Prepared remarks
Thank you for standing by. Welcome to the First Quarter 2025 Amdocs Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir. Thank you, Jonathan. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including as described in Amdocs' SEC filings, and that we will discuss certain financial information that is not prepared in accordance with GAAP. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial and Operating Officer.
To support today's earnings call, we are providing a presentation, which can be found on the Investor Relations section of our website. And as always, a copy of today's prepared remarks will also be hosted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the first quarter and full fiscal year 2025, and we'll update you on the continued progress we've made executing against our strategic growth framework, including GenAI and our continued sales momentum in cloud. Shuky will finish by discussing our financial outlook for the full year fiscal '25, after which Tamar will provide additional details on our first quarter financial performance and our forward guidance. And as we've communicated previously, Shuky and Tamar will also compare certain financial metrics on a pro forma basis, which adjusts prior fiscal year 2024 revenue by approximately $600 million to reflect the phase-out of certain low-margin non-core business activities, which was substantially already ceased in the first quarter of fiscal '25. And with that, I'll turn it over to Shuky.
Thanks, Matt, and thank you everyone for joining us on the call today. Thanks to the commitment and dedication of Amdocs employees around the world, fiscal 2025 began strongly as we continue to deliver cloud digital GenAI-based solutions that service providers need to grow revenue, enhance efficiency, and create next-generation customer experiences for millions of consumer and business enterprises daily. In reviewing the financial highlights, first quarter revenue was $1.11 billion, slightly exceeding the midpoint of guidance after adjusting for negative foreign currency movements, which were greater than we anticipated. Profitability increased by 310 basis points year-over-year and 250 basis points sequentially, reflecting the ending of certain non-core low-margin business activities and ongoing initiatives for efficiency gains. Non-GAAP earnings per share was $1.66, surpassing the midpoint of guidance, and we closed Q1 with a solid 12-month backlog of $4.14 billion, which accelerated by roughly $80 million sequentially and increased approximately 2.7% year-over-year on a pro forma basis.
This backlog reflects several key wins this quarter. In North America, we expanded our activities with AT&T in data and intelligence and increased support for AT&T Cricket. We are also leading the billing system consolidation at Bell Canada and recently began working with DreamWorks Animation. Internationally, we continued to see sales momentum in cloud. In addition to the five-year modernization and BSS migration deal announced with Vodafone Italy last quarter, we secured a new cloud ops agreement with VodafoneZiggo in the Netherlands and a modernization and cloud migration award at CT Montenegro, a subsidiary of Deutsche Telekom. We are supporting numerous customer projects, including some of the largest transformations globally, showcasing our top-notch deployment capabilities. During Q1, we made significant progress on major transformations for customers like AT&T, T-Mobile, Bell, Rogers, Comcast, PDLT, and Telefonica Chile, as well as supported successful platform launches for M1 in Singapore and Optus in Australia.
I am proud of our managed service operations, which provide critical support for customers during peak retail periods like Black Friday and the holiday season. Managed services provide Amdocs with high business visibility, featuring multi-year customer engagements, recurring revenue streams, and near-perfect renewal rates over time. Recently, we extended our managed service agreements with Comcast, Xfinity Mobile, Comcast Business, and Claro Chile. Moving on, I'll provide some recent examples relating to our multi-pillar growth strategy designed to equip our customers with the leading innovation and technology necessary for their cloud journey, digitally transforming customer experiences for both consumer and B2B sectors, monetizing the future potential of next-generation networks, and creating dynamic, connected experiences by streamlining automation, complex network systems, and accelerating the adoption of generative AI.
Cloud continues to show strong sales momentum as the market increasingly acknowledges Amdocs' unique capability to support complex, multi-year cloud journeys. For example, at VodafoneZiggo in the Netherlands, we are providing cloud operations services and FinOps as part of the ongoing cloud migration project we announced last year. Amdocs has also been selected by CT Montenegro to upgrade and migrate its existing charging ordering and CRM system to the cloud. We expect cloud to remain a significant growth driver for Amdocs moving forward, as most service providers have not fully embraced the cloud, with many still evaluating their journey. We are aiming for double-digit growth in the cloud again this year, enshrined by our market-leading position, comprehensive cloud offering, and a robust pipeline of opportunities. Supporting the digital modernization needs of our customers is another important growth driver, as shown by many recent awards.
