AMDOCS LTD(DOX)Q3 2025 法說會逐字稿

Thank you for standing by, and welcome to the Amdocs Third Quarter 2025 Earnings Conference Call. 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.

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 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 posted immediately following the conclusion of today's call. On today's agenda, Shuky will recap our business and financial achievements for the third quarter and full fiscal year 2025. And he'll also 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 discussing our financial outlook for the full fiscal year 2025, after which Tamar will provide additional details on our third quarter financial performance and forward guidance. As we've 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 which were 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. Amdocs delivered solid financial results and achieved important business milestones in Q3 as our global team continues to support the strategic business needs of our customers with innovative cloud digital and AI-based solutions. In terms of quarterly financial highlights, revenue was $1.14 billion, up 3.5% year-over-year in pro forma constant currency, exceeding our guidance midpoint with sequential growth across all regions and a record quarter in Europe. Profitability improved by 10 basis points sequentially due to internal efficiency improvements. Non-GAAP diluted earnings per share was $1.72, which is $0.01 above our expectations, and we ended the quarter with a healthy 12-month backlog of $4.15 billion, reflecting an increase of 3% from last year in pro forma terms. Q3 showcased several significant wins that highlight Amdocs' market and technology leadership in meeting the critical needs of our telecommunications customers.

We have witnessed positive sales momentum in cloud services where we recently secured key modernization and migration deals, extending our long-standing partnerships with Elisa in Finland, Claro Brazil, and a leading Eastern European operator by leveraging our comprehensive cloud offerings and telco vertical expertise. In the growing area of generative AI and data services, our collaboration with NVIDIA and Microsoft is yielding results, and we are beginning to convert previously discussed proofs of concept into commercial successes. Notably, we recently secured a strategic Gen AI-related deal with three customers, including a leading U.S. service provider, Consumer Cellular, and e& UAE, which we believe will lay a foundation to showcase Amdocs' Gen AI capabilities and expand our customer engagements over time. In terms of project execution, Amdocs is involved in complex, mission-critical transformations, working closely with our customers as a key partner.

In Q3, we delivered a near-record number of deployments, achieving significant milestones at companies like AT&T, Comcast, Vodafone in Italy and the Netherlands, PLDT in the Philippines, and others. Among the highlights, Bell Canada collaborated with Amdocs to transition their critical billing system to the cloud, streamlining thousands of daily operations and interfaces. We also supported the launch of our B2B platform with Optus in Australia and completed BSS modernization for 25 million subscribers in Telekom South Africa. Furthermore, Q3 marked another record quarter in Managed Services, as we strengthened our engagements with several key customers, including a major service provider in the U.S., BT in the U.K., and Telstra in Australia. Our growth strategy aims to address customer needs and investment priorities, focusing on accelerating the journey to the cloud, simplifying the adoption of generative AI and data services, enhancing customer experiences, and automating complex network ecosystems.

This strategy is supported by Amdocs' unique tech-led business model that integrates innovative technology across platforms, solutions, project deployment, and IT operation support. By consistently investing in innovation, we are able to add value to our customers. Each engagement represents an opportunity to highlight our value proposition and expand activities with both existing and new clients. More customers are selecting Amdocs as their primary partner for public, private, and hybrid cloud migrations, using our comprehensive cloud solutions and telecommunications expertise. We are pleased to announce the expansion of our partnership with Elisa in Finland to modernize their B2B platform through Amdocs' CS digital suite on Google Cloud. This transformation will enable faster time to market, streamline the lead-to-order process, and deliver a unified experience across mobile and fixed services on a single converged digital platform, signifying a major forward step for Elisa's long-term B2B growth.

