
sinon, AudioCodes, «nous», «nous» et «nos» doivent signifier «AudioCodes Ltd.»
et ses filiales.
DONNÉES FINANCIÈRES SÉLECTIONNÉES
Les données financières du tableau ci-dessous proviennent de nos états financiers historiques vérifiés pour chaque
périodes à partir de 2015 jusqu'en 2019 État des résultats consolidé sélectionné pour l'exercice terminé le 31 décembre
Dérivés pour 2017, 2018 et 2019. Données et échantillons 2018 Et en 2019. 31 décembre Données du bilan consolidé
de nos états financiers consolidés vérifiés présentés ailleurs dans le présent rapport annuel. Sélectionné consolidé
rapports d'activités pour l'exercice clos en 2015 et 2016 au 31 décembre 2009 et certaines données du bilan consolidé
2015, 2016 et 2017 31 décembre. ont été obtenues à partir d'un document financier consolidé audité précédemment publié
déclarations non incluses dans le présent rapport annuel. Les données financières sélectionnées doivent être lues conjointement avec les nôtres
les états financiers consolidés et sont décrits précisément en relation avec ces états financiers consolidés. Sauf si
sinon, toutes les références monétaires dans ce rapport annuel sont en dollars américains («dollars»).
|L'année s'est terminée le 31 décembre.|
|2015 année||2016 année||2017 année||L'année 2018||L'année 2019|
|(En milliers, sauf par action)|
|Détails du rapport de transaction:|
|Les produits||Dollars||101,990||Dollars||102,279||Dollars||107,482||Dollars||119 887||Dollars||135 646|
|Les services||37 769||43,292||49.257||56,336||64,641|
|Revenu total||139 759||145,571||156 739||176 223||200 287|
|Coût du revenu:|
|Les produits||47,227||46 935||47,445||51 878||59,022|
|Les services||9 744||10 295||11 449||13 739||14.129|
|Coûts associés à un accord de rachat de droit d'auteur avec l'IIA||–||–||–||–||32.178|
|Coût total du revenu||56 971||57 230||58 894||65 617||105 329|
|Bénéfice brut||82 788||88,341||97 845||110 606||94,958|
|Recherche et développement, net||27,996||29 139||30,348||34,661||41 199|
|Ventes et marketing||43,360||45 084||48 954||49,335||51 535|
|Général et administratif||8,726||6 364||8893||10 251||11 778|
|Dépenses opérationnelles totales||80 082||80,587||88.195||94 247||104,512|
|Bénéfice (perte) d'exploitation||2,706||7 754||9650||16 359||(9 554||)|
|Produit (charge) financier net||(442||)||160||(10||)||228||(1 761||)|
|Résultat avant impôt sur le revenu||3,148||7594||9640||16 587||(11 315||)|
|Crédit d'impôt (impôt sur le revenu)||2782||(8 644||)||(5 610||)||(3 094||)||15 292|
|Revenu net||Dollars||366||Dollars||16,238||Dollars||4,030||Dollars||13 493||Dollars||3 977|
|Bénéfice par action:|
|Nombre moyen pondéré d'actions utilisé pour calculer le résultat par action (en milliers):|
|Accueil||40.178||35 174||31 104||28 928||29.252|
|Dilué||40,565||35 779||32.168||30,220||30 800|
|2015 année||2016 année||2017 année||L'année 2018||L'année 2019|
|Données du bilan:|
|Trésorerie et équivalents de trésorerie||Dollars||18 908||Dollars||24,344||Dollars||24,235||Dollars||31 503||Dollars||64 773|
|Dépôts bancaires à court terme et limités, titres négociables et intérêts courus||8141||10 179||9 826||31 983||6416|
|Fonds de roulement||30,376||34,951||32 015||59 327||45 931|
|Dépôts bancaires à long terme et restreints et titres négociables à long terme||53 328||34 947||24,682||1 894||694|
|Total des actifs||189 820||186 976||170 938||179,372||243 886|
|prêts bancaires||11 370||11 944||8 756||6 174||3673|
|Propriété partagée||117.453||108,659||92,381||94 548||92.474|
|Capital (*)||238,638||243.183||248,269||257 072||265 466|
(*) Les stocks de capital sont du capital social
plus le capital versé supplémentaire.
MOYENS DE PROPOSITION ET D'UTILISATION DES PROCESSUS
FACTEURS DE RISQUE
Nous sommes différents
les risques et incertitudes liés à ou découlant de la nature de nos activités, affaires générales, économiques, financières, juridiques
et d'autres facteurs ou conditions qui peuvent nous affecter. Nous pensons qu'une ou toutes ces variantes se produisent
ces facteurs peuvent avoir une incidence défavorable importante sur nos activités, notre situation financière, nos flux de trésorerie et nos résultats d'exploitation.
Risques associés à
Notre métier et notre industrie
Nous avons investi des ressources considérables
développer des produits compatibles avec Microsoft Skype Entreprise, Microsoft Teams et les solutions partenaires associées
la nôtre. Si Microsoft ou notre autre centre de contact, les communications unifiées et les partenaires de projet ALL-IP tels que Genesys, Avaya ou
La division BroadSoft de Cisco décide de promouvoir nos produits compétitifs en déclinant les solutions compatibles avec nos produits
au lieu de nos produits (y compris par l'achat d'un de nos concurrents), nous ne souhaitons pas être davantage reconnus
AudioCodes en tant que partenaire ou n'ayant pas livré la croissance attendue de solutions compatibles avec nos produits, nos performances
seront négativement affectés.
Nous avons beaucoup investi
ressources pour répondre aux exigences de Microsoft pour devenir un partenaire certifié Microsoft
des solutions de communications unifiées pour le marché des entreprises, appelées Microsoft Skype for Business (anciennement Microsoft Skype for Business)
Lync) et les équipes Microsoft. Nous avons personnalisé certains de nos produits de passerelle, téléphones IP, contrôleurs de frontière de session, succursale survivante
des applications, des applications à valeur ajoutée et des services professionnels pour exécuter Skype Entreprise et ses équipes. Nous sommes
croit être un partenaire Microsoft et certifier nos produits auprès de Microsoft lorsqu'un tel programme de certification est en place
existants, améliore notre accès et notre visibilité sur les marchés de nos produits. Nous dépendons de Skype Entreprise et
Les équipes sélectionnent des produits compatibles et les achètent. Si Microsoft renonce (ou change radicalement) Skype Entreprise
et les équipes décident de promouvoir les produits concurrents, pas les nôtres (y compris en achetant l'un des
nos concurrents tels que Ribbon Communications (anciennement Sonus Networks), Poly ou Yealink) hésitent à reconnaître davantage
AudioCodes est un partenaire de Skype Entreprise et d'équipes ou ne parvient pas à atteindre Skype Entreprise ou Équipe prévu, notre
cela affectera négativement les résultats d'exploitation.
De même, nous avons
investi dans le développement de produits et d'opportunités et la certification des solutions de nos autres partenaires,
tels que les centres de contact Genesys et Avaya, ou BroadWorks et BroadCloud de BroadSoft (acquis par Cisco). Si ces partenaires
choisir de ne pas continuer à promouvoir AudioCodes en tant que partenaire, au lieu de promouvoir les produits de nos concurrents et non nos produits
ou l'incapacité à atteindre la croissance attendue des solutions compatibles avec nos produits peut avoir une incidence défavorable sur nos résultats d'exploitation.
Notre marge brute peut être négative
Les amortissements de l'acquisition, l'augmentation des coûts de production et d'autres facteurs y ont contribué. Cela pourrait
nuire aux résultats de nos opérations.
Notre marge brute
fluctué dans le passé et a eu un impact négatif sur l'amortissement
frais d’acquisition, frais de rémunération fondés sur des actions, augmentation des coûts de production,
notre composition des ventes s'est déplacée vers des produits et services moins rentables, et la demande des clients pour un produit plus long a augmenté
garanties, les coûts fixes qui s’appliquent à une base de revenus plus faible et les pressions accrues sur les coûts en raison de
rivalité. L'acquisition de nouvelles entreprises pourrait également avoir une incidence défavorable sur notre marge brute. Baisse du profit brut
pourrait avoir une incidence défavorable sur les résultats de nos activités.
Des conditions économiques incertaines peuvent survenir
nuire à nos activités.
la conjoncture économique mondiale et locale a profondément impacté l'industrie technologique, nos clients clés et notre potentiel
les clients. Les conditions peuvent rester floues ou s'aggraver, ce qui peut entraîner une réduction du nombre d'utilisateurs
et les coûts clients en général affectent négativement nos ventes de produits. Dépréciation de nos capacités importantes
les clients cherchant à accéder à des liquidités peuvent perturber gravement voire perturber leur activité, ce qui peut
une réduction significative de leurs commandes de produits et une incapacité ou une incapacité à respecter leurs obligations de paiement
l'un de ces éléments peut avoir une incidence défavorable importante sur nos résultats d'exploitation et nos liquidités. Changement négatif significatif
la situation financière et / ou de crédit du client peut également nous obliger à supporter le plus grand risque de crédit associé à ce client
créances ou pourrait limiter notre capacité à recouvrer des créances liées aux achats antérieurs de ce client. À cause du nôtre
Les provisions pour créances douteuses et radiations de créances peuvent augmenter.
Nous pourrions avoir besoin de fonds supplémentaires
pour exploiter ou développer leur entreprise. Nous pourrions ne pas être en mesure de lever des fonds supplémentaires à des conditions favorables pour nos besoins en capital ou
tout cela peut limiter notre capacité de croître et de poursuivre nos plans de développement à long terme.
Nous pouvons avoir besoin de plus
pour financer nos activités commerciales, pour poursuivre des plans de développement à plus long terme ou pour acquérir d'autres entreprises. Autant que nous
nous ne pouvons pas financer nos opérations et acquisitions à partir de nos liquidités disponibles et de toute trésorerie générée par nos opérations
vous devez lever des capitaux propres ou des fonds de dette par le biais de financements publics ou privés supplémentaires. Nous ne pouvons pas être sûrs
obtenir un financement supplémentaire à des conditions commercialement raisonnables ou pas du tout. Cela pourrait arrêter notre croissance, augmenter notre financement
nous a coûté ou nous a causé de grandes difficultés financières.
Nous souhaitons peut-être étendre nos activités
les acquisitions qui peuvent entraîner une allocation des ressources et des coûts supplémentaires. Cela peut perturber et affecter notre entreprise
les résultats de nos opérations.
Une partie de notre stratégie
consiste à faire des acquisitions ou des investissements dans les affaires et la technologie, ou à créer des coentreprises pour développer nos activités.
Négociations pour des acquisitions, des investissements ou des coentreprises, ainsi que pour des acquisitions ou acquisitions d'entreprises
ou la technologie, pourrait diriger le temps et les ressources de notre direction. Les entreprises, technologies ou coentreprises acquises peuvent
sans succès intégré à nos produits et opérations. Marchés des produits fabriqués par nos sociétés acquises
cela peut prendre plus de temps que prévu pour générer et augmenter les ventes et les bénéfices. Nous ne réalisons peut-être pas ce que nous voulions
bénéficier de toute acquisition, investissement ou coentreprise et nous pouvons subir des pertes à la suite de toute acquisition, investissement ou coentreprise.
Les acquisitions pourraient
|·||des dépenses importantes en espèces;|
|·||les problèmes de réduction potentielle des titres de participation;|
|·||la survenance de dettes et de passifs éventuels;|
|·||diminution de nos marges bénéficiaires;|
|·||amortissement des actifs incorporels et dépréciation éventuelle des écarts d'acquisition et des actifs incorporels;|
|·||réduire la concentration de la direction sur d'autres secteurs de l'entreprise;|
|·||ne pas investir dans différents domaines ou investissements alternatifs;|
|·||incapacité à générer les résultats financiers attendus ou à atteindre les objectifs commerciaux;|
|·||augmentation des ressources humaines et des coûts associés; et|
|·||croissance réduite des services professionnels.|
Si les acquisitions perturbent
nos efforts ou opérations de vente ou de marketing peuvent nuire à nos activités.
Si de nouveaux produits sont introduits ou attendus
sans entrer dans le niveau de demande prévu à l'avenir, nous réaliserons des rendements inférieurs aux attentes
notre investissement dans la recherche et le développement de ces produits peut mettre notre performance en péril.
Notre succès dépend de
en partie en raison de la volonté de nos clients de passer ou de passer à de nouveaux produits tels que notre offre de session élargie
Produits Border Controller, nos Multi-Service Business Routers (MSBR), nos téléphones IP, nos solutions logicielles et nos logiciels à valeur ajoutée
produits, nos services ou futurs produits. Nous sommes constamment impliqués dans le processus d'évaluation des besoins changeants du marché
et les exigences des clients pour développer et livrer de nouveaux produits, fonctionnalités et applications pour répondre aux exigences changeantes et
exigences. Pour réussir, nous devons être en mesure d'expliquer les tendances du marché et les avancées technologiques
et introduire de nouveaux produits, fonctionnalités et applications. Si les clients potentiels reportent le déménagement ou passent à de nouveaux produits, le nôtre
le retour sur investissement R&D dans les lancements de produits récents ou attendus
sera inférieur à nos prévisions initiales et notre performance pourrait en souffrir.
En raison de la vitesse
le développement technologique sur le marché des équipements de communication et la concurrence féroce à laquelle nous sommes confrontés, nos produits peuvent devenir
obsolète ou obsolète dans un laps de temps relativement court, nous devons donc mettre à jour et / ou remplacer fréquemment
produits existants. Si nous ne parvenons pas à gérer la transition vers la prochaine génération de produits, la nôtre
peut compromettre les performances. En outre, le marché de la plate-forme de communication en tant que service (CPaaS) évolue rapidement et
il peut avoir un impact négatif sur notre marché des communications unifiées en tant que service (UCaaS), l'une de nos principales sources
le marché des équipements se caractérise par une innovation technologique rapide et une concurrence féroce. Notre succès dépend donc de:
en partie en raison de notre capacité à améliorer les produits existants et à améliorer la prochaine génération de produits et les caractéristiques des produits
de manière économique. Le développement de nouveaux produits est coûteux, compliqué et prend du temps. A moins que nous ne nous développions rapidement
Nous risquons de perdre la prochaine génération de produits qui surpassent les concurrents et répondent aux besoins toujours plus complexes des clients
clients actuels et potentiels de nos concurrents. De plus, si un concurrent crée un nouveau produit moins cher en utilisant
une approche technologique différente pour fournir des services d'information sur les réseaux existants, nos produits n'existeront plus
compétitif. Au contraire, même si nous réussissons à développer de nouveaux produits avant nos concurrents, si ce n'est pas rentable
la gestion de nos stocks de produits existants à mesure que nous passons à de nouveaux produits peut avoir un impact financier négatif sur nous
les radiations ont été affectées en raison des niveaux de stocks obsolètes élevés. Si l'une des situations ci-dessus se produit, nous travaillons
minerait les résultats.
Adoption accrue des réseaux IP
peut avoir un impact négatif sur la demande de produits de passerelle média.
Produits de passerelle média
principalement pour la transmission de la voix des réseaux de téléphonie traditionnels aux réseaux IP et vice versa. Parallèlement à la croissance
L'adoption des réseaux IP a augmenté la quantité d'informations envoyées directement à partir d'un seul réseau IP
vers un autre réseau IP. Cette connexion réseau directe peut éliminer le besoin d'une passerelle multimédia. Réduction
la demande de passerelles multimédias peut avoir un impact négatif sur la demande de nos produits de passerelles multimédias et, à son tour, avoir un impact négatif sur nos résultats
opérations. Cette transition se poursuit et a entraîné une diminution de nos revenus provenant de ces produits. Divers régulateurs
et les fournisseurs de services ont annoncé des dates de migration prévues pour tous les réseaux IP. Bien que cette transition puisse conduire à:
de nouvelles opportunités de vente, nous pensons que la tendance générale est à la baisse des revenus de l'activité passerelle média.
Transition en cours d'utilisation
des logiciels basés sur le cloud nous posent des défis.
Récemment, le nôtre
les partenaires ont commencé à adopter des modèles d'architecture cloud ou de logiciel en tant que service (SaaS). Par exemple,
Microsoft propose une alternative basée sur le cloud à Skype Entreprise et aux équipes et a encouragé les clients professionnels à l'utiliser.
modèle au lieu d'une alternative sur site. De plus, le successeur de Skype Entreprise est Teams, qui par définition est
uniquement dans le cloud. Beaucoup de nos produits sont destinés à être utilisés sur site avec une architecture cloud, mais dans certains scénarios, le cloud
l'architecture présente une alternative à l'utilisation sur site. Actuellement, nos revenus proviennent principalement des locaux
déploiements. La transition vers une livraison basée sur le cloud a un impact sur l'architecture et le rôle de nos produits dans l'ensemble
solution. Il est possible que nous ne réussissions pas à faire la transition au fil du temps ou du tout vers de nouvelles technologies, produits, solutions et
services adoptés par nos partenaires et leurs clients. Nous pouvons ne pas réussir à aligner nos solutions sur celles de nos partenaires
solutions et être incapable d'apporter une valeur suffisante à eux ou à leurs clients finaux. Notre incapacité à s'adapter à l'évolution
la transition vers l'utilisation de logiciels basés sur le cloud pourrait avoir un effet négatif sur nous. De plus, les licences SaaS pay-per-use
les modèles peuvent avoir un effet défavorable sur notre constatation des revenus à court terme.
Nouvelles normes de l'industrie, la modification
de nos produits pour répondre à des normes existantes supplémentaires ou les caractéristiques de nos produits peuvent retarder l'introduction de
nos produits ou augmenter nos coûts.
Les normes de l'industrie
qui s'appliquent à nos produits sont en constante évolution. De plus, nos produits étant intégrés dans des réseaux composés de
éléments fabriqués par diverses entreprises, ils doivent se conformer à un certain nombre de normes et de pratiques de l'industrie établies par divers
organismes internationaux et forums de l'industrie. Si de nouvelles normes sont largement acceptées, nous devrons adopter ces normes
dans nos produits. Nous pouvons également décider de modifier nos produits pour répondre à des normes existantes supplémentaires ou ajouter des fonctionnalités à nos produits.
Les normes peuvent être adoptées par divers groupes d'intérêt de l'industrie ou peuvent être exclusives et néanmoins largement acceptées dans l'industrie.
Il nous faudra peut-être beaucoup de temps pour développer et concevoir des produits intégrant ces nouvelles normes.
Notre équipementier d'origine
Les clients (OEM), clients potentiels ou partenaires peuvent développer ou préférer développer leurs propres solutions techniques, utiliser leurs propres
des ressources internes comme alternative à nos services techniques, ou acheter une technologie ou des services tiers comme alternative
à nos services techniques, et par conséquent, ne pas acheter nos produits.
Nous vendons nos produits
en tant que composants ou blocs de construction pour certains clients potentiels, tels que les grands OEM, les fournisseurs d'équipements de réseau (NEP), les entreprises
et les transporteurs. Ces clients intègrent nos produits dans leurs offres de produits, généralement en conjonction avec des services à valeur ajoutée
propres ou de tiers. Ces clients potentiels peuvent préférer développer leur propre technologie ou acheter un tiers
la technologie. Ils pourraient également fabriquer leurs propres composants ou blocs de construction similaires à ceux que nous proposons. Grands clients
ont déjà engagé des ressources importantes dans le développement d'offres de produits intégrés. Les clients peuvent décider que cela leur donne
une meilleure rentabilité et / ou un meilleur contrôle des fournitures, des spécifications et des performances. Les clients ne peuvent donc pas acheter de composants
ou des produits d'un fabricant externe tel que nous. Cela pourrait avoir un impact négatif sur notre capacité à vendre nos produits et,
par conséquent, pourrait réduire nos revenus.
Nous avons un carnet de commandes limité. Si
les niveaux de revenus pour chaque trimestre sont inférieurs à nos attentes, nos résultats d'exploitation seront affectés négativement.
Nous avons une commande limitée
carnet de commandes, ce qui rend les revenus de tout trimestre largement tributaires des commandes reçues et livrées au cours de ce trimestre. Un retard
dans la constatation des revenus, même d'un seul client, peut avoir un impact négatif significatif sur nos résultats d'exploitation
une période donnée. Nous fondons nos décisions sur nos dépenses d'exploitation sur les tendances de revenus prévues. Nos niveaux de dépenses sont relativement
fixe et nécessite un certain temps pour le réglage. Parce que seule une petite partie de nos dépenses varie avec nos revenus, si les niveaux de revenus
en deçà de nos attentes, nos résultats d'exploitation en seront affectés.
Nous vendons généralement aux OEM, NEP, système
intégrateurs, transporteurs / prestataires de services et distributeurs qui agissent comme intermédiaires entre nous en tant que fournisseur d'équipement et
les utilisateurs finaux ultimes de nos produits. En conséquence, nous avons moins d'informations sur les besoins réels des utilisateurs finaux
et leur utilisation de l'équipement. Nous avons également moins d'influence sur le choix des équipements par ces utilisateurs finaux.
Généralement nos clients
sont OEM, NEP, intégrateurs de systèmes, transporteurs / fournisseurs de services et distributeurs, plus que les utilisateurs finaux des équipements que nous
approvisionnement. Ces clients achètent généralement des équipements auprès de plusieurs fournisseurs et tentent peut-être de satisfaire les attentes de leurs clients utilisateurs finaux.
spécifications techniques spécifiques. Nous comptons beaucoup sur ces clients pour la vente de nos produits et pour nous informer des tendances du marché
et les besoins de leurs clients utilisateurs finaux. Nous ne pouvons être certains que ces informations sont exactes. Si les informations que nous recevons
n'est pas précis, nous pouvons fabriquer des produits selon la demande du client ou échouer à fabriquer des produits que les utilisateurs finaux
veux. Parce que nous vendons nos produits à des clients qui fonctionnent comme des intermédiaires plutôt que directement aux utilisateurs finaux, nous avons moins
contrôle sur la sélection finale des produits par les utilisateurs finaux.
Les marchés que nous desservons sont hautement compétitifs
et plusieurs de nos concurrents ont des avantages concurrentiels sur nous, ce qui peut nous empêcher de maintenir notre rentabilité.
Concurrence dans notre
l'industrie est intense et nous prévoyons que la concurrence s'intensifiera à l'avenir. Nos concurrents vendent actuellement des produits similaires
avantages à ceux que nous vendons. Il y a eu une quantité importante d'activités de fusion et d'acquisition, impliquant souvent des
les fabricants d'équipements de télécommunications acquérant de plus petites entreprises, ainsi que les alliances stratégiques conclues par les concurrents.
Nous prévoyons que ces activités se traduiront par une concentration croissante de la part de marché parmi ces sociétés, dont beaucoup
sont nos clients.
Nos principaux concurrents
dans le domaine des passerelles multimédias analogiques (2 à 24 ports) pour l'accès et l'entreprise sont Grandstream, Natex, Iskratel, Zyxel, Adtran,
Media5, Cisco, Sangoma, Innovaphone AG, Patton, Dialogic et Ribbon Communications.
Dans le domaine des basses
et les passerelles numériques de moyenne densité, nous sommes confrontés à la concurrence d'entreprises comme Ribbon Communications (anciennement Sonus Networks), Huawei,
Cisco, Dialogic, NewRock, Ribbon, Patton, Ferrari et Sangoma.
the area of MSBRs are companies such as Cisco, Juniper, Adtran, One-Access, Patton, Huawei, HP/3COM and Alcatel-Lucent.
Specifically in the
area of enterprise class session border controller technology we compete with Oracle, Cisco, Avaya, Ribbon Communications (formerly
Sonus Networks), MetaSwich, Ingate and Ribbon.
Our competitors in
the Microsoft Skype for Business and TEAMS certified gateways, session border controller, survivable branch appliance, meeting
room devices and the market for IP phones include Ribbon Communications (formerly Sonus Networks), Oracle, Poly, Yealink, Logitech
Our competitors in
the area of contact center vendors are Ribbon Communications (formerly Sonus Networks), Oracle, Poly and Yealink.
Our competitors in
the area of call recording are companies such as Verint, NICE, ACS, Red Box, Teleware and Dubber.
Our competitors in
the area of voice recognition are companies such as Microsoft, Google, Amazon and Nuance, and a group of startup companies.
Our principal competitors
in the sale of signal processing chips are DSP Group, Broadcom, Octasic and Mindspeed.
Our principal competitors
in the area of IP phones are comprised of “best-of-breed” IP phone vendors and end-to-end IP telephony vendors. “Best
of breed” IP phone vendors sell standards-based SIP phones that can be integrated into any standards-based IP-PBX or hosted
IP telephony system. These competitors include Poly, Grandstream, Yealink, VTEC (acquired SNOM) and many others. End-to-end IP
telephony vendors sell IP phones that only work in their proprietary systems. These competitors include Cisco, Avaya, Alcatel-Lucent,
Siemens, Mitel and NEC. In the areas of Skype for Business/Microsoft Teams, our competitors are certified vendors – Yealink
Some of our competitors
are also customers of our products and technologies.
Many of our competitors
have the ability to offer vendor-sponsored financing programs to prospective customers. Some of our competitors with broad product
portfolios may also be able to offer lower prices on products that compete with ours because of their ability to recoup a loss
of margin through sales of other products or services. Additionally, voice, audio and other communications alternatives that compete
with our products are being continually introduced.
In the future, we may
also develop and introduce other products with new or additional telecommunications capabilities or services. As a result, we may
compete directly with voice over-IP (VoIP) companies, other telecommunications infrastructure and solution providers, system integrators
and value added resellers, some of which may be our current customers. Additional competitors may include companies that currently
provide communication software products and services. The ability of some of our competitors to bundle other enhanced services
or complete solutions with VoIP products could give these competitors an advantage over us.
Offering to sell directly to carriers
or service providers may expose us to requirements for service which we may not be able to meet.
We also sell our
products directly to telecommunications carriers, service providers or other end-users. We have traditionally relied on third
party distributors and OEMs to test and/or sell our products and to inform us about the requirements of end-users.
Telecommunications carriers and other service providers have great bargaining power in negotiating contracts. Generally,
contracts with end-users tend to be more complex and impose more obligations on us than contracts with third party
distributors. We may be unable to meet the requirements of these contracts. If we are unable to meet the conditions of a
contract with an end-user customer, we may be required to pay liquidated damages or become subject to liabilities that could
result in a material adverse effect on our results of operations.
Selling directly to
end-users and Value Added Resellers (VARs) may adversely affect our relationship with our current third party distributors upon
whom we expect to continue to rely for a significant portion of our sales. Loss of third party distributors and OEMs, or a decreased
commitment by them to sell our products as a result of direct sales by us, could adversely affect our sales and results of operations.
We rely on third-party subcontractors
to assemble and original design manufacturers to design and manufacture some of our products, and therefore do not directly control
manufacturing costs, product delivery schedules or manufacturing quality.
Our products are assembled
and tested by third-party subcontractors. As a result of our reliance on third-party subcontractors, we cannot directly control
product delivery schedules. We have in the past experienced delays in delivery schedules. Any problems that occur and persist in
connection with the delivery, quality or cost of the assembly and testing of our products could have a material adverse effect
on our business, financial condition and results of operations. This reliance could also lead to product shortages or quality assurance
problems, which, in turn, could lead to an increase in the costs of manufacturing or assembling our products.
In addition, we have
engaged several original design manufacturers, or ODMs, based in Asia to design and manufacture some of our products and may engage
additional ODMs in the future. Any problems that occur and persist in connection with the delivery, quality, cost of the assembly
or testing of our products, as well as the termination of our commercial relationship with an ODM or the discontinuance of the
manufacturing of the respective products could have a material adverse effect on our business, financial condition and results
If a small number of third-party suppliers
do not provide us with key components on a timely basis, we may not be able to deliver our products to our customers, and substantial
reengineering costs may be incurred.
Texas Instruments Incorporated
supplies all of the chips for our signal processor product line. Our signal processor line is used both as a product line in its
own right and as a key component in our other product lines. Motorola and Cavium Networks manufacture all of the communications
and network processors currently used in our embedded communications boards and network products.
We have not entered
into any long-term supply agreements or alternate source agreements with our suppliers and, while we maintain an inventory of critical
components, our inventory of chips would likely not be sufficient in the event that we had to engage an alternate supplier for
termination of the supply of the chips provided by Texas Instruments or the communications processors supplied by Motorola or
Cavium Networks or disruption in their timely delivery would require us to make a large investment in capital and personnel
to shift to using chips or signal processors manufactured by other companies and may cause a delay in introducing replacement
products. Customers may not accept an alternative product design. Supporting old products or redesigning products may make it
more difficult for us to support our products.
We depend on other sole source suppliers
to produce components for us without the benefit of long-term supply agreements or alternative source agreements.
Some of our sole source
suppliers custom produce components for us based upon our specifications and designs while other of our sole source suppliers are
the only manufacturers of certain components required by our products. We have not entered into any long-term supply agreements
or alternative source agreements with our suppliers and while we maintain an inventory of components from single source providers,
our inventory would likely not be sufficient in the event that we had to engage an alternate supplier of these single source components.
In the event of any interruption in the supply of components from any of our sole source suppliers, we may have to expend significant
time, effort and other resources in order to locate a suitable alternative manufacturer and secure replacement components. If no
replacement components are available, we may be forced to redesign certain of our products. Any such new design may not be accepted
by our customers. A prolonged disruption in supply may force us to redesign and retest our products. Any interruption in supply
from any of these sources or an unexpected technical failure or termination of the manufacture of components could disrupt production,
thereby adversely affecting our ability to deliver products and to support products previously sold to our customers.
In addition, if demand
for telecommunications equipment increases, we may face a shortage of components from our suppliers. This could result in longer
lead times, increases in the price of components and a reduction in our margins, all of which could adversely affect the results
of our operations.
Our customers may require us to produce
products or systems to hold in inventory in order to meet their “just in time,” or short lead time, delivery requirements.
If we are unable to sell this inventory on a timely basis, we could incur charges for excess and obsolete inventory which would
adversely affect our results of operations.
Our customers expect
us to maintain an inventory of products available for purchase off the shelf subsequent to the initial sales cycle for these products.
This may require us to incur the costs of manufacturing inventory without having a purchase order for the products. The VoIP industry
is subject to rapid technological change and volatile customer demands, which result in a short product commercial life before
a product becomes obsolete. If we are unable to sell products that are produced to hold in inventory, we will need to write-off
all or a part of the inventory value of these products. Write-offs could adversely affect our operating results and financial condition.
We wrote off inventory in an aggregate amount of $1.9 million in both 2017 and 2018 and $4.5 million in 2019. We have incurred
write-offs as a result of slow moving items, excess inventories, discontinued products and products with net realizable value lower
The right of our customers to return
products and their right to exchange products may affect our ability to recognize revenues which could adversely affect the results
of our operations.
Some of our customers
expect us to permit them to return some or all of the products they purchase from us. If we contractually agree to allow a customer
to return products, the customer may be entitled to a refund for the returned products or to receive a credit for the purchase
of replacement products. If we agree to this type of contractual obligation, it could affect our ability to recognize revenues.
In addition, if we are not able to resell any products that are returned, we would have to write off this inventory. This could
adversely affect our results of operations.
We have depended, and expect to continue
to depend, on a small number of large customers. The loss of one of our large customers or the reduction in purchases by a significant
customer or failure of such customer to pay for the products it purchases from us could have a material adverse effect on our revenues.
In 2017, 2018 and 2019,
sales to ScanSource Communications Group, our largest customer, accounted for 17.5%, 17.8%% and 16.0%, respectively, of our total
revenues, and sales to Westcon Group accounted for 12.7%, 11.1% and 13.5%, respectively, of our total revenues. Both ScanSource
and Westcon act as distributors or perform order fulfillment for smaller orders from other customers and do not purchase products
for internal use. If we lose a large customer, or if purchases made by such customers are significantly reduced, or if a large
customer fails to pay for the products it purchases from us, our revenues and results of operations could be adversely affected.
Our products generally have long sales
cycles and implementation periods, which increase our costs in obtaining orders and reduce the predictability of our revenues.
Our products are technologically
complex and are typically intended for use in applications that may be critical to the business of our customers. Prospective customers
generally must make a significant commitment of resources to test and evaluate our products and to integrate them into larger systems.
Many of our customers are large organizations with complex and lengthy evaluation, decision making and negotiation processes. Comment
a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the
design and testing of new communications equipment. The sales cycles of our products to new customers are approximately four to
twelve months after a design win, depending on the type of customer and complexity of the product. This time period may be further
extended because of internal testing, field trials and requests for the addition or customization of features or acceptance testing.
This delays the time until we realize revenue and results in significant investment of resources in attempting to make sales.
Long sales cycles
also subject us to risks not usually encountered in a short sales span, including customers’ budgetary constraints,
internal acceptance reviews and cancellation. In addition, orders expected in one quarter could shift to another because of
the timing of customers’ procurement decisions. The time required to implement our products can vary significantly with
the needs of our customers and generally exceeds several months; larger implementations can take multiple calendar quarters.
This complicates our planning processes and reduces the predictability of our revenues.
Our proprietary technology is difficult
to protect, and our products may infringe on the intellectual property rights of third parties. Our business may suffer if we are
unable to protect our intellectual property or if we are sued for infringing the intellectual property rights of third parties.
Our success and ability
to compete depend in part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright
and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. These
agreements and measures may not be sufficient to protect our technology from third-party infringement, or to protect us from the
claims of others.
Enforcement of intellectual
property rights may be expensive and may divert attention of management and of research and development personnel away from our
entreprise. Intellectual property litigation could also call into question the ownership or scope of rights owned by us. Additionally,
our products may be manufactured, sold, or used in countries that provide less protection to intellectual property than that provided
under U.S. or Israeli laws or where we do not hold relevant intellectual property rights.
We believe that the
frequency of third-party intellectual property claims is increasing, as patent holders, including entities that are not in our
industry and that purchase patents as an investment or to monetize such rights by obtaining royalties, use infringement assertions
as a competitive tactic and a source of additional revenue. Any intellectual property claims against us, even if without merit,
could cost us a significant amount of money to defend and divert management’s attention away from our business. We may not
be able to secure a license for technology that is used in our products and we may face injunctive proceedings that prevent distribution
and sale of our products even prior to any dispute being concluded. These proceedings may also have a deterrent effect on purchases
by customers, who may be unsure about our ability to continue to supply their requirements. We may be forced to repurchase our
products and compensate customers that have purchased such infringing products. We may be forced to redesign the product so that
it becomes non-infringing, which may have an adverse impact on the results of our operations.
In addition, claims
alleging that the development, use, or sale of our products infringes third parties’ intellectual property rights may be
directed either at us or at our direct or indirect customers. We may be required to indemnify such customers against claims made
against them. We may be required to indemnify them even if we believe that the claim of infringement is without merit.
Multiple patent holders in our industry
may result in increased licensing costs.
There are a
number of companies besides us that hold patents for various aspects of the technology incorporated in our industry’s
standards and our products. We expect that patent enforcement will be given high priority by companies seeking to gain
competitive advantages or additional revenues. We have been sued a number of times in recent years for alleged patent
infringement. If holders of patents take the position that we are required to obtain a license from them, we cannot be
certain that we would be able to negotiate a license agreement at an acceptable price or at all. Our results of operations
could be adversely affected by the payment of any additional licensing costs or if we are prevented from manufacturing or
selling a product.
