Prepared remarks
Thank you for standing by, and welcome to the Amdocs Fourth Quarter 2025 Earnings Conference Call. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir.
Thanks, operator. 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's 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 you can find on the Investor Relations section of our website.
And as always, a copy of today's prepared remarks will be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the fourth quarter and full fiscal year 2025 and will update you on our strategic progress, including our continued sales momentum in cloud and recent commercial developments in generative AI and data services. Shuky will finish by previewing our financial outlook for the full fiscal year 2026, after which Tamar will provide additional details on our Q4 financial performance and our 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 about $600 million to reflect the phaseout of certain low-margin noncore business activities, which was substantially already ceased in the first quarter of fiscal 2025. And 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 want to express my sincere appreciation to our global team as we close out another year of important progress. Your dedication and commitment have driven solid financial results, consistent with our guidance, and you did it while executing our strategy to support our telco customers with cutting-edge cloud, digital, and AI-based solutions. To briefly recap fiscal 2025, revenue grew by 3.1% in pro forma constant currency, which adjusts for our decision a year ago to phase out certain low-margin noncore business activities to sharpen Amdocs' strategic focus while also resulting in stronger business visibility. Among the many highlights, we delivered double-digit growth in cloud, which contributes over 30% of total revenue this year. Share of revenue for long-term managed services reached a record 66%, further supporting Amdocs' already strong business resilience.
Profitability improved by 300 basis points, including 60 basis points from ongoing business transformation and efficiency gains. We maintain our commitment to technology, innovation, and product leadership, tailoring our investments to serve our customer key business imperatives. These include B2B modernization, next-gen monetization, fiber networks, and of course, generative AI, where I am proud to say we made a successful transition from proof-of-concept trials to winning actual generative AI-related deals. Overall, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal 2025 and achieved our target to deliver double-digit expected total shareholder return, including our dividend yield. Now let's take a close look at our fourth quarter performance, beginning with the financial on Slide 7. Revenue of $1.15 billion was above the midpoint of guidance and up 2.8% from a year ago in pro forma constant currency.
Profitability improved by 20 basis points sequentially. Non-GAAP diluted earnings per share was $1.83, slightly above the guidance midpoint, and we finished the quarter with a 12-month backlog of $4.19 billion, up $40 million sequentially and 3.2% from a year ago. Growth in the 12-month backlog was driven by strong sales momentum this quarter, contributing to our overall long-term book of business. As Slide 8 shows, pipeline to deal conversion was well-balanced across our key operating regions and strategic domains, showcasing Amdocs' proven ability to scale our customer activities by continuously delivering fresh innovation over time. In cloud, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform, and we won new cloud modernization and migration awards at Lumen Technologies in the U.S. and TELUS in Canada.
We extended our recent momentum in the generative AI domain with an exciting new award at Telefonica Germany, and we expanded our international footprint with new monetization and digital modernization awards at BT-EE in the U.K., Altice SFR in France, Telia in Finland, KT in South Korea, and Claro Brazil. Several deals this quarter were struck under long-term managed services agreements, further deepening our customer relationship. This includes an exciting landmark multiyear strategic agreement with PLDT in the Philippines, which expands our long-term-standing managed service engagement to accelerate its IT modernization and streamline business processes through AI and generative AI capabilities. Rounding on operational highlights, Amdocs is engaged in the execution of complex mission-critical transformation projects, closely working with our customers as key partners. Q4 was another quarter of consistent execution in which we achieved important project milestones at AT&T, Comcast, Bell Canada, BT Everything Everywhere, Vodafone, PLDT, and e& UAE.
I'm also proud to say that Amdocs ensured smooth customer operation during the high-volume launch on Apple's iPhone 17 in September. Now turning to Slide 9. I would like to provide some additional color with respect to our growth strategy, which is designed to deliver the best products and services our customers need to accelerate the journey to the cloud, maximize the value of generative AI and data across our customer footprint, digitalize customer experiences for consumer and B2B, monetize next-generation network investments, and streamline and automate complex network ecosystems. Beginning with cloud on Slide 10. Demand for our cloud-native solution and proven ability to accelerate public, private, and hybrid cloud migration remains strong as we continue our strategy of moving mission-critical system, workloads, and applications that enable innovation, agility, and cost savings for all our customers.