In Canada, Amdocs is working closely with Public Mobile to improve their self-service application's digital experience. Optus has improved its enterprise customer experiences by offering a more responsive engagement approach through the deployment of Amdocs' customer experience suite. AT&T Mexico has extended its agreement with Amdocs for the MarketONE platform, which now includes a new marketplace to expedite OTT resale, reflecting continued trust in Amdocs' modernization capabilities. I am also excited to announce that DreamWorks Animation is collaborating with Amdocs on an advanced platform that will streamline production workflows and manage a vast number of digital assets, allowing DreamWorks to better meet production demands. We are also pleased with the rapid adoption of connectX, our cloud-based telco-in-a-box solution powered by AWS. ConnectX was recently chosen by Systegra, a Nigerian service provider, enabling digital experiences in its MVNE and MVNO services, adding to its current customers such as AT&T, Rizz Wireless in the U.S., Winity in Brazil, and Melon Digital in South Africa.
Regarding monetization, Amdocs is providing cutting-edge technology to help providers monetize their next-generation network investments. In Canada, we are collaborating with Bell to unify their billing systems into a single platform. We also extended our partnership with Odido, a prominent telecom provider in the Netherlands, to convert their charging system into a fully converged and cloud-based solution, enabling rapid innovation for their users. These awards complement our ongoing modernization projects, including our previously announced deal to transform Altice's SFR billing system. Amdocs is actively involved in supporting fiber network investments in the U.S. and globally through our next-gen fiber offering. Last quarter, we shared that a major fiber optic internet provider in the U.S. chose Amdocs to oversee complex fiber rollouts. Additionally, Brightspeed selected Amdocs resource manager to enhance its network inventory operations.
Amdocs has also completed the lab certification of Sapphire Rapids for vRAN, allowing Verizon to boost capacity while lowering compute power consumption. Amdocs is committed to helping service providers harness the transformative potential of generative AI. We recently introduced new copilot capabilities for B2B, customer care, and commerce in our latest CES quarterly releases and enhanced our generative AI capabilities in the amAIz platform with GenAI agents for elevated customer engagement. To reinforce our leadership in data, AI, and generative AI, we acquired PROFINET, a data science and engineering company in the Czech Republic, which enhances our data and GenAI services, meeting the rising demand for these capabilities in telecom and beyond. In terms of sales progress, Etisalat in the UAE is a flagship customer for our amAIz platform, and we continue to work on expanding their use cases to enhance customer support.
Similarly, we are working with AT&T to improve customer experiences using our generative AI capabilities. Amdocs has provided data and AI services to many customers, including T-Mobile and Globe Telecom in the Philippines. The rise of generative AI has sparked demand for data-related services, from data readiness to custom GenAI use case development. This quarter, we exceeded 10 generative AI proof of concepts at a global provider, adding to our expanding pipeline of opportunities. We also opened our generative AI experience center in Dallas with NVIDIA and Microsoft to demonstrate what’s possible for our customers. Regarding the operating environment, it has remained challenging and largely unchanged. We maintain confidence in our resilient business model, including managed services that provide steady revenue and high visibility under multi-year agreements. We see significant potential for growth in our large addressable market, which is nearly $60 billion.
I am also enthusiastic about the encouraging deal pipeline, which includes substantial business opportunities that we are working to accelerate and finalize by leveraging our innovation track record, telco-specific GenAI solutions, execution expertise, and ability to support customer growth and efficiency. To conclude, we are reiterating the midpoint of our fiscal 2025 revenue growth guidance of 1% to 4.5% on a pro forma constant currency basis, expecting another year of double-digit growth in the cloud. We are also on track for double-digit total shareholder return for the fifth consecutive year in fiscal 2025. This projection assumes the midpoint of our non-GAAP diluted earnings per share outlook of 6.5% to 10.5%, alongside our dividend yield. Now, I’ll turn the call over to Tamar for her remarks.
Thank you, Shuky, and hello, everyone. Thank you for joining us. Before I begin today's comments, I will compare certain financial metrics on a pro forma basis which adjusts prior fiscal year 2024 revenue by approximately $600 million to reflect the phase-out of certain low-margin non-core business activities, which were substantially already ceased in the first quarter of fiscal 2025. To further assist your modeling, the regional mix of this revenue was similar to the overall company, and it contributed roughly $150 million per quarter. Now, echoing Shuky's sentiments, I'm pleased with our solid financial results for the first fiscal quarter as detailed on Slide 17. Q1 revenue of approximately $1.11 billion was up 1.7% year-over-year in pro forma constant currency and was slightly higher than the midpoint of our guidance after adjusting for negative foreign currency movements of approximately $6 million compared to our guidance assumptions.