Changes in governmental regulations
in the United States or other countries could slow the growth of the VoIP telephony market and reduce the demand for our customers’
products, which, in turn, could reduce the demand for our products.
VoIP and other services
are not currently subject to all of the same regulations that apply to traditional telephony. Nevertheless, it is possible that
foreign or U.S. federal or state legislatures may seek to impose increased fees and administrative burdens on VoIP, data, and video
providers. The FCC requires VoIP service providers to meet various emergency service requirements relating to delivery of 911 calls,
known as E911, and to accommodate law enforcement interception or wiretapping requirements, such as the Communications Assistance
for Law Enforcement Act, or CALEA. In addition, the FCC may seek to impose other traditional telephony requirements such as disability
access requirements, consumer protection requirements, number assignment and portability requirements, and other obligations, including
additional obligations regarding E911 and CALEA. The cost of complying with FCC regulations or similar regulations in other countries
could increase the cost of providing Internet phone service which could result in slower growth and decreased profitability for
this industry, which would adversely affect our business.
The enactment of any
additional regulation or taxation of communications over the Internet in the United States or elsewhere in the world could have
a material adverse effect on our customers’ (and their customers’) businesses and could therefore adversely affect
sales of our products. We do not know what effect, if any, possible legislation or regulatory actions in the United States or elsewhere
in the world may have on private telecommunication networks, the provision of VoIP services and purchases of our products.
Use of encryption technology in our
products is regulated by governmental authorities and may require special development, export or import licenses. Delays in the
issuance of required licenses, or the inability to secure these licenses, could adversely affect our revenues and results of operations.
Growth in the demand
for security features may increase the use of encryption technology in our products. The use of encryption technology is generally
regulated by governmental authorities and may require specific development, export or import licenses. Encryption standards may
be based on proprietary technologies. We may be unable to incorporate encryption standards into our products in a manner that will
insure interoperability. We also may be unable to secure licenses for proprietary technology on reasonable terms. If we cannot
meet encryption standards, or secure required licenses for proprietary encryption technology, our revenues and results of operations
could be adversely affected.
We are subject to regulations
that require us to use components based on environmentally friendly materials. We may be subject to various regulations
relating to management and disposal of waste with respect to electronic equipment. Compliance with these regulations has
increased our costs. Failure to comply with these regulations could materially adversely affect our results of
We are subject to an
increasing number of directives and regulations requiring the use of environmentally-friendly materials. For example, pursuant
to a European Community directive, equipment suppliers are required to stop using specified materials that are not environmentally
friendly. Some of our customers may also require products that meet higher standards than those required by the directive, such
as complete removal of additional harmful substances from our products. We are dependent on our suppliers for components and sub-system
modules, such as semiconductors and purchased assemblies and goods, to comply with these requirements. This may harm our ability
to sell our products in regions or to customers that may adopt such directives. Compliance with these directives has required us
to incur significant expenses with respect to meeting the basic requirements and the updates of those regulations and of implementing
new similar regulations and directives. In addition, we may be required to pay higher prices for components that comply with those
directives. We may not be able to pass these higher component costs on to our customers. Compliance with these directives has increased
and could continue to increase our product design and manufacturing costs. New designs may also require qualification testing with
both customers and government certification boards.
Some of our operations
use substances regulated under various federal, state, local and international laws governing the environment, including laws governing
the management and disposal of waste with respect to electronic equipment. We could incur substantial costs, including fines and
civil or criminal sanctions, if we were to violate or become liable under environmental laws or if our products become non-compliant
with environmental laws. We also face increasing complexity in our product design and procurement operations as we adjust to new
and future requirements relating to the materials that compose our products. The European Union (EU) has enacted the Waste Electrical
and Electronic Equipment Directive which makes producers of electrical goods financially responsible for specified collection,
recycling, treatment and disposal of past and future covered products. Similar legislation has been or may be enacted in other
jurisdictions, including the United States, Canada, Mexico, China and Japan.
Our inability or failure
to comply with these regulations could have a material adverse effect on our results of operations. In addition, manufacturers
of components that do not meet the new requirements may decide to stop manufacturing those components prior to the required compliance
date. These actions by manufacturers of components could result in a shortage of components that could adversely affect our business
and results of operations.
We have a significant presence in
international markets and plan to continue to expand our international operations, which exposes us to a number of risks that could
affect our future growth.
We have a
worldwide sales, marketing and support infrastructure that is comprised of independent distributors and value added
resellers, and our own personnel resulting in a sales, marketing and support presence in many countries, including markets in
North America, Western and Eastern Europe, the Asia Pacific region and Latin America. We expect to continue to increase our
sales headcount, our applications development headcount, our field support headcount, our marketing headcount and our
engineering headcount and, in some cases, establish new relationships with distributors, particularly in markets where we
currently do not have a sales or customer support presence. As we continue to expand our international sales and operations,
we are subject to a number of risks, including the following:
|·||greater difficulty in enforcing contracts and accounts receivable collection, as well as longer
|·||increased expenses incurred in establishing and maintaining office space and equipment for our
|·||fluctuations in exchange rates between the dollar and foreign currencies in markets where we do
|·||greater difficulty in recruiting local experienced personnel, and the costs and expenses associated
with such activities;
|·||general economic and political conditions in these foreign markets (for example changes in oil
prices and the global economy have affected growth and ultimately the demand for our products in China);
|·||economic uncertainty around the world;|
|·||management communication and integration problems resulting from cultural and geographic dispersion;|
|·||risks associated with trade restrictions and foreign legal requirements (such as privacy and cyber
security), including the importation, certification, and localization of our solutions required in foreign countries, such as high
import taxes in Brazil and other Latin American markets where we sell our products;
|·||greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;|
|·||the uncertainty of protection for intellectual property rights in some countries;|
|·||greater risk of a failure of employees to comply with both U.S. and foreign laws, including antitrust
regulations, the U.S. Foreign Corrupt Practices Act (FCPA), and any trade regulations ensuring fair trade practices; et
|·||heightened risk of unfair or corrupt business practices in certain regions and of improper or fraudulent
sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements.
Any of these
risks could adversely affect our international operations, reduce our revenues from outside of the United States or increase
our operating costs, adversely affecting our business, results of operations and financial condition and growth prospects.
There can be no assurance that all of our employees and channel partners will comply with the formal policies we have and
will implement, or applicable laws and regulations. Violations of laws or key control policies by our employees and channel
partners could result in delays in revenue recognition, financial reporting misstatements, fines, penalties or the
prohibition of the importation or exportation of our software and services and could have a material adverse effect on our
business and results of operations.
We face risks related to health epidemics
and other widespread outbreaks of contagious disease, which could significantly disrupt our supply chain and impact our operating
of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and
operating results. In December 2019, a strain of novel coronavirus causing respiratory illness emerged in the city of Wuhan in
the Hubei province of China. The Chinese government has taken certain emergency measures to combat the spread of the virus, including
extension of the Lunar New Year holidays, implementation of travel bans and closure of factories and businesses. In addition, a
substantial amount of business travel to China has been postponed or canceled, including as a result of the cancellation of flights
to China by major airlines. Some of our materials and products are sourced from suppliers located in China and we manufacture most
our products in China. We also sell some of our products in China and we have 53 employees in China. We expect the business disruptions
caused by measures taken to contain the spread of the coronavirus to result in supply shortages, including shortages of components
for our products, international transit of our products to and from China to be delayed, and economic uncertainty resulting from
these challenges in doing business in China to affect customer purchasing decisions. While the full impact of the coronavirus outbreak
is unknown at this time, we are closely monitoring the developments in China and continually assessing the potential impact on
our business. Any prolonged disruption to our supply chain and our ability to conduct our business in China could negatively impact
our sales and operating results and some research and development.
A data security or privacy breach
could adversely affect our business and services.
The protection of customer,
employee and company data is critical to us. Customers have a high expectation that we will adequately protect their personal or
other information from cyberattack or other security breaches. A significant breach of customer, employee, or company data could
damage our reputation and result in lost sales, fines, or lawsuits. Our business involves the receipt and storage of personal and
other information about customers and employees. The secure processing, maintenance and transmission of this information is critical
to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable
to attacks by hackers or breaches due to employee error, malfeasance or other disruptions. Any such breach or attack could compromise
our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
methods used to obtain unauthorized access change frequently and may not be immediately detected, we may be unable to
anticipate these methods or promptly implement preventative measures. Any such access, disclosure or other loss of
information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, disrupt our operations and the services we provide to customers and damage our reputation, which could adversely
affect our business, revenues and competitive position. In addition to taking the necessary precautions ourselves, we require
that third-party service providers implement reasonable security measures to protect our customers’ identity and
privacy. We do not, however, control these third-party service providers and cannot guarantee that no electronic or physical
computer break-ins and security breaches will occur in the future.
Our use and handling
of personally identifiable data is regulated at the international, federal and state levels. The regulatory environment surrounding
information security and privacy is increasingly demanding. For example, the General Data Protection Regulation (GDPR), which came
into effect on May 25, 2018, implemented stringent operational requirements for companies that are established in the EU or, where
not established in the EU, offer goods or services to individuals in the EU or monitor the behavior of individuals in the EU. Failure
to comply with the GDPR can result in fines of up to EUR 20 million or up to 4% of the total worldwide annual turnover of the preceding
financial year, whichever is higher.
The requirements of
the GDPR include, for example, expanded disclosures about how personal data is processed, mandatory data breach notification requirements,
a strengthened data subject rights regime and higher standards for obtaining consent from individuals to process their personal
data (including in certain circumstances for marketing), all of which involve significant ongoing expenditure. The principle of
accountability likewise requires us to put significant documentation in place to demonstrate compliance. While the GDPR in large
part harmonizes data protection requirements across EU countries, some provisions allow EU Member States to adopt additional or
different requirements, which could limit our ability to use and share personal data or could require localized changes. We may
also be affected by legal challenges to the validity of EU mechanisms for transfers of personal data outside the EU, and our business
could be impacted by changes in law as a result of future review of these mechanisms by European regulators under the GDPR, as
well as current challenges to these mechanisms in the European courts.
In addition, existing
privacy-related laws and regulations in the United States and other countries are evolving and are subject to potentially differing
interpretations, and various U.S. federal and state or other international legislative and regulatory bodies may expand or enact
laws regarding privacy and data security-related matters. Due to the fact that privacy and information security laws and regulations
are subject to change from time to time, our compliance with them may result in cost increases due to necessary systems changes
and the development of new processes. If we fail to comply with these laws and regulations, we could be subjected to legal risk.
Increasing costs associated with information security, such as increased investment in technology, the cost of compliance and costs
resulting from consumer fraud could cause our business and results of operations to suffer materially.
The ongoing trade war between China
and the United States and its potential escalation may have an adverse effect on our business operations and revenues.
Starting in April
2018, the United States imposed a 25% tariff on steel and a 10% tariff on aluminum imports from other countries. On July 6,
2018, the United States imposed 25% tariffs on $34 billion worth of Chinese goods. China instituted retaliatory tariffs on
certain U.S. goods. In 2019, the United States and China implemented several rounds of tariff increases and retaliations. On
January 15, 2020, the United States and China signed a Phase One trade deal pursuant to which, among other things, the U.S.
will modify existing tariffs. Due to the dynamic nature of governmental actions and responses, we are subject to uncertainty
as to whether and when proposed tariffs will come into effect. Since we operate in the U.S. and deliver products and services
to customers in the U.S., the trade war has adversely affected us, and especially if and when it is escalated, may cause
global economic turmoil and adversely impact the supply chain for our products, the cost of our products and the demand for
our products and, thus, may have a material adverse effect on our business and results of operations.
The prices of our products may become
less competitive due to foreign exchange fluctuations.
Although we have operations
throughout the world, the majority of our revenues and our operating costs in 2019 were denominated in, or linked to, the dollar.
Accordingly, we consider the dollar to be our functional currency. However, a significant portion of our operating costs in 2019
were incurred in New Israeli Shekel (NIS). During 2019, the NIS appreciated against the dollar, which resulted in an increase in
the dollar cost of our operations in Israel. As a result of this differential, from time to time we may experience increases in
the costs of our operations outside the United States, as expressed in dollars. If there is a significant increase in our expenses,
we may be required to increase the prices of our products and may be less competitive. Currently, our international sales are denominated
primarily in dollars. Therefore, any devaluation in the local currencies of our customers relative to the dollar could cause customers
to decrease or cancel orders or default on payment.
Our sales to European
customers denominated in Euros are increasing. Sales denominated in Euros could make our revenues subject to fluctuation in the
Euro/ dollar exchange rate. If the dollar appreciates against the Euro, we may be required to increase the prices of our products
that are denominated in Euros. In 2019, the Euro depreciated against the dollar, which resulted in an increase in the prices of
our products that are denominated in Euros.
Our independent sales representatives
may fail to market our products effectively.
A significant portion
of our marketing and sales involves the aid of independent sales representatives that are not under our direct control. We cannot
be certain that our current independent sales representatives will continue to distribute our products or that, even if they continue
to distribute our products, they will do so successfully. These representatives are not subject to any minimum purchase requirements
and can discontinue marketing our products at any time. In addition, these representatives often market products of our competitors.
Accordingly, we must compete for the attention and sales efforts of our independent sales representatives.
Our products could contain defects,
which would reduce sales of those products or result in claims against us.
complex and evolving products. Despite testing by us and our customers, undetected errors or defects may be found in existing
or new products. The introduction of products with reliability, quality or compatibility problems could result in reduced
revenues, additional costs, increased product returns and difficulty or delays in collecting accounts receivable. The risk is
higher with products still in the development stage, where full testing or certification is not yet completed. This could
result in, among other things, a delay in recognition or loss of revenues, loss of market share or failure to achieve market
acceptance. We could also be subject to material claims by customers that are not covered by our insurance.
Obtaining certification of our products
by national regulators may be time-consuming and expensive. We may be unable to sell our products in markets in which we are unable
to obtain certification.
Our customers may expect
us to obtain certificates of compliance with safety and technical standards set by national regulators, especially standards set
by U.S. or European regulators. There is no uniform set of standards, and each national regulator may impose and change its own
standards. National regulators may also prohibit us from importing products that do not conform to their standards. If we make
any change in the design of a product, we are usually required to obtain recertification of the product. The process of certification
may be time-consuming and expensive and may affect the length of the sales cycle for a product. If we are unable to obtain certification
of a product in a market, we may be unable to sell the product in that market.
We depend on a limited number of key
personnel who would be difficult to replace.
The success of our
business depends in large part upon the continuing contributions of our management and key personnel. Specifically, we rely heavily
on the services of Shabtai Adlersberg, our President and Chief Executive Officer, and Lior Aldema, our Chief Business Officer.
Both are also directors. If our President and Chief Executive Officer or our Chief Business Officer is unable or unwilling to continue
with us, our results of operations could be materially and adversely affected. We do not carry key person insurance for our key
The success of our
business also depends upon our continuing ability to attract and retain other highly-qualified management, technical, sales and
marketing personnel. We need highly-qualified technical personnel who are capable of developing technologies and products and providing
the technical support required by our customers. We experience competitive pressure with respect to retaining and hiring employees
in the high technology sector in Israel. If we fail to hire and retain skilled employees, our business may be adversely affected.
If we do not manage our operations
effectively, our results of operations could be adversely affected.
We have expanded
our operations in the past and may continue to expand them in the future. This expansion has required, and may continue to
require, the application of managerial, operational and financial resources. We cannot be sure that we will continue to
expand, or that we will be able to expand our operations successfully. In particular, our business requires us to focus on
multiple markets, including the VoIP, wireline, cable, enterprise unified communications and wireless markets. In addition,
we work simultaneously with a number of large OEMs and network equipment providers each of which may have different
requirements for the products that we sell to them. We may not have sufficient personnel, or may be unable to devote this
personnel when needed, to address the requirements of these markets and customers. If we are unable to manage our operations
effectively, our revenues may not increase, our cost of operations may rise and our results of operations may be adversely
As we grow we may need
new or enhanced systems, procedures or controls. The transition to such systems, procedures or controls, as well as any delay in
transitioning to new or enhanced systems, procedures or controls, may seriously harm our ability to accurately forecast sales demand,
manage our product inventory and record and report financial and management information on a timely and accurate basis.
The growth in our product portfolio
means that we have to service and support more products. This may result in an increase in our expenses and an adverse effect on
our results of operations.
The size of our product
portfolio has increased and continues to increase. As a result, we are required to provide product support to our customers. Les clients
have requested that we provide a contractual commitment to support a product for a specified period of time. This period of time
may exceed the working life of the product or extend past the period of time that we may intend to manufacture or support a product.
We are dependent on our suppliers for the components (hardware and software) needed to provide support and may be unable to secure
the components necessary to satisfy our service commitments. We do not have long-term contracts with our suppliers, and they may
not be obligated to provide us with products or services for any specified period of time. We may need to purchase an inventory
of replacement components and parts in advance in order to try to provide for their availability when needed. This could result
in an increased risk of write-offs with respect to our replacement component inventory to the extent that we cannot accurately
predict our future requirements under our customer service contracts. If any of our component suppliers cease production, cease
operations or refuse or fail to make timely delivery of orders, we may not be able to meet our contractual commitments for product
support. We may be required to supply enhanced components or parts as substitutes if the original versions are no longer available.
Product support may be costly and any extra service revenues may not cover the hardware and software costs associated with providing
Terrorist attacks, or the threat of
such attacks, may negatively impact the global economy which may materially adversely affect our business, financial condition
and results of operation and may cause our share price to decline.
economic and other uncertainties following terrorist attacks throughout the world may negatively impact the global economy. Comment
a result, many of our customers and potential customers have become much more cautious in setting their capital expenditure budgets,
thereby restricting their telecommunications procurement. Uncertainties related to the threat of terrorism have had a negative
effect on global economy, causing businesses to continue slowing spending on telecommunications products and services and further
lengthen already long sales cycles. Any escalation of these threats or similar future events may disrupt our operations or those
of our customers, distributors and suppliers, which could adversely affect our business, financial condition and results of operations.
Macroeconomic changes and trade wars
may impact our business.
Changes in regional
and global politics are leading to changes in the globalization and harmonization trends that prevailed in recent decades. Threats
of trade barriers, customs and duties and other political considerations are causing instability in the accepted world order and
the stability of financial markets. This may impact both our ability to manufacture and sell our products and services which would
affect our results of our operations and may also affect the price of our ordinary shares.
As part of our go to market strategy,
we have become certified solution partners of technological leaders such as Microsoft, Genesys and BroadSoft (acquired by Cisco).
These companies change their go to market strategy and product mix and technology requirements often and do so on reasonably short
notice. We may be unable or unwilling to change our products in time and as may be required in order to remain a certified partner.
In recent years we
have invested heavily in our product offerings that meet the requirements of the Microsoft Skype for Business and Microsoft Teams
ecosystems. The nature of this Microsoft solution is undergoing major change and, as part of this change, we are witnessing a shift
from on-premises solutions to cloud-based or hybrid on-premises and cloud-based solutions. This directly impacts the suitability
of our products to end-users and impacts end-user demand for products in a changing technical environment. In 2018, Cisco completed
the acquisition of BroadSoft. This acquisition is likely to impact BroadSoft’s future directions and, as a result, our investment
in compatibility with the BroadSoft BroadWorks and BroadCloud solutions. These changes may affect the revenues we derive from selling
into BroadSoft/Cisco solutions. Genesys, a long-term partner of ours, is also shifting from on-premises solutions to cloud-based
or hybrid on-premises and cloud-based solutions with potential impact on the suitability and demand of our products in Genesys
contact center deployments. Changes by our third party partners, over which we have little control and influence, can negatively
impact the results of our operations on reasonably short notice. We may be unable to recover or adapt to such changes.
We are subject to taxation in several
countries. Tax matters, including changes in tax laws or rates, adverse determinations by taxing authorities and imposition of
new taxes could adversely affect our results of operations and financial condition.
operate in several countries, we are subject to taxation in multiple jurisdictions, including Israel, the United States and
certain other countries where we have operations. We are required to report to and are subject to local tax authorities in
the countries in which we operate. In addition, our income that is derived from sales to customers in one country might also
be subject to taxation in other countries. We cannot be sure of the amount of tax we may become obligated to pay in the
countries in which we operate. The tax authorities in the countries in which we operate may not agree with our tax position.
Our tax benefits from carryforward tax losses and other tax planning benefits such as Israeli Technological Preferred
Enterprise and Approved Enterprise programs, may prove to be insufficient due to Israeli tax limitations, or may prove to be
insufficient to offset tax liabilities from foreign tax authorities. Foreign tax authorities may also use our gross profit or
our revenues in each territory as the basis for determining our income tax, and our operating expenses might not be
considered for related tax calculations, which could adversely affect our results of operations.
Risks Related to
Operations in Israel
Conditions in Israel affect our operations
and may limit our ability to produce and sell our products and instability in the Middle East may adversely affect us.
We are incorporated
under the laws of the State of Israel, and our principal executive offices and principal research and development facilities are
located in the State of Israel. Political, economic and military conditions in Israel directly affect our operations. There has
been an increase in unrest and terrorist activity in Israel, which has continued with varying levels of severity for many years
through the current period of time. This has led to ongoing hostilities between Israel, the Palestinian Authority, other groups
in the West Bank and the Gaza Strip, and the northern border of Lebanon, as well as in the Golan Heights. The future effect of
these conflicts on the Israeli economy and our operations is unclear. The Israeli-Palestinian conflict may also lead to political
instability between Israel and its neighboring countries. Ongoing violence between Israel and the Palestinians, as well as tension
between Israel and its neighboring countries, may have a material adverse effect on our business, financial conditions and results
Political events in
various countries in the Middle East, such as Syria, Iraq, Iran and Egypt, have weakened the stability of those countries, and
have allowed extreme terrorists organizations, such as ISIS, to operate in certain territories in the Middle East. This instability
may lead to deterioration of the geo-political conditions in the Middle East. In addition, this instability has affected the global
economy and marketplace through fluctuations in oil and gas prices. Our headquarters and research and development facilities are
located in the State of Israel. Any events that affect the State of Israel may impact us in unpredictable ways. For example, recent
activities of the global movement for a campaign of Boycott, Divestment and Sanctions (BDS) against Israel may adversely affect
our sales in certain countries. We have contingent plans for alternative manufacturing and supply sources, but these plans may
be insufficient. Should our operations be impacted in a significant way, this may adversely affect the results of our operations.
We cannot predict the
effect on us of an increase in these hostilities or any future armed conflict, political instability or violence in the region.
Additionally, some of our officers and employees in Israel are obligated to perform annual military reserve duty and are subject
to being called for additional active duty under emergency circumstances. Some of our employees live within conflict area territories
and may be forced to stay at home instead of reporting to work. We cannot predict the full impact of these conditions on us in
the future, particularly if emergency circumstances or an escalation in the political situation occur. If many of our employees
are called for active duty, or forced to stay at home, our operations in Israel and our business may be adversely affected.
A number of
countries and organizations continue to restrict or ban business with Israel or Israeli companies or companies doing business
with Israel or Israeli companies, which may limit our ability to make sales in those countries. In addition, there have been
increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government
policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our
We are adversely affected by the changes
is the value of the dollar against the NIS and could be adversely affected by the rate of inflation in Israel.
We generate most of
our revenues in dollars and, in 2019, a significant portion of our expenses, primarily salaries, related personnel expenses and
the leases of our buildings in Israel, were incurred in NIS. We anticipate that a significant portion of our expenses will continue
to be denominated in NIS.
Our NIS related costs,
as expressed in dollars, are influenced by the exchange rate between the dollar and the NIS. During 2017 and 2019, the NIS appreciated
against the dollar, which resulted in an increase in the dollar cost of our operations in Israel, and during 2018, the NIS depreciated
against the dollar, which resulted a decrease in the dollars cost of our operations in Israel. To the extent the dollar weakens
against the NIS, we could experience an increase in the cost of our operations, which are measured in dollars in our financial
statements, which could adversely affect our results of operations. In addition, in periods in which the dollar appreciates against
the NIS, we bear the risk that the rate of inflation in Israel will exceed the rate of such devaluation of the NIS in relation
to the dollar or that the timing of such devaluations were to lag considerably behind inflation, which will increase our costs
as expressed in dollars.
A decrease in value
of the dollar in relation to the NIS could have the effect of increasing the cost in dollars of these expenses. Our dollar-measured
results of operations were adversely affected in 2017 and 2019 when the NIS appreciated substantially against the dollar. C'est tout
could happen again if the dollar were to decrease in value against the NIS.
In order to manage
the risks imposed by foreign currency exchange rate fluctuations, from time to time, we enter into currency forward and put and
call options contracts to hedge some of our foreign currency exposure. We can provide no assurance that our hedging arrangements
will be effective. In addition, if we wish to maintain the dollar-denominated value of our products in non-U.S. markets, devaluation
in the local currencies of our customers relative to the dollar may cause our customers to cancel or decrease orders or default
Because exchange rates
between the NIS and the dollar fluctuate continuously, exchange rate fluctuations have an impact on our profitability and period-to-period
comparisons of our results of operations. In 2019, the value of the dollar decreased in relation to the NIS by 7.8% and the deflation
rate in Israel was 0.6%. In 2018, the value of the dollar increased in relation to the NIS by 8.1% and the inflation rate in Israel
was 0.8%. In 2017, the value of the dollar decreased in relation to the NIS by 9.8% and the deflation rate in Israel was 0.4%.
Our results of operations may be adversely affected in case of a decrease in the value of the dollar to the NIS.
The government grants we have received
for research and development expenditures limit our ability to manufacture products and transfer technologies outside of Israel
and require us to satisfy specified conditions. If we fail to satisfy these conditions, we may be required to refund grants previously
received together with interest and penalties.
In connection with
research and development grants we received from the Israel National Authority for Technology and Innovation (“IIA”),
we must pay royalties to IIA on the revenue derived from the sale of products, technologies and services developed with the grants
from IIA. The terms of IIA grants and the law pursuant to which grants are made restrict our ability to manufacture products or
transfer technologies outside of Israel if IIA grants funded the development of the products or technology, without special approvals
from IIA. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel
of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that
we are required to pay IIA. These restrictions may limit our ability to enter into agreements for such transactions without IIA
approval. We cannot be certain that any approval of IIA will be obtained on terms that are acceptable to us, or at all.
As of December 31,
2019, we have a contingent obligation to pay royalties in the amount of approximately $16.5 million, related to historical grants
received by two of our subsidiaries.
It may be difficult to enforce a U.S.
judgment against us, our officers and directors, assert U.S. securities law claims in Israel or serve process on substantially
all of our officers and directors.
We are incorporated
in Israel. Most of our executive officers and directors are nonresidents of the United States, and a majority of our assets and
the assets of these persons are located outside the United States. Therefore, it may be difficult to enforce a judgment obtained
in the United States against us or any such persons or to effect service of process upon these persons in the United States. Israeli
courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum
to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not
U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as
a fact which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There
is little binding case law in Israel addressing these matters. Additionally, there is doubt as to the enforceability of civil liabilities
under the Securities Act and the Exchange Act in original actions instituted in Israel.
Israeli law and provisions in our
articles of association may delay, prevent or make difficult a merger with or an acquisition of us, which could prevent a change
of control and therefore depress the price of our shares.
Israeli law may delay, prevent or make undesirable a merger or an acquisition of all or a significant portion of our shares
or assets. Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special
approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types
of transactions. These provisions of Israeli law could have the effect of delaying or preventing a change in control and may
make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. These
provisions may limit the price that investors may be willing to pay in the future for our ordinary shares. In addition, our
articles of association contain certain provisions that may make it more difficult to acquire us, such as a staggered board,
the ability of our board of directors to issue preferred stock and limitations on business combinations with interested
shareholders. Furthermore, Israel tax considerations may make potential transactions undesirable to us or to some of our
The rights and responsibilities of
our shareholders are governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders
of U.S. corporations.
Since we are incorporated
under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli
law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United States
corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising
its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the
company, including, among other things, in voting at a general meeting of shareholders on certain matters, such as an amendment
to a company’s articles of association, an increase of a company’s authorized share capital, a merger of a company
and approval of related party transactions that require shareholder approval. In addition, a controlling shareholder or a shareholder
who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment
of an office holder in a company or has another power with respect to a company, has a duty to act in fairness towards the company.
However, Israeli law does not define the substance of this duty of fairness. Some of the parameters and implications of the provisions
that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to impose additional obligations
and liabilities on our shareholders that are not typically imposed on shareholders of United States corporations.
to the Ownership of our Ordinary Shares
The price of our ordinary shares may
The market price for
our ordinary shares, as well as the prices of shares of other technology companies, has been volatile. Between January 1, 2015
and February 18, 2020, the trading price of our shares on Nasdaq has fluctuated from a low of $2.69 to a high of $28.73. The following
factors may cause significant fluctuations in the market price of our ordinary shares:
|·||fluctuations in our quarterly revenues and earnings or those of our competitors;|
|·||shortfalls in our operating results compared to levels forecast by securities analysts or by us;|
|·||announcements concerning us, our competitors or telephone companies;|
|·||announcements of technological innovations;|
|·||the introduction of new products;|
|·||changes in product price policies involving us or our competitors;|
|·||market conditions in the industry;|
|·||integration of acquired businesses, technologies or joint ventures with our products and operations;|
|·||the conditions of the securities markets, particularly in the technology and Israeli sectors; et|
|·||political, economic and other developments in the State of Israel and worldwide.|
In addition, stock
prices of many technology companies fluctuate significantly for reasons that may be unrelated or disproportionate to operating
results. The factors discussed above may depress or cause volatility of our share price, regardless of our actual operating results.
Our quarterly results of operations
have fluctuated in the past and we expect these fluctuations to continue. Fluctuations in our results of operations may disappoint
investors and result in a decline in our share price.
We have experienced
and expect to continue to experience significant fluctuations in our quarterly results of operations. In some periods, our operating
results may be below public expectations or below revenue levels and operating results reached in prior quarters or in the corresponding
quarters of the previous year. If this occurs, the market price of our ordinary shares could decline.
The following factors
have affected our quarterly results of operations in the past and are likely to affect our quarterly results of operations in the
|·||size, timing and pricing of orders, including order deferrals and delayed shipments;|
|·||launching of new product generations;|
|·||length of approval processes or market testing;|
|·||technological changes in the telecommunications industry;|
|·||competitive pricing pressures;|
|·||the timing and approval of government research and development grants;|
|·||accuracy of telecommunication company, distributor and original equipment manufacturer forecasts
of their customers’ demands;
|·||changes in our operating expenses;|
|·||disruption in our sources of supply;|
|·||temporary or permanent reduction in purchases by our significant customers; et|
|·||general economic conditions.|
Therefore, the results
of any past periods may not be relied upon as an indication of our future performance.
Our actual financial results might
vary from our publicly disclosed financial forecasts.
From time to time,
we publicly disclose financial forecasts and other performance metrics. Our forecasts reflect numerous assumptions concerning our
expected performance, as well as other factors which are beyond our control and which might not turn out to be correct. As a result,
variations from our forecasts could be material. Our financial results are subject to numerous risks and uncertainties, including
those identified throughout this “Risk Factors” section and elsewhere in this Annual Report. If our actual financial
results are worse than our financial forecasts, the price of our ordinary shares may decline. A large portion of our sales is made
during the last month of each quarter. As a result, any delay in our receipt of orders could affect our results for a quarter and
the accuracy of our forecasts.
It is our policy that we will generally
not provide quarterly forecasts of the results of our operations. This policy could affect the willingness of analysts to provide
research with respect to our ordinary shares, which could affect the trading market for our ordinary shares.
It is our policy that
we will generally not provide quarterly forecasts of the results of our operations. This could result in the reduction of research
analysts who cover our ordinary shares. Any reduction in research coverage could affect the willingness of investors, particularly
institutional investors, to invest in our shares which could affect the trading market for our ordinary shares and the price at
which our ordinary shares are traded.
As a foreign private issuer whose
shares are listed on Nasdaq, we follow certain home country corporate governance practices instead of certain Nasdaq requirements.
As a foreign private
issuer whose shares are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead
of certain requirements contained in the Nasdaq listing rules. We do not comply with the Nasdaq requirement that we obtain shareholder
approval for certain dilutive events, such as for the establishment or amendment of certain share-based compensation plans. Instead,
we follow Israeli law and practice which permits the establishment or amendment of certain share-based compensation plans to be
approved by our board of directors without the need for a shareholder vote, unless such arrangements are for the compensation of
directors or the chief executive officer, in which case they also require compensation committee and shareholder approval.
As a foreign private
issuer listed on the Nasdaq, we may also elect in the future to follow home country practice with regard to, among other things,
director nominations, composition of the board of directors and quorum at shareholders’ meetings, as well as not obtain shareholder
approval for certain dilutive events.
Accordingly, our shareholders
may not be afforded the same protection as provided under Nasdaq’s corporate governance rules.
Our ordinary shares are listed for
trading in more than one market and this may result in price variations.
Our ordinary shares
are listed for trading on Nasdaq and on the Tel Aviv Stock Exchange (“TASE”). Trading in our ordinary shares on these
markets is made in different currencies (dollars on Nasdaq and NIS on TASE), and at different times (resulting from different time
zones, different trading days and different public holidays in the United States and Israel). Actual trading volume on the TASE
is generally lower than trading volume on Nasdaq, and as such could be subject to higher volatility. The trading prices of our
ordinary shares on these two markets often differ resulting from the factors described above, as well as differences in exchange
rates. Any decrease in the trading price of our ordinary shares on one of these markets could cause a decrease in the trading price
of our ordinary shares on the other market.
There can be no assurance that we
will continue to declare cash dividends or continue repurchases of our ordinary shares.
In July 2018, January
2019, August 2019 and February 2020, our Board of Directors declared cash dividends on our ordinary shares. Prior to the declaration
of these dividends, we had never declared a cash dividend. Under the Israeli Companies Law, 1999, or the Companies Law, we may
pay dividends only out of our profits as determined for statutory purposes, unless court approval is granted for the payment of
dividends despite the lack of statutory profits. Accordingly, the declaration and payment of future dividends is subject to the
Board’s discretion and will be dependent upon future earnings, cash flows, the requirements of the Companies Law, the receipt
of court approval, if required, and other factors. There can be no assurance that we will continue to declare cash dividends on
our ordinary shares.
In addition, since
2014, we have received court approvals each year for share repurchases up to specified amounts. Our share repurchases have and
will take place in open market transactions or in privately negotiated transactions and may be made from time to time depending
on market conditions, share price, trading volume or other factors. The repurchase program does not require us to purchase a specific
number of shares and may be suspended from time to time or discontinued. There can be no assurance that we will continue to seek
court approval of or that we will complete additional share repurchases.
U.S. shareholders face certain income
tax risks in connection with their acquisition, ownership and disposition of our ordinary shares. In any tax year, we could be
deemed a passive foreign investment company, which could result in adverse U.S. federal income tax consequences for U.S. shareholders.