In the U.S., Lumen Technologies selected Amdocs to support its cloud transformation, moving mission-critical BSS applications to Google Cloud to strengthen its digital foundation. TELUS in Canada expanded its multiyear managed service agreement with Amdocs to migrate on-premise wireless monetization operations to Google Cloud, enabling the faster launch of new consumer and enterprise offerings, improving customer experience and reliability and reducing operational costs. And Bell Canada, in collaboration with Amdocs, is migrating existing systems to the cloud to enhance scalability, resiliency, and achieve operational efficiencies. Our SaaS-based platforms, including Amdocs eSIM, Amdocs Market One, and Amdocs ConnectX are also contributing to growth with rising customer adoption. To provide a few examples, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform.
This continued to expand our eSIM SaaS platform momentum, adding over 100 million devices to it. Additionally, Amdocs ConnectX has already more than 15 customers, including Consumer Cellular and PLDT, who are deploying the generative AI-native platform to quickly launch existing new digital brands. Adding to the list, I'm pleased to announce that Orange Belgium has selected Amdocs to lead key modernization initiatives on their prepaid stack, leveraging our ConnectX platform. This project includes real-time charging and next-generation scalable architecture designed to support their needs. It will drive efficiency while transforming the user experiences with modern digital-first journeys that will redefine engagement for Orange Belgium prepaid subscribers. Looking forward, cloud will remain a primary focus for Amdocs, as we continue to support our global telco customer base, many of whom are only just getting started on their multiyear cloud journeys.
Now let's talk about generative AI and data on Slide 11. Following the generative AI-related deals we recently announced with e& UAE, Altice Optimum, and Consumer Cellular, I'm excited to report that Telefonica Germany, one of the country's largest quad-play service providers, has selected Amdocs to extend its billing platform for both consumer and enterprise services. As part of this expanded multiyear collaboration agreement, Telefonica Germany will deploy new generative AI use cases, leveraging Amdocs' amAIz Sales Agent to enable the efficient promotion of new products and to automate the upsell of personalized offers to drive higher ARPU. This award with Telefonica Germany is another proof point that shows that we are starting to see trial POC conversion to actual generative AI projects, and we are excited about the initial results we are seeing. For example, one of the first service providers to integrate generative AI was e& UAE, a customer which is already achieving double-digit improvement in Net Promoter Scores after deploying amAIz agents.
Such progress reflects Amdocs' core telco platform and data services expertise built on our vectorized amAIz platform, which we have deployed in collaboration with NVIDIA and other generative AI leaders. Moreover, I believe our recent success demonstrates the pivotal role Amdocs is playing as an IT player in helping accelerate generative AI adoption in the telecom industry. In addition to cloud and generative AI, we secured important wins in the strategic domain this quarter as highlighted on Slide 12. As previously announced, we finalized a significant 10-year digital modernization and managed service agreement with BT-EE in the U.K. to deliver a modern B2C mobile platform for its prepaid and postpaid segments. We signed a multiyear strategic agreement with Telia Finland to build its next-generation digital BSS enhanced with advanced AI capabilities. And AT&T Mexico closed a new digital program with Amdocs to enhance self-service experiences, expanding its digital selling capabilities.
Here in the U.S., we signed a multiyear software and IT service agreement with Fidium, a next-generation American fiber Internet and network service provider, a new logo for which Amdocs will modernize and manage its IT operation while supporting its broader digital transformation strategy. Elsewhere in the U.S., a leading Tier 2 operator selected Amdocs for an additional 5-year renewal of their BSS ecosystem. Service providers are also adopting next-generation monetization solutions to support their wireless and fiber infrastructure elements. Amdocs recently signed an expanded multiyear billing transformation agreement with Altice, France's SFR, to consolidate multiple billing operations into a unified cloud-ready platform. We signed a new agreement with South Korea's telecom operator, KT, to upgrade and modernize its charging system to accelerate time to market and boost operational efficiency.
