Prepared remarks
Thank you. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. I note that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including those 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. Today's speakers participating on the call 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.
A copy of today's prepared remarks will also be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the second quarter and will update you on the continued progress that we've made executing against our strategic growth framework, including GenAI and our sales momentum in cloud. Shuky will finish by discussing our financial outlook for the full fiscal year 2025, after which Tamar will provide additional details on our second quarter financial performance and forward guidance. As we communicated previously, Shuky and Tamar will compare certain financial metrics on a pro forma basis, which adjusts prior fiscal year 2024 revenue by approximately $600 million to reflect the end of certain low-margin noncore business activities that were substantially ceased in the first quarter of fiscal 2025. With that, I'll turn it over to Shuky.
Thank you, Matt, and everyone joining us on the call today. Starting on Slide 6. I'm pleased to report good results for our fiscal second quarter, credit for which belongs to Amdocs global base of employees while executing our strategy to deliver the next-gen cloud, digital, and AI-based solutions our customers need to ensure amazing experiences and seamless connectivity for billions of people each day. Among the second quarter financial highlights, revenue of $1.13 billion was above the midpoint of our guidance and increased by 4% from a year ago in pro forma constant currency. Profitability improved by 10 basis points sequentially, reflecting ongoing internal efficiency gains. We generated robust free cash flow of $181 million, excluding restructuring-related payments, supported by healthy customer cash collection. Non-GAAP earnings per share was $1.78, above the guidance range primarily due to a lower-than-expected non-GAAP effective tax rate in the quarter.
Additionally, we closed the second quarter with a 12-month backlog of $4.17 billion, up by 3.5% pro forma from a year ago. This increase in backlog was supported by a strong pipeline of deal conversion. Among the highlights, we're strengthening our relationship with AT&T Cricket Wireless through payment solutions, dealer commission, and expanded IT services. Consumer Cellular, a new logo for Amdocs in the U.S., has selected our connectX SaaS solution to introduce new digital brands, and we benefit from a healthy customer demand for our fiber deployment orchestration and digital infrastructure management offering. Strong sales momentum in cloud also continued this quarter. We are working with Microsoft to migrate Amdocs and non-Amdocs applications to the Microsoft Azure platform for a leading Tier-1 European operator. In the Philippines, we signed an agreement to support the next phase of PLDT's cloud modernization project.
As to our project execution this quarter, we successfully achieved numerous major milestones for many of our world's largest operations. At AT&T, we are progressing the mainframe to cloud migration using the Amdocs agentic migration paradigm, which entails migrating applications and operational ecosystems to operate on the cloud. We also reached a notable milestone in Japan, where we delivered an advanced cloud-native platform to enable NTT Infranet to modernize and migrate its IT operation system to the cloud. This achievement continues our momentum in Japan, where we now support three flagship customers, including JCOM and Paramount in addition to NTT Infranet. Rounding out the operational highlights, we delivered another record quarter in managed services, which contributed roughly two-thirds of total revenue. Renewal rates remained very high in Q2, as we signed new multiyear managed services agreements that expand Amdocs’ scope of activities with Telia Norway, PLDT, and M1 in Singapore.
Moving now to Slide 8, we will address our multipillar growth strategy, designed to provide our customers with the innovation and cutting-edge technology they need to accelerate their journey to the cloud and digitalize the customer experience for consumer and B2B, while monetizing investments in next-generation networks, streamlining and automating complex network ecosystems, and simplifying the adoption of generative AI. Our partnership with Microsoft continues to play a critical role in facilitating the migration of applications for a Tier-1 European operator to the Microsoft Azure platform. Amdocs has also successfully completed the first phase of its cloud modernization project for PLDT and its wireless subsidiary Smart, migrating their business-critical systems and legacy applications to AWS. Additionally, Telstra in Australia has engaged Amdocs to consolidate its segment-specific Amdocs service order management solutions to a single cloud platform servicing all segments, which will provide the operator with faster time-to-market for new services, greater business agility, and improved customer satisfaction.