Based on the
composition of our gross income, the composition and value of our gross assets and the amounts of our liabilities for each
taxable year from 2004 through 2019, we do not believe that we were a passive foreign investment company, or PFIC, for U.S.
federal income tax purposes during any of such tax years. There can be no assurance that we will not become a PFIC in the
current tax year or any future tax year in which, for example, the value of our assets, as measured by the public market
valuation of our ordinary shares, declines in relation to the value of our passive assets (generally, cash, cash equivalents
and marketable securities). If we are a PFIC for any tax year, U.S. shareholders who own our ordinary shares during such year
may be subject to increased U.S. federal income tax liabilities and reporting requirements for such year and succeeding
years, even if we cease to be a PFIC in such succeeding years. A U.S. holder of our ordinary shares will be required to file
an information return containing certain information required by the U.S. Internal Revenue Service for each year in which we
are treated as a PFIC with respect to such holder.
We urge U.S. holders
of our ordinary shares to carefully review Item 10.E. – “Taxation – U.S. Federal Income Tax Considerations”
in this Annual Report and to consult their own tax advisors with respect to the U.S. federal income tax risks related to owning
and disposing of our ordinary shares and the consequences of PFIC status.
If a United States person is treated
as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States
person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary
shares, such person may be treated as a “United States shareholder” with respect to us and each “controlled foreign
corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries
could be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation).
A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable
income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments
in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United
States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign
tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting
obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations
with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting.
We cannot provide any assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries is
treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to us
or any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply
with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the
potential application of these rules to an investment in our ordinary shares.
We are subject to ongoing costs and
risks associated with complying with extensive corporate governance and disclosure requirements.
As a foreign
private issuer subject to U.S. federal securities laws, we spend a significant amount of management time and resources to
comply with laws, regulations and standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
United States Securities and Exchange Commission (“SEC”) regulations and Nasdaq rules. While we have developed
and instituted corporate compliance programs and continue to update our programs in response to newly implemented or changing
regulatory requirements, we cannot provide assurance that we are or will be in compliance with all potentially applicable
corporate regulations. If we fail to comply with any of these regulations, we could be subject to a range of regulatory
actions, fines or other sanctions or litigation. In connection with our compliance with the internal control provisions of
Section 404 and the other applicable provisions of the Sarbanes-Oxley Act, our management and other personnel devote a
substantial amount of time, and may need to hire additional accounting and financial staff, to assure that we comply with
these requirements. The additional management attention and costs relating to compliance with the Sarbanes-Oxley Act, the
Dodd-Frank Act and other corporate governance requirements could materially and adversely affect our financial results.
The internal control
over financial reporting required by Section 404 of the Sarbanes-Oxley Act may not prevent or detect misstatements because of certain
of its limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. As a result,
even effective internal controls may not provide reasonable assurances with respect to the preparation and presentation of financial
statements. We cannot provide assurance that, in the future, our management will not find a material weakness in connection with
its annual review of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot
provide assurance that we could correct any such weakness to allow our management to assess the effectiveness of our internal control
over financial reporting as of the end of our fiscal year in time to enable our independent registered public accounting firm to
state that such assessment will have been fairly stated in our Annual Report on Form 20-F or state that we have maintained effective
internal control over financial reporting as of the end of our fiscal year. Discovery and disclosure of a material weakness in
our internal control over financial reporting could have a material impact on our financial statements and could cause our stock
price to decline.
We are also subject
to SEC disclosure obligations relating to our use of so-called “conflict minerals” – columbite-tantalite, cassiterite
(tin), wolframite (tungsten) and gold. These minerals are present in a significant number of our products; as a result, we are
required to file a conflicts minerals report with the SEC on an annual basis by May of each year.
The preparation of
our report is dependent upon the implementation and operation of our systems and processes and information supplied by our suppliers
of products that contain, or potentially contain, conflict minerals. We have incurred and will continue to incur costs associated
with complying with the supply chain due diligence procedures required by the SEC. To the extent that the information that we receive
from our suppliers is inaccurate or inadequate or our processes in obtaining that information do not fulfill the SEC’s requirements,
we could face both reputational and SEC enforcement risks. In addition, our efforts to comply with the disclosure rules and to
otherwise implement conflict-free sourcing policies could result in changes to our supply chain that could disrupt existing supply
sources or cause more uncertainty with respect to our supply chain.
|A.||HISTORY AND DEVELOPMENT OF THE COMPANY|
AudioCodes Ltd. was
incorporated in 1992 under the laws of the State of Israel. Our principal executive offices are located at 1 Hayarden Street, Airport
City, Lod, 7019900 Israel. Our telephone number is +972-3-976-4099. Our agent in the United States is AudioCodes Inc., 200 Cottontail
Lane, Suite A101E, Somerset, New Jersey 08873.
DEVELOPMENTS SINCE JANUARY 1, 2019
There continues to
be increased penetration of Cloud Virtualization in the service provider and enterprise markets. Service providers and enterprises
seek to harmonize their infrastructure with common off the shelf servers, instead of using proprietary hardware. In 2019, AudioCodes
continued to invest in cloud and virtualization technologies by adding more capabilities to its software session border controller
(SBC) product line. This includes increasing scale in multiple dimensions and high availability schemes for private and public
clouds, as well as integration with public cloud automation tools and listing in market places.
Meeting insights is
an Enterprise software application which captures information from multiple sources spanning both in-room and remote participants
connected from multiple locations. Meeting Insights seamlessly delivers multi-modal and real-time access to key meeting moments,
decisions taken and resulting action items. The result is a robust solution that holds crucial company information that would otherwise
Room Experience (RX)
AudioCodes Room Experience
suite (RX) delivers a solution for a variety of sizes of meeting rooms. RX suite is based on three pillars: devices,
meeting recording and management tools. Devices: AudioCodes currently sells RX10, RX20 and RX50 audio conferencing devices.
Major effort was given to the release of RX50 as a high-end conference phone device. In late 2019, we started to work on new device,
which we plan to release during 2020, that includes video for Microsoft Teams.
Meeting recording and
analytics: AudioCodes Meeting Insights is a meeting recording and analytics solution.
AudioCodes device manager, as part of One Voice Operations Center, is able to monitor and control the RX devices.
Part of the
Room Experience Suite is based on a technology and product partnership with Dolby and Jabra. Each of these companies
manufactures devices and technology which we use as part of our RX suite. We complement their products and technology with
our software and comprehensive solution suite, including third party interoperability, integration and management
Advances in artificial
intelligence, machine learning and natural language processing have led to the creation of naturally conversing chatbots. Customer
service chatbots help to increase customer satisfaction by eliminating waiting time. At the same time, they can save up to 30%
in customer support services expenditure by automating simple and repetitive tasks.
In 2019, we announced
the AudioCodes’ Voice.AI Gateway – a new solution that is built around our session border controller technology and
product. The AudioCodes’ Voice.AI Gateway enables connecting telephony voice to text-based chatbots, leveraging bot frameworks
and cloud speech recognition and text-to-speech services. This Gateway extends the reach of chatbot using voice calls via PSTN,
enterprise unified communications or WebRTC.
During 2019, we continued
to evolve our IP Phones offering for Microsoft Skype for Business and Teams, contacts centers and hosted business services by developing
additional capabilities and offering tighter manageability and control of the phones from the One Voice Operations Center.
In 2019, we introduced
a completely new model for Teams – C448, in addition to the C450 model that was added in 2018. The C448 brings a lower cost
option for customers. In addition, we added many features on the C450 for Teams such as hot-desking, emergency calling, Wifi support
In 2019, we also certified
our complete 400HD series for the generic SIP market, which enables customers that do not use Microsoft Skype for Business or Teams
to use our phones with different IP PBX options. The customers can migrate to Microsoft Teams in the future, while leveraging the
same IP phones devices by changing the version to be a Microsoft certified version.
In late 2019, we started
to develop two new models for Teams and the Android market, which we plan to release in summer of 2020.
The AudioCodes 400HD
series of IP phones is a range of easy-to-use, feature-rich products for the service provider hosted services, enterprise unified
communications and contact center markets. Based on the same advanced, field-proven underlying technology as our other VoIP products,
AudioCodes high quality IP phones enable systems integrators and end-customers to build end-to-end VoIP solutions.
During 2019, we
continued to evolve our MSBR product line with more hardware configurations as required by service provider customers and
enhanced management and operation capabilities, such as WEB GUI, used to enable end user restricted configuration without
involving the service provider. In addition, we developed a new advanced all-in-one business router, suitable for speeds of
up to 1Gbps, and including fiber, ethernet, DSL and 4G/LTE connectivity in addition to VoIP functionality. This new router
also supports super vectoring (profile 35b) VDSL connectivity, which is widely used in Europe.
We have also enhanced
our uCPE product with 4G/LTE connectivity, in order to make it ready for SD-WAN application running on its internal server.
VoIP Management and
Our One Voice Operations
Center (OVOC) offers management applications for large-scale cloud or premise-based unified communications deployments. It monitors,
manages and operates AudioCodes’ session border controllers (SBC), media gateways, Microsoft survivable branch appliances
(SBA), multi-service business routers (MSBR) and IP phones.
During 2019, we invested
in the following OVOC enhancements:
to purchase and use our OVOC platforms from cloud services, such as Azure (Microsoft) and AWS (Amazon). This will increase our
product’s exposure to new small enterprises and SMBs.
Enhanced quality monitoring
for remote IP Phones (IPPs) for working from home call center agents. This will allow our customers to troubleshoot quality problems
remotely, reducing the costs when dealing with remote located IPPs issues.
Manager (ARM) enables system administrators of large and multi-site enterprise VoIP networks to manage their call routing and policy
enforcement configuration in a unified logical view. ARM is a centralized solution aimed at simplifying the task of managing increasingly
complex VoIP networks, thereby saving time and reducing operational costs. ARM enables routing policies to be enforced based on
a multi-variate decision mechanism and supports centralized dial plans and call routing within multi-vendor environments. ARM enables
operational efficiency delivered with intuitive GUI for network views, and single-click network topology creation. ARM is a highly
scalable solution providing control over many network elements.
In 2019, we enriched
the routing capabilities of our ARM through various network conditions and user policies such as quality based routing, location
based routing and call prioritization for emergency calls, time based routing and enhanced load balancing. We also added offline
VoIP network planner module and simpler user operation by means of single sign on to the managed devices.
User Management Pack
365 (UMP 365)
Management Pack 365 (UMP 365) is a software management application that allows IT managers and service providers to easily
operate Skype for Business and Microsoft Teams deployments. UMP 365 does not require knowledge and expertise in
Microsoft’s PowerShell tools, and instead, allows helpdesk level engineers to operate the daily tasks using an
intuitive graphical user interface. Multi-tenant capabilities of UMP365 have been added to allow for hosters to concurrently
manage multiple customers with the same application.
In view of increased
deployment of Microsoft Teams, demand for CloudBond 365 and CCE appliances, which were developed in previous years, is declining
and the importance of UMP 365 is growing.
and natural language understanding (NLU) technologies
In 2019, we continued
to enrich our speech recognition platform with better support in more languages – German, English US and Spanish. Additional
new feature of the platform is Advanced Call Routing and Hunting. Call Hunting is performed if the callee is not available (busy
or not answering), followed by an action if the callee is not reachable (e.g., callee is not answering the call). For easier deployment
and upgrades – A software installer is now available. HTTPS for On-premises Web interface is now supported. Infrastructure
for quick integration with SMS gateways is now available. For On-premises deployments, we now support full high-availability capabilities
based on the Active-Active approach. System alarms were added and can be sent to configurable email addresses. Providers can now
limit the number of concurrent channels for a Service.
SmartTAP – Call
During 2019, we added
to SmartTAP the capabilities to support recording of Skype-For-Business Video and Video conference calls. We enhanced call recording
filtering and allow flexible selective recording.
We integrated SmartTAP
into AudioCodes’ OVOC so it can benefit OVOC features. We enhanced SmartTAP Announcement Server to allow configuration of
announcement per each call type and generate “Beep Tone” during recorded calls. We added to SmartTAP the capability
to record malicious calls. We enhanced SmartTAP robustness by enhanced system monitoring and generating test calls for total system
AudioCodes Live Services
During 2019, we rebranded
our managed services (part of our professional services) as AudioCodes Live Services, or AudioCodes Live. AudioCodes Live offers
OPEX-based and subscription-based packages of product, setup and proactive, managed services in the production environment.
AudioCodes Live portfolio offers various value propositions, on a managed services basis, including on-premises SBC or Gateway
for VoIP connectivity with optional Microsoft Skype for Business or O365 (e.g., Teams) voice support and cloud-based SBC for VoIP
connectivity with optional O365 voice support. AudioCodes Live offers the full spectrum of “Day 2” support, including
proactive monitoring, incident triage, notification, hardware replacement, backup and restore, software upgrades, Key Performance
Indicators (KPIs) and voice quality reporting, and dedicated client service management. In addition, we introduced the AudioCodes
Voice.AI Gateway, which allows the integration of bots and cognitive voice services with private and public voice communication
We have made and expect
to continue to make capital expenditures in connection with expansion of our operation and production capacity. The table below
sets forth our principal capital expenditures incurred for the periods indicated (amounts in thousands):
|Year Ended December 31,|
|2017||L'année 2018||L'année 2019|
|Computers and peripheral equipment||$||1,024||$||1,111||$||1,064|
|Office furniture and equipment||392||160||687|
develops and sells advanced Voice over-IP (VoIP) and converged VoIP and data networking solutions, products and applications that
facilitate secured, resilient and high quality Unified Communications (UC) and Contact Center (CC) services whether deployed on-premises
or delivered from the cloud. Providing IP Phones, Customer Premise Equipment (CPE), and cloud-based platforms and applications,
our solutions and products are geared to meet the growing needs of enterprises and service providers realigning their operations
towards the transition to All-IP networks and hosted business services. In addition, AudioCodes offers a complete suite of professional
and managed services that allow our partners and customers to choose a service packages (or complement their own offering) from
a modular portfolio of Professional Services. The result is a complete network lifecycle model based on the three basic phases
of PLAN, IMPLEMENT and OPERATE. Our Professional Services portfolio enables seamless integration, high availability, and non-stop
scalability to meet business and network demands.
AudioCodes is a VoIP
technology market leader focused on converged VoIP and data communications that offer technology, products and solutions for Enterprise
Unified Communications, contact centers, service provider business services, mobile VoIP and Cloud virtualized Data Centers. Le nôtre
products are deployed globally in enterprise, service provider cloud networks. AudioCodes’ products include IP phones, session
border controllers (SBC), media gateways, Multi-Service Business Routers (MSBRs), residential gateways, media servers, mobile communications
solutions, value added applications, life cycle management solutions and professional services. AudioCodes high definition (HD)
VoIP technologies and products provide enhanced intelligibility and a better end user experience in emerging voice communications
vision is to be the innovative leading supplier of converged VoIP and data solutions and services for enterprises, Value
Added Resellers (VAR), System Integrators (SI), service providers and Cloud communication providers worldwide. AudioCodes
VoIP technology contains voice quality enhancements and best-of-breed VoIP network elements and applications, and has a
proven track record in product and network interoperability with the industry’s leading companies.
With 25 years in the
telecommunications market, AudioCodes’ offers a broad range of solutions and services for both enterprise and service provider
deployments. These solutions are built around our field-proven VoIP product range. With full support for industry standard protocols
such as SIP, and proven interoperability with all industry leading soft switches, PBXs, IP-PBXs, unified communications and contact
center platforms, AudioCodes delivers innovative solutions for virtually any voice communications environment, offering reduced
Total Cost of Ownership (TCO), enhanced features, and superior voice quality.
AudioCodes was established
in 1993 to develop its low-bit-rate speech compression technology. Our first achievement was developing the speech compression
algorithm that was selected by the International Telecommunication Union (ITU) as a basis for the ITU-T G.723.1 standard.
Over the years, we
continued to expand our focus. Our development and expansion focused on different technologies and solutions as VoIP progressed:
|·||1993-1997 – Algorithm Development|
|·||1995-2007 – Chips, Blades|
|·||2002-2016 – Networking Products|
|·||2011-2017 – Solutions and Services|
|·||2017-2018 – Virtualized products and cloud based products and services|
|·||2019 – Product and solutions for business meetings|
and partnerships, we were able to grow our business and expand our focus, while taking advantage of our core competence –voice
processing and knowhow – which gave us the ability to mix and match technologies and become a solutions provider.
We expanded to compact
PCI boards, achieving a transition to a higher capacity that helped develop the gateway market. In 2001, AudioCodes released its
first media gateway independent platform, based on our blade and chip technology. The first product was an analog media gateway
that was followed by a family of media gateways combining analog and digital interfaces. We then began to develop and sell high
density media gateways and media servers.
We entered the
field of call recording in 2004 when we acquired Ai-Logix. Ai-Logix was a leading provider of advanced voice recording
technology and integration cards for the call recording and voice/data logging industries. AudioCodes used VoIP
communications boards as we leveraged Ai-Logix’s technology, strategic partnerships and customer base. We currently
sell our call recording solutions mainly in connection with Microsoft solutions.
In 2006, we teamed
with BroadSoft (acquired by Cisco) to help service providers deliver hosted VoIP service. By 2009, we had launched a strategic
initiative with BroadSoft to simplify deployments of IP voice networks and, in 2014, BroadSoft and AudioCodes announced that they
were collaborating on “One Voice for Hosted Services”. The One Voice initiative included BroadSoft’s unified
communication services and AudioCodes’ IP phones, routers, SBCs and gateways serving as a one stop shop for service providers
that are offering enterprises next generation VoIP services.
to expand its product portfolio with session border controllers, multi-service business gateways/routers and IP Phones to be able
to offer a wider range of products for leading UC and CC software vendors.
In January 2013, AudioCodes
launched “AudioCodes One Voice for Microsoft Lync”, a unified product and service program intended to simplify and
accelerate voice-enablement of Microsoft Skype Lync (now Skype for Business and Teams) implementations with a complete portfolio
of IP phones, media gateways, enterprise session border controllers (E-SBCs), survivable branch appliances (SBAs), session experience
manager (SEM) network management tools, support and professional services. The program supports migration to Microsoft Skype for
Business/Teams and co-existence with current telephony systems in multi-site and multi-national deployment.
On December 31, 2015,
AudioCodes acquired Active Communications Europe to further strengthen our ability to provide advanced software solutions for the
emerging Microsoft Skype for Business online application. In 2016, AudioCodes leveraged the Active Communications Europe acquisition
and promoted several products around Microsoft Skype for Business, including CloudBond 365 and User Management Pack 365 (UMP 365).
In 2018, AudioCodes
continued to work on new product offerings of software only virtual session border controller and its Voice.AI initiative, a suite
of products combining voice recognition and intelligent analysis of speech for various practical applications.
In 2019, AudioCodes
introduced two new solutions as part of the Voice.AI portfolio. AudioCodes Meeting Insights was introduced in September 2019 and
is an enterprise solution designed specifically for the meeting-technology world. Meeting Insights captures information from multiple
sources, both in-room and remote participants, as well as visual content presented. With next-generation Voice.AI features such
as Speech-to-Text (STT) and Keyword Spotting (KWS) Meeting Insights is an intelligent, centralized company meeting platform.
Voice.AI Gateway, introduced earlier in 2019, is a flexible and scalable solution for integrating text-based chatbots with private
and public voice communications networks and solutions, utilizing advanced cognitive voice services such as STT and Text to Speech
(TTS). The Voice.AI Gateway expounds the reach of chatbots to cases where voice is the preferred or mandatory user interface.
AudioCodes began working
in the call center telecommunications sector in 2003 with VoiceGenie, which was acquired by Alcatel-Lucent-owned Genesys in 2006.
In 2011, we were designated a vendor in the Genesys SIP Select program specifically for our Mediant 1000 and Mediant 2000 gateway
products, that provide the interface between the PSTN and Genesys SIP Server. In 2016, AudioCodes and Genesys expanded their program
pursuant to which Genesys and its partners offer a complete integrated end-to-end solution that includes the Genesys Customer Experience
Platform along with AudioCodes’ IP phones, session border controllers, media gateways and centralized management and monitoring
applications to allow customers to benefit from a quick and easy migration to an all-IP contact center.
AudioCodes now has
tens of millions of SBC, media gateway and media server sessions deployed in over 100 countries across the globe. Our high availability
platforms (Mediant media gateways, Mediant session border controllers and IPmedia media servers) cover the spectrum of low, mid
and high-density applications for service providers and large enterprises.
BACKGROUND AND MARKET TRENDS
The networking and
telecommunications industries continue to experience rapid change. Below are some of the major market trends affecting the industry,
as well as the evolving focus of the AudioCodes solutions and products.
With the move to VoIP
and the network integration between voice and data based on Ethernet and IP, enterprises can adopt a unified communications and
collaboration solution. Unified communications solutions integrate all means of communications into a single platform, providing
on line (e.g., voice, data presence, instant messaging, white boarding and desktop sharing) and off line (voice mail, email and
fax) integration into a single communication system shared across a variety of end user devices. Unified communications can be
accessed through devices such as PCs, tablets, desktop and meeting room phones or mobile smartphones. Unified communications can
be either on-premises or cloud based. Alternatively, enterprises can adopt a hybrid approach where they keep the real time media
path portion of their unified communications on-premises and the applications hosted in the cloud.
as a Service (UCaaS)
as a service (UCaaS) is a delivery model in which a variety of communication and collaboration applications and services are hosted
by a third-party provider in public or private cloud data center and delivered over the wide area network (WAN). In this category,
the growth of hosted business services is widely affecting the communications world. Enterprises are adopting hosted and cloud
services. Hosted unified communications and contact centers that are driven by Microsoft, BroadSoft (acquired by Cisco), Genesys,
Five Nines, Zoom, Ring Central, 8×8 and others are gaining traction within the enterprise community and are growing fast as an
alternative to on-premises solutions. Microsoft’s Skype for Business and Teams unified communications offering is a market
leader in this area.
SIP trunking is a VoIP
service based on SIP by which service providers deliver IP telephone connectivity services to customers equipped with SIP-based
private branch exchange (IP-PBX) and unified communications facilities. More and more service providers are adopting SIP trunking
as the technology of choice for connecting on-premise IP based business voice systems. SIP trunking technology is not new. For
several years, Over the Top (OTT) service providers, sometimes called alternative service providers or Internet Telephony Service
Providers (ITSP), have offered competitive voice services based on SIP trunking technology while the traditional telco companies
continue to offer legacy PSTN services. Market data shows a clear migration of telcos moving towards SIP trunking services as well.
All IP Transformation
Many telcos are moving
towards a complete replacement of their legacy TDM networks with all-IP networks. Among the factors that drive telcos to replace
legacy networks are end of life of the traditional TDM switches, real estate that is occupied by these switches and energy savings,
together with the need to compete with the growing alternative service providers. Two typical strategies employed for the business
sector by service providers in the move towards app-IP networks are placing CPEs (VoIP Media Gateways, Session Border Controllers
or Multi-Service-Business-Routers) to connect the customers’ legacy or IP equipment or systems to their IP network, or alternatively
aggregate large number of TDM links (PRI primarily) at centralized Point of Presences utilizing large capacity VoIP Media Gateways.
and Network Function Virtualization (NFV)
NFV is a transition
of network infrastructure services to run on virtualized computing infrastructure using cloud technology, management, automation
and orchestration solutions to provide network functionality with dynamic scaling of load as well as self-healing of virtual network
functions (VNFs). The significance of software only virtualized products for the telecommunications market is increasing as operators
and enterprises are seeking to move away from dedicated hardware platforms to common generic computing platforms that are enabling
data centers. NFV aims to leverage standard IT virtualization technology to consolidate potentially all network functions (including
SBCs) onto industry standard high volume servers, switches and storage, which could be located in datacenters, network nodes and
on end user premises (vCPE – virtual customer premise equipment and vE-CPE, also known as uCPE – virtual enterprise
customer premise equipment). NFV infrastructure, management and orchestration promises to introduce agility and enable quick introduction
of new services to service providers’ networks, similar to those characterizing internet and cloud services. There are a
number of challenges that NFV needs to address, including real time performance, scale, resilience, management and automation.
These and other technical challenges are being addressed in a network operator-led industry specification group under the auspices
of ETSI, an industry standards setting body, as well as by leading public cloud vendors such as Amazon, Microsoft and Google.
WebRTC is a free, open
project that provides web browsers and mobile applications with real-time communications (RTC) capabilities via simple application
programing interface, or APIs. The WebRTC components have been optimized to best serve this purpose. WebRTC enables rich, high
quality RTC applications to be developed for the standard web browser, mobile platforms, and content delivery systems, and allows
them all to communicate via a common set of protocols. The WebRTC initiative is a project supported by Google, Microsoft, Mozilla
and Opera, among others. WebRTC support is available by default mainstream web browsers like Chrome, Edge, Opera and Firefox, and
also as a library for developing mobile applications. WebRTC is making a major impact in real time communications as it is natively
supported by web browsers and therefore does not require a user to download a specific application. Similar to other open source
projects, WebRTC makes a complex technology (such as voice compression and packetization, mitigation of network impairments, security
and encryption of real time sessions and peer to peer connectivity of devices regardless of their location) accessible to the big
and growing community of web developers, allowing them to quickly and easily develop real time communications services without
requiring specific knowhow in voice and video communications. To enable connecting SIP based communication services (e.g., enterprise
unified communications or contact centers) with WebRTC, a WebRTC gateway is required to mediate between the incompatible media
and signaling of the different systems, as well as enable centralized functions such as compliance recording. WebRTC gateway functionality
may be standalone or incorporated into an SBC, in which case it benefits from SBC capabilities such as VoIP security and interoperability.
Additionally, a WebRTC Software Development Kit (SDK) is often required to complement the WebRTC GW, making it simple for web developers
to quickly develop WebRTC clients for web and smartphones.
(SDN) and Software-Defined Wide Area Network (SD-WAN)
SDN is an emerging
technology and architecture for designing, building and operating networks that brings a degree of agility and flexibility to networking,
similar to what abstraction, virtualization and orchestration have brought to server and storage infrastructures. SDN architecture
decouples the network control and forwarding functions enabling the network control to become directly programmable and the underlying
infrastructure to be abstracted for applications and network services. Similar to NFV, SDN technology is expected to reduce OPEX
and CAPEX associated with building and maintaining networks and also enable innovation.
SD-WAN is a specific
application of SDN technology applied to WAN connections, which are used to connect enterprise networks – including branch
offices and data centers – over large geographic distances. A WAN might be used, for example, to connect branch offices to
a central corporate network, or to connect data centers separated by distance. In the past, these WAN connections often used technologies
(such as MPLS) that required special proprietary hardware and were sold at premium prices by service providers that offered a high
degree of security, resiliency and quality of service. The SD-WAN technology seeks to modernize the network edge technology using
a software approach and leverage on the wide availability of low cost broadband and internet services to offer cost effective alternatives
to legacy WAN services.
The momentum of the
market around cognitive services, and speech applications in particular, is increasing. About 60 of our employees are working in
this area. The technology giants are offering an array of technologies as a service, and service providers and Enterprise customers
keep looking for innovative technologies, products and solutions, cloud-based and on premises, in order to automate customer care
services, to shorten the call handling time and to make their customer care processes more efficient.
strategy is focused on increasing its position as a leading vendor of advanced UC-SIP enterprise voice, voice networking, all-IP
voice network migration and media processing solutions for the digital workplace. The following are key elements of our strategy:
Maintain and extend
technological leadership. We intend to continue to capitalize on our expertise in voice compression technology and voice signaling
protocols and proficiency in designing voice communications systems. We continually upgrade our product lines with additional functionalities,
interfaces, densities and compatibility with the leading UC, CC and SIP solutions in the market. We are also migrating our product
functionality to be software-based and run natively in cloud environments, to comply with the industry trend of migrating to private
and public clouds. We have invested heavily and are committed to continued investment in developing technologies that are key to
providing high performance voice, data and fax transmission over packet networks and to be at the forefront of technological evolution
in our industry.
Strengthen and expand
strategic relationships with key partners and customers. We sell our products and solutions to service providers and enterprises
worldwide, leading enterprise channels, regional and global system integrators, global equipment manufacturers and value-added
resellers (VAR), in the telecommunications and networking industries and establish and maintain long-term working relationships
with them. We work closely with our customers to engineer products, solutions and services that meet their particular needs.
ongoing development and integration cycles frequently result in close working relationships with our customers and partners. Auteur
focusing on leading solution vendors, system integrators and channels with large volume potential, we believe that we reach a substantial
segment of our potential customer base while controlling the cost and complexity of our marketing efforts.
Expand and enhance
the development of highly-integrated products. We plan to continue designing, developing and introducing new product lines,
product features and services that address the increasingly sophisticated needs of our customers. We believe that our knowledge
of core technologies and system design expertise enable us to offer better solutions that are more complete and contain more features
than those available in competitive alternatives. We believe that the best opportunities for our growth and profitability will
come from offering a broad range of highly-integrated network product lines, product features, professional services, integration
of data routing and switching services into our VoIP products, and the expansion into the service providers and carriers IP networks,
unified communications and contact center markets.
Expand and enhance
our solution offering. While the market is constantly looking for advanced, open communications and collaboration solutions,
integration of multi-vendor products into a working solution is a complex task that enterprises, system integrators, service and
cloud providers are challenged with. Throughout the years, we developed a broad portfolio of products and invested in lifecycle
management platform (day 1 and day 2 operations) for our products that form a comprehensive solution, considerably simplifying
the integration efforts required for setting up a working Unified Communications, Contact Center or hosted business solutions.
Customers and partners realize and appreciate the advantage in our solutions and we plan to keep expanding them with more products,
management applications and enterprise productivity solutions.
Build upon existing
technologies to penetrate new markets. The technology we developed originally for the OEM market has served us in building
products that now sell into the service provider and enterprise markets. The same products and technology can also be used to create
application-specific products and solutions, which helps us penetrate and serve various types of customers. Key segments that we
focus on are unified communications, contact centers, SIP trunking and hosted services markets that have been adopting VoIP solutions.
Work close to market
and customers. Our partners and customers are distributed around the world, and part of our ability to serve them is by being
close by. For this reason, we are investing in building local operations in key countries and regions, including sales, marketing
and support resources to closely serve our partners and customers.
Develop a network
of strategic partners. We sell our products through, or in cooperation with, customers that can offer or certify our products
as part of a full-service solution to their customers. We expect to further develop our strategic partner relationships with solution
providers, system integrators and other service providers in order to increase our customer base. Our strategic partners include
companies such as Microsoft, BroadSoft (now part of Cisco), Genesys (including Interactive Intelligence).
businesses and technologies. We may pursue the acquisition of complementary businesses and technologies or the establishment
of joint ventures to broaden our product offerings, enhance the features and functionality of our systems, increase our penetration
in targeted markets and expand our marketing and distribution capabilities.
customers in direct sales effort. We are pursuing a strategy of engaging large enterprise customers on a global level, as part
of the AudioCodes product fit within leading enterprise solutions, mainly with Microsoft and Genesys. Our ability to engage these
enterprises directly enhances our ability to influence solution design and procurement decisions. This, in turn, is designed to
increase demand, which is expected to allow our business partners to fulfill this demand based on their relationship with AudioCodes.
expand professional services offering. AudioCodes has a rich portfolio of product-led services. We offer to our customers
expert professional services to assist them with design, implementation, support and management of our products. We are
planning to expand our services offering in line with the new products and solutions. Systems Integrators, Value- Add
Resellers (VAR) and Service Providers (SP) are able to leverage AudioCodes professional and managed services to complement
their own, and are able to offer them under their own brand to the end customers.
SOLUTIONS, PRODUCTS AND SERVICES
Our products are intended
for voice networking and media processing solutions for the digital workplace and they also facilitate the transmission of voice,
data and fax over packet networks. We are a leading vendor of advanced voice networking and media processing solutions for the
digital workplace. We have incorporated our algorithms, technologies and systems design expertise in both our networking and technology
Our products and services
revenues are derived from networking and technology products. Networking products consist of connectivity platforms (Gateways,
SBC and MSBR), IP Phones, meeting room phones and management server suite. We further split the networking products to Gateways,
UC-SIP and Applications. The Gateways are comprised of the TDM Voice over IP Media Gateways (analog and digital). UC-SIP consists
of SBC, MSBR, IP Phones, Microsoft specific appliances (CloudBond 365 and Mediant CCE appliance) as well as call routing, element
and voice quality management suite, all together management server suite. Applications include mobile VoIP solutions and other
value added application products. Sales of networking products accounted for approximately 60% of our revenues in 2017, 61% of
our revenues in 2018 and 64% of our revenues in 2019. Network services accounted for approximately 31% of our revenues in 2017
and 32% of our revenues in each of 2018 and 2019.
are enabling in nature and consist of our chips and boards business products. These are sold primarily to original equipment manufacturers,
or OEMs, through distribution channels. Our chips and boards serve as building blocks that our customers incorporate in their products.
In contrast, our networking products are used by our customers as part of a broader technological solution and are a box level
product that interacts directly with other third party products. Sales of technology products accounted for approximately 8% of
our revenues in 2017, 7% of our revenues in 2018 and 4% of our revenues in 2019. Technology services accounted for less than 1%
of our revenues in each of 2017, 2018 and 2019.
To support today’s
complex multi-service networks, AudioCodes has developed a comprehensive professional services program intended to provide responsive,
preventive, and consultative support of AudioCodes networking products. AudioCodes professional services support networking devices,
applications and infrastructures, allowing large organizations and service providers to realize the potential of a high-performance
multi-service network. The foundation for AudioCodes professional services is a network life-cycle model based on the four basic
phases of planning, design, implementation and operations. The result is a specially designed portfolio of complementary and synergistic
Solutions for Microsoft
Skype for Business/Teams
AudioCodes One Voice
for Skype for Business and Microsoft Teams includes AudioCodes’ Microsoft-qualified end-to-end voice elements, wide-ranging
services and extensive expertise to enhance Microsoft Skype for Business voice implementations. These products and services are
suitable for all Microsoft-approved unified communications architectures, including on-premise, cloud-based and hybrid.
and SIP Trunking allow for smooth and controlled migration of existing telephony system or telephony services. AudioCodes delivers
a comprehensive solution for migration, integration and SIP trunking connectivity. Compatible with virtually any PBX, AudioCodes’
simplified dialing plan Active Directory (AD) integration protects investment in legacy equipment.
Security and Fraud
Prevention solutions prevent attacks causing voice disruptions, theft of services or other threats exposing a customer’s
voice infrastructure. AudioCodes secures the integration of unified communications and external voice services with attack detection
and topology hiding.
Devices and productivity
improves employee efficiency while integrating UC into the work environment. AudioCodes delivers desk phones and meeting room devices
products that are intuitive to work with and deliver excellent quality.
Compliance and recording
meets regulatory and compliance requirements. AudioCodes helps businesses address compliance and regulation with E911 location
services support and compliance recording.
Resiliency and recovery
enables recovery from failures and survival of voice network interruptions. AudioCodes has a broad portfolio of resiliency products
and solutions. AudioCodes products are designed for functionality and cost effectiveness.
All-in-One Voice Solution
is based on CloudBond™ 365 and enables a wide range of solutions for cloud-hybrid deployments, remote branch offices, PBX
replacement and UC pilots.
Skype for Business
and Teams Management Solutions deliver operational excellence with full life-cycle management. AudioCodes One Voice Operations
Center is a management suite providing full coverage of the entire set of actions required to manage a voice network in a Skype
for Business and Teams unified communications environment.