This quarter was also notable as we expanded our activities with the two largest operators in Brazil. First, Amdocs entered an agreement with Claro Brazil to implement a real-time billing platform designed to enable full-scale convergence across its multiple lines of business. Claro also extended its multiyear service contract with Amdocs. Second, in the network domain, we signed a modernization agreement with Telefonica Vivo to provide a future-ready foundation for ongoing operations by deploying our latest OSS products. Further underlying Amdocs' expertise and growth potential in the network domain, we have expanded our managed services agreement with Globe in the Philippines to include network strategy and planning, mobile access engineering, and optimization to enhance service quality and operational agility. Additionally, we delivered a successful go-live of Amdocs' advanced network inventory platform for Vodafone Ireland and continue to expand our network activities with Vodafone Greece.
Before discussing our fiscal 2026 outlook, I wanted to circle back on generative AI to share our thoughts on our strategy and investment plans as presented on Slide 14. Over the past couple of years, we've shared our belief that generative AI holds immense potential to transform the telecom industry. We've been working closely with our customers to deliver tangible improvement in critical areas such as customer care and network operation while building out generative AI capabilities in our amAIz platform. As the technology matures and the industry advances, we see the progression from POCs to production. We believe there is now the potential to unlock even greater opportunities to enhance experiences, agility, and efficiency. To fully capture this potential for Amdocs and for our customers, we are accelerating our generative AI investment, which we expect will open new pathways for future growth across our entire customer base, irrespective of their BSS or SS version.
This includes fast-tracking the development of what we call a Cognitive Core, a next-generation platform built on the solid foundation of Amdocs amAIz. It integrates advanced generative AI capabilities such as agent-to-agent MCP technologies, our vectorized telecom expertise, and the enablement of agentic services. In the coming quarters, we'll share more about our vision for an AI-powered telecom operating system. For our customers, this investment in generative AI may represent a substantial shift in how they will adopt future software and services. Notably, we believe it promises to simplify and accelerate their digital transformation and journey to the cloud delivered under our outcome-based model. Overall, with focused and intentional investment, we expect Cognitive Core to emerge as a long-term growth engine for Amdocs by enabling us to better serve our full spectrum of customers, from those running current platforms seeking cost-effective line of business modernization to top-tier innovators already modernizing on Amdocs' next-gen platform to lead with future-ready digital experiences.
Now let me comment on the current operating environment and our outlook for fiscal year 2026. We are entering fiscal 2026 with a strong 12-month backlog and a solid portfolio of long-term business driven by recent wins. With our unique technology-led and outcome-based accountability model, Amdocs is well positioned within our addressable market of nearly $60 billion to capitalize on a robust pipeline of opportunities in cloud, digital networks, and generative AI and data. However, we are closely monitoring any effects of the uncertain global macroeconomic environment on our customers' demand and spending behavior. Regarding our outlook, we expect revenue growth between 1.7% and 5.7% as reported and 1.0% to 5.0% in constant currency for the full year of fiscal 2026. In terms of profitability, we anticipate a non-GAAP operating margin increase of approximately 20 basis points year-over-year at the midpoint of our target range as we balance strategic long-term growth investments with ongoing cost and efficiency improvements.
Overall, we expect non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026, with the midpoint indicating an anticipated total shareholder return in the high single digits, including our dividend.
Thank you, Shuky, and hello, everyone. Thank you for joining us. Before I begin my comments, I will compare certain financial metrics on a pro forma basis, which adjusts prior year fiscal year 2024 revenue by approximately $600 million to reflect the phaseout of certain low-margin noncore 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 overall company and it contributed roughly $150 million per quarter. To begin, I'm pleased with our solid financial performance for the fourth fiscal quarter as detailed on Slide 18. Q4 revenue of approximately $1.15 billion was up 2.8% year-over-year in pro forma constant currency. Revenue exceeded the midpoint of our guidance with no impact from foreign currency movements as compared to our guidance assumptions. Reflecting the phaseout of certain business activities, reported revenue declined by 9% from a year ago.