Reflecting the phase-out of certain business activities, reported revenue declined by 10.9% from a year ago. Revenue from recently completed acquisitions, including PROFINET, was immaterial this quarter as PROFINET closed in December. On a regional basis, North America and the rest of the world delivered year-over-year growth on a pro forma constant currency basis. Europe was weaker, mainly reflecting timing differences between natural roll-off of completed projects and the gradual ramp-up of new deal awards. So, we expect Europe to return to growth next quarter. Shifting down the income statement, we are proud to report a significant jump in profitability this quarter. Non-GAAP operating margin of 21.2% was up 310 basis points year-over-year and 250 basis points sequentially, primarily reflecting the end of low-margin business activities and the ongoing benefit of our operating improvement initiatives.
Interest and other expenses amounted to roughly $0.4 million in the first quarter, reflecting a gain on the sale of an equity investment, mainly offset by adverse foreign currency movements. As a reminder, our foreign currency hedging program is designed to protect our profitability and free cash flow generation, as long as it is cost-effective to hedge. On the bottom line, non-GAAP diluted EPS of $1.66 was $0.02 above the midpoint of guidance. It included a non-GAAP effective tax rate of 19.6%, which, as we expected, was this quarter above our annual target range of 15% to 17%. Diluted GAAP EPS was $1.33 for the first fiscal quarter, above our guidance range of $1.2 to $1.29. Turning to Slide 18. Revenue from managed services was $729 million in the first fiscal quarter, up 0.9% from a year ago. Reflecting the phase-out of certain business activities, managed services increased to roughly 66% of total revenue in Q1, thus improving our level of business visibility and resilience.
During Q1, we continued to sign new managed services agreements, including the multi-year cloud ops deal with VodafoneZiggo in the Netherlands, which Shuky referenced earlier, while also maintaining our historical renewal rate of close to 100% with existing managed services customers. As an example, Amdocs renewed the development and managed service engagement across Comcast Xfinity Mobile and Comcast Business. We also recently extended our managed services engagement with Claro in Chile. Turning to balance sheet and cash flow highlights on Slide 19, DSO of 81 days increased by six days year-over-year and seven days sequentially, reflecting normal fluctuations in business activity. The sequential increase in unbilled receivables net of deferred revenue was $33 million in Q1, aggregating both short-term and long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter to quarter in line with normal business activities, as well as our progress on significant multi-year transformation programs we are currently running in North America.
This quarter's increase is primarily attributable to the ramp-up and execution of our mainframe to cloud deal at AT&T, which we announced last May. Reflecting strong execution, free cash flow before restructuring payments was $101 million in Q1. Including the restructuring payments of $23 million, reported free cash flow was $78 million. Overall, we ended Q1 with a healthy cash balance of approximately $349 million and aggregate borrowings of roughly $650 million, providing ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth. Turning to capital allocation on Slide 20, we repurchased $144 million of our shares in the first quarter and paid cash dividends of $54 million. Overall, we returned a total of $198 million to shareholders through share repurchases and dividends in Q1. Looking ahead, we are reiterating a free cash flow target of between $710 million to $730 million in fiscal 2025, which is before payments under our current restructuring program.
Our annual free cash flow outlook equates to a conversion rate of more than 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 7% relative to Amdocs' current market capitalization. Additionally, we remind you that free cash flow in the second fiscal quarter is typically lower due to the timing of annual bonus payments. Regarding our capital allocations in fiscal year 2025, we expect to return the majority of our free cash flow to shareholders. Moving to Slide 21, 12 months backlog was $4.14 billion at the end of Q1, an acceleration of $80 million sequentially and up 2.7% from a year ago on a pro forma basis. To provide you with additional data points given the significant foreign currency movements impacting this quarter, the 12 months backlog was up 3.5% from a year ago on a pro forma constant currency basis, supporting our expectation for an acceleration in quarterly year-over-year revenue growth on a pro forma constant currency basis from Q2.
Following the phase-out of certain business activities, we expect 12 months' backlog to represent roughly 90% of forward-looking revenue, further underscoring the importance of this metric as a leading indicator of our business. Now turning to our revenue outlook on Slide 22, we are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business, and operational certainty, which remains elevated in the current business environment. Regarding the second quarter and full fiscal year 2025 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios. Beginning with the top line, we are reiterating our guidance for revenue growth of between 1% and 4.5% on a pro forma constant currency basis for the full fiscal year 2025, including another year of double-digit growth in cloud.