Enterprise UC and
are essential elements of an enterprise telephony network, adding VoIP capabilities to existing TDM equipment, or complementing
IP-PBX or unified communications deployments with media gateway, IP phone, and enterprise session border controller (E-SBC) solutions.
of products provides the scalability, flexibility and reliability needed to aid the successful deployment of best-of-breed, SIP-based
enterprise communications systems. The solution delivers SIP and TDM Trunking, analog device connectivity, and enterprise branch
Comprehensive IP phone
and meeting room phone management is the key to an excellent user experience. Voice remains the most fundamental method of employee
collaboration and the ability to control the user experience is critical for improved productivity.
AudioCodes device manager
defines the phone as an IT-managed entity and delivers unique and complete life-cycle management of end-user desktop devices.
solution provides administrators with powerful and easy-to-use tools to simplify tasks such as configuration, troubleshooting and
monitoring to increase efficiency and ensure user satisfaction.
With the ability to
deploy devices, monitor voice quality, identify problems and fix them rapidly and efficiently, AudioCodes’ solution is designed
to deliver employee satisfaction, increased productivity and lower IT expenses.
Solutions for Contact
VoIP and Unified Communications
have altered and evolved the business environment in which modern contact centers operate. The new IP Contact Center offers lower
costs, greater flexibility, higher customer satisfaction, improved productivity and increased revenue.
AudioCodes VoIP network
solutions for Contact Centers, including SBC, IP Phones and Gateways, are designed to help enterprises and service providers in
their transition towards an all-IP voice infrastructure by providing the network elements required to enable and support the smooth
operation of the contact center application suite while mitigating the risks of migrating into an IP environment. Additionally,
our virtualized VoIP connectivity and management solutions help cloud contact center vendors to build highly reliable and scalable
Contact Center as a Service (CCaaS) offering.
Enterprises and service
providers adopt virtualized solutions either in privately own data centers or in public clouds, following the Network Function
Virtualization (NFV) architecture and concepts. This enables scale and quick introduction of new innovative communication services
without the overhead typically associated with hardware-based solution deployments. Realizing this opportunity requires flexible
Virtual Network Function (VNF) Session Border Controllers (SBCs) capable of running both as access and peering/Interconnect SBCs,
as well as VNFs on enterprise virtualized data centers or Virtual Enterprise CPE devices (vE-CPE, also known as uCPE).
a comprehensive and flexible set of solutions spanning from vE-CPE appliances that can host third party VNFs as well as a
scalable virtualized SBC. AudioCodes’ virtual SBC. VoIP routing and lifecycle management runs on any vE-CPE device, as
well as in the Enterprise, Service or Cloud provider’s virtualized infrastructure, functioning as an access or
peering/Interconnect SBC. By offering a single scalable product, covering all capacity needs with unified control and
management interface, Enterprises, Service and Cloud providers can leverage its deployment and operations simplicity to
introduce new communications services rapidly and cost-effectively. Running on most public cloud infrastructure, the
AudioCodes virtualized SBCs enable Enterprises and Software as a Service (SaaS) vendors to quickly integrate and launch VoIP
services out of the public cloud infrastructure.
SIP Trunking Solutions
Trunking solutions are used by service providers deploying SIP Trunking services. These solutions allow service providers to benefit
from quick, easy and reliable deployments as well as address their customers’ needs to continue using their existing PBX
and IP-PBX systems while migrating from TDM to SIP Trunking services. This migration can be done with minimum business disruption
while providing high quality communication services. Additionally, the modular design of AudioCodes SIP Trunking devices enables
service providers to leverage SIP Trunking services to allow for quick and easy remote migration to hosted UC services in the future.
migration solutions are targeted at fixed-line service providers who are transforming their TDM fixed-line networks to all-IP.
The solutions consist of a set of scalable CPE devices, central office gateways, and management and monitoring application suites,
working seamlessly together and designed to enable fixed-line providers a quick, reliable and cost-effective path from TDM to All-IP
fixed-line service providers the ability to benefit from a wide-range of PSTN migration solutions that cover on-premises CPE, street
cabinet and central office PSTN to IP migration option, business customers from SOHOs up to large enterprises, PRI, ISDN and analog
interface and configuration, and VoIP gateway, Session Border Controller (SBC), routing and NFV applications.
Designed to enable
reliable and quality delivery of cloud-based services, AudioCodes’ UCaaS solutions are comprised of a comprehensive portfolio
of hardware and software products. AudioCodes solutions are used by service providers who are deploying Cloud and Hosted UC services.
Based on their survivability, resiliency, high voice quality assurance, and advanced remote management features, AudioCodes’
UCaaS solutions enable service providers to deliver to their business customers reliable and quality cloud services, as well as
provide them with the confidence they need to place their key communications functions in the cloud.
VocaNOM is a cloud-driven voice communication application for businesses and organizations allowing voice-based dialing and
routing. VocaNOM is improving internal communication between employees and staff as well as external calls to suppliers
(outbound) or from customers (inbound). VocaNOM provides a solution for the problem of managing multiple business contacts
and dialing on the go. The solution allows dialing by voice as the organizational phone directory is fully synced into the
cloud alongside the speech recognition algorithms designed by AudioCodes.
calling assistant is an easy-to-use solution that enables organizations, public institutions and retailers to handle thousands
of calls each day, while maintaining high-quality customer experience. Based on AudioCodes state-of-the-art voice recognition technology,
VocaONE provides callers with an ‘always-on’, 24/7 calling solution that improves customer experience and satisfaction,
while significantly reducing associated costs.
VocaONE includes a
built-in guided NLU engine that provides a wide coverage of industry-related enterprise jargons, enabling users to use their natural
language rather than having to learn a new set of operational terms and words. By allowing callers to use their familiar, every
day, language, VocaONE increases both engagement and satisfaction, by presenting an authentic and unparalleled customer experience.
SmartTAP Call Recording
Call Recording is an enterprise-wide compliance and liability recorder supporting Skype for Business as well as gateways and SBCs
supporting SEPRec protocol. Though most recorders in the market focus on contact center features, SmartTAP is deployed across the
enterprise to capture calls, either on-demand or, in some cases, full time. With an integral Skype for Business recording toolbar,
enterprise users can be recorded with SmartTAP anywhere and anytime they are on Skype for Business calls. SmartTAP can initially
be deployed on a small scale and then can be scaled up to support many thousands of users using its linear scalability feature.
SmartTAP supports Skype for Business recording of voice, video, video conference, instant messaging and desktop sharing transactions.
Narrowband and Wideband
(HDVoIP) Voice Compression Algorithms
Voice compression techniques
are essential for the transmission of voice over packet networks. Voice compression exploits redundancies within a voice signal
to reduce the bit rate required to digitally represent the voice signal, from 64 kilobits per second, or kbps, down to low bit
rates ranging from 5.3 kbps to 8 kbps, while still maintaining acceptable voice quality. A bit is a unit of data. Different voice
compression algorithms, or coders, make certain tradeoffs between voice quality, bit rate, delay and complexity to satisfy various
network requirements. Use of voice activity detection techniques and silence removal techniques further reduce the transmission
rate by detecting the silence periods embedded in the voice flow and discarding the information packets which do not contribute
to voice intelligibility.
We are one of the innovators
in developing low bit rate voice compression technologies. Our patented MP-MLQTM coder was adopted in 1995 by the ITU as the basis
for the G.723.1 voice coding standard for audio/visual applications over circuit-switched telephone networks. By adhering to this
standard, system manufacturers guarantee the interoperability of their equipment with the equipment of other vendors.
We also provide wideband
compression techniques that provide high definition VoIP quality, which expands the sampled frequency range from the traditional
narrowband frequency range of 3.3Khz to over 7Khz, providing better voice quality and intelligibility, and a better user expertise.
This technology is expanding and is expected to become a de-facto standard for future VoIP communications.
Advanced Digital Signal
To provide a complete
voice over packet communications solution, we have developed a library of digital signal processing functions designed to complement
voice compression coders with additional functionality, including: echo cancellation; voice activity detection; facsimile and data
modem processing; and telephony signaling processing. Our extensive experience and expertise in designing advanced digital signal
processing solutions allows us to implement algorithms using minimal processing memory and power resources.
To transmit the compressed
voice and fax over packet networks, voice packetization processes are required to construct and deconstruct each packet of data
for transmission. The processing involves breaking up information into packets and adding address and control fields information
according to the specifications of the appropriate packet network protocol. In addition, the software provides the interface with
the signal processors and addresses packet delay and packet loss issues.
Our media processing
products provide the enabling technology and platforms for developing enhanced voice service applications for legacy and next generation
networks. We have developed media processing technologies such as message recording/playback, announcements, voice coding and mixing
and call progress tone detection that enable our customers to develop and offer advanced revenue generating services such as conferencing,
network announcements, voice mail and interactive voice response.
Our media processing
technology is integrated into our enabling technology platforms like Voice over Packet processors and VoIP blades, as well as into
our network platforms like the Mediant media gateways and the IPMedia media servers. The same technology is also integrated into
our multi-service business gateways, enabling the use of these platforms to run third party VoIP software, offloading media processing
from the host CPU.
Networks and Standards Concurrently
Convergence of wireline
and wireless networks is becoming a key driver for deployment of voice over packet networks, enabling operators to use common equipment
for both networks, thus lowering capital expenditures and operating expenses, while offering enriched services.
Our voice over packet
products provide a cost-effective solution for these convergence needs, complying with the requirements of broadband wireline operators
using xDSL technologies, cable operators, mobile operators, FTTx operators, Internet Telephony Service Providers, or ITSPs, and
Virtual Network Operators, or VNOs. This includes support for relevant vocoders (wireline and wireless concurrently), interfaces
Our products are also
positioned to support the requirement of all types of enterprise customers. From SOHO, SMB all the way up to large enterprises,
our products can provide integrated VoIP services and service provider access to enterprises in multiple vertical markets.
solutions set helps businesses become more productive by capitalizing speech and text processing and analytics. We have developed
artificial intelligence, deep learning and machine learning technologies for Speaker Recognition (SR), Speech to Text (STT), Speaker
Verification (SV), Text to Speech (TTS), Natural Language Processing (NLP) and Natural Language Understanding (NLU) services. Additionally,
we have acquired expertise in Voice User Interface (VUI) design, voice bots design and development and automatic tagging and organizing
of meetings content out of recording.
Session Border Controllers
(SBC) and Media Gateways (MG)
family of Session Border Controllers (SBCs) and Media Gateways (MG) is a line of versatile IP communications platforms that connect
VoIP and TDM networks.
SBCs are deployed at
the border between the enterprise and the service provider, as well as between the networks of different service providers. À
the enterprise environment, SBCs form an effective demarcation point between the VoIP network of a business and the SIP Trunk or
hosted VoIP service of a service provider. In this capacity, an SBC performs SIP protocol and media mediation (interoperability)
and secures the enterprise VoIP network. In the service provider core, SBCs provide primarily VoIP security, protocol normalization,
VoIP routing and service level agreement monitoring and enforcement.
The Mediant SBC family
includes a range of hardware and software platforms that offer cost-efficient, scalable SBC and hybrid SBC-MG functionality (SIP
to TDM, SIP to SIP) for enterprises, service providers and cloud deployments.
family of High-Availability Media Gateways is a line of highly reliable IP communications platforms that connect VoIP and TDM
networks. Featuring NEBS Level 3 compliance and cost-effective redundancy configurations, the AudioCodes platforms meet the
stringent availability requirements of service providers. AudioCodes High-Availability Media Gateways serve as an efficient
junction between VoIP networks, legacy TDM equipment, and the PSTN. They interwork with most market-leading softswitches,
application servers, IP-PBXs, and other standards-based VoIP elements.
1xx series of Analog VoIP Gateways are cost-effective, stand-alone VoIP gateways that provide superior voice technology for connecting
legacy telephones, fax machines and PBX systems with IP telephony networks and IP-based PBX systems. The MediaPack 1xx gateways
are fully interoperable with leading softswitches and SIP servers and support a wide variety of service provider and enterprise
Service providers can
use MediaPack gateways to connect Multi-Tenant Units (MTUs), IP Centrex subscribers, payphones, and rural users over wireless and
Enterprises can use
MediaPack gateways to connect their legacy PBX systems over an IP infrastructure. In addition, in IP Centrex and central IP-PBX
applications, MediaPack enhances remote location availability and provides Stand Alone Survivability (SAS) when there is no IP
connection between branch locations and a central SIP server, SIP proxy or central IP-PBX.
is a high density analog media gateway. Supporting up to 288 analog ports in a compact 3U chassis. The MP-1288 offers a cost-effective
solution for organizations transitioning to all-IP that need to integrate large numbers of analog devices into their new infrastructure.
The MP-1288 enables these organizations to protect the investment made in their analog devices and cabling while enjoying the functional
and cost benefit of the move to the all-IP infrastructure.
of Multi-Service Business Routers (MSBR) offers service providers a range of all-in-one SOHO, SMB and SME routers combining access,
data, voice and security onto a single device. It is designed for managed data, SIP trunking, hosted PBX, and cloud-based services,
and allows service providers to deploy flexible and cost-effective solutions.
Business Routers allows service providers to provide their business customers much more than just an internet connection. In addition
to its integrated powerful routing and security software, the MSBR also features a multi-core architecture that aids consistent
high performance, allowing end customers to maximize their broadband connections for both data and voice applications.
Service providers offering
hosted PBX or SIP trunking communication services will benefit from AudioCodes’ MSBR, which includes integrated voice gateway,
analog and digital interfaces with various codecs that support analog phones, fax, PBX and PSTN connectivity, and session border
IP Phones and Meeting
400HD series of IP Phones includes a range of easy-to-use, feature-rich products for the service provider hosted services,
enterprise unified communications and contact center markets. Based on the same advanced, field-proven underlying technology
as our other VoIP products, AudioCodes high quality IP phones enable systems integrators and end-customers to build
end-to-end VoIP solutions. AudioCodes Room Experience suite (RX) delivers a voice-meeting solution for a variety of sizes of
AudioCodes IP phones
and meeting room phones can be offered along with our Device Manager which defines phones as an IT-managed entity and delivers
complete life-cycle management of end-user desktop devices.
CloudBond 365, Cloud
Connector Edition (CCE) appliances, and User Management Pack 365 (UMP 365)
365 is a modular, adaptable solution for the data center, customer premises or the branch. A versatile all-in-one Skype for Business
appliance designed for hybrid environments, it combines Skype for Business server, the Cloud-PBX and the service provider’s
voice services. While Microsoft’s cloud unified communications offering is still evolving into a full PBX replacement, CloudBond
365 bridges the gap, creating the critical bond between UC and the developing cloud business.
365 CCE appliances allow Microsoft Skype for Business cloud PBX customers to connect to their local existing voice services (such
as E1/T1, ISDN and SIP Trunks). AudioCodes CloudBond CCE appliances package Microsoft CCE code along with AudioCodes SBC and gateway
technology and a management application for simplified installation and operation.
AudioCodes User Management
Pack 365 (UMP 365) is a software management application that allows IT managers and service providers to easily manage user life-cycle
in Skype for Business and Teams deployments. UMP 365 does not require knowledge and expertise in Microsoft’s PowerShell tools.
Instead, it allows helpdesk level engineers to operate the daily tasks using an intuitive graphical user interface.
of Survivable Branch Appliances (SBA) is a line of enterprise-class integrated CPEs designed to ensure access to data and voice
services in the event of a WAN outage. AudioCodes SBAs are an element in multisite Skype for Business deployments, and are fully
certified by Microsoft for use with Skype for Business Server.
A Survivable Branch
Appliance (SBA) is a hardware device that ensures the availability of enterprise-wide voice service and voice mail. It also contains
a public switched telephone network (PSTN) gateway for use in the event of VoIP failure. As part of our One Voice for Skype for
Business portfolio, AudioCodes offers Survivable Branch Appliances that fit any enterprise location size, providing branch office
voice resiliency for up to 1000 users.
VoIP Management and
and operations solutions are a suite of holistic lifecycle applications suitable for large scale cloud or premises-based unified
communications deployments. The management and operations suite supports the entire set of actions required to manage a voice network
in a unified communications environment. In conjunction, the applications form the basis of a powerful network operation center
(NOC) with complete end-to-end network control, service assurance capabilities and comprehensive optimization and future planning
tools. The management and operations suite uniformly manages, monitors and operates the entire AudioCodes One Voice portfolio,
including SBCs, Media Gateways, Microsoft specific appliances and IP phones.
AudioCodes One Voice
Operations Center (OVOC) is a web-based voice network management solution that combines management of voice network devices and
quality of experience monitoring into a single, intuitive web-based application. OVOC enables administrators to adopt a holistic
approach to network lifecycle management by simplifying everyday tasks and assisting in troubleshooting all the way from detection
GUI design, system allows administrators to manage the full lifecycle of VoIP devices and elements from a single centralized location,
saving time and costs. Tasks that would normally be complex and time-consuming, such as performing root cause analysis, adding
new devices to the VoIP network and initiating bulk software updates, can be carried out simply and rapidly using the AudioCodes
OVOC management suite.
AudioCodes IP Phone
Manager is a powerful and intuitive lifecycle management tool for enterprise IP phone deployments that enables administrators to
deliver a reliable desktop phone service within their organization. With the ability to deploy and monitor AudioCodes 400HD IP
phones, identify problems, and then fix them rapidly and efficiently, AudioCodes IP Phone Manager increases employee satisfaction
and productivity and lower IT expenses.
Managing the dial plan
and call routing rules of multi-site, multi-vendor enterprise VoIP networks can be extremely complicated. AudioCodes Routing Manager
(ARM) delivers a powerful, innovative solution to this problem by enabling centralized control of all session routing decisions.
Through ARM’s highly intuitive graphical user interface, system administrators can design and modify their voice network
topologies and call routing policies from a single location, resulting in significant time and cost savings. Time-consuming tasks
such as adding a new PSTN or SIP trunk interconnection, adding a new branch office or modifying individual users’ calling
privileges can be carried out simply and rapidly.
allows callers to say the name of a person or a department and be automatically transferred to the requested party, thus, relieving
the need for searching for phone numbers or waiting to speak to an operator. The solution can be used by external users and by
company personnel for internal calls. Combining powerful speech recognition with a simple-to-use conversational interface, VocaNOM
provides reliable, 24×7 call routing for organizations.
SmartTAP Call Recording
Call Recording is an enterprise-wide compliance and liability recorder supporting Skype for Business. Though most recorders in
the market focus on Contact Center features, SmartTAP is deployed across the enterprise to capture calls, either on-demand or,
in some cases, full time, when calls about compliance and liability occur more frequently. With an integral Skype for Business
recording toolbar, enterprise users can record with SmartTAP anywhere and anytime they are on Skype for Business calls. SmartTAP
can initially be deployed on a small scale and be scaled up to support many thousands of users using the product’s linear
AudioCodes Auto Attendant
is a powerful and flexible tool for managing inbound calls and delivering them efficiently to the correct destination based on
the caller’s selection. AudioCodes Auto Attendant supports advanced call queuing for Automatic Call Distribution (ACD) based
on different routing modes and agent availability.
As part of AudioCodes
One Voice for Skype for Business offering, AudioCodes’ Auto Attendant application can be deployed together with AudioCodes’
Survivable Branch Appliances (SBA) in branch offices to complement the Skype for Business Response Group Service (RGS) when the
connection with the central servers is lost. AudioCodes Auto Attendant is a pure software application which can also be deployed
on standard server hardware.
Voice over Packet
Our signal processor
chips compress and decompress voice, data and fax communications. This enables these communications to be sent from circuit-switched
telephone networks to packet networks. Our chips are digital signal processors on which we have embedded our algorithms. These
signal processor chips are the basic building blocks used by our customers and us to enable their products to transmit voice, fax
and data over packet networks. These chips may be incorporated into our communications boards, media gateway modules and analog
media gateways for access and enterprise applications or they may be purchased separately and incorporated into other boards or
boards are designed to operate in gateways connecting the circuit-switched telephone network to packet networks based on Internet
protocols. Our boards comply with VoIP industry standards and allow for interoperability with other gateways. Our boards support
standards-based open telecommunications architecture systems and combine our signal processor chips with communications software,
signaling software and proprietary hardware architecture to provide a cost efficient interoperable solution for high capacity gateways.
We believe that using open architecture permits our customers to bring their systems to market quickly and to integrate our products
more easily within their systems.
Boards for Enhanced Services and Functionalities
product family is designed to allow OEMs and application partners to provide sophisticated content and services that create revenue
streams and customer loyalty through the ability to provide additional services. The IPmediaTM boards provides voice
and fax processing capabilities to enable, together with our partners, an architecture for development and deployment of enhanced
Voice and Data Logging
Hardware Integration Board Products
family of products is our voice and data logging hardware integration board product line. SmartWORKSTM boards for the
call recording and voice voice/data logging industry are compatible with a multitude of private branch exchange, or PBX, telephone
AudioCodes offers a
comprehensive portfolio of global planning, implementation, operations and support services. AudioCodes’ The Voice Experts
@ Your Service program allows partners to complement their own services offering with our modular portfolio of Professional Services.
The result is a complete network life-cycle model. Our Professional Services portfolio enables seamless integration, high availability,
and non-stop scalability to meet business and network demands.
AudioCodes offers flexible
technical support services that ensure customer care and optimized network performance and availability. AudioCodes is committed
to providing customers and partners with the most comprehensive, qualified customer support. Our global customer support team delivers
customer-oriented technical support, training, and consulting that enhances the value provided by AudioCodes products.
offers a comprehensive set of technical training courses for AudioCodes’ partners and customers. By providing several levels
of certification, distinct training programs and a combination of theory and hands-on studies, the academy is built to help system
integrators, resellers, and distributors equip their people with the necessary skills to deploy and maintain AudioCodes networking
technology in the field.
Our customers consist
of service providers (with direct and indirect relationship), enterprises (with indirect relationship) and a small percentage of
provider customers include a range of tier 1, 2 and 3 service providers that deploy our solution as part of their voice
service or UC or SIP trunk or others offering for their business customers. Our solutions are deployed both at the customer
premise and at the service core to provide connectivity and high-quality voice services. AudioCodes’ range of products
and wide interoperability allows service providers to deploy our solutions in practically any third party solution
environment (e.g., together with BroadSoft (acquired by Cisco) Huawei, Alcatel, MetaSwitch and others) and for a wide range
of customers. Our solutions are sold to service provider customers in 100 countries mainly through a wide range of
distributors and some via direct sales.
Our enterprise customers
include a range of Fortune 1000 organizations as well as smaller enterprises that use our equipment to enable their UC solution.
Our solutions are sold to enterprise customer through a wide network of resellers and distributors and the vast majority of the
business is done in two tiers in over 100 countries. AudioCodes solutions are enabling enterprises to smoothly migrate their communications
infrastructure to all-IP UC solution.
AudioCodes OEM customers
include vendors that leverage on AudioCodes technology and quality to deliver VoIP products and solutions. Historically, a substantial
portion of our revenue has been derived from OEM customers that sold our technology products as part of their voice solution.
Sales and Marketing
Our sales and marketing
strategy is to secure the leading channels and system integrators in each region, partner with leading application companies and
achieve design wins with network equipment providers in our targeted markets. We select our partners based on their ability to
provide effective field sales, marketing communications and technical support to our customers. In addition, we engage in direct
sales and marketing with significant operators and enterprises. Prospective customers and channels generally must make a commitment
of resources to test and evaluate our products and to integrate them into larger systems, networks and applications. As a result,
our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and
testing of new communications equipment. For these reasons, the sales cycles of our products to new customers are often lengthy;
averaging approximately six to twelve months after achieving a design win. This time may be further extended because of internal
testing, field trials and requests for the addition or customization of features.
We market our products
in the United States, Europe, Asia, Latin America and Israel primarily through a direct sales force. We have invested significant
resources in setting up local sales forces giving us a presence in relevant markets. We have given particular emphasis to emerging
markets such as Latin America, Asia and Eastern Europe in addition to continuing to sell our products in developed countries.
We have generally entered
into non-exclusive sales representation/distribution agreements with customers in each of the major countries in which we do business.
These agreements are typically for renewable 12-month terms, or are terminable at will by us upon 90 days’ notice, and do
not commit the customer to inventory or to any minimum sales of our products to third parties. Some of our customers have the ability
to return some of the products they have previously purchased and purchase more up to date models.
The One Voice
marketing message positions AudioCodes as a one-stop-vendor for various echo systems telephony solutions. The marketing
campaign started with the positioning of One Voice for LYNC (now called Skype for Business/Teams), which presented the
AudioCodes value proposition as a vendor of comprehensive voice networking for Microsoft unified communications with a broad
set of certified IP phones and connectivity products such as SBAs, gateways and SBCs. Additionally, One Voice positions
AudioCodes as a vendor that can deliver end-to-end support and offers value-added professional services including design,
implementation and network readiness assessment, among others. We also introduced One Voice for Hosted Services which
similarly positions AudioCodes as a one-stop vendor for operator hosted services, mainly in collaboration with BroadSoft (now
part of Cisco). AudioCodes believes it can deliver a full suite of voice and networking equipment that is required to connect
business customers to an operator’s network.
In 2019, we continued
to enhance our field marketing efforts with direct touch enterprise engagements, along with channel recruitments and generic marketing
activities including tradeshows, webinars, seminars, on-line and social marketing.
Some of our components
are obtained from single suppliers. For example, Texas Instruments Incorporated supplies all of our DSP components, while Motorola
and Cavium Networks provide embedded CPU and network processors. Other components are generic in nature and we believe they can
be obtained from multiple suppliers.
We have not entered
into any long-term supply agreements. However, we have worked for years in several countries with established global manufacturing
leaders such as Flex and have had significant experience with their level of commitment and ability to deliver. To date, we have
been able to obtain sufficient amounts of these components to meet our needs and do not foresee any supply difficulty in obtaining
timely delivery of any parts or components. However, an interruption in supply from any of these sources, especially with regard
to DSP components from Texas Instruments Incorporated and CPU and network processors from both Cavium Networks and Motorola, or
an unexpected termination of the manufacture of certain electronic components, could disrupt production, thereby adversely affecting
our results. We generally maintain an inventory of critical components used in the manufacture and assembly of our products although
our inventory of signal processor chips would likely not be sufficient in the event that we had to engage an alternate supplier
for these components.
We utilize contract
manufacturing for substantially all of our manufacturing processes. Most of our manufacturing is carried out by third-party subcontractors
in China and Israel. Our internal manufacturing activities consist primarily of the production of prototypes, test engineering,
materials purchasing and inspection, final product configuration and quality control and assurance.
In addition, we have
engaged several original design manufacturers, or ODM, based in Asia to design and manufacture some of our products. We may engage
additional ODMs in the future. Termination of our commercial relationship with an ODM or the discontinuance of manufacturing of
products by an ODM would negatively affect our business operations.
We are obligated under
certain agreements with our suppliers to purchase goods and to purchase excess inventory. Aggregate non-cancellable obligations
under these agreements as of December 31, 2019 were approximately $23.0 million.
and Government Regulations
Our products must comply
with industry standards relating to telecommunications equipment. Before completing sales in a country, our products must comply
with local telecommunications standards, recommendations of quasi-regulatory authorities and recommendations of standards-setting
committees. In addition, public carriers require that equipment connected to their networks comply with their own standards. Telecommunication-related
policies and regulations are continuously reviewed by governmental and industry standards-setting organizations and are always
subject to amendment or change. Although we believe that our products currently meet applicable industry and government standards,
we cannot be sure that our products will comply with future standards.
We are subject to telecommunication
industry regulations and requirements set by telecommunication carriers that address a wide range of areas including quality, final
testing, safety, packaging and use of environmentally friendly components. We comply with the European Union’s Restriction
of Hazardous Substances Directive (under certain exemptions) that requires telecommunication equipment suppliers to not use some
materials that are not environmentally friendly. These materials include cadmium, hexavalent chromium, lead, mercury, polybrominated
biphenyls, polybrominatel diphenyl ethers bis (2-ethylhexyl) phthalate, benzyl butyl phthalate, dibutyl phthalate and diisobutyl
phthalate. We expect that other countries, including countries we operate in, will adopt similar directives or other additional
directives and regulations.
Competition in our
industry is intense and we expect competition to increase in the future. Our competitors currently sell products that provide similar
benefits to those that we sell. There has been a significant amount of merger and acquisition activity, frequently involving major
telecommunications equipment manufacturers acquiring smaller companies, as well as strategic alliances entered into by competitors.
We expect that these activities will result in an increasing concentration of market share among these companies, many of whom
are our customers.
Our principal competitors
in the area of analog media gateways (2 to 24 ports) for access and enterprise are Grandstream, Natex, Iskratel, Zyxel, Adtran,
Media5, Cisco, Sangoma, Innovaphone AG, Patton, Dialogic and Ribbon Communications.
In the area of low
and mid density digital gateways we face competition from companies such as Ribbon Communications (formerly Sonus Networks), Huawei,
Cisco, Dialogic, NewRock, Ribbon, Patton, Ferrari and Sangoma.
Our competitors in
the area of MSBRs are companies such as Cisco, Juniper, Adtran, One-Access, Patton, Huawei, HP/3COM and Alcatel-Lucent.
Specifically in the
area of enterprise class session border controller technology we compete with Oracle, Cisco, Avaya, Ribbon Communications (formerly
Sonus Networks), MetaSwich, Ingate and Ribbon.
Our competitors in
the Microsoft Skype for Business and Teams certified gateways, session border controller, Survivable Branch Appliance and IP Phone
markets include Ribbon Communications (formerly Sonus Networks), Oracle, Poly and Yealink.
Our competitors in
the area of contact center vendors are Ribbon Communications (formerly Sonus Networks), Oracle, Poly and Yealink.
Our competitors in
the area of Call Recording are companies such as Verint, NICE, ACS, Red Box, Teleware and Dubber.
Our competitors in
the area of voice recognition are companies such as Microsoft, Google, Amazon and Nuance, and a group of startup companies.
Our principal competitors
in the sale of signal processing chips are DSP Group, Broadcom, Octasic and Mindspeed.
Our principal competitors
in the area of IP Phones are comprised of “best-of-breed” IP phone vendors and end-to-end IP telephony vendors. “Best
of breed” IP phone vendors sell standards-based SIP phones that can be integrated into any standards-based IP-PBX or hosted
IP telephony system. These competitors include Poly, Grandstream, Yealink, VTEC (acquired SNOM) and many others. End-to-end IP
telephony vendors sell IP phones that only work in their proprietary systems. These competitors include Cisco, Avaya, Alcatel-Lucent,
Siemens, Mitel and NEC. In the areas of Skype for Business/Microsoft Teams, our competitors are certified vendors – Yealink
Some of our competitors
are also customers of our products and technologies.
Many of our competitors
have the ability to offer vendor-sponsored financing programs to prospective customers. Some of our competitors with broad product
portfolios may also be able to offer lower prices on products that compete with ours because of their ability to recoup a loss
of margin through sales of other products or services. Additionally, voice, audio and other communications alternatives that compete
with our products are being continually introduced.
In the future, we may
also develop and introduce other products with new or additional telecommunications capabilities or services. As a result, we may
compete directly with VoIP companies and other telecommunications infrastructure and solution providers, some of which may be our
current customers. Additional competitors may include companies that currently provide communication software products and services.
The ability of some of our competitors to bundle other enhanced services or complete solutions with VoIP products could give these
competitors an advantage over us.
and Proprietary Rights
Our success is
dependent in part upon proprietary technology. We rely primarily on a combination of patent, copyright and trade secret laws,
as well as confidentiality procedures and contractual provisions, to protect our proprietary rights. We also rely on
trademark protection concerning various names and marks that serve to identify us and our products. While our ability to
compete may be affected by our ability to protect our intellectual property, we believe that because of the rapid pace of
technological change in our industry maintaining our technological leadership and our comprehensive familiarity with all
aspects of the technology contained in our signal processors and communication boards is also significant to our success.
We own U.S. patents
that relate to our voice compression and session border control technologies. We also actively pursue patent protection in selected
other countries of interest to us. In addition to patent protection, we seek to protect our proprietary rights through copyright
protection and through restrictions on access to our trade secrets and other proprietary information which we impose through confidentiality
agreements with our customers, suppliers, employees and consultants.
There are a number
of companies besides us who hold or may acquire patents for various aspects of the technology incorporated in the ITU’s standards
or other industry standards or proprietary standards, for example, in the fields of wireless and cable. While we have obtained
cross-licenses from some of the holders of these other patents, we have not obtained a license from all of the holders. The holders
of these other patents from whom we have not obtained licenses may take the position that we are required to obtain a license from
them. Companies that have submitted their technology to the ITU (and generally other industry standards making bodies) for adoption
as an industry standard are required by the ITU to undertake to agree to provide licenses to that technology on reasonable terms.
Accordingly, we believe that even if we were required to negotiate a license for the use of such technology, we would be able to
do so at an acceptable price. Similarly, third parties who also participate with respect to the same standards-setting organizations
as do we may be able to negotiate a license for use of our proprietary technology at a price acceptable to them, but which may
be lower than the price we would otherwise charge.
Third parties have
claimed, and from time to time in the future may claim, that our past, current or future products infringe their intellectual property
rights. Intellectual property litigation is complex and there can be no assurance of a favorable outcome of any litigation. Tout
future intellectual property litigation, regardless of outcome, could result in substantial expense to us and significant diversion
of the efforts of our technical and management personnel. Litigation could also disrupt or otherwise severely impact our relationships
with current and potential customers as well as our manufacturing, distribution and sales operations in countries where relevant
third party rights are held and where we may be subject to jurisdiction. An adverse determination in any proceeding could subject
us to significant liabilities to third parties, require disputed rights to be licensed from such parties, assuming licenses to
such rights could be obtained, or require us to cease using such technology and expend significant resources to develop non-infringing
technology. We may not be able to obtain a license at an acceptable price.
We have entered into
technology licensing fee agreements with third parties. Under these agreements, we agreed to pay the third parties royalties, based
on sales of relevant products.
AudioCodes Ltd. is
the parent company of a group that consists of AudioCodes Ltd. and over 20 subsidiaries worldwide. AudioCodes Inc., our wholly-owned
U.S. subsidiary incorporated in Delaware, is a significant subsidiary based in Somerset, New Jersey.
|D.||PROPERTY, PLANTS AND EQUIPMENT|
We lease our main office
and warehouse facilities, located in Airport City, Lod, Israel, which occupy approximately 274,000 square feet for annual lease
payments of approximately $5.7 million (including management fees). The term of this lease extends until January 31, 2024.
Our U.S. subsidiary,
AudioCodes Inc., leased an approximately 15,400 square foot facility in Somerset, New Jersey. AudioCodes Inc. also leases office
in Morrisville, North Carolina. The annual lease payments in 2019 (including management fees) for all our offices in the United
States were approximately $480,000.
We lease additional
offices in Israel as well as for our international offices. We do not believe the lease agreements for these offices to be material.
We believe that these
properties are sufficient to meet our current needs. However, we may need to increase the size of our current facilities, seek
new facilities, close certain facilities or sublease portions of our existing facilities in order to address our needs in the future.
Policies and Estimates
Our consolidated financial
statements are prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP.
These accounting principles require management to make certain estimates, judgments and assumptions based upon information available
at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the periods presented.
Our management has
reviewed our critical accounting policies and related disclosures with our Audit Committee. See Note 2 to our Consolidated Financial
Statements included elsewhere in this Annual Report, which contains additional information regarding our accounting policies and
other disclosures required by U.S. GAAP.