On a regional basis, North America improved more than 2% sequentially, posting its strongest quarter of the fiscal year. Europe declined, reflecting normal business fluctuations following a record quarter in the previous quarter. The rest of the world was slightly lower on a sequential basis, reflecting mixed trends. With our strong sales momentum, we have clear visibility to continued growth in the Rest of the World, but quarterly trends may fluctuate given the project orientation of our customer activities in this region. Shifting down the income statement, non-GAAP operating margin of 21.6% improved by 290 basis points from a year ago, driven by the announced phaseout of low-margin noncore business activities and the benefit of ongoing efficiency gains within our operations. Non-GAAP operating margin improved by 20 basis points sequentially. Interest and other expenses amounted to roughly $10.3 million in Q4.
On the bottom line, non-GAAP diluted EPS of $1.83 was slightly above the midpoint of guidance. Diluted GAAP EPS of $0.88 included a restructuring charge of $0.60 per share, resulting from certain transformational actions we have taken to optimize our workforce allocation, technology mix, infrastructure, workspace, and other resources as we prepare to accelerate the internal adoption of generative AI in fiscal 2026. Excluding this restructuring charge, diluted GAAP was at the high end of the $1.41 to $1.49 guidance range. To quickly summarize our full-year 2025 financial performance, results were consistent with the original guidance we provided a year ago, as shown on Slide 19. Revenue was up 3.1% in pro forma constant currency, above the midpoint of guidance. On the bottom line, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal year 2025, consistent with the midpoint of guidance and driven by sustained revenue growth, a 300 basis points improvement in non-GAAP operating profitability, and the benefits of our share repurchase activity.
Turning to Slide 20, this year, we delivered double-digit growth in cloud, which exceeded 30% of overall revenue as compared with roughly 25% in the prior year. Further highlighting the ongoing diversification of our business and growing traction in international markets, half of our top 12 customers are international customers, two of which are new logos added in the last 10 years, as Slide 20 shows. Additionally, we continue to expand our footprint with long-standing customers and new logos in North America. A great example is Charter, with which we had limited business a decade ago but is now one of our top 10 customers. Over the years, we have also added new logos in North America, such as Consumer Cellular and Fidium in fiscal 2025. Turning to Slide 21. Managed Services revenue was a record $3 billion in fiscal 2025, up 3.1% from a year ago. Managed Services as a share of overall revenue also reached a new high of 66% in fiscal 2025, further strengthening our business resilience as we maintained high renewal rates and expanded our customer activities under long-term agreements.
As Shuky alluded to earlier, several of our key deals signed in the fourth quarter were struck under multiyear managed services engagements, the most significant being our landmark agreement with PLDT from the Philippines, for which Amdocs will manage its complete IT services requirements, covering architecture, implementation, operations, and performance outcomes with end-to-end accountability. Additionally, we expanded our managed services agreements with Globe in the Philippines to include network operations, and TELUS in Canada to cover the migration of its wireless monetization operations to Google Cloud. Managed Services can also be a spearhead to winning new customer logos, such was the case with Fidium in the U.S., for which Amdocs will serve as the primary and exclusive partner to maintain and operate its ID fiber operation across multiple applications while supporting its IT transformation as a preferred development partner.
Moving to the balance sheet and cash flow highlights on Slide 22. DSO of 74 days was down by 2 days sequentially and unchanged year-over-year, reflecting normal fluctuations in the business activity. Unbilled receivables, net of deferred revenue, rose by $62 million sequentially in Q4 and was relatively flat compared to a year ago, aggregating both the 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 multiyear transformation programs. Driven by a strong fourth quarter, free cash flow before restructuring payments was $735 million in fiscal 2025 and above our guidance range of $710 million to $730 million. Including restructuring payments of $90 million, reported free cash flow was $645 million for the year. Overall, we finished fiscal 2025 with a healthy cash balance of approximately $325 million and an available $500 million revolving credit facility, providing ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth.