As a reminder, our annual guidance already assumed revenue contribution from inorganic deal activity this year, some of which we already completed in Q1. After the second fiscal quarter, we expect revenue of between $1.105 billion to $1.145 billion, the midpoint of which equates to a healthy acceleration of roughly $15 million sequentially. This is despite an assumed negative sequential impact of roughly $3 million from foreign currency fluctuations as compared with the rates prevailing at the end of our first fiscal quarter 2025 on December 31. Moving down the income statement, we are on track to produce non-GAAP operating margins within our guidance range of 21.2% to 21.7% in fiscal 2025. The midpoint of which equates to a substantial increase of roughly 300 basis points compared with the prior fiscal year. The midpoint of our full-year margin outlook assumes roughly 230 basis points of improvement from the phase-out of business activities and another 60 to 70 basis points resulting from our continued focus on operational excellence, automation, and the gradual implementation of generative AI.
Below the operating line, foreign currency fluctuations and hedging costs are expected to impact non-GAAP net interest and other expense by roughly several million dollars on a quarterly basis. We expect our non-GAAP effective tax rate for fiscal 2025 to be within an annual target range of 15% to 17% for the full fiscal year 2025 and for Q2 specifically within this annual range. Bringing everything together on Slide 24, we are positioned to deliver non-GAAP diluted earnings per share growth of 6.5% to 10.5% in fiscal 2025, the midpoint of which supports a fifth consecutive year of double-digit expected total shareholders return when including a dividend yield of more than 2%. Before turning it back to Shuky, I'm proud to announce that Amdocs has been included in the 2024 S&P Dow Jones Sustainability Index North America for the sixth year in a row. With over 3,500 companies reviewed globally, we believe this achievement underscores our efforts and focus on principles of ESG and the continual integration of sustainability throughout our organization.
We are proud to stand among the best in class in our industry. And on behalf of Shuky and myself, we'd like to thank our dedicated employees for the way they support our customers and our communities each day. With that, back to you, Shuky.
Thanks, Tamar. With our fiscal 2025 off to a solid start, we are reiterating our full-year revenue guidance based on our healthy 12-month backlog position and the rich and encouraging pipeline of opportunities ahead of us. We are also on track to deliver ongoing margin improvement and robust earning-to-cash conversion, further supporting our commitment to deliver another year of double-digit expected total shareholder return. With that, we are happy to take your questions.
Questions and answers
And our first question for today comes from the line of George Notter from Jefferies.
I wanted to ask, Shuky, you were talking about, I think, at different points in your monologue, the pipeline of projects that are significant that are out there. Is there something changing in the marketplace that's driving that pipeline? And could you talk about the genre of customers or types of projects that you're seeing? Any more details on that would be great. Thanks.
I'm not sure that we can declare now that there is a change in the market, but the reality is that the pipeline is very rich, mature deals and this is across all geographies and the different growth engine domains of Amdocs. And I think that we are now putting a lot of effort to close these deals, translate them into formal contracts so we can start to ramp up and recognize the revenue this year. But we are encouraged by the pipeline and the fact that it's not limited to one geography; it's across all the areas we are operating.
If I go back to the fall, I think, in talking with you guys, you were talking a bit more about how it was getting hard to close deals and get customers to commit and get projects moving. It sounds like there's been a change in the environment. I guess I'm just pushing back here. I'm wondering what's changed that's driving that improvement, or is that something that indeed is not the case? Like, what can you tell us there? Thanks.
I think I can answer this question better in the next quarter. But definitely, the pipeline is very encouraging.
And our next question comes from the line of Tim Horan from Oppenheimer.
Just back on the pipeline question, are you seeing an improvement in spending on some of the legacy projects that had slowed down a lot last year? Or is it more on the cloud side where that's kind of accelerating? Yes.
No, it's more on the new stuff. It's cloud, OSS projects, BSS transformation, and digital modernization. So it's not on the legacy. It's much more on the new stuff.
Do you think the legacy might kick back in at some point, or is everyone pretty committed to the new stuff?
Just to remind you, when we said legacy at the time, we talked about the level of enhancements of existing systems in the same customers that are investing in transformation and building the next-gen with us. So we're not counting on the fact that they will start accelerating investment in the current system of record while they're building the future system, right? We prefer, and we always said, that they invest in the future with us. So our focus is on selling the new stuff, bringing all the great offerings we have, and the innovation we are investing into our R&D and bringing that to the table when we have the dialogue with the customers. This is where the focus is, and we want to see the conversion of this pipeline to additional deals.