On an ongoing basis,
management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management believes
the significant accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated
financial statements and are the most critical to aid in fully understanding and evaluating AudioCodes’ reported financial
results include the following:
|·||Revenue recognition and allowance for sales returns;|
|·||Income taxes and valuation allowance;|
|·||Contingent liabilities; et|
and Allowance for Sales Returns
We generate our revenues
mainly from the sale of products and related services. We sell our products through a direct sales force and sales representatives.
Our customers include original equipment manufacturers, or OEMs, network equipment providers, systems integrators and distributors
in the telecommunications and networking industries, all of whom are considered end-users.
As of January 1, 2018,
we have adopted ASC 606, “Revenue from Contracts with Customers”, As a result of this adoption, revenues from products
and services are recognized in accordance with ASC 606, and we have revised our accounting policy for revenue recognition as detailed
below. We recognize revenue under the core principle that transfers of control to our customers should be depicted in an amount
reflecting the consideration we expect to receive in revenue. As such, we identify a contract with a customer, identify the performance
obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in
the contract and recognize revenues when (or as) we satisfy a performance obligation. We have no obligation to customers after
the date on which products are delivered, other than pursuant to warranty obligations and any applicable right of return. We grant
to some of our customers the right of return or the ability to exchange a specific percentage of the total price paid for products
they have purchased over a limited period for other products.
We maintain a provision
for product returns and exchanges and other incentives. This provision is based on historical sales returns, analysis of credit
memo data and other known factors. This provision amounted to $2.3 million and $1.9 million as of December 31, 2018 and 2019, respectively.
Following the adoption of ASC 606, as of December 31, 2018 and 2019, this provision was recorded as part of other payables and
As of January 1, 2018,
and following the adoption of ASC 606, when we enter into contracts that included combinations of products and services that are
capable of being distinct and accounted for as separate performance obligations, the products are distinct upon delivery as the
customer can derive the economic benefit of it without any professional services, updates or technical support. We allocate the
transaction price to each performance obligation based on its relative standalone selling price out of the total consideration
of the contract. For support, we determine the standalone selling prices based on the price at which we separately sell a renewal
contract on a stand-alone basis. For professional services, we determine the standalone selling prices based on the price at which
we separately sell those services on a stand-alone basis.
Our products contain
a significant element relating to its proprietary technology and its solutions offer substantially different features and functionality.
As a result, the comparable pricing of products with similar functionality typically cannot be obtained. Additionally, as we are
unable to reliably determine the selling prices of comparable products sold by competitors and generally does not sell the products
separately on a stand-alone basis, the stand-alone selling prices are not directly observable. Therefore, we make estimates based
on reasonably available information. The estimated selling price is established considering multiple factors including, but not
limited to, pricing practices in different geographical areas and through different sales channels, gross margin objectives, internal
costs, the pricing strategies of competitors and industry technology lifecycles.
Product revenues are
recognized at the point of time when control is transferred, the product has been delivered and the benefit of the asset has transferred.
Revenues from support are recognized ratably over the term of the underlying contract term. Renewals of support contracts create
new performance obligations that are satisfied over the term with the revenues recognized ratably over the period. For professional
services, the performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service
term has expired.
Allowance for Doubtful
Our trade receivables
are derived from sales to customers located primarily in the Americas, the Far East, Israel and Europe. We perform ongoing credit
evaluations of our customers and to date have not experienced any material losses from uncollected receivables. An allowance for
doubtful accounts is determined with respect to those amounts that we have recognized as revenue and determined to be doubtful
of collection. We usually do not require collateral on trade receivables because most of our sales are made to large and well-established
companies. On occasion we may purchase credit insurance to cover credit exposure for a portion of our sales and this may mitigate
the amount we need to write off as a result of doubtful collections.
stated at the lower of cost or net realizable value. Cost is determined using the “weighted average cost” method
for raw materials and finished products. We periodically evaluate the quantities on hand relative to current and historical
selling prices and historical and projected sales volume and technological obsolescence. Based on these evaluations,
inventory write-offs are provided to cover risks arising from slow moving items, technological obsolescence, excess
inventories, discontinued products and for net realizable value lower than cost. We wrote-off inventory in a total amount of
$1.9 million, $1.9 million and $4.5 million in the years ended December 31, 2017, 2018, and 2019, respectively.
As a result of our
acquisitions, our balance sheet included acquired intangible assets in the aggregate amount of approximately $1.3 million and $0.9
million as of December 31, 2018 and 2019, respectively.
We allocated the purchase
price of the companies we have acquired to the tangible and intangible assets acquired and liabilities assumed based on their estimated
fair values. These valuations require management to make significant estimations and assumptions, especially with respect to intangible
assets. Critical estimates in valuing intangible assets include future expected cash flows from technology acquired, trade names,
backlog and customer relationships. In addition, other factors considered are the brand awareness and market position of the products
sold by the acquired companies and assumptions about the period of time the brand will continue to be used in the combined company’s
product portfolio. Management’s estimates of fair value are based on assumptions believed to be reasonable, but which are
inherently uncertain and unpredictable.
If we did not appropriately
allocate these components or we incorrectly estimate the useful lives of these components, our computation of amortization expense
may not appropriately reflect the actual impact of these costs over future periods, which will affect our operating results.
Intangible assets are
comprised of acquired technology, customer relations and licenses. Intangible assets that are not considered to have an indefinite
useful life are amortized using the straight-line basis over their estimated useful lives, which range from four and a half to
dix ans. Recoverability of these assets is measured by a comparison of the carrying amount of the asset to the undiscounted future
cash flows expected to be generated by the assets. If the assets are considered to be impaired, the amount of any impairment is
measured as the difference between the carrying value and the fair value of the impaired assets.
During the years ended
December 31, 2017, 2018 and 2019, no impairment charges were identified.
As a result of our
acquisitions, our balance sheet included acquired goodwill in the aggregate amount of approximately $36.2 million as of December
31, 2018 and 2019. Goodwill represents the excess of the purchase price and related costs over the fair value of net tangible and
identifiable intangible assets of businesses acquired and accounted for under the purchase method. In accordance with ASC 350,
“Intangible, Goodwill and Other,” goodwill is not amortized and is tested for impairment at least annually. Our annual
impairment test is performed at the end of the fourth quarter each year. If events or indicators of impairment occur between the
annual impairment tests, we perform an impairment test of goodwill at that date.
ASC 350, “Intangibles
– Goodwill and Other”, prescribes a two-phase process for impairment testing of goodwill. The first phase screens for
impairment, while the second phase (if necessary) measures impairment. Goodwill impairment is deemed to exist if the net book value
of a reporting unit exceeds its estimated fair value. In such case, the second phase is then performed, and we measure impairment
by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill. An impairment
loss is recognized in an amount equal to the excess. We have an option to perform a qualitative assessment to determine whether
it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step
goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not
that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.
During the years ended
December 31, 2017, 2018 and 2019, no impairment losses were identified.
Income Taxes and Valuation
As part of the process
of preparing our consolidated financial statements, we are required to estimate our income tax expense in each of the jurisdictions
in which we operate. This process involves us estimating our actual current tax exposure, which is accrued as taxes payable, together
with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences
result in deferred tax assets, which are included within our consolidated balance sheet. We may record a valuation allowance to
reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
Although we believe
that our estimates are reasonable, there is no assurance that the final tax outcome and the valuation allowance will not be different
than those which are reflected in our historical income tax provisions and accruals.
We have filed or are
in the process of filing U.S. federal, state and foreign tax returns that might be subject to audit by the respective tax authorities.
Although the ultimate outcome is unknown, we believe that adequate amounts have been provided for and any adjustments that may
result from tax return audits are not likely to materially adversely affect our consolidated results of operations, financial condition
or cash flows.
We account for
share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”. We utilize the
Black-Scholes option pricing model to estimate the fair value of share-based compensation at the date of grant.
Black-Scholes model requires subjective assumptions regarding dividend yields, expected volatility, expected life of options
and risk-free interest rates. These assumptions reflect management’s best estimates. Changes in these inputs and
assumptions can materially affect the estimate of fair value and the amount of our share-based compensation expenses relating
to share options. We recognized share-based compensation expense of $2.3 million, $3.3 million and $5.3 million in the years
ended December 31, 2017, 2018 and 2019, respectively. As of December 31, 2019, there was approximately $7.8 million of total
unrecognized share-based compensation expense related to non-vested share-based compensation arrangements granted by us. Comment
of December 31, 2019, that expense is expected to be recognized over a weighted-average period of 1.07 years.
We are, from time to
time, involved in claims, lawsuits, government investigations, and other proceedings arising from the ordinary course of our business.
We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and the amount
can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Such legal
proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should
any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of
operations, financial position and cash flows. No provision was recorded as of December 31, 2019.
We measure liabilities
related to earn-out payments at fair value at the end of each reporting period. The fair value was estimated by utilizing the income
approach, taking into account the potential cash payments discounted to arrive at a present value amount, based on our expectation.
The discount rate was based on the market interest rate and estimated operational capitalization rate.
Recently Issued and
Adopted Accounting Pronouncements
See Note 2z to our
Consolidated Financial Statements included elsewhere in this Annual Report.
New accounting pronouncements
not yet effective
See Note 2aa to our
Consolidated Financial Statements included elsewhere in this Annual Report.
You should read this
discussion with the consolidated financial statements and other financial information included in this Annual Report.
We design, develop
and sell advanced products and services for advanced voice networking and media processing solutions for the digital workplace.
We enable enterprises and service providers to build and operate all-IP voice networks for unified communications, contact centers,
and hosted business services. We offer a broad range of innovative products, solutions and services that are used by large multi-national
enterprises and leading tier-1 operators around the world.
Our products enable
our customers to build high-quality packet networking equipment and network solutions and provide the building blocks to connect
traditional telephone networks to VoIP networks, as well as connecting and securing multimedia communication between different
packet-based networks. Our products are sold primarily to leading OEMs, system integrators and NEPs in the telecommunications and
networking industries. We have continued to broaden our offerings, both from internal and external development and through acquisitions,
as we have expanded in the last few years from selling chips to boards, subsystems, media gateway systems, media servers, session
border controllers and messaging platforms. We have also increased our product portfolio to enhance our position in the market
and serve our channels better as a one stop shop for voice over IP hardware.
We have invested significant
development resources in complying with Microsoft’s requirements for the purpose of becoming a Microsoft recognized partner
for their unified communication solutions for the enterprise market, which are known as Microsoft Skype for business and Microsoft
Teams. We have adapted some of our gateway products, IP phones, session border controllers, survivable branch applications, value
added applications and professional services to operate in the Microsoft Skype for business and Microsoft Teams environment. Le nôtre
products to the Skype for Business and Microsoft Teams Unified Communications market are sold primarily to our channel partners
that distribute and integrate the Skype for business solution to enterprises.
In November 2019, we
and one of our Israeli subsidiaries, AudioCodes Development Ltd., entered into a royalty buyout agreement (the “Royalty Buyout
Agreement”) with the IIA relating to certain grants we have received from the IIA. The contingent net royalty liability to
the IIA at the time of the Royalty Buyout Agreement with respect to these grants was approximately $49 million (in this section,
the “Debt”), including interest to the date of the Royalty Buyout Agreement. As part of the Royalty Buyout Agreement,
we agreed to pay $32.2 million to the IIA (to settle the Debt in full) in three annual installments starting in 2019. The annual
installments are linked to the NIS and bears interest. In November 2019, we paid the first installment of $10.7 million due under
this Agreement. Pursuant to the Royalty Buyout Agreement, we eliminated all royalty obligations related to our future revenues
with respect to these grants.
We offer a comprehensive
professional services program intended to provide responsive, preventive, and consultative support of our networking products.
Our professional services support networking devices, applications and infrastructures, allowing large organizations and service
providers to realize the potential of a high-performance multi-service network.
Our headquarters and
research and development facilities are located in Israel with research and development extensions in the U.S. and China. We have
other offices located in Europe, the Far East, and Latin America.
substantial portion of our revenue has been derived from large purchases by a limited number of OEMs, NEPs, systems
integrators and distributors. ScanSource Communications Group, our largest customer, accounted for 17.5%, 17.8% and 16.0% of
our revenues in the years ended December 31, 2017, 2018 and 2019, respectively. In addition, Westcon Group accounted for
12.7%, 11.1% and 13.5% of our revenues in the years ended December 31, 2017, 2018 and 2019, respectively. Our top five
customers accounted for 37.5%, 38.7% and 41.5% of our revenues in the years ended December 31, 2017, 2018 and 2019,
respectively. If we lose a large customer and fail to add new customers to replace lost revenue, our operating results may be
materially adversely affected.
Revenues, based on
the location of our customers for the last three fiscal years, are as follows:
|Year Ended December 31,|
|2017||L'année 2018||L'année 2019|
Beyond run rate business
usually repeated one purchased by distributors and service providers, we believe that prospective customers generally are required
to make a significant commitment of resources to test and evaluate our products and to integrate them into their larger systems.
Our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and
testing of new communications equipment. For these reasons, the sales cycles of our products to new customers are often lengthy,
averaging approximately six to twelve months. As a result, we may incur significant selling and product development expenses prior
to generating revenues from sales.
The currency of the
primary economic environment in which our operations are conducted is the dollar and, as such, we use the dollar as our functional
currency. Transactions and balances originally denominated in dollars are presented at their original amounts. All transaction
gains and losses from the premeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in
the statement of operations as financial income or expenses, as appropriate.
The demand for Voice
over IP, or VoIP, technology has increased during recent years. In recent years, the shift from traditional circuit-switched networks
to next generation packet-switched networks continued to gain momentum. As data traffic becomes the dominant factor in communications,
service providers are building and maintaining converged networks for integrated voice and data services. In developed countries,
traditional and alternative service providers have adopted bundled triple play (voice, video and data) and quadruple play (voice,
video, data and mobile) offerings. This trend, enabled by voice and multimedia over IP, has fueled competition among cable, wireline,
ISP and mobile operators, increasing the pressure for adopting and deploying VoIP networks. In addition, underdeveloped markets
without basic wire line service in countries such as China and India and certain countries in Eastern Europe are adopting the use
of VoIP technology to deliver voice and data services that were previously unavailable.
economic uncertainty, including disruptions in the world credit and equity markets, has had and continues to have a negative
impact on business around the world. This economic environment has had an adverse impact on the technology industry and our
major customers. Conditions may continue to be uncertain or may be subject to deterioration which could lead to a reduction
in consumer and customer spending overall, which could have an adverse impact on sales of our products. A disruption in the
ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their
businesses which could lead to a significant reduction in their orders of our products and the inability or failure on their
part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations
and liquidity. In addition, any disruption in the ability of customers to access liquidity could lead customers to request
longer payment terms from us or long-term financing of their purchases from us. Granting extended payment terms or a
significant adverse change in a customer’s financial and/or credit position could also require us to assume greater
credit risk relating to that customer’s receivables or could limit our ability to collect receivables related to
purchases by that customer. As a result, our allowance for doubtful accounts and write-offs of accounts receivable could
Results of Operations
The following table
sets forth the percentage relationships of certain items from our consolidated statements of operations, as a percentage of total
revenues for the periods indicated:
|Year Ended December 31,|
|Statement of Operations Data:||2017||L'année 2018||L'année 2019|
|Cost of revenues:|
|Expense related to royalty buyout agreement with the IIA||–||–||16.1|
|Total cost of revenues||37.6||37.2||52.6|
|Research and development, net||19.4||19.7||20.6|
|Selling and marketing||31.2||28.0||25.7|
|General and administrative||5.7||5.8||5.9|
|Total operating expenses||56.3||53.5||52.2|
|Operating income (loss)||6.1||9.3||(4.8||)|
|Financial income (expenses), net||0.0||0.1||(0.9||)|
|Income (loss) before taxes on income||6.1||9.4||(5.7||)|
|Tax benefit (taxes on income)||(3.6||)||(1.7||)||7.7|
Year Ended December
31, 2019, Compared to Year Ended December 31, 2018
increased 13.7% to $200.3 million in the year ended December 31, 2019, from $176.2 million in the year ended December 31, 2018.
Our revenues from sales
of products in the year ended December 31, 2019 increased by 13.1% to $135.6 million, or 67.7% of total revenues, from $119.9 million,
or 68.0% of total revenues, in the year ended December 31, 2018. The increase in revenues from sales of products was primarily
due to the increased adoption of SIP Trunk and unified communications and collaboration solutions by businesses/enterprises (SMBs
SMEs enterprises). There are more incumbents carriers in specific countries migrating to ALL IP and shutting off the TDM Switches
triggering demand for VoIP products to connect to the new IP Switches. There is also increased migration by contact center customers
moving to IP. This migration positively affected the demand for our UC SIP products, while supporting moderate growth of our media
Our revenues from sales
of services in the year ended December 31, 2019 increased by 14.7% to $64.6 million, or 32.3% of total revenues, from $56.3 million,
or 32.0% of total revenues, in the year ended December 31, 2018. The increase in revenues from sales of services was primarily
driven by the growth in sales of technical support services, which relate to sales of products in the year ended December 31, 2019
and in previous years and by the growth in professional services. The growth in product support services is attributable to sales
of products in prior years that resulted from an increase of our renewal rate of support agreements and from support services for
a larger amount of products being supported. The growth in sales of professional services is attributable to a broader portfolio
of professional services offered by us and an increase in demand for such services in the Enterprise UC market.
Cost of Revenues
and Gross Profit. Cost of revenues includes the cost of hardware, quality assurance, overhead related to professional and support
customer services, overhead related to manufacturing activity, technology licensing and royalty fees payable to third parties and,
in the year ended December 31, 2018, royalties payable to the IIA, During the year ended December 31, 2019, we entered into the
Royalty Buyout Agreement with the IIA. The agreement provides for payments of $32.2 million to the IIA. This expense is included
in the cost of revenues in the year ended December 31, 2019. The elimination of future royalty payments to the IIA following the
payments under the Royalty Buyout Agreement will decrease our cost of revenues in the following years. Gross profit decreased to
$95.0 million in the year ended December 31, 2019, from $110.6 million in the year ended December 31, 2018. Gross profit as a percentage
of total revenues was 47.4% in the year ended December 31, 2019, compared to 62.8% in the year ended December 31, 2018. The decrease
in the gross profit as a percentage of total revenues is primarily attributable to the payment obligations under the Royalty Buyout
Agreement. The effect of the payment obligations was partially offset by an increase in gross profit due to the higher increase
in our revenues from sales of services, which have a significantly higher average gross margin and a more favorable mix in the
sale of our products. In addition, our gross profit percentage benefited from our fixed overhead costs being spread over increased
revenues. In the year ended December 31, 2019, expenses included in cost of revenues related to share-based compensation were $183,000,
compared to $186,000 in the year ended December 31, 2018.
Cost of revenues related
to sales of products increased by 13.8% to $59.0 million in the year ended December 31, 2019, from $51.9 million in the year ended
December 31, 2018.
Cost of revenues related
to sales of services in the year ended December 31, 2019 increased by 2.8% to $14.1 million, from $13.7 million in the year ended
December 31, 2018. This increase is primarily attributable to higher support personnel expenses associated with providing services
and implementation of our products with service providers, as well as with enterprise customers. In the year ended December 31,
2019, the gross margin percentage from sales of services increased to 78.1%, from 75.6% in the year ended December 31, 2018.
Research and Development
Expenses, net. Research and development expenses, net, consist primarily of salaries and related costs of employees engaged
in ongoing research and development activities, development-related raw materials and the cost of subcontractors, less grants from
IIA. Research and development expenses increased by 18.9% in the year ended December 31, 2019 to $41.2 million, from $34.7 million
in the year ended December 31, 2018. As a percentage of total revenues, research and development expenses increased to 20.6% in
the year ended December 31, 2019, from 19.7% in the year ended December 31, 2018. The increase on an absolute basis is primarily
due to the decrease in the grants recognized from IIA, as well as due to the appreciation of the NIS against the dollar. À l'intérieur
year ended December 31, 2019, expenses included in research and development expenses related to share-based compensation were $937,000,
compared to $651,000 in the year ended December 31, 2018. Grants recognized from IIA were $1.3 million in the year ended December
31, 2019, compared to $5.7 million in the year ended December 31, 2018.
Selling and Marketing
Coûts. Selling and marketing expenses consist primarily of salaries and related costs (including sales commissions) of sales
and marketing personnel, as well as exhibition, travel and related expenses. Selling and marketing expenses increased by 4.5% in
the year ended December 31, 2019 to $51.5 million, from $49.3 million in the year ended December 31, 2018. As a percentage of total
revenues, selling and marketing expenses decreased to 25.7% in the year ended December 31, 2019, from 28.0% in the year ended December
31, 2018. The increase on an absolute basis is due to an increase in the number of employees and related expenses associated with
the additional employees and due to an increase in the bonuses and the commission expenses based on the our performance, in line
with the increase in our revenues. The appreciation of the NIS against the dollar also had the effect of increasing the dollar
amount of our expenses. In addition, in the year ended December 31, 2019, expenses included in selling and marketing expenses related
to share-based compensation were $2.2 million, compared to $1.2 million in the year ended December 31, 2018.
Administrative Expenses. General and administrative expenses consist primarily of salaries and related costs of finance,
human resources and general management personnel, rent, network and allowance for doubtful accounts, as well as insurance and
consultant services expenses. General and administrative expenses increased by 14.9% to $11.8 million in the year ended
December 31, 2019, from $10.3 million in the year ended December 31, 2018. As a percentage of total revenues, general and
administrative expenses slightly increased to 5.9% in the year ended December 31, 2019, from 5.8% in the year ended December
31, 2018. The increase in general and administrative expenses was primarily due to the increase in the expenses related to
share-based compensation and due to the appreciation of the NIS against the dollar. In the year ended December 31, 2019,
expenses included in general and administrative expenses related to share-based compensation were $2.0 million compared to
$1.2 million in the year ended December 31, 2018.
(Expenses), Net. Financial expenses, net consists primarily of interest on our bank loans and bank charges, exchange rate and
linkage to the Israeli CPI differences, net of interest earned on cash and cash equivalents, marketable securities and bank deposits.
Financial expenses, net, in the year ended December 31, 2019 were $1.8 million, compared to financial income, net of $228,000 in
the year ended December 31, 2018. The increase in financial expenses, net in the year ended December 31, 2019 was mainly due to
higher expenses related to exchange rate fluctuations.
Taxes on income
(tax benefit), Net. We had a net income tax benefit of $15.3 million in the year ended December 31, 2019, compared to a net
income tax expense of $3.1 million in the year ended December 31, 2018. During the year ended December 31, 2019, we fully utilized
the remaining amount of the deferred tax asset recorded in 2016. Based on our earnings history and expected future operating results,
we recorded deferred tax asset in the amount of $20.5 million as of December 31, 2019. This deferred tax asset represents the approximate
amount of our net operating losses and temporary tax differences that we estimate will be utilized over the next few years.
net income tax benefit in the year ended December 31, 2019 reflects the effect of the tax benefit associated with the creation
of this deferred tax asset.
A discussion with respect
to a comparison of the results of operations for 2018 compared to 2017 is contained under the heading “Results of Operations”
in Item 5 of our Annual Report on Form 20-F for the year ended 2018 (the “2018 20-F”).
Impact of Inflation,
Devaluation and Fluctuation of Currencies on Results of Operations, Liabilities and Assets
Since the majority
of our revenues are paid in or linked to the dollar, we believe that inflation and fluctuations in the NIS/dollar exchange rate
have no material effect on our revenues. However, a majority of the cost of our Israeli operations, mainly personnel and facility-related,
is incurred in NIS. Inflation in Israel and dollar exchange rate fluctuations have some influence on our expenses and, as a result,
on our net income. Our NIS costs, as expressed in dollar, are influenced by the extent to which any increase in the rate of inflation
in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the dollar.
To protect against
the changes in value of forecasted foreign currency cash flows resulting from payments in NIS, we may maintain a foreign currency
cash flow hedging program. We hedge portions of our forecasted expenses denominated in foreign currencies with forward contracts.
These measures may not adequately protect us from material adverse effects due to the impact of inflation in Israel.
The following table
presents information about the rate of inflation in Israel, the rate of devaluation of the NIS against the dollar, and the rate
of inflation in Israel adjusted for the devaluation:
LIQUIDITY AND CAPITAL RESOURCES
We have financed our
operations for the last two years primarily from our cash and cash equivalents, bank deposits, bank borrowings and cash from operations.
As of December 31,
2019, we had $71.9 million in cash and cash equivalents and bank deposits, an increase of $6.5 million from $65.4 million of cash
and cash equivalents, marketable securities and bank deposits at December 31, 2018. As of December 31, 2019, we were restricted
with respect to using approximately $7.0 million of our cash as a result of provisions in our loan agreements, a lease agreement
and foreign exchange derivatives transactions.
Share Repurchase Program
and Cash Dividends
In June 2018, we received
court approval in Israel to repurchase up to $20.0 million of our ordinary shares. In each of January and August 2019 and February
2020, the court approved the purchase of an additional $12.0 million of our ordinary shares. Each of the approvals received in
2018, 2019 and 2020 allowed us to use the approved amounts for share repurchases or cash dividends. The Israeli court generally
limits its approval to six months from the date of application. As a result, although the program does not have a set end date,
it requires renewal each six months by submitting a new court application, based on the then prevailing facts. No shares were repurchased
during the year ended December 31, 2019 other than through the repurchase program. Share purchases have and will take place in
open market transactions or in privately negotiated transactions and may be made from time to time depending on market conditions,
share price, trading volume or other factors. The repurchase program does not require us to purchase a specific number of shares
and may be suspended from time to time or discontinued.
During the year ended
December 31, 2019, we acquired an aggregate of 559,848 of our ordinary shares for approximately $8.0 million and declared and paid
cash dividends in the aggregate amount of $6.7 million. During the year ended December 31, 2018, we acquired an aggregate of 1,795,814
of our ordinary shares for approximately $14.3 million and declared and paid a cash dividend in the aggregate amount of $5.8 million.
In February 2020, we declared a cash dividend in the aggregate amount of $3.9 million. After the declaration of this dividend,
we had approximately $8.1 million available for share repurchases or dividends under the most recent court approval granted in
In December 2015, we
entered into a loan agreement with an Israeli commercial bank that provided loans in the total principal amount of $3.0 million
and 3.0 million Euro. The loans bear interest at an annual rate equal to LIBOR plus 1%-2.5% and are repayable in 20 equal quarterly
installments. As of December 31, 2019, there was an aggregate of $1.3 million principal amount of these loans outstanding, based
on the Euro/dollar exchange rate in effect on that date.
In December 2016, we
entered into a loan agreement with an Israeli commercial bank that provided loans in the total principal amount of $6.0 million.
The loans bear interest at an annual rate equal to LIBOR plus 1.1%-2.5% and are repayable in 20 equal quarterly installments. Comment
of December 31, 2019, there was $2.4 million principal amount of these loans outstanding.
As of December 31,
2019, we were required to maintain an aggregate of $1.8 million of compensating bank deposits with respect to our bank loans.
amount of the compensating balances we are required to keep decreases over time as we repay these loans.
The loan agreements
require us, among other things, to meet certain financial covenants such as maintaining shareholders’ equity, cash balances,
and liabilities to banks at specified levels, as well as achieving certain levels of operating income.
As of December 31,
2019, we were in compliance with the financial covenants contained in our loan agreements.
Cash from Operating
Our operating activities
provided cash in the amount of $23.2 million in the year ended December 31, 2019, primarily due to net income of $4.0 million,
an increase of $12.3 million in deferred revenues, an increase of $21.5 million in the royalty buyout liability, an increase of
$2.8 million in other payables and accrued expenses and non-cash charges of $2.0 million for depreciation and amortization and
$5.3 million for share-based compensation expenses, partially offset by an increase of $16.3 million in deferred tax assets, an
increase of $5.9 million in inventories and an increase of $5.2 million in trade receivables. The increase in deferred tax assets
is the result of the creation of deferred tax assets (following the utilization in 2019 of the remaining amount of the deferred
tax asset recorded in 2016), related to the differences between the financial reporting and tax bases of assets and liabilities
and to the available net carry forward tax losses based on expectations of generating taxable income in the foreseeable future.
Our deferred revenues increased mainly due to the increase in the revenues from services in the past years and the deferred tax
assets decreased as a result of utilization of these assets. The increase in other payables and accrued expenses is mainly due
to the liability to the IIA under the Royalty Buyout Agreement and the increase in inventories is a direct result of higher revenues
in the year ended December 31, 2019, compared to the year ended December 31, 2018.
activities provided cash in the amount of $25.6 million in the year ended December 31, 2018, primarily due to net income of
$13.5 million, an increase of $9.4 million in deferred revenues, a decrease of $2.3 million in deferred tax assets, an
increase of $1.4 million in other payables and accrued expenses and non-cash charges of $2.3 million for depreciation and
amortization and $3.3 million for share-based compensation expenses, partially offset by an increase of $6.3 million in
inventories. Our deferred revenues increased mainly due to the increase in the revenues from services in the past years and
the deferred tax assets decreased as a result of utilization of these assets. The increase in inventories is a direct result
of the higher revenues in the year ended December 31, 2018, compared to the year ended December 31, 2017.
Cash from Investing
In the year ended December
31, 2019, our investing activities provided cash in the amount of $29.6 million from the proceeds of $29.4 million from redemption
of marketable securities and from a decrease of $12.2 million in short-term and long-term bank deposits, partially offset by the
purchase of $10.0 million of marketable securities and by capital expenditure of $1.9 million.
In the year ended December
31, 2018, we used $1.1 million of cash in investing activities, primarily as a result of an increase of $7.3 million in short-term
and long-term bank deposits and capital expenditures of $1.4 million, partially offset by proceeds of $7.6 million from redemption
of marketable securities.
Cash from Financing
In the year ended December
31, 2019, we used $14.5 million of cash in financing activities, primarily as a result of $8.0 million used to repurchase our shares,
$6.7 million used to pay cash dividends to our shareholders and $2.5 million used for repayment of bank loans, partially offset
by $3.1 million of proceeds from the issuance of shares upon exercise of share options.
In the year ended December
31, 2018, we used $17.2 million of cash in financing activities, primarily as a result of $14.3 million used to repurchase our
shares, $5.8 million used to pay a cash dividend to our shareholders and $2.6 million used for repayment of bank loans, partially
offset by $5.5 million of proceeds from the issuance of shares upon exercise of share options.
We anticipate that
our operating expenses will be a material use of our cash resources for the foreseeable future. We believe that our current working
capital is sufficient to meet our operating cash requirements for at least the next twelve months, including payments required
under our existing bank loans. Part of our strategy is to pursue acquisition opportunities. If we do not have available sufficient
cash to finance our operations and the completion of additional acquisitions, we may be required to obtain additional debt or equity
financing. We cannot be certain that we will be able to obtain, if required, additional financing on acceptable terms or at all.
Information with respect
to Liquidity and Capital Resources as of December 31, 2017 and for the year then ended is contained under the heading “Liquidity
and Capital Resources” in Item 5 of our 2018 20-F.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Research and Development
In order to accommodate
the rapidly changing needs of our markets, we place considerable emphasis on research and development projects designed to improve
our existing products and to develop new ones. We are developing analog and digital media gateways for carrier and enterprise applications,
multi service business routers and session border controllers, IP phones, management routing and productivity applications, as
well as specialized appliances for Microsoft Skype for Business such as SBA, CCE and CloudBond 365. Our platforms are expected
to feature increased session capacity, new functionalities, enhanced signaling software and compliance with new protocols, as well
as new management and productivity applications. We also invest in cloud and virtualization technologies, making sure our products
and technologies suit and are optimized to cloud and hosted services. As of December 31, 2019, 273 of our employees were engaged
primarily in research and development on a full-time basis.
Our research and development
expenses, net were $41.2 million in the year ended December 31, 2019, compared to $34.7 million in the year ended December 31,
2018, and $30.3 million in the year ended December 31, 2017. From time to time we have received royalty-bearing grants from IIA.
As a recipient of grants from IIA, we are obligated to perform all manufacturing activities for projects subject to the grants
in Israel unless we receive an exemption. Know-how from research and development which is used to produce products may not be transferred
to third parties without the approval of IIA and may require significant payments. IIA approval is not required for the export
of any products resulting from such research or development.
In November 2019, we
and one of our Israeli subsidiaries, AudioCodes Development Ltd., entered into the Royalty Buyout Agreement with the IIA relating
to certain grants we have received from the IIA. The contingent net royalty liability to the IIA at the time of the Royalty Buyout
Agreement with respect to these grants was approximately $49 million, including interest to the date of the Royalty Buyout Agreement.
As part of the Royalty Buyout Agreement, we agreed to pay $32.2 million to the IIA (to settle the Debt in full) in three annual
installments starting in 2019. Pursuant to the Royalty Buyout Agreement, we eliminated all royalty obligations related to our future
revenues with respect to these grants.
Through December 31,
2019, we had obtained grants from IIA aggregating $7.3 million for certain of our research and development projects related to
our other Israeli subsidiaries. We are obligated to pay royalties to the IIA (not covered by the Royalty Buyout Agreement), amounting
to 3%-5% of the revenues from the sales of the products and other related revenues generated from such projects, up to 100% of
the grants received, if no additional payments are required, linked to the dollar and bearing interest at the rate of LIBOR at
the time of grant. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such
sales no payment is required.
As of December 31,
2019, our other Israeli subsidiaries have a contingent obligation to pay royalties in the amount of approximately $16.5 million.
The accelerated demand
for VoIP technology continues to impact our business as it has done for several years, with the shift from traditional circuit-switched
networks to next generation packet-switched networks gaining momentum. As data traffic becomes the dominant factor in communications,
service providers are building and maintaining converged networks for integrated voice and data services. In addition, the growth
in broadband access and related technologies has driven the emergence of alternative service providers. This in turn stimulates
competition with incumbent providers, encouraging them to adopt voice over packet technologies. Additionally, aging legacy TDM
switches, high-cost maintenance contracts and regulatory guidelines are driving service providers worldwide to announce “PSTN
shutdown” programs with deadlines by which TDM services will no longer be available. This is another factor, pushing service
providers and enterprises to adopt VoIP-based technologies and solutions.
Another important trend
that is impacting our business is the emergence of private and public cloud-based services in the telecommunications world. Migrating
to the cloud is an attractive proposition for service providers and enterprises alike, with the potential to deliver significant
operational and capital cost savings, as well as increased productivity and flexibility. We offer a range of software-based products
and solutions designed with the cloud in mind. While we predict sales of these software-based solutions to increase, this may result
in lower revenues from our hardware-based session border controller products.
