Audiocodes Ltd. — Interim / Quarterly Report 2006

May 8, 2006

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P R E S S R E L E A S E

Company Contacts

IR Agency Contact

Nachum Falek, Shirley Nakar, Erik Knettel, VP Finance & CFO Director, Investor Relations The Global Consulting Group AudioCodes AudioCodes Tel: +1-646-284-9415 Tel: +972-3-976-4000 Tel: +972-3-976-4072 eknettel@hfgcg.com nachum@audiocodes.com shirley@audiocodes.com

AudioCodes Reports First Quarter 2006 Results

Quarterly Revenues Increased to a Record $31.3 Million, Up 2.3% Sequentially and 16.4% Year-over-Year

Lod, Israel – May 8, 2006 – AudioCodes (Nasdaq: AUDC), a leading provider of Voice over Packet (VoP) technologies and Voice Network products, today announced financial results for the first quarter ended March 31, 2006.

Revenues for the first quarter ended March 31, 2006 were a record $31.3 million compared to $30.6 million for the quarter ended December 31, 2005 and $26.9 million for the quarter ended March 31, 2005. First quarter revenues grew 2.3% sequentially and increased 16.4% compared to the first quarter of 2005.

For the first quarter of 2006 net income on GAAP basis was $2.3 million, or $0.05 per diluted share. SFAS No. 123R became applicable to the Company effective January 1, 2006 and, as a result, the Company recorded $2.1 million of stock-based compensation expense in the first quarter of 2006. Excluding this stock-based compensation expense, net income on a non-GAAP basis for the first quarter of 2006 was $4.3 million, or $0.10 per diluted share[1] , compared to net income of $3.9 million, or $0.09 per diluted share, in the fourth quarter of 2005 and $3.0 million, or $0.07 per

1 Non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP. Our management believes the Non-GAAP information is useful because it can enhance the understanding of our ongoing economic performance and therefore uses internally the Non-GAAP information to evaluate and manage our operations. We have chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how we analyze our operating results.

AudioCodes Reports Q1 2006 Results

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diluted share, for the corresponding period last year. Non-GAAP net income which excludes the effect of stock-based compensation expense is reported in order to facilitate financial results tracking and comparison with previously reported financial results.

Cash and cash equivalents, short-term and long-term marketable securities, short-term and long-term bank deposits and structured notes were $227.6 million as of March 31, 2006 compared to $220.3 million as of December 31, 2005 and $209.6 million as of March 31, 2005.

“In the first quarter of 2006, we experienced increased demand for AudioCodes’ media gateways and media servers that resulted in record revenues and our eighteenth consecutive quarter of top line growth. We secured important design wins and partnerships in fixed mobile convergence, Voice over Broadband, and SIP applications which will all eventually converge on an IMS core network. We also broadened our global sales coverage and established closer relationships with service providers, OEMs, and Channels which provide a strong foundation for future growth,” stated Shabtai Adlersberg, President, Chairman and CEO of AudioCodes.

Conference Call & Webcast Information

AudioCodes will conduct a conference call on May 9, 2006 to discuss the first quarter 2006 financial results, which will be simultaneously Webcast at 9:00 A.M. Eastern Time. Investors are invited to listen to the call live via Webcast at the AudioCodes corporate Website at http://www.audiocodes.com.

About AudioCodes

AudioCodes Ltd. (NASDAQ: AUDC) enables the new voice infrastructure by providing innovative, reliable and cost-effective Voice over Packet technology and Voice Network products to OEMs, network equipment providers and system integrators. AudioCodes provides its customers and partners with a diverse range of flexible, comprehensive media gateway and media processing technologies, based on VoIPerfect™ – AudioCodes’ underlying, best-of-breed, core media gateway architecture. The company is a market leader in voice compression technology and is a key originator of the ITU G.723.1 standard for the emerging Voice over IP market. AudioCodes voice network products feature media gateway and media server platforms for packet-based applications in the converged, wireline, wireless, broadband access, and enhanced voice services markets. AudioCodes enabling technology products include VoIP and CTI communication boards, VoIP media gateway processors and modules, and CPE devices. Its customers include the leading telecom

AudioCodes Reports Q1 2006 Results

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and data network equipment providers globally. AudioCodes’ headquarters and R&D facilities are located in Israel with an R&D extension in the U.S. Other AudioCodes’ offices are located in Europe, the Far East, and Latin America. For more information on AudioCodes, visit www.audiocodes.com.

Statements concerning AudioCodes' business outlook or future economic performance; product introductions and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are "forward-looking statements'' as that term is defined under U.S. Federal securities laws. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties and factors include, but are not limited to: the effect of global economic conditions in general and conditions in AudioCodes' industry and target markets in particular; shifts in supply and demand; market acceptance of new products and continuing products' demand; the impact of competitive products and pricing on AudioCodes' and its customers' products and markets; timely product and technology development/upgrades and the ability to manage changes in market conditions as needed; and other factors detailed in AudioCodes' filings with the Securities and Exchange Commission. AudioCodes assumes no obligation to update the information in this release.