Switching to capital allocation on Slide 23. This quarter, we repurchased $136 million of our shares. We had up to $1 billion of remaining repurchase authority as of September 30, 2025. We paid cash dividends of $58 million in the fourth fiscal quarter. Looking to fiscal 2026, we expect free cash flow of between $710 million to $730 million, not including additional payments we expect to make under our current restructuring program. Our free cash flow outlook equates to a conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 8% relative to Amdocs' current market capitalization. Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders. This includes dividends, for which we are pleased to announce a proposed 8% increase in our quarterly cash payment to a new rate of $0.569 per share, subject to shareholders' approval at the Annual Meeting in January 2026.
Moving to Slide 24. Our 12-month backlog was $4.19 billion at the end of Q4, up 3.2% from a year ago. We expect the 12-month backlog to represent roughly 90% of our 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 25. We are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business, and operational uncertainty in the current business environment. The first quarter and the full-year fiscal 2026 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. For the full fiscal year 2026, we expect revenue growth of between 1.7% and 5.7% as reported and between 1% to 5% in constant currency. We expect our strong sales momentum in fiscal 2025 to contribute to fiscal year 2026 revenue growth, and we assume a stronger second half to the fiscal year as we ramp up activities on recently secured deals.
On the other hand, our fiscal year 2026 revenue guidance assumes a revenue decline at T-Mobile due to reduced discretionary spending. Our annual guidance also incorporates some contribution from inorganic deal activity. As for the first fiscal quarter, we expect revenue between $1.135 billion to $1.175 billion. Moving down the income statement, we expect non-GAAP operating margins within a new and improved target range of 21.3% to 21.9% in fiscal 2026, the midpoint of which is roughly 20 basis points higher than the prior year. Our profitability outlook reflects an intentional decision to accelerate our R&D, sales, and marketing investments concerning generative AI and the next-generation Cognitive Core platform while balancing this with ongoing cost and efficiency gains resulting from our continued focus on operational excellence, automation, and the internal deployment of generative AI-based tools across our business.
Our margin outlook excludes additional restructuring charges we may take. Wrapping everything together on Slide 27, we expect to deliver non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026. This outlook assumes pressure from below-the-line items in the year ahead. We anticipate a moderate increase in our non-GAAP effective tax rate to a rate for fiscal year 2026 of between 16% to 19%, primarily driven by a combination of regulatory changes, including the implementation of the Pillar 2 global minimum tax and other evolving international tax requirements. In the first fiscal quarter of 2026, our non-GAAP effective tax rate is expected to be above the annual range. Additionally, we anticipate higher finance costs this year, resulting from a reduced cash balance and funding of our strategic long-term growth plans. Overall, we expect to deliver high single-digit total shareholders' return in fiscal 2026, assuming the 6% midpoint of our non-GAAP diluted EPS growth outlook plus our dividend yield of roughly 2.7% based on the new dividend payment we announced today.
Thank you, Tamar. I'm pleased with our solid financial performance and continued strategic progress in fiscal 2025, and I'm excited by our technological leadership and potential to open new growth opportunities by accelerating our generative AI investment in the year ahead. With that, we are happy to take your questions.
Questions and answers
And our first question for today comes from the line of Timothy Horan from Oppenheimer.
You've had a lot more experience with AI at this point. Can you just talk about maybe qualitatively how impactful you think it will be to the telecom industry? And how much can you think improve productivity over time and generate new services? And related to that, I guess the same thing internally, how much can it improve your own productivity internally? I realize you are reinvesting a lot of that productivity in R&D and in investing for longer-term growth?