We are also excited to share a recent win with one of Eastern Europe's top service providers, who will utilize our cloud-based customer experience platform designed to enhance customer experience and operational agility. Additionally, Amdocs has formalized an agreement with Claro Brazil to modernize their enterprise systems. I would like to underscore Amdocs' robust lineup of SaaS-based cloud solutions, which are gaining traction in the market. Our offerings include ConnectX, which helps telecommunications companies launch powerful brands targeted to specific customer segments with tailored user experiences. Recently, Consumer Cellular and several other new clients adopted ConnectX, while we deepened our collaboration with AT&T to accelerate its next-generation market offerings. An example of ConnectX in action is MobiFone, a leading Vietnamese operator, which recently launched its new digital brand, Saymee, with the platform tailored for young tech-savvy Gen-Z subscribers.

Backed by strong sales momentum, we are optimistic about reaching our goal of double-digit revenue growth for cloud services by fiscal 2025, believing that cloud will remain a key growth driver for Amdocs as most customers embark on their multiyear migration journeys. We are intensifying our focus on generative AI and data services as a crucial growth area for Amdocs. Recently, a leading U.S. service provider signed an expanded multiyear agreement extending managed services to transform its billing, commerce catalog, and order management through AI-powered solutions. This includes a Gen AI-enabled bill presenter that simplifies billing inquiries and enhances customer experiences. Amdocs also expanded a multiyear agreement with Consumer Cellular as this wireless provider transitions to an AI-powered MVNE, building on our recent ConnectX deployment, leveraging Amdocs' AI and data platform for actionable insights and real-time predictive analytics.

Furthermore, we expanded our collaboration with e& UAE through new Gen AI use cases, following successful implementation of our MACE platform, which is a significant step toward enhancing all customer-facing channels with Gen AI. In Q3, we also experienced significant customer developments across our key strategic pillars. BT awarded Amdocs a digital transformation project aimed at improving customer experience as part of a multiyear managed services commitment. Comcast extended its multiyear agreement to utilize Amdocs Bill Presenter across its services. We have also extended our engagement with Telstra for multiyear OSS digitization to leverage our Gen AI and network automation capabilities. Additionally, AT&T renewed its managed services agreement with Amdocs, and Claro Brazil expedited its policy platform agreement with us to enhance service to its prepaid and postpaid customers. Globe Telecom in the Philippines selected Amdocs for end-to-end service optimization.

Also, in next-gen network monetization, A1 Group in Europe chose Amdocs' solutions to establish a converged, cloud-ready monetization platform for its Macedonian affiliates. As we look at the current operating environment, we continue to see a healthy pipeline of opportunities across our addressed market, which is nearly $60 billion. Our 12-month backlog is robust, and we are on course to meet our double-digit revenue growth target in the cloud this year. That said, we are vigilant regarding potential impacts from the uncertain global macroeconomic environment on customer spending behavior. We now anticipate slightly better revenue growth of about 2.9% in pro forma constant currency at the midpoint of our fiscal 2025 outlook, an improvement of around 20 basis points compared to prior guidance. Alongside this, we are on track to deliver a double-digit expected total shareholder return for the fifth consecutive year, assuming the midpoint of our non-GAAP diluted earnings per share outlook, which is supported by significantly enhanced profitability and strong earnings-to-cash conversion.

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 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 in modeling, the regional mix of this revenue was similar to the overall company, and it contributed roughly $150 million per quarter. To begin, I'm pleased with our solid financial performance for the third fiscal quarter as detailed on Slide 15. Q3 revenue of approximately $1.14 billion was up 3.5% year-over-year in pro forma constant currency and exceeded the midpoint of our guidance even after adjusting for a positive impact from foreign currency movements of approximately $9 million compared to our assumptions.

Reflecting the phaseout of certain business activities, reported revenue declined by 8.4% from a year ago. On a regional basis, North America improved by 1% sequentially, posting its strongest quarter of the fiscal year. Europe delivered a record quarter with year-over-year revenue growth of nearly 8% driven primarily by the ramp-up of new deal activities as well as some contribution from the earlier acquisition of Profinit, which we closed at the end of Q1. Rest of the world was slightly higher on a sequential basis. We continue to see mixed trends while Southeast Asia growth is partially offset by weakness in Latin America. Shifting down the income statement, non-GAAP operating margin of 21.4%, improved by 280 basis points from a year ago, reflecting the announced phaseout of the low-margin noncore business activities and the benefits of ongoing efficiency gains within our operations. Non-GAAP operating margin improved by 10 basis points sequentially.