AudioCodes, AC, Ardito, AudioCoded, NetCoder, TrunkPack, VoicePacketizer, MediaPack, Stretto, Mediant, VoIPerfect and IPmedia and Your Gateway to VoIP are trademarks or registered trademarks of AudioCodes Limited. All other products or trademarks are property of their respective owners.

Summary financial data follows

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

ASSETSCURRENT ASSETS:Cash and cash equivalentsShort-term bank deposits and structured notesShort-term marketable securities and accrued interestTrade receivables, netOther receivables and prepaid expensesInventoriesTotal current assetsLONG-TERM INVESTMENTS:Long-term bank deposits and structured notesLong-term marketable securitiesInvestments in companiesDeferred tax assetsSeverance pay fundsTotal long-term investmentsPROPERTY AND EQUIPMENT, NETINTANGIBLE ASSETS, DEFERRED CHARGES ANDOTHER, NETGOODWILLTotal assetsLIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Trade payablesOther payables and accrued expensesTotal current liabilitiesACCRUED SEVERANCE PAYSENIOR CONVERTIBLE NOTESTotal shareholders' equityTotal liabilities and shareholders' equity	March 31,2006(Unaudited)$ 96,41262,52018,69317,9194,73213,020213,29610,05039,8972,4252,7945,56060,7266,3013,05918,677$302,059$ 6,09719,24925,3466,170120,880149,663$302,059	December 31,2005
		$ 70,95761,9299,86317,9904,89111,562
		177,192
		27,78149,7911,1122,4895,406
		86,579
		6,494
		3,279
		18,679
		$292,223
		$ 7,77418,620
		26,394
		5,887
		120,836
		139,106
		$292,223

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

			Three months endedMarch 31,	Three months endedMarch 31,	Three months endedMarch 31,	Three months endedMarch 31,	Three months endedMarch 31,	Three months endedMarch 31,
			2006		2005
	RevenuesCost of revenuesGross profitOperating expenses:Research and development, netSelling and marketingGeneral and administrativeTotal operating expensesOperating incomeFinancial income, netEquity in losses of affiliated companiesIncome before taxes on incomeTaxes on income, netNet incomeBi i h		(Unaudit			d)
			$ 31,33412,693		$ 26,928	$ 26,928
						10,942
		profitating expenses:earch and development, neting and marketingeral and administrativeoperating expensesating incomecial income, nety in losses of affiliated companiese before taxes on incomes on income, netncomei h	18,6417,2898,0751,810			15,9865,6685,8761,411
			17,174			12,955
			1,4671,109173			3031
						,3282
						56
			2,403126			3,103140
			$2,277			$2,963
			006			00
	ascDilutWeigbasicWeigdilute	net earnngs per sareed net earnings per sharehted average number of shares used in computingnet earnings per share (in thousands)hted average number of shares used in computingd net earnings per share (in thousands)	$ .		$ .7
			$ 0.05		$ 0.07
			41,049		40,027
			43,938		43,549

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AudioCodes Reports Q1 2006 Results

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

	Three months ended	Three months ended	Three months ended
	March 31,
	2006		2005
	(Unaudited)
Revenues	$ 31,334	$	26,928
Cost of revenues *)	12,559		10,942
Gross profit	18,775		15,986
Operating expenses:
Research and development, net *)	6,581		5,668
Selling and marketing *)	7,222		5,876
General and administrative *)	1,454		1,411
Total operating expenses	15,257		12,955
Operating income	3,518		3,031
Financial income, net	1,109		328
Equity in losses of affiliated companies	173		256
Income before taxes on income	4,454		3,103
Taxes on income, net	126		140
Non-GAAP net income	$4,328	$2,963
Non-GAAP diluted net earnings per share	$ 0.10		$ 0.07
Weighted average number of shares used in computing
non-GAAP diluted net earnings per share (in thousands)	50,619		43,549

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

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

Cash flows from operating activities:Net incomeAdjustments required to reconcile net income to net cash provided by operatingactivities:Depreciation and amortizationNet loss from sale of marketable securitiesAmortization of marketable securities premiums and accretion of discounts, netEquity in losses of affiliated companiesIncrease in accrued severance pay, netStock-based compensation expensesAmortization of senior convertible notes discount and deferred chargesDecrease in accrued interest on marketable securities, bank deposits andstructured notesIncrease in deferred tax assetsDecrease in trade receivables, netIncrease in other receivables and prepaid expensesIncrease in inventoriesDecrease in trade payablesIncrease in other payables and accrued expensesNet cash provided by operating activitiesCash flows from investing activities:Proceeds from sale of marketable securitiesProceeds from sale of bank depositsInvestments in companiesPurchase of property and equipmentNet cash provided by investing activitiesCash flows from financing activities:Proceeds from issuance of shares upon exercise of options and employee stockpurchase planNet cash provided by financing activitiesIncrease in cash and cash equivalentsCash and cash equivalents at the beginning of the periodCash and cash equivalents at the end of the period	Three monthsendedMarch 31,2006
	(Unaudited)
	$ 2,27786215601731292,0514913(303)71(349)(1,458)(1,677) 629
	2,542
	97917,209(1,136) (454)
	16,598
	6,315
	6,315
	25,45570,957
	$ 96,412

AudioCodes Reports Q1 2006 Results

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