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AudioCodes Announces Royalty Buyout Agreement with the Israel National Authority for Technology and Innovation

Nov 25, 2019

Lod, Israel – November 25, 2019 - AudioCodes (NASDAQ: AUDC) Press Release

AudioCodes, a leading vendor of advanced voice networking and media processing solutions for the digital workplace, today announced that it has entered into a royalty buyout agreement (“Agreement”) with the Israel National Authority for Technology and Innovation (“IIA”).

AudioCodes Ltd. and its subsidiary, AudioCodes Development Ltd. (“AudioCodes”), participated in royalty-bearing research and development programs and had received grants from the IIA, under which AudioCodes paid royalties at the rate of 1.3%-5% on sales of products developed with funds provided by the IIA.

AudioCodes’ contingent net royalty liability to the IIA at the time of the Agreement was approximately $49 million (“Debt”) including interest to the date of the Agreement with different annual interest rates ranging up to 5%.

As part of the Agreement, AudioCodes agreed to pay approximately $32.2 million to the IIA (to settle the $49 million Debt in full) over 3 years starting 2019, in 3 annual installments. This expense will be included in the cost of revenues reported for the fourth quarter of 2019.

Upon making this payment, AudioCodes will eliminate all future royalty obligations related to its anticipated revenues and save the associated future interest payments in future years related to the Debt. In 2018, annual royalty expenses to the IIA were approximately $3 million. The elimination of future royalty payments following the Agreement, will have a positive impact on the reported gross margin starting in the first quarter of 2020.

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