Our ability to win deals and execute projects in the cloud is a testament to our expertise and end-to-end cloud offering. We remain on track to deliver another year of double-digit growth in cloud-related revenue in fiscal 2025. Moving to digital transformation on Slide 10, I am delighted to announce that Consumer Cellular has become the latest in a growing list of customers to select the Amdocs connectX cloud-native SaaS platform to support the launch of innovative new digital brands. As a new client of Amdocs, we look forward to assisting Consumer Cellular in rapidly creating and deploying new plans, achieving operational excellence, and boosting customer satisfaction for their subscribers. Amdocs MarketONE is also generating healthy customer demand. It was recently selected by CK Hutchison to equip participating group companies with the ability to grow their digital ecosystem, capture new revenue streams, and enhance customer experiences.
Additionally, our Amdocs eSIM cloud platform was ranked number one in the Global eSIM orchestration landscape for the third year running by Counterpoint Research. The acceleration of eSIM adoption globally is creating opportunities for us. For instance, we are working with Telcel, the largest mobile operator in Mexico, to bring innovative eSIM technology to millions of users. Amdocs continues to be recognized as the global market leader in overall monetization platforms. Illustrating our domain strength, Comcast has renewed its multiyear commitment to Amdocs Bill Experience as the bill presentment platform for its residential and business customers. Additionally, we recently modernized A1 Bulgaria's convergent charging platform to reduce billing processing times and speed up customer-facing interactions. In Latin America, we signed an agreement with Movistar El Salvador for full BSS modernization to enhance its current prepaid platform.
Amdocs has also been selected by Botswana Telecommunications to modernize its convergent charging and billing platform. Amdocs has extended its network policy platform agreement at Claro Brasil for multiple consumer lines of business, and we have secured a multiyear extension of our OSS engagement with Costa Rica Grupo Ice, reinforcing our long-standing collaboration and commitment. Recently, we partnered with Microsoft to deliver the successful go-live of the Amdocs Customer Engagement Platform at PLDT in the Philippines. This enterprise B2B platform was seamlessly integrated with Amdocs' Intelligent Networking Suite to connect customer service needs directly to underlying network performance in an automated, end-to-end manner. Beyond wireless, Amdocs is well positioned to meet demand for fiber deployment, orchestration, and digital infrastructure management as global service providers accelerate their fiber expansion investments to launch converged broadband and mobile service offerings.
Our top strategic priority is to accelerate the telco industry's adoption of GenAI. Our critical role was recently recognized at NVIDIA's GTC event where Amdocs was spotlighted as a key partner in driving the next wave of AI innovation in telecommunications. We continue to evolve the Amdocs amAIz platform in close collaboration with NVIDIA and our other GenAI partners. We launched innovative network agents, supporting both network design and deployment as well as network operations. These agents leverage our OSS and mobile network design expertise, coupled with NVIDIA's AI tools to support accelerated network design, planning, and deployment, network troubleshooting, and healing. We launched Amdocs AI Factory to help service providers monetize customer demand for AI-driven infrastructure, enabling them to unlock significant new revenue streams. We are running multiple PoCs with several flagship customers, producing highly compelling results.
Amdocs is also well positioned to meet demand for data-related services to support GenAI adoption. We are already supporting GenAI-related data requirements for several customers. Now to address the current operating environment on Slide 15, the level of global macroeconomic uncertainty is rising, but we believe Amdocs is relatively well positioned to navigate the environment due to our unique business model. As a specialty software and services provider to the global communications and media industry, Amdocs is not currently affected by the announced tariffs. Across our serviceable addressable market of nearly $60 billion, we see a rich and encouraging pipeline. No company is entirely immune to the environment, and we are monitoring indirect impacts of macro conditions on spending behavior. Considering our strong first half performance and visibility from our 12-month backlog, we are reiterating our fiscal 2025 pro forma revenue growth outlook of 2.7% in constant currency, within a tighter range of 1.7% to 3.7%. We are also on track to achieve our target of double-digit expected total shareholder returns for the fifth consecutive year.