We are experiencing
decreasing demand for our technology products from customers who previously manufactured network equipment products based on our
enabling technology. These customers are migrating from AudioCodes’ enabling technology products to diverse integrated comprehensive
solutions and, as a result, the demand for our technology products is being adversely affected.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any
“off-balance sheet arrangements” as this term is defined in Item 5E of Form 20-F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
As of December 31,
2019, our contractual obligations were as follows (U.S. dollars in thousands):
|PAYMENTS DUE BY PERIOD|
|LESS THAN||1-3||3-5||MORE THAN|
|1 YEAR||YEARS||YEARS||5 YEARS||TOTAL|
|Rent and lease commitments, net (1)||6,202||20,885||604||655||28,346|
|Accrued severance pay, net (2)||–||–||–||943||943|
|IIA – Royalty Buyout Agreement||10,750||10,749||–||–||21,499|
|IIA – Contingent obligation (3)||–||–||–||16,468||16,468|
|Other commitments (4)||23,020||–||–||–||23,020|
|(1)||Our obligation for rent and lease commitments as of December 31, 2019 was approximately $31.0 million. We have rent and lease income in the amount of approximately $2.7 million, leaving a net obligation of approximately $28.3 million.|
|(2)||Our obligation for accrued severance pay under Israel’s Severance Pay Law as of December 31, 2019 was $20.3 million. This obligation is payable only upon termination, retirement or death of the respective employee. We have funded $19.4 million through deposits into severance pay funds, leaving a net obligation of approximately $0.9 million.|
|(3)||Related to the Israeli subsidiaries not under the Royalty Buyout Agreement.|
|(4)||Related to non-cancelable inventory purchase commitments.|
DIRECTORS AND SENIOR MANAGEMENT
The following table
sets forth certain information with respect to our directors, senior executive officers and key employees at February 1, 2020:
|Stanley B. Stern||62||Chairman of the Board of Directors|
|Shabtai Adlersberg||67||President, Chief Executive Officer and Director|
|Niran Baruch||49||Vice President Finance and Chief Financial Officer|
|Lior Aldema||54||Chief Business Officer and Director|
|Ofer Nimtsovich||51||Chief Operating Officer|
|Yair Hevdeli||55||Vice President, Research and Development|
|Eyal Frishberg||61||Vice President, Operations|
|Yehuda Herscovici||53||Vice President, Products|
|Nimrode Borovsky||48||Vice President, Marketing|
|Tal Dor||50||Vice President, Human Resources|
|Shaul Weissman||54||Vice President, Business Development|
|Joseph Tenne(1)(2)(3)||64||Le directeur|
|Dr. Eyal Kishon(1)(2)(3)(4)||60||Le directeur|
|Doron Nevo(1)(2)(3)(4)||64||Le directeur|
|Zehava Simon (3)||61||Le directeur|
(1) Member of Audit Committee
(2) Member of Nominating Committee
(3) Member of Compensation Committee
(4) Outside Director under Israeli Law
Stanley Stern became
a director and our Chairman of the Board in December 2012. From 2004 until 2013 Mr. Stern served in various positions at
Oppenheimer & Co., including as a Managing Director and Head of Investment Banking, Technology, Israeli Banking and FIG.
Since 2013, Mr. Stern has served as the president of Alnitak Capital, a private merchant bank and strategic advisory firm.
From 2002 until 2004, he was a Managing Director and the Head of Investment Banking at C.E. Unterberg, Towbin where he
focused on technology and defense related sectors. From January 2000 until January 2002, Mr. Stern was the President of STI
Ventures Advisory USA Inc., a venture capital firm focusing on technology investments. Prior to his term at STI Ventures, he
spent over 20 years at CIBC Oppenheimer in the investment banking department and started the technology banking group in
1990. From 2002 until 2012, Mr. Stern served as the Chairman of the Board of Directors of Tucows, Inc., an internet service
provider that is public traded company on AMEX, and, from 2012 until 2013, he served as a Director of Tucows. From 2012 until
February 2014, he served as a director of Given Imaging Ltd., a manufacturer of medical devices, until Given Imaging was
acquired by another company. From 2004 until 2009, he served as a director of Odimo Inc. (DBA Diamond.com), an online jewelry
vendor. From 2005 until its sale in 2011, he served as a director and Chairman of the Audit Committee of Fundtech Ltd. From
February 2016, Mr. Stern served as a director at SodaStream International Ltd. and as from February 2015, Mr. Stern is
serving as the Chairman of the Board at SodaStream International Ltd. Mr. Stern received his M.B.A. from Harvard Business
School and a B.S. from Queens College.
co-founded AudioCodes in 1993, and has served as our President, Chief Executive Officer and a director since inception. Until December
2012, Mr. Adlersberg also served as the Chairman of our Board of Directors. Mr. Adlersberg co-founded DSP Group, a semiconductor
company, in 1987. From 1987 to 1990, Mr. Adlersberg served as the Vice President of Engineering of DSP Group, and from 1990 to
1992, he served as Vice President of Advanced Technology. As Vice President of Engineering, Mr. Adlersberg established a research
and development team for digital cellular communication which was spun-off in 1992 as DSP Communications. Mr. Adlersberg holds
a M.Sc. in Electronics and Computer Engineering from Tel Aviv University and a B.Sc. in Electrical Engineering from the Technion-Israel
Institute of Technology, or the Technion.
Niran Baruch has
served as our Vice President Finance and Chief Financial Officer since July 2016 after serving as our Vice President Finance and
Chief Accounting Officer since May 2015. He joined AudioCodes in 2005 as Director of Finance and became Vice President Finance
in 2011 responsible for the management of the finance department. Mr. Baruch has 20 years of experience with Nasdaq traded public
companies, and is a Certified Public Accountant (CPA) with a B.A. in Business Management and Accounting.
has served as Chief Business Officer (CBO) since January 2018, as a director since July 2018, and as our Chief Operating Officer
and Head of Global Sales from April 2012 to December 2017. Previously, he served as our Vice President, Product Management from
2002 until 2009, as well as our Vice President Marketing from February 2003 until 2009. He has been employed by us since 1998,
when he was team leader and later headed our System Software Group in our research and development department. Prior to 1998, Mr.
Aldema served as an officer in the Technical Unit of the Intelligence Corps of the Israeli Defense Forces (Major), heading both
operational units and large development groups related to various technologies. Mr. Aldema holds an M.B.A. from Tel Aviv University
and a B.Sc. from the Technion.
Nimtsovich has served as our Chief Operating Officer since January 2018 and as Vice President, Global Services from March
2013 to December 2018. From 2000 until February 2013, Mr. Nimtsovich served in various executive positions at Retalix,
including Chief Information Officer, Executive Vice President of Global Services and, most recently as the head of the
Software as a Service division of Retalix. From 1994 till 2000, Mr. Nimtsovich worked for Scitex Corporation Ltd., where he
held various technical and management positions, including as the Global Microsoft Infrastructure manager for Scitex. Mr.
Nimtsovich graduated from the Business Administration College in Israel in 1997 with a B.A. in Business Administration and
Marketing, and also holds an M.B.A. degree from the University of Texas.
joined AudioCodes in July 2013 as Vice President, Research and Development. From 2003 until 2013, Mr. Hevdeli served in various
executive positions at Veraz/Dialogic, including Global Vice President, Research and Development and, most recently, as Senior
Vice President, Research and Development and General Manager, Bandwidth Optimization BU. From 1998 until 2003, Mr. Hevdeli worked
for ECI Ltd, where he held various technical and management positions. Mr. Hevdeli has over 20 years of experience leading large
multidisciplinary global research and development teams in the telecom industry. Mr. Hevdeli graduated in 1995 with an M.B.A. in
Business Management from Bar Ilan University, Israel and in 1992 received his B.A. in Computer Science and Economics, from Bar
has served as our Vice President, Operations since October 2000. From 1997 to 2000, Mr. Frishberg served as Associate Vice President,
SDH Operations in ECI Telecom Ltd., a major telecommunication company. From 1987 to 1997, Mr. Frishberg worked in various operational
positions in ECI Telecom including as manager of ECI production facility and production control. Mr. Frishberg worked from 1994
until 1997 for ELTA company, part of Israeli Aircraft Industries in the planning and control department. Mr. Frishberg holds a
B.Sc. in Industrial Engineering from Tel Aviv University and an M.B.A. from Ben-Gurion University of the Negev.
has served as our Vice President, Products, overlooking Product Management and Product Marketing since 2010. From 2003 till 2010,
Mr. Herscovici served as our Vice President, Systems Group since 2003. From 2001 to 2003, Mr. Herscovici served as our Vice President,
Advanced Products. From 2000 to 2001, Mr. Herscovici served as our Director of Advanced Technologies. From 1994 to 1998 and during
1999, Mr. Herscovici held a variety of research and development positions at Advanced Recognition Technologies, Ltd., a voice and
handwriting recognition company, heading its research and development from 1999 to 2000 as Vice President, Research and Development.
From 1998 to 1999, Mr. Herscovici was engaged in developing various wireless communication algorithms at Comsys, a telecommunications
company. Mr. Herscovici holds an M.Sc. and a B.Sc., from the Technion both in the area of Telecommunications.
Tal Dor has
served as our Vice President of Human Resources since March 2000. Prior to March 2000, Ms. Dor acted for several years as a consultant
in Israel to, among others, telephone and cable businesses, as well as health and social service organizations. Ms. Dor holds a
B.A. in Psychology, from Ben-Gurion University of the Negev and an M.A. in Psychology from Tel Aviv University.
Borovsky has served as our Vice President, Marketing since October 2013 and heads the strategic global marketing and
business development efforts with AudioCodes partners and channels. From January 2013 until October 2013, Mr. Borovsky served
as our Vice President of Unified Communications. Mr. Borovsky has been with AudioCodes since 2005 and has served in numerous
product, marketing and business development positions with us. He has worked in telecom and VoIP markets for approximately 20
years. Prior to joining AudioCodes, Mr. Borovsky spent eight years at VocalTec Communications where he served in several
positions in research and development, product management and marketing. Mr. Borovsky holds a B.Sc. degree in Electrical
Engineering from the New Jersey Institute of Technology, and a M.Sc. degree in Biomedical Engineering from Tel Aviv
has served as our Vice President, Business Development since January 2014. Mr. Weissman has been with AudioCodes since 1994, serving
in various positions. From 2007 until 2014, Mr. Weissman served as our Residential Business Line Manager. In addition, Mr. Weissman
has served as our Vice President and Manager of our chip business line since 2006. From 2001 until 2005, Mr. Weissman served as
our Support and Professional Services Manager for our chip business line; and from 1994 until 2000 he served as a digital signal
processing engineer. Prior to joining AudioCodes, Mr. Weissman served as Captain in the Israeli Air Force. Mr. Weissman holds an
M.Sc. and a B.Sc., from the Technion, both in the area of Telecommunications.
has served as one of our directors since June 2003. Since May 2017, Mr. Tenne has served as a financial consultant to Itamar Medical
Ltd., an Israeli company listed on Nasdaq and on the Tel Aviv Stock Exchange. Mr. Tenne serves as a director of MIND CTI Ltd.,
an Israeli company listed on Nasdaq, OPC Energy Ltd., an Israeli company listed on the Tel Aviv Stock Exchange, Ratio Oil Explorations
(Finance) Ltd., an Israeli company listed on the Tel Aviv Stock Exchange and Sapir Corp Ltd., an Israeli company listed on the
Tel Aviv Stock Exchange. From August 2014 to April 2017, Mr. Tenne served as the Vice President Finance and Chief Financial Officer
of Itamar Medical Ltd. From March 2005 until April 2013, Mr. Tenne served as the Chief Financial Officer of Ormat Technologies,
Inc., a company listed on the New York Stock Exchange and on the Tel Aviv Stock Exchange. From January 2006 until April 2013, Mr.
Tenne also served as the Chief Financial Officer of Ormat Industries Ltd., an Israeli holding company which was listed on the Tel-Aviv
Stock Exchange and was the parent company of Ormat Technologies, Inc. From 2003 to 2005, Mr. Tenne was the Chief Financial Officer
of Treofan Germany GmbH & Co. KG, a German company, which is engaged in the development, production and marketing of oriented
polypropylene films. From 1997 until 2003, Mr. Tenne was a partner in Kesselman & Kesselman, Certified Public Accountants in
Israel (PwC Israel) and a member of PricewaterhouseCoopers International Limited. Mr. Tenne holds a B.A. in Accounting and Economics
and an M.B.A. from Tel Aviv University. Mr. Tenne is also a Certified Public Accountant in Israel.
Dr. Eyal Kishon
has served as one of our directors since 1997. Since 1996, Dr. Kishon has been Managing Partner of Genesis Partners, an Israel-based
venture capital fund. From 1993 to 1996, Dr. Kishon served as Associate Director of Dovrat-Shrem/Yozma-Polaris Fund Limited Partnership.
Prior to that, Dr. Kishon served as Chief Technology Officer at Yozma Venture Capital from 1992 to 1993. From 1991 to 1992, Dr.
Kishon was a Research Fellow in the Multimedia Department of IBM Science & Technology. From 1989 to 1991, Dr. Kishon worked
in the Robotics Research Department of AT&T Bell Laboratories. Dr. Kishon holds a B.A. in Computer Science from the Technion
– Israel Institute of Technology and an M.Sc. and a Ph.D. in Computer Science from New York University.
has served as one of our directors since 2000. Mr. Nevo is the CEO of MultiVu, a 3D imaging company, which he co-founded in
2019. From 2001 to 2018, Mr. Nevo was co-Founder, President and CEO of KiloLambda Technologies. From 1999 to 2001, Mr.
Nevo was involved in fund raising activities for Israeli-based startup companies. From 1996 to 1999, Mr. Nevo served as
President and CEO of NKO, Inc. Mr. Nevo established NKO in early 1995 as a startup subsidiary of Clalcom, Ltd. NKO designed
and developed a full scale, carrier grade, IP telephony system platform and established its own IP network. From 1992 to
1996, Mr. Nevo was President and CEO of Clalcom Ltd. Mr. Nevo established Clalcom in 1992 as a telecom service provider in
Israel. He also serves as a director of Hadasit Bio-Holdings (TASE: HBL) and of a number of private companies. Mr. Nevo holds
a B.Sc. in Electrical Engineering from the Technion – Israel Institute of Technology and an M.Sc. in Telecommunications
Management from Brooklyn Polytechnic.
Zehava Simon was
appointed a director in February 2014. Ms. Simon served as a Vice President of BMC Software Inc. from 2000 until September 2013,
most recently as Vice President, Corporate Development. From 2002 to 2011, Ms. Simon served as Vice President and General Manager
of BMC Software in Israel. Prior to joining BMC Software, Ms. Simon held a number of executive positions at Intel Corporation.
In her last position at Intel, she led Finance and Operations and Business Development for Intel in Israel. Ms. Simon has served
as a board member of various companies, including Tower Semiconductor from 1999-2004, M-Systems from 2005-2006 and InSightec from
2005-2012. Ms. Simon is also a board member at Nova Measuring Instruments Ltd, Amiad Water System Ltd. and NICE Ltd. Ms. Simon
holds a bachelor’s degree in Social Sciences from the Hebrew University, a law degree (LL.B.) from the Interdisciplinary
Center in Herzlia and a master’s degree in Business and Management from Boston University.
The table and summary
below outline the compensation granted to our five most highly compensated office holders during or with respect to the year ended
December 31, 2019. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the
table and the summary below, “compensation” includes base salary, discretionary and non-equity incentive bonuses, share-based
compensation, payments accrued or paid in connection with retirement or termination of employment, and personal benefits and perquisites
such as car, phone and social benefits paid to or earned by each Covered Executive during the year ended December 31, 2019.
|Name and Principal Position||Salary||Bonus (1)||Share-Based
|Shabtai Adlersberg – President and CEO||$||371,282||$||785,006||$||1,004,292||$||194,790||$||2,355,370|
|Lior Aldema – CBO||$||258,803||$||242,732||$||432,813||$||109,628||$||1.043,976|
|Niran Baruch – VP Finance and CFO||$||218,020||$||62,780||$||333,684||$||91,179||$||705,663|
|Nimrode Borovsky – VP Marketing||$||189,092||$||71,359||$||158,893||$||86,066||$||505,410|
|Yehuda Herscovici – VP Products||$||209,268||$||48,241||$||158,454||$||79,960||$||495,923|
|(1)||Amounts reported in this column represent annual incentive bonuses granted to the Covered Executives based on performance-metric formulas set forth in their respective employment agreements.|
|(2)||Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2019, with respect to share-based compensation granted to the Covered Executive.|
|(3)||Amounts reported in this column include personal benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the respective Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, vacation, car or car allowance, medical insurance and benefits, risk insurance (e.g., life insurance or work disability insurance), telephone expense reimbursement, convalescence or recreation pay, relocation reimbursement, payments for social security, and other personal benefits and perquisites consistent with our guidelines. All amounts reported in the table represent incremental cost to us.|
The aggregate direct
remuneration paid during the year ended December 31, 2019 to the 15 persons who served in the capacity of director, senior executive
officer or key employee during 2019 was approximately $4.9 million, including approximately $0.5 million which was set aside for
pension and retirement benefits. The compensation amounts do not include amounts expended by us for automobiles made available
to our officers, expenses (including business, travel, professional and business association dues and expenses) reimbursed to officers
and other fringe benefits commonly reimbursed or paid by companies in Israel.
We currently pay each
of our non-employee directors an annual fee of $38,000 and a fee of $1,140 for each board meeting or committee meeting attended.
In the event that a director attends a meeting by phone or a resolution is adopted by written consent, then the fee is reduced
to 60% and 50% of the regular meeting fee, respectively. Such fees are in accordance with the rates prescribed by the Israeli Companies
Law Regulation for fees of outside directors. Only directors who are not officers receive compensation for serving as directors.
Our director, Mr. Adlersberg, who also serves as our President and Chief Executive Officer and our director, Mr. Aldema who also
serves as our Chief Business Officer, do not receive board meeting fees. Instead, each of them receive compensation in accordance
with the terms of his respective employment agreement.
Upon election or reelection
to the board of directors for a term of three years, each non-employee director is granted 7,500 restricted share units (“RSUs”),
each year that vest over a three year period from the grant date.
Options to purchase
our ordinary shares granted under our 2008 Equity Incentive Plan to persons who served in the capacity of director or executive
officer are generally exercisable at the fair market value at the date of grant and expire seven years from the date of grant.
The options generally vest in four equal annual installments, commencing one year from the date of grant.
A summary of our stock
option and RSU activity and related information for the years ended December 31, 2017, 2018 and 2019 for the persons who served
in the capacity of director, senior executive or key employee officer during those years is as follows:
|Year Ended December 31,|
|2017||L'année 2018||L'année 2019|
|à propos||Average||à propos||Average||à propos||Average|
|Outstanding at the beginning of the year||2,030,210||$||3.95||2,084,162||$||3.82||1,677,699||$||3.71|
|Options exercised / RSUs vested||(402,341||)||$||3.54||(780,263||)||$||3.44||(612,451||)||$||2.93|
|Outstanding at the end of the year||2,084,162||$||3.82||1,677,699||$||3.71||1,445,248||$||4.30|
As of December 31,
2019, options to purchase 558,104 ordinary shares were exercisable by the 15 persons who served as an officer or director during
the year ended December 31, 2019 at an average exercise price of $5.63 per share. As of December 31, 2019, the 15 persons who served
as an officer, director or key employee during the year ended December 31, 2019 held an aggregate of 559,629 RSUs.
We are incorporated
in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters
as outside directors, the audit committee, compensation committee, the internal auditor and approvals of interested party transactions
and of compensation of officers and directors. These matters are in addition to the ongoing listing conditions of the Nasdaq Global
Select Market and other relevant provisions of U.S. securities laws. Under the Nasdaq rules, a foreign private issuer may generally
follow its home country rules of corporate governance in lieu of the comparable Nasdaq requirements, except for certain matters
such as composition and responsibilities of the audit committee and the independence of its members. For further information, see
Item 16.G – “Corporate Governance.”
Companies Law, Israeli companies that have offered securities to the public in or outside of Israel are required to appoint
at least two “outside” directors, unless AudioCodes elects to exempt itself. The Board of Directors decided to
remain subject to this requirement. Doron Nevo and Dr. Eyal Kishon currently serve as our outside directors. Selon
requirements for listing on the Nasdaq Global Select Market, a majority of our directors are required to be independent as
defined by Nasdaq rules. Doron Nevo, Dr. Eyal Kishon, Zehava Simon, Stanley Stern and Joseph Tenne qualify as independent
directors under the applicable SEC and Nasdaq rules, as well as under the Companies Law.
Under the Companies
Law, a person may not serve as an outside director if at the date of the person’s election or within the prior two years
the person is a relative of the company’s controlling shareholder, or the person or his or her relatives, partners, employers,
supervisors or entities under the person’s control, have or had any affiliation with us or with a controlling shareholder
or relatives of a controlling shareholder, and, in the case of a company without a controlling shareholder or a shareholder holding
at least 25% of the voting rights, any affiliation, at the time of election, to the chairman of the board of directors, the chief
executive officer, an interested party or the company’s most senior finance officer. Under the Companies Law, “affiliation”
|·||an employment relationship,|
|·||a business or professional relationship maintained on a regular basis,|
|·||service as an office holder, excluding service as a director in a private company prior to the
first offering of its shares to the public if such director was appointed or elected as a director of the private company in order
to serve as an outside director following the initial public offering.
In addition, a person
may not serve as an outside director:
|·||if the person or his or her relatives, partners, employers, supervisors or entities under the person’s
control, maintains a business or professional relationship with the company, even if such relationship is not on a regular basis,
other than a negligible business or professional relationship; ou
|·||if the person received compensation as an outside director in excess of the amounts permitted by
the Companies Law and regulations thereunder.
In addition, no
individual may serve as an outside director if the individual’s position or other activities create or may create a
conflict of interest with his or her role as an outside director or are likely to interfere with his or her ability to serve
as a director. Until the lapse of two years from the termination of office, the company, a controlling shareholder and
entities under the company’s control may not grant the outside director or any of his or her relatives, directly or
indirectly, any benefit, or engage the outside director or his or her relatives as an office holder of the company, of a
controlling shareholders or of an entity under the company’s control, and may not employ or receive services from the
outside director or any of his or her relatives, either directly or indirectly, including through a corporation controlled by
that person. The restriction on a relative that is not the spouse or child of the outside director is limited to one year
from the termination of office instead of two years. Pursuant to the Companies Law, at least one of the outside directors
appointed by a publicly-traded company must have “financial and accounting expertise.” The other outside
directors are required to possess “financial and accounting expertise” or “professional expertise,”
as these terms are defined in regulations promulgated under the Companies Law. Joseph Tenne is designated as the “audit
committee financial expert” as that term is defined in SEC rules.
Outside directors are
elected by a majority vote at a shareholders’ meeting. In addition to the majority vote, the shareholder approval of the
election of an outside director must satisfy either of two additional tests:
|·||the majority includes at least a majority of the shares voted by shareholders other than our controlling
shareholders or shareholders who have a personal interest in the election of the outside directors (excluding a personal interest
that is not related to a relationship with the controlling shareholders); ou
|·||the total number of shares held by non-controlling shareholders and disinterested shareholders
that voted against the election of the outside director does not exceed 2% of the aggregate voting rights of our company.
The initial term of
an outside director is three years and may be extended for up to two additional three-year terms. Thereafter, he or she may be
reelected by our shareholders for additional periods of up to three years each only if the audit committee and the board of directors
confirm that, in light of the outside director’s expertise and special contribution to the work of the Board of Directors
and its committees, the reelection for such additional period is beneficial to the company. Reelection of an outside director may
be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the
election was approved by the shareholders by the majority required to appoint outside directors for their initial term; or (2)
one or more shareholders holding one percent or more of a company’s voting rights or the outside director proposed the reelection
of the nominee, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the
votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the
controlling shareholders, provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute
more than two percent of the voting rights in the company.
Pursuant to the Companies
Law, an Israeli company whose shares are publicly traded may elect to adopt a provision in its articles of association pursuant
to which a majority of its board of directors (or a third of its board of directors in case the company has a controlling shareholder)
will constitute individuals complying with certain independence criteria prescribed by the Companies Law. Pursuant to the related
regulations, directors who comply with the independence requirements of the Nasdaq and SEC regulations are deemed to comply with
the independence requirements of the Companies Law. We have not included such a provision in our articles of association since
our board of directors complies with the independence requirements of the Nasdaq and SEC regulations described above. In any event,
as described above, a majority of our board of directors and all members of our audit committee are directors who comply with the
independence criteria prescribed by the Companies Law.
director is entitled to compensation as provided in the regulations adopted under the Companies Law and is otherwise
prohibited from receiving any other compensation, directly or indirectly, from the company. In accordance with such
regulations, our shareholders approved that our outside directors are to receive compensation equal to that paid to the other
members of the board of directors. For further information, please see Item 6.B – “Directors, Senior Management
and Employees—Compensation” in this Annual Report.
Under the Companies
Law and the requirements for listing on the Nasdaq Global Select Market, our board of directors is required to appoint an audit
committee. Our audit committee must be comprised of at least three directors, including all of the outside directors (one of whom
must serve as the chair of the audit committee), and a majority of the committee members must comply with the director independence
requirements prescribed by the Companies Law. The audit committee consists of: Doron Nevo, Dr. Eyal Kishon and Joseph Tenne, with
Doron Nevo serving as the chairman of the audit committee. Our board of directors has determined that Joseph Tenne is an “audit
committee financial expert” as defined in SEC rules and that all members of the audit committee are independent under the
applicable SEC rules, Nasdaq rules and provisions of the Companies Law.
The audit committee
may not include the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled
by a controlling shareholder, or any director providing services to us, to a controlling shareholder or to any entity controlled
by a controlling shareholder on a regular basis, or any director whose income is primarily dependent on a controlling shareholder,
and may not include a controlling shareholder or any relatives of a controlling shareholder. Individuals who are not permitted
to be audit committee members may not participate in the committee’s meetings other than to present a particular issue. Cependant
an employee who is not a controlling shareholder or relative may participate in the committee’s discussions but not in any
vote, and the company’s legal counsel and corporate secretary may participate in the committee’s discussions and votes
if requested by the committee.
Under the Companies
Law, a meeting of the audit committee is properly convened if a majority of the committee members attend the meeting, and in addition
a majority of the attending committee members are independent directors within the meaning of the Companies Law and include at
least one outside director.
We have adopted an
audit committee charter as required by Nasdaq rules. The audit committee’s duties include providing assistance to the board
of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting,
internal control and legal compliance functions by approving the fees of, and services performed by, our independent accountants
and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee
also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself
that the accountants are independent of management. Under the Companies Law, the audit committee also is required to monitor deficiencies
in the administration of our company, including by consulting with the internal auditor and independent accountants, to review,
classify and approve related party transactions and extraordinary transactions, to review the internal auditor’s audit plan
and to establish and monitor whistleblower procedures.
Nasdaq rules require
that director nominees be selected or recommended for the board’s selection either by a committee composed solely of independent
directors or by a majority of independent directors. Our nominating committee assists the board of directors in its selection of
individuals as nominees for election to the board of directors and/or to fill any vacancies or newly created directorships on the
board of directors. The nominating committee consists of Doron Nevo, Dr. Eyal Kishon and Joseph Tenne, with Doron Nevo serving
as the chairman of the nominating committee. All members of the nominating committee are independent under the applicable Nasdaq
rules and provisions of the Companies Law.
Under the Companies
Law, the board of directors of any public company must establish a compensation committee. The compensation committee must consist
of at least three directors, include all of the outside directors (including one outside director serving as the chair of the compensation
committee), and a majority of the committee members must comply with the director independence requirements prescribed by the Companies
Law. Similar to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board,
or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director
providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis,
or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or
any of its relatives. Individuals who are not permitted to be compensation committee members may not participate in the committee’s
meetings other than to present a particular issue; however, an employee who is not a controlling shareholder or relative
may participate in the committee’s discussions, but not in any vote, and the company’s legal counsel and corporate
secretary may participate in the committee’s discussions and votes if requested by the committee.
The compensation committee’s
duties include recommending to the board of directors a compensation policy for executives and monitor its implementation, approve
compensation terms of executive officers, directors and employees affiliated with controlling shareholders, make recommendations
to the board of directors regarding the issuance of equity incentive awards under our equity incentive plan and exempt certain
compensation arrangements from the requirement to obtain shareholder approval under the Companies Law. The compensation committee
meets at least twice a year, with further meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary
or desirable by the committee or its chairperson. For information regarding the compensation policy for executives, see Item 10.B
– “Additional Information – Memorandum and Articles of Association – Compensation of Executive Officers
and Directors; Executive Compensation Policy.”
The compensation committee
consists of Doron Nevo, Dr. Eyal Kishon, Joseph Tenne and Zehava Simon, with Doron Nevo serving as the chairman of the compensation
committee. All members of the compensation committee are independent under the applicable SEC rules, Nasdaq rules and provisions
of the Companies Law.
Under the Companies
Law, our board of directors is also required to appoint an internal auditor proposed by the audit committee. The internal auditor
may be our employee, but may not be an interested party or office holder, or a relative of any interested party or office holder,
and may not be a member of our independent accounting firm. The role of the internal auditor is to examine, among other things,
whether our activities comply with the law and orderly business procedure. Mr. Oren Grupi of KPMG Somekh Chaikin Israel has been
our internal auditor since July 2018.
Pursuant to our articles
of association, our directors, other than our outside directors, are classified into three classes (classes I, II and III).
members of each class of directors and the expiration of his or her current term of office are as follows:
|Zehava Simon||Class I||2022|
|Lior Aldema||Class I||2022|
|Joseph Tenne||Class II||2020|
|Shabtai Adlersberg||Class III||2021|
|Stanley B. Stern||Class III||2021|
Our outside directors
under the Companies Law, Doron Nevo and Dr. Eyal Kishon, are not members of any class and serve in accordance with the provisions
of the Companies Law. Mr. Nevo’s term ends in 2021 and Dr. Kishon’s term ends in 2020.
Chairman of the Board
Under the Companies
Law, the chief executive officer of a company (or a relative of the chief executive officer) may not serve as the chairman of the
board of directors, and the chairman of the board of directors (or a relative of the chairman of the board of directors) may not
serve as the chief executive officer, unless approved by the shareholders by a special majority vote prescribed by the Companies
Law. The shareholder vote cannot authorize the appointment for a period of longer than three years, which period may be extended
from time to time by the shareholders with a similar special majority vote. The chairman of the board of directors shall not hold
any other position with the company (except as chief executive officer if approved in accordance with the above procedure) or in
any entity controlled by the company, other than as chairman of the board of directors of a controlled entity, and the company
shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to the chief executive officer.
Stanley B. Stern is our chairman of the board and Shabtai Adlersberg is our President and Chief Executive Officer.
We had the following
number of employees as of December 31, 2017, 2018 and 2019 in the departments set forth in the table below:
|As of December 31,|
|2017||L'année 2018||L'année 2019|
|Research and development||280||264||273|
|Sales and marketing, technical service and support||303||327||340|
|Management and administration||38||38||39|
Our employees were
located in the following areas as of December 31, 2017, 2018 and 2019.
|As of December 31,|
|2017||L'année 2018||L'année 2019|
Israeli labor laws
and regulations are applicable to our employees in Israel. These laws principally concern matters such as paid annual vacation,
paid sick days, length of the workday, pay for overtime, insurance for work-related accidents, severance pay and other conditions
of employment. Israeli law generally requires severance pay, which may be funded by Manager’s Insurance, described below,
upon the retirement or death of an employee or termination of employment without cause (as defined under Israeli law). Furthermore,
Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which include payments
for national health insurance. The payments to the National Insurance Institute currently range from approximately 7.05% to 19.6%
of wages up to specified wage levels, of which the employee contributes approximately 55% and the employer contributes approximately
Our employees in Israel
are subject to certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in
Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists Associations) by order of the Israeli
Minister of Economy and Industry (formerly known as Minister of Industry, Trade and Labor). These provisions principally concern
cost of living increases, recreation pay and other conditions of employment. We generally provide our employees with benefits and
working conditions above the required minimums. Our employees, as a group, are not currently represented by a labor union. To date,
we have not experienced any work stoppages.
Pursuant to an
order issued by the Israeli Minister of Industry, Trade and Labor, provisions relating to pension arrangements in the
collective bargaining agreements between the Histadrut and the Coordination Bureau of Economic Organizations apply to all
employees in Israel, including our employees in Israel. We regularly contribute to a “Manager’s Insurance
Fund” or to a privately managed pension fund on behalf of our employees located in Israel. These funds provide
employees with a lump sum payment upon retirement (or a pension, in case of a pension fund) and severance pay, if legally
entitled thereto, upon termination of employment. We provide for payments to a Manager’s Insurance Fund and pension
fund contributions in the amount of 14.83% of an employee’s salary on account of severance pay and provident payment or
pension, with the employee contributing 6.0% of his salary. We also pay an additional amount of up to 2.5% of certain of our
employees’ salaries in connection with disability payments. In addition, we administer an Education Fund for our
Israeli employees and pay 7.5% of these employees’ salaries thereto, with the employees contributing 2.5% of their
The following table
sets forth the share ownership of our directors and officers as of February 18, 2020 and the outstanding number of options held
by them that vest within 60 days of February 18, 2020.
|Stanley B. Stern||*||*||*|
|Dr. Eyal Kishon||*||*||*|
* Less than one percent.
Our officers and directors
have the same voting rights as our other shareholders.
The following table
sets forth information with respect to the options to purchase our ordinary shares held by Mr. Adlersberg as of February 18, 2020.
|116,031||December 14, 2013||$||6.69||–||–||4 years||December 14, 2020|
|127,829||December 14, 2014||$||4.60||–||–||4 years||December 14, 2021|
|114,275||December 14, 2015||$||4.03||–||–||4 years||December 14, 2022|
|95,293||March 20, 2017||$||6.90||–||–||4 years||March 20, 2024|
|15,000||December 14, 2017||$||7.13||–||–||4 years||December 14, 2024|
|15,000||March 14, 2018||$||7.56||–||–||4 years||March 14, 2025|
|15,000||June 14, 2018||$||7.33||–||–||4 years||June 14, 2025|
|15,000||September 14, 2018||$||10.59||–||–||4 years||September 14, 2025|
|15,000||December 14, 2018||$||10.66||–||–||4 years||December 14, 2025|
|15,000||March 14, 2019||$||13.27||–||–||4 years||March 14, 2026|
|15,000||June 14, 2019||$||15.93||–||–||4 years||June 14, 2026|
The following table
sets forth information with respect to the RSUs granted to Mr. Adlersberg as of February 18, 2020. These RSUs vest quarterly over
a four-year period from the date of grant, subject to his continuing service to us.
|32,717||December 14, 2016||24,537|
|60,000||December 14, 2017||30,000|
|60,000||December 14, 2018||15,000|
|80,000||September 14, 2019||5,000|
Employee Share Plans
We have Employee Share
Purchase Plans for the sale of shares to our employees and an Equity Incentive Plan for the granting of options, RSUs and restricted
shares to our employees, officers, directors and consultants. Our 2008 Equity Incentive Plan is pursuant to the Israeli Income
Tax Ordinance, entitling the beneficiaries who are our employees to tax benefits under Israeli law. There are various conditions
that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee for each
of the beneficiaries who is granted options. For tax benefits each option, and any ordinary shares acquired upon the exercise of
the option, must be held by the trustee at least for a period commencing on the date of grant and ending no later than 24 months
after the date of grant, in accordance with the period of time specified by Section 102 of Israel’s Income Tax Ordinance,
and deposited in trust with the trustee.