But to your question, the pipeline is by far for all the new stuff.
And you mentioned on, I think, 10 proof-of-concept projects for AI. Can you give a little maybe more update? I guess, Shuky, what do you personally think AI can do for the carriers? Can it materially lower their expenses over time, improve quality, and maybe drive some new revenues? And what's it going to take to implement it?
So what we see right now is acceleration more in the foundation, meaning, as we discussed this before and shared with you. In order to make the best use of generative AI technology, you need to ensure that you have the right data in place. So we see more activities in this domain in a large customer, preparing all the data for generative use cases. We see different cases related to care, commerce, and upsell. So we are trying. I said we are trialing with our customers, and we hope we'll see more closures of new deals in the next quarter.
And our next question comes from the line of Tal Liani from Bank of America.
My question is about general growth, specifically breaking down that growth. Looking at your numbers, a 1.7% growth on a like-to-like basis is solid, but it doesn't reflect the momentum we would like to see. If I break it down, I want to understand the contributions from cloud services, what happened with service providers, and the differences between large and small customers. Can you help me break down this 1.7% to clarify its components and how they might relate to future growth? Additionally, what changes could lead to a more sustainable growth rate at a higher level, and what initiatives are you currently pursuing that could alter the growth trajectory? A 2% growth is on the lower end of the spectrum and not even the midpoint average for the company.
So Tal, it's a great point. And if you think about Q1, specifically, the growth in pro forma constant currency was 1.7%, but we are already indicating through different leading indicators. For example, the 12-month backlog, and this is why it was important for us to give the color on the real growth of the 12-month backlog being 3.5% and because this is indeed leading to the fact we can start seeing acceleration of the growth. If you look at the midpoint that we're guiding for Q2 with $15 million sequentially up, if I'm adding back the currency impact, it's more like $20 million up or close to $20 million up. So you can definitely see the beginning of an acceleration of that growth to 3-point-something percent. You're right that overall midpoint for the year is 2.7%. But if you look on the trend during the year, how we are seeing it, we are starting to see the pickup and this pickup and acceleration in the growth that we should see through the quarter is coming from these new things: the ramp-up of new deals that we won as well as expectation more in the second half of the year, of course, to continue and close more deals.
So with 90% visibility that the backlog presents, yes, a lot of that we know exactly how it's going to happen. And it's a matter of converting the deals we already have in hand, executing on them, and recognizing revenue. Some of that will come from additional conversion from the strong pipeline into new deals and executing on them. Cloud continues to perform very nicely. We feel very good about the ability to continue with double-digit growth in cloud. So that momentum is there. As we said before, we believe that we will start seeing some pickup from all those great PoCs and great early deals with customers, also starting to see some GenAI activities. I don't think that's going to be a huge number in 2025, but definitely, they will start contributing to revenue growth as well.
The second question I have is about your large customer exposure. You mentioned the implementation of the deal with AT&T. Can you share any trends among your major customers, such as past concentration and details on projects that are concluding or initiating? I'm particularly interested in the big service providers that historically accounted for about 60% of your revenues. What trends are you observing within that segment?
First of all, we definitely see across our large customers, different buying centers. I just want to remind that. It's not one monolithic contract that drives the business. We are active, for example, in AT&T across multiple activities, modernizing their next-generation consumer stack, building new capabilities around Cricket, doing stuff in AT&T Mexico. So in this regard, it's more diversified than just a name. Of course, eventually, AT&T is a big name. But for us, it means many activities with different decision-makers and different buying centers there. I want to add that beyond our top two customers with whom we are building significant new transformations and seeing the activity, we are continuing to push forward on moving into new geographies, new names. We mentioned last quarter, for example, a significant win with NTT in Japan. That's a new country in which we are building our business.
It's a very big market. For us, it's a new market. We're continuing to look beyond North America, how we're expanding geographically. Now back to North America, beyond the fact that we have two large customers, we are continuing to penetrate and expand relationships with other significant big names, for example, Charter, where we continue to see momentum and feel there is opportunity to grow within North America. We mentioned in the prepared remarks a new consolidation project of the billing activities of Bell Canada. Bell Canada is a meaningful customer, and we are very proud to be the ones that are consolidating for them the different platforms. So definitely, the list goes beyond just the two largest names that we continue to work very nicely with in expanding the type of business that we have with customers. To remind you, we are also continuing to look into ways to expand our managed services portfolio.