Interest and other expenses amounted to roughly $11.7 million in the third quarter and included a one-time charge taken in respect to a $2.5 million write-off of a small minority investment this quarter. On the bottom line, non-GAAP diluted EPS of $1.72 was $0.01 above the midpoint of guidance, and diluted GAAP EPS of $1.39 was slightly above our guidance range in the third quarter. Turning to Slide 16. Revenue from Managed Services was a record $771 million in the third fiscal quarter, up 4.1% from a year ago. Accounting for roughly two-thirds of total revenue, Managed Services engagements are a key measure of Amdocs' long-term visibility and business resiliency, underpinned by customer renewal rates, which have historically approached 100%. To provide some recent examples of the ways in which we deliver value to our managed services customers over time. We recently signed a significant multiyear agreement, which extends and expands our managed services engagement with a leading U.S. service provider, leveraging our generative AI powered platform.

In Australia, Telstra extended its Managed Services engagement, continuing a multiyear OSS digitization, which will enable it to benefit from our Gen AI and network automation capabilities. And BT has awarded Amdocs a digital transformation project, starting dates to be finalized that will enhance their customer experience as a part of a multiyear managed services engagement. Moving to the balance sheet and cash flow highlights on Slide 17. DSO of 76 days was down by one day sequentially and up two days year-over-year, reflecting normal fluctuations in business activity. Unbilled receivables net of deferred revenue declined by $71 million sequentially in Q3, aggregating the short-term and long-term balances. This is the second consecutive quarter of sequential improvement in this metric as billings have been running higher than revenue. Overall, we ended Q3 with a healthy cash balance of approximately $342 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 18. This quarter, we repurchased $135 million of our shares. Including the new $1 billion share repurchase authorization approved by our Board last quarter, we have up to $1.12 billion of remaining repurchase authority as of June 30, 2025. We paid cash dividends of $59 million in the third fiscal quarter. Looking ahead, we are reiterating our annual free cash flow target of between $710 million to $730 million in fiscal 2025, which is before restructuring payments. 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 more than 7% relative to Amdocs' current market capitalization. Regarding our capital allocations in fiscal year 2025, we expect to return the majority of our free cash flow to shareholders. Moving to Slide 19, the 12-month backlog was $4.15 billion at the end of Q3, up 3% from a year ago on a pro forma basis.

We expect the 12-month 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 20. We are continuing to closely monitor the prevailing level of market economic, geopolitical business, and operational uncertainty in the current business environment. The fourth quarter and full fiscal year 2025 financial guidance reflects what we consider to be the most likely outcome based on the information we have today, but we cannot predict all possible scenarios. For the full fiscal year 2025, we now expect revenue growth of between 2.4% and 3.4% in pro forma constant currency, with the 2.9% midpoint equating to an improvement of roughly 20 basis points as compared with our previous outlook. Our annual guidance incorporates double-digit growth in cloud and some contribution from inorganic deal activity.

Thanks, Tamar. I'm pleased with our solid financial performance and business achievements in the third quarter, including our ongoing momentum in cloud and encouraging signs of commercial progress in Gen AI and data services. With our unique technology-led business model, we are on track to meet our financial targets for the full fiscal year. With that, we are happy to take your questions.

Certainly. And our first question for today comes from the line of George Notter from Wolfe Research.

I guess I wanted to start just by asking about the British Telecom win. Looking back, I don't think you guys did much business there. I guess I'm just wondering how big that opportunity is for you if you could size it; that would be very interesting. Also, if I go back in the last three or six months, you guys talked about some bigger deals kind of working through your pipeline. I assume you're referencing the BT transaction. And then also, I'm just curious if that BT situation is in backlog at this point or not.