Employee Share Option
2008 Equity Incentive
Plan. We adopted an equity incentive plan under Section 102 of the Israeli Income Tax Ordinance, or Section 102, which
provides certain tax benefits in connection with share-based compensation to employees, officers and directors. This plan, our
2008 Equity Incentive Plan, was approved by the Israeli Tax Authority.
Under our equity
incentive plan, we may grant our directors, officers and employees restricted shares, restricted share units and options to
purchase our ordinary shares under Section 102. We may also grant other persons awards under our equity incentive plan.
However, such other persons (controlling shareholders and consultants) will not enjoy the tax benefits provided by Section
102. The total number of ordinary shares that were originally available for grant under the 2008 Plan was 2,009,122, which
was increased to 4,009,122 in 2010, 6,009,122 in 2013, 8,009,122 in 2016 and 10,009,122 in 2019. This number is reduced by
one share for each equity grant we make under the 2008 Plan. During 2019, options to purchase 210,500 ordinary shares and
403,198 restricted share units were granted under the 2008 Plan. As of December 31, 2019, 1,878,993 ordinary shares remained
available for grant under the 2008 Plan. As of December 31, 2019 there are 1,341,073 options to purchase ordinary shares and
977,169 restricted share units outstanding under the plan.
The Israeli Tax Authority
approved the 2008 Plan under the capital gains tax track of Section 102. Based on Israeli law currently in effect and the election
of the capital gains tax track, and provided that options, restricted shares and restricted shares units granted or, upon their
exercise or vesting, the underlying shares, issued under the plan are held by a trustee for the two years following the date in
which such awards are granted, our employees, officers and directors will be (i) entitled to defer any taxable event with respect
to the awards until the underlying ordinary shares are sold, and (ii) subject to capital gains tax of 25% on the sale of the shares.
However, if we grant awards at a value below the underlying shares’ market value at the date of grant, the 25% capital gains
tax rate will apply only with respect to capital gains in excess of the underlying shares’ market value at the date of grant
and the remaining capital gains will be taxed at the grantee’s regular tax rate. We may not recognize a tax benefit pertaining
to the employees’ restricted shares, restricted share units and options for tax purposes except in the events described above
under which the gain is taxed at the grantee’s regular tax rate.
restricted share units and options granted under the 2008 Plan will vest over four years from the grant date or in accordance with
the alternative vesting schedule applicable to the specific grant. If the employment of an employee is terminated for any reason,
the employee (or in the case of death, the designated beneficiary) may exercise his or her vested options within ninety days of
the date of termination (or within twelve months of the date of termination in the case of death or disability) and shall be entitled
to any rights upon vested restricted shares and vested restricted share units to be delivered to the employee to the extent that
they were vested prior to the date his or her employment terminates. Directors are generally eligible to exercise his or her vested
options within twelve months from the date the director ceases to serve on the board of directors.
The holders of options
under all of the plans are responsible for all personal tax consequences relating to the options. The exercise prices of the options
are based on the fair value of the ordinary shares at the time of grant as determined by our board of directors. The current practice
of our board of directors is to grant options with exercise prices that equal 100% of the closing price of our ordinary shares
on the applicable date of grant.
our knowledge, (A) we are not directly or indirectly owned or controlled (i) by another corporation or (ii) by any foreign government
and (B) there are no arrangements, the operation of which may at a subsequent date result in a change in control of AudioCodes.
The following table sets forth, as of February 18, 2020 the number of our ordinary shares, which constitute our only outstanding
voting securities, beneficially owned by (i) all shareholders known to us to own more than 5% of our outstanding ordinary shares,
and (ii) all of our directors and senior executive officers as a group.
of Person or
directors and senior executive officers as a group (15 persons) (4)
options to purchase 476,083 shares, exercisable within 60 days of February 18, 2020.
|(2)||information is derived from a statement on Schedule 13G/A, dated January 28, 2020, of Leon Bialik filed with the SEC.|
|(3)||information is derived from a statement on Schedule 13G/A, dated February 12, 2019, of Morgan Stanley and Morgan Stanley Capital
Services LLC filed with the SEC.
569,251 ordinary shares which may be purchased pursuant to options exercisable within 60 days following February 18, 2020
and 22,045 ordinary shares issuable pursuant to restricted share units that vest within 60 days of February 18, 2020.
Adlersberg held 17.5% of our ordinary shares as of December 31, 2019 as compared to 18.3% of our ordinary shares as of December
31, 2018 and 18.6% of our ordinary shares as of December 31, 2017.
Bialik held 10.3% of our ordinary shares as of December 31, 2019, as compared to 12.3% of our ordinary shares as of December 31,
2018 and 13.2% of our ordinary shares as of December 31, 2017.
Management, LLC (formerly Rima Senvest Management LLC) held less than 5% of our ordinary shares as of December 31, 2019 and 2018,
as compared to 7.0% of our ordinary shares as of December 31, 2017.
Stanley and Morgan Stanley Capital Services LLC held 6.7% of our ordinary shares as of December 31, 2019, as compared to 7.9%
of our ordinary shares as of December 31, 2018 and 5.7% of our ordinary shares as of December 31, 2017.
of February 18, 2020, there were approximately seven holders of record of our ordinary shares in the United States, although we
believe that the number of beneficial owners of the ordinary shares is significantly greater. The number of record holders in
the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial
holders are resident since many of these ordinary shares were held of record by brokers or other nominees.
major shareholders have the same voting rights as the other shareholders.
RELATED PARTY TRANSACTIONS
INTERESTS OF EXPERTS AND COUNSEL
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
a discussion of our dividend policy, please see Item 10B-”Additional Information-Memorandum and Articles of Association-Dividends.”
significant change has occurred since December 31, 2019, except as otherwise disclosed in this Annual Report.
OFFER AND LISTING DETAILS
ordinary shares are listed on the Nasdaq Global Select Market and the TASE under the symbol “AUDC.”
PLAN OF DISTRIBUTION
ordinary shares are listed for trading on the Nasdaq Global Select Market under the symbol “AUDC.” Our ordinary shares
are also listed for trading on The Tel-Aviv Stock Exchange under the symbol “AUDC.” In addition, we are aware of our
ordinary shares being traded on the following markets: Frankfurt Stock Exchange, Berlin Stock Exchange, Munich Stock Exchange,
Stuttgart Stock Exchange, the German Composite and XETRA.
EXPENSES OF THE ISSUE
MEMORANDUM AND ARTICLES OF ASSOCIATION
were incorporated in 1992 under the laws of the State of Israel. Our registration number with the Israeli Registrar of Companies
is 520044132. Our objects and purposes, set forth in Section 2 of our memorandum of association, are:
plan, develop and market voice signal systems;
purchase, import, market and wholesale and retail distribute, in Israel and abroad, consumption
goods and accompanying products;
serve as representatives of bodies, entrepreneurs and companies from Israel and abroad
with respect to their activities in Israel and abroad; et
carry out any activity as determined by the lawful management.
authorized share capital consists of NIS 1,025,000 divided into 100,000,000 ordinary shares, nominal value NIS 0.01 per share,
and 2,500,000 preferred shares, nominal value NIS 0.01 per share. As of February 18, 2020, we had 29,725,156 ordinary shares outstanding
(which does not include 29,471,614 treasury shares) and no preferred shares outstanding.
board of directors has the power to cause us to borrow money and to secure the payment of borrowed money. The board of directors
specifically has the power to issue bonds or debentures, and to impose mortgages or other security interests on all or any part
of our property.
of Articles of Association
may amend our articles of association by a resolution adopted at a shareholders meeting by the holders of 50% of voting power
represented at the meeting in person or by proxy and voting thereon.
person shall be disqualified to serve as a Director by reason of his not holding shares in the company or by reason of his having
served as a Director in the past.
the Companies Law, we may pay dividends only out of our profits as determined for statutory purposes, unless court approval is
granted for the payment of dividends despite the lack of statutory profits. (There is a unified statutory test for the payment
of dividends and a company’s repurchase of its outstanding shares.) In 2019 and again in early 2020, we received court approval
to pay dividends (and repurchase our shares) up to certain ceilings, despite the lack of statutory profits. The current approval
is valid until August 3, 2020. We may seek further approvals to repurchase our shares and to continue to pay dividends. The amount
of any dividend to be distributed among shareholders is based on the nominal value of their shares. Our board of directors has
determined that we will not distribute any amounts of our undistributed tax exempt income as dividend. We intend to reinvest our
tax-exempt income and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on
income attributable to our Approved Enterprise program as the undistributed tax exempt income is essentially permanent in duration.
Rights and Powers
any shares have special rights as to voting, every shareholder has one vote for each share held of record.
our articles of association, we may issue preferred shares from time to time, in one or more series. However, in connection with
our listing on The Tel-Aviv Stock Exchange in 2001, we agreed that for such time as our ordinary shares are traded on The Tel-Aviv
Stock Exchange, we will not issue any of the 2,500,000 preferred shares, nominal value NIS 0.01, authorized in our articles of
association. Notwithstanding the foregoing, we may issue preferred shares if the preference of those shares is limited to a preference
in the distribution of dividends and such preferred shares have no voting rights.
articles of association impose restrictions on our ability to engage in any merger, asset or share sale or other similar transaction
with a shareholder holding 15% or more of our voting shares.
our liquidation, our assets available for distribution to shareholders will be distributed to them in proportion to the nominal
value of their shares.
to our undertaking to the Tel-Aviv Stock Exchange as described above, we may issue and redeem redeemable shares.
to the provisions of our memorandum of association, and without prejudice to any special rights previously conferred upon the
holders of our existing shares, we may, from time to time, by a resolution approved by the holders of 75% voting power represented
at the meeting in person or by proxy and voting thereon, provide for shares with such preferred or deferred rights or rights of
redemption, or other special rights and/or such restrictions, whether in regard to dividends, voting repayment of share capital
or otherwise, as may be stipulated in such resolution.
at any time our share capital is divided into different classes of shares, we may modify or abrogate the rights attached to any
class, unless otherwise provided by the articles of association, by a resolution approved by the holders of 75% voting power represented
at the meeting in person or by proxy and voting thereon, subject to the consent in writing of the holders of 75% of the issued
shares of that class.
provisions of our articles of association relating to general meetings also apply to any separate general meeting of the holders
of the shares of a particular class, except that two or more members holding not less than 75% of the issued shares of that class
must be present in person or by proxy at that separate general meeting for a quorum to exist.
otherwise provided by our articles of association, the increase of an authorized class of shares, or the issuance of additional
shares thereof out of the authorized and unissued share capital, shall not be deemed to modify or abrogate the rights attached
to previously issued shares of that class or of any other class.
annual meeting of shareholders is to be held once a year, within 15 months after the previous annual meeting. The annual meeting
may be held in Israel or outside of Israel, as determined by the board of directors.
board of directors may, whenever it thinks fit, convene a special shareholders meeting. The board of directors must convene a
special shareholders meeting at the request of:
least two directors;
least one-quarter of the directors in office; ou
or more shareholders who hold at least 5% of the outstanding share capital and at least
1% of the voting rights, or one or more shareholders who hold at least 5% of the outstanding
special shareholders meeting may be held in Israel or outside of Israel, as determined by the board of directors.
of General Meetings; Omission to Give Notice
provisions of the Companies Law and the related regulations override the provisions of our articles of association, and provide
for notice of a meeting of shareholders to be sent to each registered shareholder at least 21 days or 35 days in advance of the
meeting, depending on the items included in the meeting agenda. Notice of a meeting of shareholders must also be published in
two Israeli newspapers or on our website.
of a meeting of shareholders must specify the type of meeting, the place and time of the meeting, the agenda, a summary of the
proposed resolutions, the majority required to adopt the proposed resolutions, and the record date for the meeting. The notice
must also include the address and telephone number of our registered office, and a list of times at which the full text of the
proposed resolutions may be examined at the registered office.
accidental omission to give notice of a meeting to any shareholder, or the non-receipt of notice sent to such shareholder, does
not invalidate the proceedings at the meeting.
on Foreign Shareholders to Hold or Exercise Voting Rights
are no limitations on foreign shareholders in our articles of association. Israeli law restricts the ability of citizens of countries
that are in a state of war with Israel to hold shares of Israeli companies.
Duties; Approval of Transactions under Israeli Law
duties. The Companies Law codifies the fiduciary duties that office holders, which under the Companies Law includes our
directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of loyalty and
a duty of care.
duty of loyalty requires an office holder to act in good faith and for the benefit of the company, including to avoid any conflict
of interest between the office holder’s position in the company and personal affairs, and prohibits any competition with
the company or the exploitation of any business opportunity of the company in order to receive a personal advantage for himself
or herself or for others. This duty also requires an office holder to reveal to the company any information or documents relating
to the company’s affairs that the office holder has received due to his or her position as an office holder. A company may
approve any of the acts mentioned above provided that all the following conditions apply: the office holder acted in good faith
and neither the act nor the approval of the act prejudices the good of the company and, the office holder disclosed the essence
of his personal interest in the act, including any substantial fact or document, a reasonable time before the date for discussion
of the approval. A director is required to exercise independent discretion in fulfilling his or her duties and may not be party
to a voting agreement with respect to his or her vote as a director. A violation of these requirements is deemed a breach of the
director’s duty of loyalty.
duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would
employ under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability
of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information
material to these actions.
of personal interest. The Companies Law requires that an office holder promptly disclose to the company any personal interest
that he or she may have and all related material information or documents known to him or her, in connection with any existing
or proposed transaction by the company. “Personal interest,” as defined by the Companies Law, includes a personal
interest of any person in an act or transaction of the company, including a personal interest of his relative or of a corporation
in which that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or more of the voting rights,
a director or general manager, or in which he or she has the right to appoint at least one director or the general manager, and
includes shares for which the person has the right to vote pursuant to a power-of-attorney. “Personal interest” does
not apply to a personal interest stemming merely from holding shares in the company.
office holder must make the disclosure of his personal interest no later than the first meeting of the company’s board of
directors that discusses the particular transaction. This duty does not apply to the personal interest of a relative of the office
holder in a transaction unless it is an “extraordinary transaction.” The Companies Law defines an “extraordinary
transaction” as a transaction that is not in the ordinary course of business, not on market terms or that is likely to have
a material impact on the company’s profitability, assets or liabilities.
The Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal
interest requires board approval, unless the transaction is an extraordinary transaction or the articles of association provide
otherwise. Our articles of association do not provide otherwise. The transaction may be approved only if it is in our best interest.
If the transaction is an extraordinary transaction, then the approvals of the company’s audit committee and the board of
directors are required. If the transaction concerns exculpation, indemnification, insurance or compensation of an office holder,
then the approvals of the company’s compensation committee and the board of directors are required, except if the compensation
arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, in which case
the approval of the compensation committee is sufficient. Exculpation, indemnification, insurance or compensation of a director
or the Chief Executive Officer also requires shareholder approval.
person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee
generally may not attend that meeting or vote on that matter, unless a majority of the board of directors or the audit committee
has a personal interest in the matter or if such person is invited by the chair of the board of directors or audit committee,
as applicable, to present the matter being considered. If a majority of the board of directors or the audit committee has a personal
interest in the transaction, shareholder approval also would be required.
Companies Law imposes on a controlling shareholder of a public company the same disclosure requirements described above as it
imposes on an office holder. For this purpose, a “controlling shareholder” is any shareholder who has the ability
to direct the company’s actions, including any shareholder holding 25% or more of the voting rights if no other shareholder
owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the
same transaction are deemed to be one shareholder.
of the audit committee, the board of directors and our shareholders, in that order, is required for extraordinary transactions,
including a private placement, with a controlling shareholder or in which a controlling shareholder has a personal interest.
of the compensation committee, the board of directors and our shareholders, in that order, is required for the terms of compensation
or employment of a controlling shareholder or his or her relative, as an officer holder or employee of our company or as a service
provider to the company, including through a company controlled by a controlling shareholder.
approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval
must satisfy either of two additional tests:
majority includes at least a majority of the shares voted by shareholders who have no
personal interest in the transaction; ou
total number of shares held by disinterested shareholders that voted against the approval
of the transaction does not exceed 2% of the aggregate voting rights of our company.
the approval of such a transaction may not extend for more than three years, except that in the case of an extraordinary transaction,
including a private placement, with a controlling shareholder or in which a controlling shareholder has a personal interest that
does not concern compensation for employment or service, the transaction may be approved for a longer period if the audit committee
determines that the approval of the transaction for a period longer than three years is reasonable under the circumstances.
of Executive Officers and Directors; Executive Compensation Policy
accordance with the Companies Law, we have adopted a compensation policy for our executive officers and directors. The purpose
of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide guidelines
for setting their compensation, as prescribed by the Companies Law. In accordance with the Companies Law, the policy must be reviewed
and readopted at least once every three years.
of the compensation committee, the board of directors and our shareholders, in that order, is required for the adoption of the
compensation policy. The shareholders’ approval must include the majority of shares voted at the meeting. In addition to
the majority vote, the shareholder approval must satisfy either of two additional tests:
majority includes at least a majority of the shares voted by shareholders other than
our controlling shareholders or shareholders who have a personal interest in the adoption
of the compensation policy; ou
total number of shares held by non-controlling shareholders and disinterested shareholders
that voted against the adoption of the compensation policy does not exceed 2% of the
aggregate voting rights of our company.
the Companies Law, the compensation arrangements for officers (other than the Chief Executive Officer) who are not directors require
the approval of the compensation committee and the board of directors; provided, however, that if the compensation arrangement
is not in compliance with our executive compensation policy, the arrangement may only be approved by the compensation committee
and the board of directors for special reasons to be noted, and the compensation arrangement shall also require a special shareholder
approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who
is not a director and is in compliance with our executive compensation policy, the approval of the compensation committee is sufficient.
regarding the compensation of the Chief Executive Officer and of directors require the approval of the compensation committee,
the board and the shareholders, in that order. In certain limited cases, the compensation of a new Chief Executive Officer who
is not a director may be approved without approval of the shareholders.
the Companies Law, a shareholder also has a duty to act in good faith towards the company and other shareholders and refrain from
abusing his or her power in the company, including, among other things, voting in the general meeting of shareholders on the following
amendment to the articles of association;
increase of the company’s authorized share capital;
of related party transactions that require shareholder approval.
addition, any controlling shareholder, any shareholder who can determine the outcome of a shareholder vote and any shareholder
who, under the company’s articles of association, can appoint or prevent the appointment of an office holder, is under a
duty to act with fairness towards the company. The Companies Law also provides that a breach of the duty of fairness will be governed
by the laws governing breach of contract; however, the Companies Law does not describe the substance of this duty.
under Israeli Law
The Companies Law provides
that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the
purchaser would hold 25% or more of the voting rights in the company, unless there is already another shareholder of the company
with 25% or more of the voting rights. Similarly, the Companies Law provides that an acquisition of shares in a public company
must be made by means of a tender offer if as a result of the acquisition the purchaser would hold more than 45% of the voting
rights in the company, unless there is a shareholder with more than 45% of the voting rights in the company.
The Companies Law requires
the parties to a proposed merger to file a merger proposal with the Israeli Registrar of Companies, specifying certain terms of
the transaction. Each merging company’s board of directors and shareholders must approve the merger. Shares in one of the
merging companies held by the other merging company or certain of its affiliates are disenfranchised for purposes of voting on
the merger. A merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek
a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all
of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 50 days have passed from
the time that the merger proposal was filed with the Israeli Registrar of Companies and at least 30 days have passed from the approval
of the shareholders of each of the merging companies.
Finally, in general,
Israeli tax law treats stock-for-stock acquisitions less favorably than does U.S. tax law. Israeli tax law provides for tax deferral
in specified acquisitions, including transactions where the consideration for the sale of shares is the receipt of shares of the
acquiring company. Nevertheless, Israeli tax law may subject a shareholder who exchanges his ordinary shares for shares in a foreign
corporation to immediate taxation or to taxation before his investment in the foreign corporation becomes liquid, although in the
case of shares of a foreign corporation that are traded on a stock exchange, the tax may be postponed subject to certain conditions.
and Exculpation of Directors and Officers; Limitations on Liability
Insurance of Office
The Companies Law permits
a company, if permitted by its articles of association, to insure an office holder in respect of liabilities incurred by the office
holder as a result of:
|·||breach of the duty of care owed to the company or a third party;|
|·||breach of the fiduciary duty owed to the company, provided that the office holder acted in good
faith and had reasonable grounds to believe that his action would not harm the company’s interests;
|·||monetary liability imposed on the office holder in favor of a third party; et|
|·||reasonable litigation expenses, including attorney fees, incurred by the office holder as a result
of an administrative enforcement proceeding instituted against him (without limiting from the generality of the foregoing, such
expenses will include a payment imposed on the office holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a)
of the Israel Securities Law, 1968, as amended (the “Israeli Securities Law”), and expenses that the office holder
incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Israeli Securities Law, including
reasonable legal expenses, which term includes attorney fees).
Under the Companies
Law, a company can, if permitted by its articles of association, indemnify an office holder for any of the following obligations
or expenses incurred in connection with his or her acts or omissions as an office holder:
|·||monetary liability imposed on an office holder in favor of a third party in a judgment, including
a settlement or an arbitral award confirmed by a court;
|·||reasonable legal costs, including attorney’s fees, expended by an office holder as a result
|–||an investigation or proceeding instituted against the office holder by a competent authority, provided
that such investigation or proceeding concludes without the filing of an indictment against the office holder, and either:
|o||no financial liability was imposed on the office holder in lieu of criminal proceedings, or|
|o||financial liability was imposed on the office holder in lieu of criminal proceedings but the alleged
criminal offense does not require proof of criminal intent; and (y) in connection with an administrative enforcement proceeding
or a financial sanction (without derogating from the generality of the foregoing, such expenses will include a payment imposed
on the Office Holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, and expenses
that the Office Holder incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Israeli
Securities Law, including reasonable legal expenses, which term includes attorney fees); et
|·||reasonable legal costs, including attorneys’ fees, expended by the office holder or for which
the office holder is charged by a court:
|–||in an action brought against the office holder by or on behalf of the company or a third party,
|–||in a criminal action in which the office holder is found innocent, or|
|–||in a criminal action in which the office holder is convicted and in which a proof of criminal intent
is not required.
|o||A company may indemnify an office holder in respect of these liabilities either in advance of an
event or following an event. If a company undertakes to indemnify an office holder in advance of an event, the indemnification,
other than legal costs, must be limited to foreseeable events in light of the company’s actual activities when the company
undertook such indemnification, and reasonable amounts or standards, as determined by the board of directors.
Exculpation of Office
Under the Companies
Law, a company may, if permitted by its articles of association, also exculpate an office holder in advance, in whole or in part,
from liability for damages sustained by a breach of duty of care to the company, other than in connection with distributions.
Limitations on Exculpation,
Insurance and Indemnification
Under the Companies
Law, a company may indemnify or insure an office holder against a breach of duty of loyalty only to the extent that the office
holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the company. In addition, a
company may not indemnify, insure or exculpate an office holder against a breach of duty of care if committed intentionally or
recklessly (excluding mere negligence), or committed with the intent to derive an unlawful personal gain, or for a fine or forfeit
levied against the office holder in connection with a criminal offense.
Our articles of association
allow us to insure, indemnify and exculpate office holders to the fullest extent permitted by law, provided such insurance or indemnification
is approved in accordance with law. Pursuant to the Companies Law, exculpation of, procurement of insurance coverage for, and an
undertaking to indemnify or indemnification of, our office holders must be approved by our audit committee and our board of directors
and, if the office holder is a director, also by our shareholders.
We have entered into
agreements with each of our directors and senior officers to insure, indemnify and exculpate them to the full extent permitted
by law against some types of claims, subject to dollar limits and other limitations. These agreements have been ratified by our
audit committee, board of directors and shareholders. We have acquired directors’ and officers’ liability insurance
covering our officers and directors and the officers and directors of our subsidiaries against certain claims.
In November 2019,
we and one of our Israeli subsidiaries, AudioCodes Development Ltd., entered into a royalty buyout agreement (the
“Royalty Buyout Agreement”) with the IIA relating to certain grants we have received from the IIA. The contingent
net royalty liability to the IIA at the time of the Royalty Buyout Agreement with respect to these grants was approximately
$49 million (the “Debt”), including interest to the date of the Royalty Buyout Agreement. As part of the Royalty
Buyout Agreement, we agreed to pay $32.2 million to the IIA (to settle the Debt in full) in three annual installments
starting in 2019. Pursuant to the Royalty Buyout Agreement, we eliminated all royalty obligations related to our future
revenues with respect to these grants.
On September 10, 2019,
our shareholders approved our compensation policy for officers and directors for the years 2019 through 2021. See Item 10.B –
“Additional Information – Memorandum and Articles of Association – Compensation of Executive Officers and Directors;
Executive Compensation Policy.”
On September 10, 2019,
our shareholders approved a third amendment to our employment agreement with Shabtai Adlersberg, our President and Chief Executive
Officer. The amendment cancelled Mr. Adlersberg’s entitlement to an annual grant of 60,000 options and 60,000 RSUs and instead
provided for his receipt of an annual grant of 80,000 RSUs and no options. In addition, the amendment raised the annual cap on
Mr. Adlersberg’s performance based annual bonus.
Non-residents of Israel
who own our ordinary shares may freely convert all amounts received in Israeli currency in respect of such ordinary shares, whether
as a dividend, liquidation distribution or as proceeds from the sale of the ordinary shares, into freely-repatriable non-Israeli
currencies at the rate of exchange prevailing at the time of conversion (provided in each case that the applicable Israeli income
tax, if any, is paid or withheld).
Since January 1, 2003,
all exchange control restrictions on transactions in foreign currency in Israel have been eliminated, although there are still
reporting requirements for foreign currency transactions. Legislation remains in effect, however, pursuant to which currency controls
may be imposed by administrative action at any time.
The State of Israel
does not restrict in any way the ownership or voting of our ordinary shares by non-residents of Israel, except with respect to
subjects of countries that are in a state of war with Israel.
The following is
a summary of the material Israeli and United States federal tax consequences, Israeli foreign exchange regulations and
certain Israeli government programs affecting us. To the extent that the discussion is based on new tax or other legislation
that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in
the discussion will be accepted by the tax or other authorities in question. The discussion is not intended, and should not
be construed, as legal or professional tax advice, is not exhaustive of all possible tax considerations and should not be
relied upon for tax planning purposes. Potential investors are urged to consult their own tax advisors as to the Israeli tax,
United States federal income tax and other tax consequences of the purchase, ownership and disposition of ordinary shares,
including, in particular, the effect of any foreign, state or local taxes.
Israeli Tax Considerations
and Government Programs
The following is a
brief summary of the material Israeli income tax laws applicable to us, and certain Israeli Government programs that benefit us.
This section also contains a discussion of material Israeli income tax consequences concerning the ownership and disposition of
our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor
in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli
law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not
covered in this discussion. Several parts of this discussion are based on new tax legislation that has not yet been subject to
judicial or administrative interpretation.
Tax Structure in Israel
Israeli companies are
generally subject to corporate tax on their taxable income. Taxable income of the company is subject to a corporate tax rate of
23% effective from January 1, 2018. The deferred tax balances as of December 31, 2019 have been calculated based on this tax rate.
However, the effective
tax rate payable by a company that qualifies as an Industrial Company that derives income from an Approved Enterprise, a Beneficiary
Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company
are subject to the prevailing corporate tax rate.
Law for the Encouragement
of Capital Investments, 1959 (the “Investment Law”)
The Investment Law
provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises”
(as defined under the Investment Law).
The Investment Law
was significantly amended effective April 1, 2005, and further amended as of January 1, 2011 (the “2011 Amendment”)
and January 1, 2018 (the “2018 Amendment”). The 2011 Amendment introduced new benefits to replace those granted in
accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits
under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided
that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment
apply. The 2018 Amendment was designed to accommodate the implementation of the “Nexus Principles” (based on OECD guidelines
published as part of the Base Erosion and Profit Shifting (BEPS) project).
Tax Benefits Prior
to the 2005 Amendment
program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred to
as an “Approved Enterprise,” is entitled to certain benefits. A company that wished to receive benefits as an
Approved Enterprise must have received approval from the Investment Center of the Israeli Ministry of Economy and Industry
(formerly the Ministry of Industry, Trade and Labor), or the Investment Center. Each certificate of approval for an Approved
Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the
investment and by the physical characteristics of the facility or the asset.
In general, an Approved
Enterprise is entitled to receive a grant from the Government of Israel and certain tax benefits under the “Grant Track”
or an alternative package of tax benefits under the “Alternative Track”. The tax benefits from any certificate of approval
relate only to taxable profits attributable to the specific Approved Enterprise. Income derived from activity that is not approved
by the Investment Center or not integral to the activity of the Approved Enterprise does not enjoy tax benefits.
The tax benefits include
a tax exemption for at least the first two years of the benefit period from the first year of taxable income (depending on the
geographic location of the Approved Enterprise facility within Israel) and the taxation of income generated from an Approved Enterprise
at a reduced corporate tax rate of between 10% to 25% for the remainder of the benefit period depending on the level of foreign
investment in the company in each year as detailed below. The benefit period is ordinarily seven years commencing with the year
in which the Approved Enterprise first generates taxable income. The benefit period is limited to 12 years from the operational
year as determined by the Investment Center or 14 years from the start of the tax year in which approval of the Approved Enterprise
is obtained, whichever is earlier.
A company that has
an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors Company, or a FIC, which
is a company with a level of foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment
is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors),
and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel.
determination as to whether a company qualifies as a FIC is made on an annual basis. A company that qualifies as a FIC and has
an Approved Enterprise program is eligible for an extended ten-year benefit period. As specified above, depending on the geographic
location of the Approved Enterprise within Israel, income derived from the Approved Enterprise program may be exempt from tax on
its undistributed income for a period of between two to ten years, and will be subject to a reduced tax rate for the remainder
of the benefit period. The tax rate for the remainder of the benefits period will be 25%, unless the level of foreign investment
exceeds 49%, in which case the tax rate will be 20% if the foreign investment is more than 49% and less than 74%; 15% if more than
74% and less than 90%; and 10% if 90% or more.
If a company
elects the Alternative Track and distributes a dividend out of income derived from the Approved Enterprise during the tax
exemption period, such dividend will be subject to tax on the gross amount distributed. The tax rate will be the rate which
would have been applicable had the company not been tax-exempt under the alternative package of benefits. This rate is
generally 10%-25%, depending on the percentage of the company’s shares held by foreign shareholders. The dividend
recipient is subject to withholdings of tax at the source by the company at the reduced rate applicable to dividends from
Approved Enterprises, which is 15% (or such lower rate as may be provided in an applicable tax treaty) if the dividend is
distributed during the tax exemption period or within 12 years after the period. This limitation does not apply to an
The benefits available
to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and
the criteria in the specific certificate of approval. If a company does not meet these conditions, it would be required to refund
the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest or other monetary penalty.
Our production facilities
in Israel have been granted the status of an Approved Enterprise in accordance with the Investment Law under three separate investment
programs. In accordance with the provisions of the Investment Law, we have elected the Alternative Track.
Therefore, our income
derived from the Approved Enterprise will be entitled to a tax exemption for a period of two years and to an additional period
of five to eight years of reduced tax rates of 10% to 25% (based on the percentage of foreign ownership).
Tax Benefits Subsequent
to the 2005 Amendment
The 2005 Amendment
changed certain provisions of the Investment Law. As a result of the 2005 Amendment, a company referred to as a “Beneficiary
Enterprise”, was no longer obliged to obtain Approved Enterprise status in order to receive the tax benefits previously available
under the Alternative Track, and therefore generally there was no need to apply to the Investment Center for this purpose (Approved
Enterprise status remains mandatory for companies seeking cash grants).
In May 2019, we notified
the Israeli Tax Authority that it had waived its Beneficiary Enterprise status starting from the 2019 tax year and thereafter.
Tax Benefits under
the 2011 and 2017 Amendments
The 2011 Amendment
canceled the availability of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced
new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such
terms are defined in the Investment Law) as of January 1, 2011. A Preferred Company is an industrial company owning a Preferred
Enterprise which meets certain conditions (including a minimum threshold of 25% export). However, under this new legislation the
requirement for a minimum investment in productive assets was cancelled.
Pursuant to the 2011
Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% in 2014, unless the Preferred Company is located
in a certain development zone, in which case the rate will be 9%. Pursuant to the 2017 Amendment, in 2017 and thereafter, a Preferred
Company is entitled to a reduced corporate tax rate of 16% and 7.5%, respectively.
out of income attributed to a Preferred Enterprise during 2014 and thereafter are generally subject to withholding tax at the
rate of 20% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an
Israeli company, no tax is required to be withheld (however, if afterward distributed to individuals or non-Israeli company a
withholding of 20% or such lower rate as may be provided in an applicable tax treaty, will apply).
The 2011 Amendment
also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. These
transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the
Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included
in any certificate of approval that was granted to an Approved Enterprise which chose to receive grants and certain tax benefits
under the Grant Track before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as
in effect on the date of such approval, and subject to certain conditions; and (ii) terms and benefits included in any certificate
of approval that was granted to an Approved Enterprise under the Alternative Track before the 2011 Amendment became effective will
remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions
are met; and (iii) a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment
came into effect, provided that certain conditions are met.
We have reviewed and
evaluated the implications and effect of the benefits under the 2011 Amendment, and, while potentially eligible for such benefits,
we have not yet chosen to be subject to the tax benefits introduced by the 2011 Amendment.
The 2017 Amendment
provides that a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective
from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
The 2017 Amendment
provides new tax tracks as follows: Preferred Technology Enterprise – an enterprise for which total consolidated revenues
of its parent company and all subsidiaries are less than NIS 10 billion for a tax year. A Technological Preferred Enterprise, as
defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual
property (in development area A – a tax rate of 7.5%).
The above changes in
the tax rates relating to technological preferred enterprises were not taken into account in the computation of deferred taxes
as of December 31, 2018 and 2019.
and Funding for Research and Development
Israeli tax law allows,
under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific
research and development projects, for the year in which they are incurred if:
|·||The expenditures are approved by the relevant Israeli government ministry, determined by the field
|·||The research and development is for the promotion or development of the company; et|
|·||The research and development is carried out by or on behalf of the company seeking the deduction.|
However, the amount
of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such
scientific research and development projects. Expenditures not so approved are deductible over a three-year period if the research
and development is for the promotion or development of the company.
Law for the Encouragement
of Industry (Taxes), 1969
The Law for the Encouragement
of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial
Companies.” We currently qualify as an Industrial Company within the meaning of the Industry Encouragement Law.
The Industry Encouragement
Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax
year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it and located in Israel.
An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following corporate
tax benefits, among others, are available to Industrial Companies:
|·||amortization over an eight-year period of the cost of purchased know-how and patents and rights
to use a patent and know-how which are used for the development or advancement of the company;
|·||under limited conditions, an election to file consolidated tax returns with related Israeli Industrial
|·||expenses related to a public offering are deductible in equal amounts over a three-year period.|
Eligibility for benefits
under the Industry Encouragement Law is not contingent upon the approval of any governmental authority. The Israeli tax authorities
may determine that we do not qualify as an Industrial Company, which could entail our loss of the benefits that relate to this
status. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above
will be available in the future.
Taxation of our
Taxes Applicable to Non-Israeli Resident Shareholders. A non-Israeli resident who derives capital gains from the sale of
shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange
outside of Israel will be exempt from Israeli tax so long as the shares were not held through a permanent establishment that
the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if
Israeli residents: (i) have a controlling interest of 25% or more in such non-Israeli corporation or (ii) are the
beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly. Additionally, such exemption is not applicable to a person whose gains from selling or otherwise
disposing of the shares are deemed to be business income.