Thank you, Tim. We are enhancing our offerings in the generative AI space. As you mentioned, we are increasingly integrating generative AI capabilities into our software development processes and operations. This gradual improvement is yielding benefits in terms of cost, quality, speed, and various aspects of using this technology. From our customers' standpoint, the initial offerings we are deploying and successfully converting proofs of concept into actual deals mainly consisted of add-ons to existing systems, including some agents for call center support in care and commerce. We're currently implementing these capabilities with numerous customers and achieving significant success. The next step in generative AI development, which we discussed today, is what we refer to as Cognitive Core. This involves adding a new layer to our business support systems, creating a model that can facilitate agent-to-agent interactions and fundamentally change how we operate today. The investment we mentioned, which we plan to accelerate this year, aims to establish this layer. While it will take time to implement, we anticipate that it will provide exciting new capabilities to our customers in the agentic domain. We believe this will serve as a significant growth driver for Amdocs in the coming years.
And do you have a rough idea when that will hit the market?
Mid-2026.
And our next question comes from the line of George Notter from Wolfe Research.
I wanted to discuss the decision to allocate more capital to the business from a research and development standpoint. I understand your focus on enhancing agentic capabilities. I'm curious about the trade-offs involved. You're integrating AI internally and have achieved 60 to 70 basis points of efficiency annually. For the upcoming year, it seems that will reduce to about 20 basis points. Is this incremental 50 basis points investment the right way to frame it? Or are there other growth factors we should consider?
Yes. Most of the margin story here is this intentional decision to invest more into this opportunity that we see as an exciting one. So at the same time, as you said, we are continuing to enjoy the productivity gains, but we do want to reinvest in making sure we are capturing this growth opportunity. It's not just R&D; it's also in the sales and marketing aspects, the go-to-market, how we are going to support and accelerate our coverage of the different opportunities in the pipeline. So I would say it's both. And definitely, we would like to see that keeping and accelerating the momentum we think we can bring on that aspect. We talked in the last two quarters about the fact that we are moving from proof of concept and feasibility to actual commercial deals. We continue to see that with the examples of Telefonica Germany we mentioned now and etisalat is much more mature and adding more and more use cases. PLDT, as part of a large mega deal that we just signed, is going to include adoption of our amAIz platform. So we are continuing to see more and more commercial pickup on that aspect and think that there's a great opportunity there.
Got it. Okay. And then also, I just wanted to ask about your conversations with customers. Obviously, the company prices its contracts, its business on outcomes, not on a billable hours times rate model. I get that. But I assume your customers do expect that you're using AI internally to improve efficiency. And I'm wondering if there's some expectation from customers to get better pricing or contract prices from you guys as part of that realization. I'd like to hear more about how those conversations are going. And at the moment of contracting with customers, are you seeing that pricing impact or pressure roll down onto Amdocs or not?
So this is not new. I mean, yes, now I think the most discussed item is generative AI, but we have the situation pretty much in every renewal situation. Over then, we changed technology and moved to the cloud. So technology is evolving. Definitely, there is discussion like this with generative AI. What we are trying to do, obviously, is that our business model is, for the most part, as you mentioned, outcome-based. So this is helping a bit. And I think what is more important is that whenever we renew or sign a new agreement, we are doing a lot of effort to completely change the scope of the agreement by adding transformation to the cloud, generative AI capabilities, and other automation and other products that we have. So yes, there is pressure. Customers expect to see savings. But as you mentioned, because we are not in a rate cut type of relationship as part of this discussion, on one hand, we show the customer efficiencies; on the other hand, we're expanding the scope of our activities. We're adding new products and new services and GenAI capabilities. So between the two, I think we are doing a pretty good job in minimizing the impact.