Thank you, Shuky, and hello everyone. Thank you for joining us. Before I begin, in 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 phaseout of certain low-margin, noncore business activities that were substantially ceased in the first quarter of fiscal 2025. We delivered a good set of results for the second fiscal quarter, as detailed on Slide 18. Q2 revenue of approximately $1.13 billion was up 4% year-over-year in pro forma constant currency and was above midpoint of our guidance, despite a negative foreign currency movement of approximately $2 million compared to our guidance assumptions. We are pleased with the stronger pace of growth in Q2, which reflects robust sales, the ramp-up of previously signed engagements, and recent acquisitions. Reflecting the phaseout of certain business activities, reported revenue declined by 9.4% from a year ago.
On a regional basis, North America was slightly up sequentially and up 1.4% from a year ago in pro forma constant currency. As anticipated, Europe rebounded from the weakness of the prior quarter, benefiting from the ramp-up of new deal activities and a contribution from the previously completed acquisition of Profinit. Shifting down the income statement, non-GAAP operating margin of 21.3% improved by 10 basis points sequentially, supported by the ongoing adoption of automation, AI, and other sophisticated tools within our operations. Compared with a year ago, non-GAAP operating margin jumped by 290 basis points, primarily reflecting the end of low-margin business activities and efficiency gains. Interest and other expenses amounted to roughly $8.5 million in the second quarter. On the bottom line, non-GAAP diluted EPS of $1.78 was above our guidance range. This was primarily due to a lower non-GAAP effective tax rate in the quarter, which included a tax benefit that materialized earlier than planned in the year.
Similarly, diluted GAAP EPS of $1.45 was also above our guidance range due to a lower than expected effective GAAP tax rate in the second quarter. Turning to Slide 19, revenue from managed services was a record $747 million in the second fiscal quarter, up 3.7% from a year ago. Revenue from multiyear managed services accounted for 66% of total revenue in Q2, supporting our visibility and underscoring the importance of managed services as a key measure of business resiliency for Amdocs. Our renewal rates for managed services engagements have historically approached 100% and typically include an expansion in our scope of activities. We are extending our long-term strategic relationship with Telia Norway through 2030 to deliver enhanced managed services, improving operational efficiency and offering more effective services to customers. We're also expanding managed services in PLDT with our current long-term engagement covering non-Amdocs applications.
Additionally, we extended a multiyear managed services agreement with M1 Limited in Singapore to manage this customer's new cloud-native charging platform. Turning to the balance sheet and cash flow highlights on Slide 20, DSOs of 77 days fell four days sequentially and rose by one day year-over-year, reflecting normal fluctuations in business activity. Unbilled receivables net of deferred revenue declined by $25 million sequentially in Q2. Reflecting strong execution, free cash flow before restructuring payments was $181 million in Q2. Including restructuring payments of $25 million, reported free cash flow was $156 million. We ended Q2 with a healthy cash balance of approximately $324 million and bond borrowings of roughly $650 million, providing ample liquidity to support our ongoing business needs while retaining the capacity to fund future strategic growth. In capital allocation on Slide 21, we repurchased $135 million of our own shares under our current authorization, with roughly $258 million remaining as of March 31, 2025.
Reflecting our confidence in Amdocs' future success, our Board has authorized a new share repurchase plan of $1 billion with no stated expiration date. Between the two authorizations, we have up to $1.26 billion of remaining repurchase authority. Additionally, we paid cash dividends of $54 million in the second fiscal quarter. Looking ahead, we are reiterating our free cash flow target of between $710 million to $730 million in fiscal 2025, before restructuring payments. Our annual free cash flow outlook translates to a healthy free cash flow yield of roughly 7% relative to Amdocs' current market capitalization. Regarding capital allocations in fiscal year 2025, we expect to return the majority of our free cash flow to shareholders. Moving to Slide 22, our 12-month backlog was $4.17 billion at the end of Q2, up 3.5% pro forma from a year ago and $30 million sequentially. We expect 12-month backlog to represent roughly 90% of forward-looking revenue, underscoring its importance as a leading indicator of our business.