The second question is not part of our backlog because it was finalized after June 30. We are engaged in a multiyear business relationship with what was previously known as Everything Everywhere, which has been acquired by British Telecom. They are currently using some of our legacy platform. This agreement is modernizing the entire commerce domain of Everything Everywhere. It involves a complete modernization project along with an extended managed services component to support all aspects there. Therefore, this represents a significant increase in activity compared to our prior engagements with Everything Everywhere, now known as BT.

And just to refer to your other point about having significant deals in the pipeline, we mentioned a couple of examples that were signed in the quarter, some of which, I would say, are important and strategic, not necessarily huge in size like Telstra and some of which, like the U.S. leading operator, which we cannot mention by name right now, is a significant deal, including modernization, including Gen AI, including multiyear managed services extension and expansion, so definitely an example of a deal that is in the other, I would say, scale in terms of sizing. So we see both, George. And yes, we continue to sign deals as we speak. So like it's cut in a way by cutoff point on June 30, but in reality, it continues, obviously, in the weeks since.

Got it. That's great. And then I guess I'd also just ask you about AI. I know you guys, I think, had around a dozen POCs going on with the MACE product I think, mainly in call center types of applications. So I was just curious about what kind of progress you're making there? Have you had customers convert from trial to production rollouts? Anything you can say there would be interesting too.

Thanks, George. We converted four different customers from trials to actual deals this quarter. One of them in the UAE involves expanding a previous deal we signed, and they will continue to build agents on the infrastructure we have established. For the other three customers we mentioned, we are installing our MACE platform and starting to develop use cases on top of it. We are also assisting the customer in organizing the data to support it. This includes a mix of care-related billing and care-related use cases, as well as commerce and upsell opportunities.

And our next question comes from the line of Shlomo Rosenbaum from Stifel.

It's great to hear about all the deals. I wanted to follow up on your comment, Tamar, regarding June 30 being a kind of cutoff point. It's the first time in many years that we've noticed a slight decrease in backlog, which is down $20 million. Can you discuss what's contributing to this change? Additionally, I'd like to inquire further about the AI deals. Could you elaborate on them? When do you expect us to see an incremental impact on revenue growth? This could help adjust our expectations for year-over-year revenue growth, even if just slightly.

Thanks, Shlomo. So when you look on backlog, as I always say, it's a good leading indicator as we look on the next 12 months backlog. And we continue to see nice year-over-year growth, 3% this quarter. You're right. Sequentially, it was down 20%. I'm less focused on that since eventually, the signing of deals can happen on August 1 and August 2, and you're right that it's unusual, but at the same time, we've seen deals being signed, like the BT1 that is a significant one and others. So we are focused on looking forward and continue to see the backlog is giving us great visibility. We talk about roughly 90%. I never take it as an accurate mathematical formula, but it is giving us a good coverage as we look forward, both in terms of understanding the revenue picture as well as the ability to plan, which is really important in terms of resources and how we are thinking about executing the deals and being prepared to do so.

And regarding Gen AI, we do see contribution already, but it's starting in small increments. And I think the importance, like the e& UAE example, which we've been talking about them adopting our MACE platform. And since then, every quarter, we see the adoption of additional use cases. So the idea is we get the customer excited about what they see, and we grow from them. And we bring the value, and hopefully, we can grow even further. And another layer I would mention is that the data-related services preparing for the Gen AI use cases is another important part and actually comes first typically in the cycle in terms of getting the data ready and the services associated with that as well as our Data One platform in order to help customers do so.

Our next question comes from the line of Timothy Horan from Oppenheimer.

The North American win, is that a relatively smaller customer that's going to become larger? Or can you give us some sense of how meaningful and material that is? And then on...

Timothy, it's a bigger customer that will become bigger.

Got it. On the SaaS products, can you tell us how meaningful that is to overall revenue or maybe just incremental revenue growth at this point? And I know you talked a lot about ConnectX. Are there other SaaS products that are doing well?