And just to add on that, George, our offering is very rich. Typically, what happens is as we get into these dialogues with customers looking on their own on total cost of ownership, how they want to achieve these kinds of savings or what benefits they're looking for in terms of improving customer experience and other pain points they have. Engaging in this dialogue, we have a lot of tools to go back to Shuky's point of mentioning additional scope. So we can take a bigger wallet share of what they need to invest in and give them the benefits that they're looking for. So it's not just a dialogue on, 'Okay, what do we do for you right now,' and how are we pricing it moving forward? It's a whole different dialogue that is emerging. We've seen this quarter a lot of Managed Services expansion and extensions, and that has been part of these discussions. As you can see, we're expanding the 12 months backlog beyond that. I feel very good about the fact that it's expanding our book of business beyond the 12 months that we are including in the backlog. So I think the method works. We can bring them that value while giving them the TCR reduction they're looking for and looking at how to bring more and more of our offerings to support their needs.
Our next question comes from Tal Liani from Bank of America.
I have about five questions, so please stop me if I go overboard. First, cash flow is projected to decrease next year. Why is that? I’m not asking these in any specific order, so I might throw two questions out at once. Regarding growth, based on your midpoint on a constant currency basis, it doesn't seem to show much acceleration compared to this year and is slightly below what the market expected. What are the factors influencing this growth? You've also mentioned that T-Mobile is projected to decline in 2026. Can you elaborate on the positive aspects and the areas that are more flat or declining? I thought that after discontinuing some businesses, growth would pick up from where we are now or where we were before.
Thanks, Tal. So I'll address the cash flow first. We ended the adjusted cash flow for 2025 of $735 million, but we started the year with exactly the same guidance range that we are starting now, $710 million to $730 million. We want to be appropriately conservative. So I don't see that as a cash flow decline. We are more or less at the same level. When we are looking into the question into the revenue growth, as you rightfully articulated, we are seeing, on the one hand, an amazing sales quarter finishing 2025. We are very happy about the deals we've signed. A lot of that momentum on the sales will contribute more to the second half of the year as it naturally takes us more time to ramp up deals that we are capturing. So that's why we said that within fiscal year '26, we will see stronger second half growth. At the same time, we see the pressure of lower discretionary spending in T-Mobile, and this is why we feel we want to be absolutely transparent about the decline we expect there.
It is a major customer. I just want to give some context. T-Mobile has been a long-term relationship for us. We are supporting their billing activities across all their key brands, Magenta, MetroPCS, now UScellular. This is obviously a core activity of what we do for them, and we are very focused on continuing to bring value. But at the same time, we need to acknowledge the fact that they are reducing some discretionary spending. So yes, there are positives and some negatives. But I believe that overall, looking at the sales activity and how strong we finished 2025, we feel good about our future.
Tamar, can you provide more details about your top 10 customers? Typically, this disclosure is made around this time of year if the data is available. Regarding T-Mobile, they recently announced that they are beginning to transfer customers to a new billing system. Is this the conclusion of a project, which could explain the decline in revenues? Is it common for large transformational projects to show a decrease towards the end? When you mention discretionary spending, it seems like some things are being postponed. I'm curious if these are being postponed or deprioritized in comparison to the completion of the major contract.
So Tal, regarding the top customers, we usually provide this information in our annual report coming out in December, and we will do the same this year. As I mentioned earlier, we are pleased to see our customer diversification improving, with more customers reaching significant levels in our business. This includes several international names we've recently added, as well as relationships that were small in the past, such as Charter, which is now one of our top customers. Regarding our relationship with T-Mobile, we cannot discuss specific projects or program plans on an individual customer basis. However, I can assure you that we have incorporated all reasonable assumptions concerning our relationships into the guidance we’ve provided. We will have more information to share in the future, but I believe we’ve accounted for everything we know at this point in our guidance.
Got it. Last question. I promised you five questions. So for the last question, in the past year, you implemented AI to improve margins and reduce costs, and you've achieved that very successfully. Now you're discussing increased costs. Can you explain the margin trajectory? On one hand, you are cutting expenses, but on the other hand, you are increasing spending. What is driving this increase in expenditure, and how soon could it lead to accelerated growth?