Now, regarding our revenue outlook on Slide 23, we are closely monitoring macroeconomic, geopolitical, business, and operational uncertainties in the current environment. The third 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. On a pro forma constant currency basis, we are reiterating the 2.7% midpoint of our fiscal 2025 revenue growth outlook, which we have tightened to a range of 1.7% to 3.7% year-over-year. Our annual guidance includes another year of double-digit growth in cloud and contributions from inorganic deal activity this year. As to the third fiscal quarter, we expect revenue between $1.11 billion and $1.15 billion, which assumes a positive sequential impact of roughly $4 million from foreign currency fluctuations compared to the second quarter. Moving down the income statement, we are on track to produce non-GAAP operating margins within our guidance range of 21.1% to 21.7% in fiscal 2025.
Our full year margin outlook assumes an improvement from phased-out business activities and another increase resulted from our focus on operational excellence and the implementation of GenAI. Overall, we are on track to deliver double-digit expected total shareholder returns for a fifth consecutive year in fiscal 2025, including our dividend yield of more than 2%.
Thanks, Tamar. I am pleased with our performance in the first two quarters and we are entering the second half with a strong backlog position and a rich pipeline of opportunities. With our market-leading offering and proven ability to execute, we believe we are well positioned to achieve our targets for the full fiscal year while, of course, monitoring the current macro environment closely. With that, we are happy to take your questions.
Questions and answers
Our first question comes from Timothy Horan from Oppenheimer. Please go ahead with your question.
Great. Thanks, guys. Can we focus on AI for a minute? Are you starting to see material contributions to revenue growth from AI or improvements to the product? And how are you working with NVIDIA on AI at this point? Any more details on that collaboration? It sounds like cloud growth is accelerating; is that true? Is AI helping that growth, or are there other go-to-market improvements?
Tim, good to hear from you. Regarding GenAI, we see significant overlap between AI activities and data because maximizing benefits from Generative AI requires leveraging data. We see robust activity supporting GenAI in the data domain, leading to expanded activities that contribute to revenue growth. We have several use cases showing good signs of POCs maturing into real deals, which I think will be more evident in future quarters. Regarding NVIDIA, we are collaborating in many ways and have made considerable progress, particularly in the network domain by building our network automation and domain using NVIDIA tools.
Very helpful. A quick follow-up for Tamar. Great improvement to the margins here. Are you utilizing AI to improve productivity much? Can we continue at this pace of margin improvements going forward?
Let me take this. When we discuss GenAI, we are focusing on three pillars at Amdocs. One is offering enhancements, building on our amAIz platform; the second is ensuring all our products come with GenAI capabilities; and the third is improving efficiencies in our software development lifecycle using GenAI tools. We are witnessing good progress and automation historically has supported our efficiency and productivity. The next wave of improvement is now coming from the incorporation of these new tools and we are seeing positive results.
Thank you.
Thank you. Our next question comes from Shlomo Rosenbaum from Stifel. Your question please.
Thank you, Shuky. Can you just discuss customer spending behavior, what you saw in this quarter versus last quarter? Are your clients changing anything with the current uncertainties, or is it fairly consistent?
We don't see any change right now in customer spending behavior. Our clients were cautious earlier due to various macro factors. However, we have not noticed any alterations in spending habits following the last three or four months.
Great. And for Tamar, the accounts receivable (AR) has seen fluctuations after several quarters of going up. Is this due to certain unusual projects or a normal cadence?
The fluctuations in accounts receivable are due to various factors, including a combination of different projects. We are running large transformations in North America, contributing to these variations. There's a natural ebb and flow in invoicing versus recognition, and we can't definitively say that we've reached a peak. Progress is being made, and the invoicing cycle is working well. Moving forward, winning additional significant deals would further bolster our financials, but it's too early to predict specific outcomes.
If I may squeeze in one more, regarding the AI offerings, are there any significant contracting deals yet? Or are we still waiting for bigger referenceable clients?
We see good progress with data-related activities supporting GenAI. I can't disclose names, but we have a couple of customers making significant progress on the commercial side, and they may be referenceable soon.
Thank you.
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, operator, and thanks, everyone, for joining this evening. If you have additional questions, please reach out to us in the IR group. Have a great night.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.