While having nearly 100% renewal with existing customers we serve under managed services, we continue to push forward in adding more and more customers into this offering which I think is really important because that brings us an edge in terms of both providing them the value proposition, the full accountability of Amdocs of not only providing new innovation and deploying it, but then supporting them in ongoing IT operations and cloud ops, which is another good example of how we expanded in Vodafone Netherlands. For example, after completing a successful transformation into the cloud, we are now moving and expanding with managed services into cloud ops. Just to give you some flavor of how we are thinking about expanding our existing customer base as well as moving forward with more new logos such as NTT in Japan. But back to two large names, yes, we have been working for many years with those two large customers and continue to see opportunities to support them in their new needs.
And our next question comes from the line of Shlomo Rosenbaum from Stifel.
Shuky, I just want to ask you again about the growth in the backlog, and it seems great that we have kind of a leading indicator that something is stepping up, but it's a backlog, we're kind of stripping out some of the exited business, I believe. And is there anything unusual that we should think about this backlog? The way to think about the backlog after you're exiting some of the business? Is there any more pronounced seasonality in any of it? And then just the step up in backlog, were there some particular types of contracts that drove the growth sequentially, moving it up $80 million? Or is there any more color you can give into the growth in this backlog?
Thanks, Shlomo, for the question. I'll try to give some additional color there. We don't have typically seasonality on a regular basis in the backlog. Specifically, this quarter, the $80 million sequentially first of all, it's comparing apples to apples. So both of this is on a pro forma basis after the phase-out activity. So it's comparing to apples to apples in terms of the sets of numbers. When we look at the composition of the increase in backlog, it's a combination of several new deals and the fact that we are enjoying now in the 12-month backlog, a full year already of dimension to cloud deals with AT&T that we are ramping up on execution, and before that, it was just lower than the full 12 months. Additionally, the fact that we have some contribution to backlog coming from PROFINET, the recent acquisition. So I would say, taking all of that into consideration, I'm very happy with the composition that we see in there. And also broad-based in terms of the geographies that contributed to the backlog, which is always great to have.
And the $80 million does not incur luckily, we have some headwinds.
$80 million is after headwinds from currencies. That's why we are saying the constant currency pro forma number is 3.5% rather than the 2.7% that is unfortunately absorbing that currency impact. So if you want to compare to the 2.7% midpoint of growth on revenue, obviously being higher is a sign of acceleration.
Okay. And just on the acquisition, the PROFINET acquisition, as we're looking at the organic growth in the business, if you factor in both the currency and the PROFINET, would the midpoint of the revenue guidance be going down if you did not have that acquisition? And how much is that acquisition adding to the backlog so we can look at things a little bit on an apples-to-apples basis?
So as we said in the beginning of the year, we factored the acquisition into the initial guidance for the year, and this is part of fulfilling on that promise. So I just want to emphasize, it's not incremental to what we thought in the beginning of the year. It's actually now putting a name to the plant. In terms of the contribution to the backlog, it was part of the contribution I don't think it's such a big part of it. Less, I would say, probably less than half is coming from the impact of the M&A and the rest is organic.
Okay. And then if I can squeeze in one more. Just on the AI side, there's a lot of PoCs and what do you think is the gating factor to kind of landing a big deal? Is it the readiness on the client side? Is it getting more comfortable with what's offered? Is it proving out enough return on investment, given the risk in terms of changing some of their ways that they operate? Can you just talk a little bit about that?
It depends. First of all, we are seeing some acceleration in the data domain. This was also the reason for acquiring PROFINET, as preparing data to support general use cases involves a lot of work. We see significant progress in this area, particularly with AT&T and other large customers. The adoption process has involved a lot of activity in call centers, and since some call centers are unionized, implementation is not always straightforward. However, we are reaching a maturity level where we can confidently deploy tools that work accurately for customer care representatives. As we observe improvements, we expect to see more acceleration in signing deals. The agreements we've already finalized are expanding; for instance, with Etisalat, we began with a couple of use cases that have now grown into a more comprehensive deal. Whenever we finalize a deal, it's performing well, and we notice some acceleration.
Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks.
Thanks, Jonathan, and thanks, everyone, for joining us this evening. If you do have any additional questions, just reach out to us here in the IR group. And with that, have a great night. Thanks a lot.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.