Congratulations on the award. The best way to convey this is that without the tools and capabilities we've developed with generative AI in our software development life cycle, and across all engineering activities, including operations, we could face pressure on margins. Despite accelerating our investment in developing next-generation generative AI capabilities around our core system, we are still experiencing a moderate increase of 20 basis points in margins. This is possible because of the capabilities we've developed, which allow us to conduct our work more efficiently, with higher quality and speed.
Got it. So if I take a step back for investors that are long-term and looking at Amdocs as a kind of safe, relatively low-risk investment for the long term. The question that I'm asking is you've had tremendous success in the last 1 or 2 years with big projects with big customers, you are doing great in cloud. You're doing good. We start to see signs of generative AI. But the growth is still the same in a sense that even before you decided to discontinue some operations, you were growing between 3% to 4%. Now the guidance is for the same growth, maybe it accelerates in the second half, but we're still in the same neighborhood of growth. The question is, if you look out, without giving us guidance for growth, like specific guidance, but when you look out and you say where you want to position the company as a CEO a few years down the road, do you think that what you're doing today and your activity in cloud and your activity in generative AI, could it change the growth profile of the company? Meaning can you grow sustainably above the current 3% to 4% going into new markets and new TAMs? So sorry, it's a long-winded question, but I'm just trying to understand kind of the longer term, what you have in mind, the longer-term goals for the company in terms of growth.
I think the answer will be shorter than the question. But I think in the last couple of years, the main growth engine for Amdocs was the cloud. In order for us to break this 3% and to go to a mid-single digit that we would like to be, we need more than one growth engine. As big as it is, it's become already 30%. We really believe that with the investments we do and with unique offerings, we are going to have more than one significant growth engine like cloud, and we believe that what we are developing right now in generative AI will be another one. The answer to your question is that if we establish two or three growth engines, then we can be there, and this is our intention.
And our next question comes from the line of Shlomo Rosenbaum from Stifel.
This is Adam, on for Shlomo. What is the organic constant currency growth implied in the guidance for fiscal 1Q '26 and the full year '26? There's some commentary around some contributions from inorganic deal activity. If you could talk about that, please.
We expect to have roughly half coming from inorganic. When we started 2025 as well, we talked about some inorganic contribution, and eventually, it was less than half of the growth. So we leave some flexibility for that, of course. If you look back on the type of deals we signed even this quarter in Q4, we already see a direct relation to past acquisitions and the benefit it's bringing. So we feel this is a very important way for us to capture strategic growth opportunities, whether it's fiber; some of those small deals that we've done in 2025 was around the fiber growth opportunity as an example. So we want that lever to stay open and contribute to the company.
Okay. And the change in AI spend, where are you seeing customers put their budgets and capital? And how does that match up to the areas where you're stepping up investments in generative AI?
So far, most of the investment is focused on building agents and use cases to enhance activities in the call center, particularly for our digital applications related to commerce and care. What we've developed so far is centered around generative AI, which relies heavily on data preparation to ensure real-time availability to support the agents. Currently, we are discussing a significantly different scale of operations. This involves augmenting our core billing and monetization systems with a cognitive core layer, which will enable enhanced capabilities between agents. This advancement represents a larger scale of capabilities that will benefit every Amdocs customer globally. We believe that in terms of scale, this presents a much greater opportunity than what we've achieved to date.
Okay. And there was some commentary about some pressure from below-the-line items just on the modeling side. What areas specifically are you referring to and what's driving that?
Referring specifically to tax rates as we see more regulatory changes around the world, like the Pillar 2 minimum tax as well as other countries that are putting some new regulations. We elevated the effective tax rate range from 15% to 17% to 16% to 19%. So that would be one point. The other one is financing costs. As we are starting the year with a lower cash balance and continue to have plans to invest in some strategic growth areas, we will see some higher finance expense costs. So that's what we refer to as items below the operating income line.
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.
Okay. Thanks, operator. Thanks, everyone, for joining the call tonight. If you've got any additional questions, please give us a call in the IR group here. And with that, have a great evening. 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.