Shabtai Adlersberg.

Declining results, a crashing stock, and a CEO under duress - what is going on at AudioCodes?

The Covid-19 pandemic propelled AudioCodes, which specializes in communication solutions for digital work environments, to a record valuation of over $1.3 billion in 2020. The founder had plans for an exit, but that led to a conflict with an old friend, and as the epidemic waned, demand weakened, and the company's stock plummeted

The troubles at Audiocodes are taking a toll on its shareholders. In May, the company, which provides communication solutions for digital work environments, lowered its revenue forecast for the current year. During an analyst call held after the publication of the first-quarter 2023 results, the CEO and largest shareholder, Shabtai Adlersberg (14.1%), stated that Audiocodes' revenues for 2023 would range between $240 million and $250 million. This represents a 16% decrease compared to the previous forecast and a 12% decrease compared to the 2022 revenues. The downward revision in forecast followed the company's announcement in April that it expected a decrease in net profit in the first quarter of the year.
The quarterly report also presented lukewarm results for Audiocodes. Revenues amounted to $59.2 million, a 10.8% decrease compared to the $66.4 million generated in the first quarter of 2022. This decline in revenues resulted in a transition from a net profit of $8.6 million to a loss of $200,000.
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שבתאי אדלרסברג נשיא ו מנכל אודיוקודס
שבתאי אדלרסברג נשיא ו מנכל אודיוקודס
Shabtai Adlersberg.
(Photo: Tamar Matzapi)
Against the backdrop of deteriorating results, the company's stock, traded on the Tel Aviv Stock Exchange and the Nasdaq Stock Exchange, has recorded a 40% decrease since the beginning of the year and a 65% decrease since the start of 2020, making it the second-worst performing stock on the Tel Aviv Stock Exchange during this period. Presently, Audiocodes trades at a market value of NIS 1.2 billion ($330 million), which is 75% lower than its record value of NIS 4.8 billion ($1.3 billion) in July 2020.
Audiocodes was founded in 1993 by Adlersberg and Leon Bialik after the two left DSP. The company develops and markets voice function solutions that facilitate collaboration between different applications such as Zoom and Teams. Microsoft is a prominent partner of Audiocodes. In recent years, the company has also ventured into developing artificial intelligence products for voice recognition in internet chats, as well as products for recording, transcribing, and analyzing meetings within and outside organizations.
Due to its focus on remote work solutions, Audiocodes experienced a surge in its stock value during the pandemic. The widespread belief that remote work would become a fundamental aspect of work, in general, led to a significant increase in demand for the company's products. However, recent months have seen Audiocodes grappling with a decline in product demand.
This decrease can be attributed to several factors, including the gradual return of employees to physical offices, reduced reliance on remote work, and increased competition, particularly from cloud-based solutions that reduce companies' dependence on Audiocodes' products.
The management of Audiocodes attributes the decrease in product demand in Europe and the U.S. to economic uncertainty caused by rising interest rates aimed at combating high inflation levels worldwide. In light of these circumstances, the company announced plans to lay off 8-10% of its employees this year, resulting in 80 immediate job terminations, equivalent to 6% of its workforce. Additionally, Audiocodes is relocating its management headquarters from Airport City to Or Yehuda to reduce rental costs.
In 2020, during a period when Audiocodes traded at its peak value, several attempts were made to find a buyer for the company, with potential acquirers aiming to gain controlling ownership and potentially delist the company from public trading. Audiocodes lacks a controlling nucleus, despite Adlersberg being the largest shareholder. Various local and international parties approached investment funds to present acquisition offers and acquire a controlling interest in Audiocodes. Adlersberg himself also sought assistance from an international investment bank to explore options for bringing in a large entity as the controlling owner of Audiocodes. However, none of these attempts materialized into a deal.
These efforts led to a conflict between Adlersberg and Avi Alkalay, owner of the Hadas Institute. Alkalay attempted to interest one of the world's largest investment funds, Permira, which previously acquired Israeli company Netafim, in acquiring controlling ownership of Audiocodes. Alkalay reached out to the director of Permira's operations in Israel, Ran Maidan, former CEO of Netafim. Although the appeal did not result in a deal, Alkalay demanded a fee of half a million dollars from Audiocodes and Adlersberg.

According to Alkalay's letter, he made multiple unsuccessful attempts to find a buyer for the company due to a lack of cooperation from the CEO and his old friend, Adlersberg. Consequently, Alkalay demanded compensation of half a million dollars for his efforts. Audiocodes considers Alkalay's demand an extortion attempt, as he allegedly threatened to reveal personal details about Adlersberg's life and his relationship with a top executive at the company. Alkalay claimed that the executive's salary significantly increased over the years due to her relationship with Adlersberg and threatened to expose this information, among other things.
An insider close to Adlersberg stated: "He heard personal details about Adlersberg's life while spending time together with their families, and he is trying to exploit that. He is under financial pressure and trying to extract whatever he can from Adlersberg." Alkalay denies facing any financial difficulties and added that Adlersberg himself approached him twice to find a buyer for controlling ownership of the company but avoided entering into negotiations when potential buyers were found.
The current decline in Audiocodes' stock prompted the company to approve an undisclosed share buyback plan this year to support the stock price. The repurchases are expected to amount to tens of millions of dollars. This is a reverse strategy from June 2020, when the stock was at its peak, and Audiocodes conducted a secondary offering on the Nasdaq, selling shares at $35 per share. Presently, the stock price stands at only $8, allowing Audiocodes to repurchase shares at a lower price than they were initially issued.
While this move may provide some consolation for investors selling their shares, it comes after a three-year period during which the company lost 75% of its value compared to its peak and erased billions of shekels from its market capitalization.