Additionally, a sale
of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax
treaty. For example, under the United States-Israel Tax Treaty, the disposition of shares by a shareholder who is a United States
resident (for purposes of the treaty) holding the shares as a capital asset is generally exempt from Israeli capital gains tax
unless, among other things, (i) the capital gain arising from the disposition is attributed to business income derived by a permanent
establishment of the shareholder in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more
of the voting capital during any part of the 12-month period preceding the disposition; or (iii) such U.S. resident is an individual
and was present in Israel for 183 days or more in the aggregate during the relevant taxable year.
In some instances where
our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject
to the withholding of Israeli tax at source.
Taxation of Non-Israeli
Shareholders on Receipt of Dividends. Non-Israeli residents (whether individuals or corporations) generally will be subject
to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, which tax will be withheld at
source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence (subject to the receipt
in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). With respect to a person who
is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve months,
the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s
relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10%
of any of the “means of control” of the corporation. “Means of control” generally include the right to
vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds
any of the aforesaid rights how to act, regardless of the source of such right.
However, a distribution
of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from
income attributed to an Approved Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. If the dividend
is being paid out of certain income attributable to a Preferred Enterprise, the dividend will be subject to tax at the rate of
20%. A different rate may be provided in a treaty between Israel and the shareholder’s country of residence, as mentioned
In this regard,
under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder
of our ordinary shares who is a United States resident (for purposes of the United States-Israel Tax Treaty) is 25%.
Consequently, distributions to U.S. residents of income attributed to an Approved Enterprise will be subject to withholding
tax at a rate of 15% (20% with respect to Preferred Enterprise). However, generally, the maximum rate of withholding tax on
dividends, not generated by an Approved Enterprise or a Preferred Enterprise, that are paid to a United States corporation
holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as
during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists
of certain types of dividends and interest. We cannot assure you that we will designate the profits that we may distribute in
a way that will reduce shareholders’ tax liability.
Individuals who are
subject to tax in Israel (whether or not Israeli residents) have been subject to a surtax since 2016. In 2016 the rate was 2% of
annual taxable income in excess of NIS 803,520, including, but not limited to, dividends, interest and capital gain; in 2017 the
surtax increased to 3% on annual taxable income in excess of NIS 640,000, and for 2018 and subsequent years the threshold amount
is linked to the annual change in the Israeli consumer price index, with no material difference than 2017.
U.S. Federal Income
The following summary
describes the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) arising from the acquisition,
ownership and disposition of our ordinary shares. This summary is based on the Internal Revenue Code of 1986, as amended, or the
“Code,” the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject to change (possibly with retroactive effect) or
different interpretations. For purposes of this summary, a “U.S. Holder” will be deemed to refer only to any of the
following beneficial owners of our ordinary shares:
|·||an individual who is either a U.S. citizen or a resident of the United States for U.S. federal
income tax purposes;
|·||a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created
or organized in or under the laws of the United States or any political subdivision thereof;
|·||an estate the income of which is subject to U.S. federal income tax regardless of the source of
its income; et
|·||a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has
a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
This summary does
not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their
particular circumstances, and does not consider the potential application of the U.S. federal estate, gift or alternative
minimum tax, or any aspect of state, local or non-U.S. federal tax laws or U.S. federal tax laws other than U.S. federal
income tax laws. In addition, this summary is directed only to U.S. Holders that hold our ordinary shares as “capital
assets” within the meaning of Section 1221 of the Code and does not address the considerations that may be applicable
to particular classes of U.S. Holders, including U.S. expatriates, banks, financial institutions, regulated investment
companies, real estate investment trusts, pension funds, insurance companies, broker-dealers or traders in securities,
commodities or currencies, tax-exempt organizations, grantor trusts, partnerships (including entities classified as
partnerships for U.S. federal income tax purposes) or other pass-through entities, holders that will hold our ordinary shares
in partnerships or other pass-through entities, holders whose functional currency is not the dollar, holders who have elected
mark-to-market accounting, holders who acquired our ordinary shares through the exercise of options or otherwise as
compensation for the performance of services, holders who hold our ordinary shares as part of a “straddle,”
“hedge” or “conversion transaction,” holders selling our ordinary shares short, holders deemed to
have sold our ordinary shares in a “constructive sale,” holders required to accelerate the recognition of any
item of gross income with respect to our ordinary shares as a result of such income being recognized on an applicable
financial statement, holders that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction
outside the United States; and holders, directly, indirectly or through attribution, of 10% or more (by vote or value) of our
outstanding ordinary shares. If a partnership (or any other entity treated as a partnership for U.S. federal income tax
purposes) holds our ordinary shares, the U.S. federal income tax consequences relating to an investment in our ordinary
shares will depend in part upon the status of the partner and the activities of the partnership. Such a partner or
partnership should consult its tax advisor regarding the U.S. federal income tax consequences of acquiring, owning and
disposing of our ordinary shares in its particular circumstances.
Each U.S. Holder
should consult with its own tax advisor as to the particular tax consequences to it of the acquisition, ownership and disposition
of our ordinary shares, including the effects of applicable tax treaties, state, local, foreign or other tax laws and possible
changes in the tax laws.
Respect to Our Ordinary Shares
In 2018 and 2019,
we paid cash dividends, and in February 2020, we declared a semi-annual cash dividend to be paid in March 2020. We expect to
continue to pay dividends in the foreseeable future. In the event we do make a distribution with respect to our ordinary
shares, subject to the discussion below under “Passive Foreign Investment Company Status,” for U.S. federal
income tax purposes, the amount of the distribution will equal the dollar value of the gross amount of cash and/or the fair
market value of any property distributed, including the amount of any Israeli taxes withheld on such distribution as
described above under “Israeli Tax Considerations – Taxation of Non-Israeli Shareholders on Receipt of
Dividends.” Other than distributions in liquidation or in redemption of our ordinary shares that are treated as
exchanges, a distribution with respect to our ordinary shares to a U.S. Holder generally will be treated as a dividend to the
extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of
any distribution that exceeds these earnings and profits will be treated first as a non-taxable return of capital, reducing
the U.S. Holder’s tax basis in its ordinary shares (but not below zero), and then generally as capital gain from a
deemed sale or exchange of such ordinary shares. Corporate U.S. Holders generally will not be allowed a deduction under
Section 243 of the Code for dividends received on our ordinary shares and thus will be subject to tax at the rate applicable
to their taxable income. Currently, a noncorporate U.S. Holder’s “qualified dividend income” generally is
subject to tax at lower long-term capital gains rates. For this purpose, “qualified dividend income” generally
includes dividends paid by a foreign corporation if, among other things, the noncorporate U.S. Holder meets certain minimum
holding period requirements, is not under an obligation to make related payments with respect to positions in substantially
similar or related property, and either (a) the stock of such corporation is readily tradable on an established securities
market in the U.S., including the Nasdaq Global Select Market, or (b) such corporation is eligible for the benefits of a
comprehensive income tax treaty with the United States that includes an information exchange program and is determined to be
satisfactory by the U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has indicated that the income tax
treaty between the United States and Israel is satisfactory for this purpose. Dividends paid by us will not be treated as
qualified dividend income, however, if we are treated, for the tax year in which the dividends are paid or the preceding tax
year, as a “passive foreign investment company” for U.S. federal income tax purposes. See the discussion below
under the heading “Passive Foreign Investment Company Status.” A noncorporate U.S. Holder may be subject to an
additional tax based on its “net investment income,” (which generally is computed as gross income from interest,
dividends, annuities, royalties and rents and gain from the sale of property (other than property held in the active conduct
of a trade or business that does not regularly trade financial instruments or commodities), less the amount of deductions
properly allocable to such income or gain. Such tax is equal to 3.8% of the lesser of an individual U.S. Holder’s (i)
net investment income or (ii) the excess of such U.S. Holder’s “modified adjusted gross income” (adjusted
gross income plus the amount of any foreign earned income excluded from income under Section 911(a)(1) of the Code, net of
deductions and exclusions disallowed with respect to such foreign earned income) over a specified threshold amount ($250,000
in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return and
$200,000 in any other case). In the case of a U.S. Holder which is an estate or trust, the tax is equal to 3.8% of the lesser
of (i) undistributed net investment income or (ii) the excess of adjusted gross income (as defined in Section 67(e) of the
Code) over the dollar amount at which the highest tax bracket applicable to an estate or trust begins.
U.S. Holders are
urged to consult their own tax advisors regarding the U.S. federal income tax consequences of their receipt of any distributions
with respect to our ordinary shares.
A dividend paid by
us in NIS will be included in the income of U.S. Holders at the dollar amount of the dividend, based on the “spot rate”
of exchange in effect on the date of receipt or deemed receipt of the dividend, regardless of whether the payment is in fact converted
into dollars. U.S. Holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar value. Tout
gain or loss upon the subsequent conversion of the NIS into dollars or other disposition of the NIS will constitute foreign currency
gain or loss taxable as ordinary income or loss and will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes.
received with respect to our ordinary shares will constitute “portfolio income” for purposes of the limitation on
the deductibility of passive activity losses and, therefore, generally may not be offset by passive activity losses.
Dividends received with respect to our ordinary shares also generally will be treated as “investment income” for
purposes of the investment interest deduction limitation contained in Section 163(d) of the Code, and generally as
foreign-source passive income for U.S. foreign tax credit purposes. Subject to certain limitations, U.S. Holders may elect to
claim as a foreign tax credit against their U.S. federal income tax liability for any Israeli income tax withheld from
distributions with respect to our ordinary shares which constitute dividends under U.S. income tax law. A U.S. Holder that
does not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only if the
U.S. Holder elects to do so with respect to all foreign income taxes in such year. If a refund of the tax withheld is
available under the applicable laws of Israel or under the Israel-U.S. income tax treaty, the amount of tax withheld that is
refundable will not be eligible for such credit against your U.S. federal income tax liability (and will not be eligible for
the deduction against your U.S. federal taxable income). In addition, special rules may apply to the computation of foreign
tax credits relating to “qualified dividend income,” as defined above. The calculation of foreign tax credits
and, in the case of a U.S. Holder that elects to deduct foreign income taxes, the availability of deductions involve the
application of complex rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders are urged to consult
their own tax advisors regarding the availability to them of foreign tax credits or deductions in respect of any Israeli tax
withheld or paid with respect to any dividends which may be paid with respect to our ordinary shares, including limitations
pursuant to the U.S.-Israel income tax treaty.
However, if we are
a “United States-owned foreign corporation,” solely for foreign tax credit purposes, a portion of the dividends allocable
to our U.S. source earnings and profits may be recharacterized as U.S. source. A “United States-owned foreign corporation”
is any foreign corporation in which United States persons own, directly or indirectly, 50% or more (by vote or by value) of the
stock. In general, United States-owned foreign corporations with less than 10% of earnings and profits attributable to sources
within the United States are excepted from these rules. In such case, if 10% or more of our earnings and profits are attributable
to sources within the United States, a portion of the dividends paid on our ordinary shares allocable to our U.S. source earnings
and profits will be treated as U.S. source, and, as such, a U.S. Holder may not offset any foreign tax withheld as a credit against
U.S. federal income tax imposed on that portion of dividends. The rules governing the treatment of foreign taxes imposed on a U.S.
Holder and foreign tax credits are complex, and U.S. Holders should consult their tax advisors about the impact of these rules
in their particular situations.
Disposition of Our
Subject to the
discussion below under “Passive Foreign Investment Company Status,” a U.S. Holder’s sale, exchange or other
taxable disposition of our ordinary shares generally will result in the recognition by such U.S. Holder of capital gain or
loss in an amount equal to the difference between the dollar value of the amount realized and the U.S. Holder’s tax
basis in the ordinary shares disposed of (measured in dollars). This gain or loss will be long-term capital gain or loss if
such ordinary shares have been held or are deemed to have been held for more than one year at the time of the disposition.
Non-corporate U.S. Holders currently are subject to a maximum tax rate of 20% on long-term capital gains, also may be subject
to the additional tax on “net investment income” described above in “Distributions With Respect to Our
Ordinary Shares.” If the U.S. Holder’s holding period on the date of the taxable disposition is one year or less,
such gain or loss will be a short-term capital gain or loss. Short-term capital gains generally are taxed at the same rates
applicable to ordinary income. See “Israeli Tax Considerations – Capital Gains Taxes Applicable to Non-Israeli
Resident Shareholders” for a discussion of taxation by Israel of capital gains realized on sales of our ordinary
shares. Any capital loss realized upon the taxable disposition of our ordinary shares generally will be deductible only
against capital gains and not against ordinary income, except that noncorporate U.S. Holders generally may deduct annually
from ordinary income up to $3,000 of net capital losses. In general, any capital gain or loss recognized by a U.S. Holder
upon the taxable disposition of our ordinary shares will be treated as U.S.-source income or loss for U.S. foreign tax credit
purposes, although the tax treaty between the United States and Israel may permit gain derived from the taxable disposition
of ordinary shares by a U.S. Holder to be treated as foreign-source income for U.S. foreign tax credit purposes under certain
A U.S. Holder’s
tax basis in its ordinary shares generally will be equal to the dollar purchase price paid by such U.S. Holder to acquire such
ordinary shares. The dollar cost of ordinary shares purchased with foreign currency generally will be equal to the dollar value
of the purchase price on the date of purchase or, in the case of ordinary shares that are purchased by a cash basis U.S. Holder
(or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase. Such an election by an accrual basis
U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue
Service. The holding period of each ordinary share owned by a U.S. Holder will commence on the day following the date of the U.S.
Holder’s purchase of such ordinary share and will include the day on which the ordinary share is sold by such U.S. Holder.
In the case of a U.S.
Holder who uses the cash basis method of accounting and who receives NIS in connection with a taxable disposition of ordinary shares,
the amount realized will be based on the “spot rate” of exchange on the settlement date of such taxable disposition.
If such U.S. Holder subsequently converts NIS into dollars at a conversion rate other than the spot rate in effect on the settlement
date, such U.S. Holder may have a foreign currency exchange gain or loss treated as ordinary income or loss for U.S. federal income
tax purposes. A U.S. Holder who uses the accrual method of accounting may elect the same treatment required of cash method taxpayers
with respect to a taxable disposition of ordinary shares, provided that the election is applied consistently from year to year.
Such election may not be changed without the consent of the U.S. Internal Revenue Service. If an accrual method U.S. Holder does
not elect to be treated as a cash method taxpayer (pursuant to U.S. Treasury Regulations applicable to foreign currency transactions),
such U.S. Holder may be deemed to have realized an immediate foreign currency gain or loss for U.S. federal income tax purposes
in the event of any difference between the dollar value of the NIS on the date of the taxable disposition and the settlement date.
Any such currency gain or loss generally would be treated as U.S.-source ordinary income or loss and would be subject to tax in
addition to any gain or loss recognized by such U.S. Holder on the taxable disposition of ordinary shares.
Passive Foreign Investment
foreign corporation is treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax
purposes for any tax year if, in such tax year, either (i) 75% or more of its gross income (including its pro rata share of
the gross income of any company in which it is considered to own 25% or more of the shares by value) is passive in nature
(the “Income Test”), or (ii) the average percentage of its assets during such tax year (including its pro rata
share of the assets of any company in which it is considered to own 25% or more of the shares by value) which produce, or are
held for the production of, passive income (determined by averaging the percentage of the fair market value of its total
assets which are passive assets as of the end of each quarter of such year) is 50% or more (the “Asset Test”).
Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and
commodities transactions. Cash is treated as generating passive income.
There is no definitive
method prescribed in the Code, U.S. Treasury Regulations or relevant administrative or judicial interpretations for determining
the value of a publicly-traded foreign corporation’s assets for purposes of the Asset Test. The legislative history of the
U.S. Taxpayer Relief Act of 1997 (the “1997 Act”) indicates that for purposes of the Asset Test, “the total value
of a publicly-traded foreign corporation’s assets generally will be treated as equal to the sum of the aggregate value of
its outstanding stock plus its liabilities.” It is unclear whether other valuation methods could be employed to determine
the value of a publicly-traded foreign corporation’s assets for purposes of the Asset Test.
We must make a separate
determination each taxable year as to whether we are a PFIC. As a result, our PFIC status may change from year to year. Based on
the composition of our gross income and the composition and value of our gross assets for each taxable year from 2004 through 2018,
we do not believe that we were a PFIC during any of such tax years. It is likely, however, that under the asset valuation method
described in the legislative history of the 1997 Act, we would have been classified as a PFIC for each of 2001, 2002 and 2003 primarily
because (a) a significant portion of our assets consisted of the remaining proceeds of our two public offerings of ordinary shares
in 1999, and (b) the public market valuation of our ordinary shares during such years was relatively low. There can be no assurance
that we will not be deemed a PFIC for the current tax year or any future tax year in which, for example, the value of our assets,
as measured by the public market valuation of our ordinary shares, declines in relation to the value of our passive assets (generally,
cash, cash equivalents and marketable securities). If we are treated as a PFIC with respect to a U.S. Holder for any tax year,
the U.S. Holder will be deemed to own ordinary shares in any of our subsidiaries that are also PFICs.
If we are treated as
a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder’s holding period of our ordinary shares and
the U.S. Holder does not make a QEF Election or a “mark-to-market” election (both as described below), the U.S. Holder
would be subject to the following rules:
|(i)||the U.S. Holder would be required to (a) report as ordinary income any “excess distributions”
(as defined below) allocated to the current tax year and any period prior to the first day of the first tax year in which we were
a PFIC, (b) pay tax on amounts allocated to each prior tax year in which we were a PFIC at the highest rate for individuals or
corporations as appropriate in effect for such prior year, and (c) pay an interest charge on the tax due for prior tax years in
which we were a PFIC at the rate applicable to deficiencies of U.S. federal income tax. “Excess distributions” with
respect to any U.S. Holder are amounts received by such U.S. Holder with respect to our ordinary shares in any tax year that exceed
125% of the average distributions received by such U.S. Holder from us during the shorter of (i) the three previous years, or (ii)
such U.S. Holder’s holding period of our ordinary shares before the then-current
tax year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our ordinary shares.
|(ii)||the entire amount of any gain realized by the U.S. Holder upon the sale or other disposition of
our ordinary shares also would be treated as an “excess distribution” subject to tax as described above.
If we are a PFIC for
any tax year in which a U.S. Holder holds our ordinary shares, we generally will continue to be treated as a PFIC as to such U.S.
Holder for all subsequent years during the U.S. Holder’s holding period unless we cease to be a PFIC and the U.S. Holder
elects to recognize gain based on the unrealized appreciation in such U.S. Holder’s ordinary shares through the close of
the tax year in which we cease to be a PFIC. Thereafter, so long as we do not again become a PFIC, such U.S. Holder’s ordinary
shares for which an election was made will not be treated as shares in a PFIC.
A U.S. Holder who beneficially
owns shares of a PFIC must file U.S. Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment
Company or Qualified Electing Fund) with the U.S. Internal Revenue Service annually.
For any tax year in
which we are treated as a PFIC, a U.S. Holder may elect to treat its ordinary shares as an interest in a qualified electing fund
(a “QEF Election”), in which case the U.S. Holder would be required to include in income currently its proportionate
share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of our earnings and profits
are actually made to the U.S. Holder. Any gain subsequently recognized by the U.S. Holder upon the sale or other disposition of
its ordinary shares, however, generally would be taxed as capital gain.
A U.S. Holder may make
a QEF Election with respect to a PFIC for any tax year. The election is effective for the tax year for which it is made and all
subsequent tax years of the U.S. Holder. Procedures exist for both retroactive elections and the filing of protective statements.
A QEF Election is made by completing U.S. Internal Revenue Service Form 8621 and attaching it to a timely-filed (including extensions)
U.S. federal income tax return for the first tax year to which the election will apply. A U.S. Holder must satisfy additional filing
requirements each year the election remains in effect. Upon a U.S. Holder’s request, we will provide to such U.S. Holder
the information required to make a QEF Election and to make subsequent annual filings.
As an alternative
to a QEF Election, a U.S. Holder generally may elect to mark its ordinary shares to market annually, recognizing ordinary
income or loss (subject to certain limitations) equal to the difference, as of the close of each tax year, between the fair
market value of its ordinary shares and the adjusted tax basis of such shares. A U.S. Holder will be allowed a deduction for
the excess, if any, of the adjusted basis of its ordinary shares over their fair market value as of the close of the taxable
year. However, deductions will be allowable only to the extent of any net mark-to-market gains on our ordinary shares
included in the U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a
mark-to-market election, as well as gain on the actual sale or other disposition of ordinary shares, will be treated as
ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on ordinary
shares, as well as to any loss realized on the actual sale or disposition of ordinary shares, to the extent the amount of
such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income. A U.S.
Holder’s basis in our ordinary shares will be adjusted to reflect any such income or loss amounts. If a U.S. Holder
makes a mark-to-market election, any distributions we make would generally be subject to the rules discussed above under
“—Distributions With Respect to Our Ordinary Shares,” except the lower rates applicable to qualified
dividend income would not apply. Once made, a mark-to-market election generally continues unless revoked with the consent of
the U.S. Internal Revenue Service.
election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange
or other market, as defined in applicable U.S. Treasury regulations. Our ordinary shares are traded on Nasdaq and TASE. Nes
a mark-to-market election cannot be made for equity interests in any lower-tier PFICs we own, a U.S. Holder generally will continue
to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as an equity
interest in a PFIC for U.S. federal income tax purposes. Nasdaq is a qualified exchange, and we believe TASE should be treated
as a qualified exchange but there can be no assurance that the trading in our ordinary shares will be sufficiently regular to qualify
our ordinary shares as marketable stock. U.S. Holders should consult their own tax advisor as to the availability and desirability
of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
Due to the complexity
of the PFIC rules and the uncertainty of their application in many circumstances, U.S. Holders should consult their own tax advisors
with respect to the U.S. federal income tax risks related to owning and disposing of our ordinary shares, the consequence of our
status as a PFIC and, if we are treated as a PFIC, compliance with the applicable reporting requirements and the eligibility, manner
and advisability of making a QEF Election or a mark-to-market election.
and Backup Withholding
Payments in respect
of our ordinary shares that are made in the United States or by certain U.S.-related financial intermediaries may be subject to
information reporting requirements and U.S. backup withholding tax, currently at a rate of 24%. The information reporting requirements
will not apply, however, to payments to certain exempt U.S. Holders, including corporations and tax-exempt organizations. In addition,
backup withholding will not apply to a U.S. Holder that furnishes a correct taxpayer identification number on U.S. Internal Revenue
Service Form W-9 (or substitute form). The backup withholding tax is not an additional tax. Amounts withheld under the backup withholding
tax rules may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund
of any excess amounts withheld under the backup withholding tax rules by timely filing the appropriate claim for refund with the
U.S. Internal Revenue Service. U.S. Holders should consult their own tax advisors regarding their qualification for an exemption
from the backup withholding tax and the procedures for obtaining such an exemption, if applicable.
Foreign Asset Reporting
A U.S. Holder with
interests in “specified foreign financial assets” (including, among other assets, our ordinary shares, unless such
ordinary shares are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information
report with the U.S. Internal Revenue Service if the aggregate value of all such assets exceeds $50,000 on the last day of the
taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable U.S.
Internal Revenue Service guidance). Regulations extend this reporting requirement to certain entities that are treated as formed
or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. Un
U.S. Holder that fails to report the required information could be subject to substantial penalties. Each U.S. Holders should consult
with its own tax advisor regarding its obligation to file such information reports in light of its own particular circumstances.
The foregoing discussion
of certain U.S. federal income tax considerations is a general summary only and should not be considered as income tax advice or
relied upon for tax planning purposes. Accordingly, each U.S. Holder should consult with its own tax advisor regarding U.S. federal,
state, local and non-U.S. income and other tax consequences of the acquisition, ownership and disposition of our ordinary shares.
F. DIVIDENDS AND PAYING AGENTS
G. STATEMENT BY EXPERTS
H. DOCUMENTS ON DISPLAY
Our website is http://www.audiocodes.com.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private
issuers and fulfill the obligations with respect to such requirements by filing reports with the SEC. We make available, free of
charge, on our website (under the heading “Investor Relations”) our Annual Reports on Form 20-F, Reports on Form 6-K
and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC. No information contained on our website is intended to be included as part of, or incorporated by reference into,
this Annual Report on Form 20-F. The SEC maintains an Internet site that contains reports, proxy statements and other information
regarding issuers that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.
We are exposed to financial
market risk associated with changes in foreign currency exchange rates. To mitigate these risks, we use derivative financial instruments.
The majority of our revenues and expenses are generated in dollars. A portion of our expenses, however, is denominated in NIS.
In order to protect ourselves against the volatility of future cash flows caused by changes in foreign exchange rates, we use currency
forward contracts and currency options. We usually hedge the part of our forecasted expenses denominated in NIS. If our currency
forward contracts and currency options meet the definition of a hedge, and are so designated, changes in the fair value of the
contracts will be offset against changes in the fair value of the hedged assets or liabilities through earnings. For derivative
instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
Our hedging program reduces, but does not eliminate, the impact of foreign currency rate movements and due to the general economic
slowdown along with the devaluation of the dollar, our results of operations may be adversely affected. Without taking into account
the mitigating effect of our hedging activity, a 10% decrease in the dollar exchange rates in effect for the year ending December
31, 2019 would cause a decrease in net income of approximately $6.3 million.
We are subject to market
risk from exposure to changes in interest rates relating to borrowings under our loan agreements. The interest rate on these borrowings
is based on LIBOR. Based on the scheduled amount of these borrowings to be outstanding in 2020, we estimate that each 100 basis
point increase in our borrowing rates would result in additional interest expense to us of approximately $24,400.
with the participation of our President and Chief Executive Officer and our Vice President Finance and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in 13a-15(e) under the Securities
Exchange Act) as of December 31, 2019. Based on this evaluation, our President and Chief Executive Officer and Vice President
Finance and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were (i)
designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our
management, including our President and Chief Executive Officer and Vice President Finance and Chief Financial Officer, by
others within those entities, as appropriate to allow timely decisions regarding required disclosure, particularly during the
period in which this report was being prepared and (ii) effective, in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
Annual Report on Internal Control Over Financial Reporting
Our management, under
the supervision of our President and Chief Executive Officer and our Vice President Finance and Chief Financial Officer, is responsible
for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) of the Exchange
Act. Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
|·||pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect
our transactions and asset dispositions;
|·||provide reasonable assurance that our transactions are recorded as necessary to permit the preparation
of our financial statements in accordance with generally accepted accounting principles;
|·||provide reasonable assurance that our receipts and expenditures are made only in accordance with
authorizations of our management and board of directors (as appropriate); et
|·||provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our financial statements.
Due to its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
supervision and with the participation of our management, including our principal executive officer and our principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2019 based on the framework for Internal Control – Integrated Framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment under that framework and
the criteria established therein, our management concluded that the company’s internal control over financial reporting
were effective as of December 31, 2019.
of the Registered Public Accounting Firm
This Annual Report
includes an attestation report of our registered public accounting firm regarding internal control over financial reporting on
page F-3 of our audited consolidated financial statements set forth in Item 18 – “Financial Statements,” and is
incorporated herein by reference.
Changes in Internal
Control over Financial Reporting
There were no changes
in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered
by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial
Our Board of Directors
has determined that Joseph Tenne is an “audit committee financial expert” as defined in Item 16A of Form 20-F and is
“independent” as defined in the applicable regulations.
We have adopted a Code
of Conduct and Business Ethics that applies to our President and Chief executive Officer, Vice President Finance and Chief Financial
Officer and other senior financial officers. We adopted an updated Code of Conduct and Business Ethics in 2018. This Code has been
posted on our website, www.audiocodes.com.
Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global, has served as our independent public accountants for each of the years in the three-year
period ended December 31, 2019. The following table presents the aggregate fees for professional audit services and other services
rendered by Kost Forer Gabbay & Kasierer in 2018 and 2019.
|Year Ended December 31,
(Amounts in thousands)
|L'année 2018||L'année 2019|
|Audit Related Fees||38||10e|
Audit Fees consist
of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements
of the company. They also include fees billed for other audit services, which are those services that only the external auditor
reasonably can provide, and include services rendered for the integrated audit over internal controls as required under Section
404 of the Sarbanes-Oxley Act applicable in 2018 and 2019, the provision of consents and the review of documents filed with the
Audit Related Fees
consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review
of the company’s financial statements and include operational effectiveness of systems.
Tax Fees include fees
billed for tax compliance services, including the preparation of tax returns and claims for refund; tax consultations, such as
assistance and representation in connection with tax audits and appeals, transfer pricing, and requests for rulings or technical
advice from taxing authorities; tax planning services; and expatriate tax compliance, consultation and planning services.
Audit Committee Pre-approval
Policies and Procedures
The audit committee
of AudioCodes’ Board of Directors is responsible, among other matters, for the oversight of the external auditor subject
to the requirements of Israeli law. The audit committee has adopted a policy regarding pre-approval of audit and permissible non-audit
services provided by our independent auditors (the “Policy”).
Under the Policy, proposed
services either (i) may be pre-approved by the audit committee without consideration of specific case-by-case services as general
pre-approval or (ii) require the specific pre-approval of the audit committee as specific pre-approval. The audit committee may
delegate either type of pre-approval authority to one or more of its members. The appendices to the Policy set out the audit, audit-related,
tax and other services that have received the general pre-approval of the audit committee, including those described in the footnotes
to the table, above; these services are subject to annual review by the audit committee. All other audit, audit-related, tax and
other services must receive a specific pre-approval from the audit committee.
The audit committee
pre-approves fee levels annually for the audit services. Non-audit services are pre-approved as required. The financial expert
of the audit committee may approve non-audit services of up to $25,000 and then request the audit committee to ratify his decision.
During 2019, no services
provided to AudioCodes by Kost Forer Gabbay & Kasierer were approved by the audit committee pursuant to the de minimis exception
to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. We approve all such compensation
by the audit committee.
In 2019, we repurchased
an aggregate of 559,848 of our ordinary shares for an aggregate consideration of approximately $8.0 million, as set forth below:
May Yet be
|January 1 – January 31, 2019||86,613||10.95||948,168||11,049,233|
|February 1 – February 28, 2019 (3)||–||–||0||7,832,701|
|March 1 – March 31, 2019||–||–||0||7,832,701|
|April 1 – April 30, 2019||–||–||0||7,832,701|
|May 1 – May 31, 2019||471,799||14.87||7,016,406||802,141|
|June 1 – June 30, 2019||1,436||14.39||20,663||781,435|
|July 1 – July 31, 2019||–||–||0||0|
|August 1 – August 31, 2019||–||–||0||12,000,000|
|September 1 – September 30, 2019 (4)||–||–||0||8,496,080|
|October 1 – October 31, 2019||–||–||0||8,496,080|
|November 1 – November 30, 2019||–||–||0||8,496,080|
|December 1 – December 31, 2019||–||–||0||8,496,080|
|Total in 2019||559,848||14.26||8,002,033||8,496,080|
(1) In each of May and November 2017, we
received court approval in Israel to repurchase up to $15.0 million of our ordinary shares for an aggregate approval to repurchase
up to $30 million of our ordinary shares. In June 2018, the court approved additional $20.0 million in share repurchases and in
each of January and August 2019, and February 2020, the court approved additional $12.0 million. Each of the approvals received
in the years 2018, 2019 and 2020 allowed us to use the approved amounts for share repurchases or cash dividends. The Israeli court
generally limits its approval to six months from the date of application. Consequently, although the program does not have a set
end date, it requires renewal each six months by submitting new court application based on the then prevailing facts. No shares
were repurchased during 2019 other than through the repurchase program.
(2) Excluding commissions.
(3) In February 2019, we paid a cash dividend
in the aggregate amount of $3.2 million.
(4) In September 2019, we paid a cash dividend
in the aggregate amount of $3.5 million.
As a foreign private
issuer whose shares are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance
practices instead of certain requirements of the Nasdaq Marketplace Rules.
We do not comply with
the Nasdaq requirement that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment
of certain share-based compensation plans (including amendments to increase the number of shares available for grant under our
existing equity incentive plan). Instead, we follow Israeli law and practice which permits the establishment or amendment of certain
share-based compensation plans approved by our board of directors without the need for a shareholder vote, unless such arrangements
are for the compensation of directors and the chief executive officer, in which case they also require compensation committee and
We may elect in the
future to follow Israeli practice with regard to, among other things, director nomination, composition of the board of directors
and quorum at shareholders’ meetings. In addition, we may follow Israeli law, instead of the Nasdaq Marketplace Rules, which
require that we obtain shareholder approval for an issuance that will result in a change of control of the company, certain transactions
other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock
or assets of another company.
A foreign private issuer
that elects to follow a home country practice instead of Nasdaq requirements must submit to Nasdaq in advance a written statement
from an independent counsel in its home country certifying that its practices are not prohibited by the home country’s laws.
In addition, a foreign private issuer must disclose in its annual reports filed with the SEC or on its website each such requirement
that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. En conséquence
our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules.
For a discussion of
the requirements of Israeli law with respect to these matters, see Item 6.C – “Directors, Senior Management and Employees
– Board Practices,” and Item 10.B – “Additional Information – Memorandum and Articles of Association.”
Reference is made to pages F-1 to F-46 of the financial statements attached hereto.
The following exhibits
are filed as part of this Annual Report:
The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on Form 20-F on its behalf.
|Par:||/s/ SHABTAI ADLERSBERG|
|President and Chief Executive Officer|
Date: February 25, 2020
AUDIOCODES LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
IN U.S. DOLLARS
– – – – – – – – – – –
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
To the Shareholders and Board of Directors
AUDIOCODES LTD. AND ITS SUBSIDIARIES
Opinion on the Financial Statements
We have audited the
accompanying consolidated balance sheets of AudioCodes Ltd. and its subsidiaries (the "Company") as of December 31, 2019
and 2018 and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2019, and related notes (collectively referred to as the "financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25,
2020, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Kost Forer
Gabbay & Kasierer, a Member of Ernst & Young Global
We have served as
the Company's auditor since 1997.
|Tel-Aviv, Israel||KOST FORER GABBAY & KASIERER|
|2020 25 février||A Member of Ernst & Young Global|
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
REPORT OF INDEPENDENT REGISTERED PUBLIC
To the Board of Directors and Shareholders
AUDIOCODES LTD. AND ITS SUBSIDIARIES
Opinion on Internal Control over Financial
We have audited AudioCodes
Ltd.'s and its subsidiary's (the "Company") internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance
sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related
notes and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our
audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal
Control over Financial Reporting
A company's internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Kost Forer Gabbay & Kasierer,
a Member of Ernst & Young Global
|Tel-Aviv, Israel||KOST FORER GABBAY & KASIERER|
|2020 25 février||A Member of Ernst & Young Global|
U.S. dollars in thousands
|L'année 2019||L'année 2018|
|Cash and cash equivalents||$||64,773||$||31,503|
|Short-term and restricted bank deposits||6,416||12,381|
|Short-term marketable securities and accrued interest||–||19,602|
|Trade receivables (net of allowance for doubtful accounts of $570 and $790 at December 31, 2019 and 2018, respectively)||27,501|