I will start to describe the SaaS products and Tamar can give more details. It's growing at a double-digit rate and serves as a growth engine for us. We have several SaaS products, including ConnectX, which is our monetization platform, and our eSIM platform. I believe we have developed these quite well, and in eSIM, we have over 40 customers worldwide, indicating increasing traction. Recently, ConnectX has been receiving a lot of attention due to our achievements there, with numerous customers engaged.

It's the newest one and one that we launched to the market several quarters ago, and we see very nice traction since addressing both the MVNO opportunity as well as the digital brands of the larger players, and people are really excited about that. We mentioned, for example, Consumer Cellular. It's a new win of last quarter. This quarter already, we've seen expansion of the business with them. So the momentum is being built. Now aggregating all of the revenue we see in the SaaS business, it's not in the hundreds of millions, but the fact that it's growing very nicely and it is obviously generating, as it scales up, nice margins is giving us the appetite, I would say, to invest more into these kinds of offerings.

And do you have a sense of where we are in the cloud migration by your customers? Maybe what percentage or what inning we're in? And do they recognize that they have to migrate to the cloud to really use Gen AI? And are they thinking that Gen AI is going to really help them move the needle fundamentally?

I believe these are two separate matters. While we are indeed utilizing Gen AI tools, many of Amdocs' customers have already begun their cloud migration journey. This process involves consulting and various activities to transition their platforms to the cloud, followed by migration, which is quite complex and not a quick project. We have numerous customers who are either starting or currently in the midst of migration, but I would estimate that only a few Amdocs customers have successfully completed this process. Nevertheless, we have initiated the journey with many customers, indicating that there is a significant amount of work still required in this area.

And last for Tamar, the margin expansion you saw this year, 60, 70 basis points. Do you think that's sustainable or repeatable?

We're not committing now to next year margin expansion. But the trajectory, I would say, of the ability to take technology and automation and definitely Gen AI now is an accelerated opportunity is definitely there, and it's in everything we do. At the same time, there's always a balancing act between how much we see productivity gains and how much we are investing into the business and the growth. So this is why I'm being careful to get ahead of ourselves and talk now explicitly about what's the margin number for 2026. But we continue to see the productivity gains. We continue to see the ability to take different capabilities that we have that are tech-led and build that into the way we do things internally.

And our next question comes from Tal Liani from Bank of America.

This is Tal Liani from Bank of America. I have two questions for you. The first one is about Gen AI. I know we've already discussed it, but I want to approach it from a different angle. What are your thoughts on the potential for Gen AI to significantly contribute to revenue over time, either as a stand-alone opportunity or as an accelerator for existing service lines? Do you think it's unrealistic to expect that in a year from now, Gen AI could be a meaningful contributor to revenues, or is that still a few years away?

I think 2025 will be a year of exploration. As we anticipated, we engaged in several proof of concepts throughout the year with customers assessing our capabilities to improve customer experience or reduce costs and enhance efficiencies. We are beginning to see these proof of concepts convert into commercial deals, although the pace is difficult to forecast. Additionally, a significant amount of investment is needed in the data layer to effectively capitalize on Gen AI opportunities, which Shuky refers to as the plumbing behind the data domain. We are already witnessing an increase in revenue in this area. While I can't predict the exact revenue contribution or the timeline for maturity, I remain optimistic as we observe the value and ongoing dialogues with customers. They are actively experimenting and progressing to commercial deployments. It's important to clarify that when we mention proof of concept, it involves real production environments and actual customer data demonstrating tangible improvements in key performance indicators. The foundations are in place; however, the impact on revenue is still yet to be determined.

Got it. I'm not asking for specific numbers, but as we approach the end of the year and move into fiscal year '26, could you discuss some of the broader demand trends you're observing across your service lines? Are there any structural or long-term factors that stand out to you that might suggest the growth rate for fiscal year '25 could increase or decrease in fiscal year '26, or are we seeing more consistent trends?

I think that from spending behavior, we see the same, still the same uncertainty that we discussed before. And because of different rates and macroeconomic tariffs, geopolitical and others. So we see the same interest rate cuts, etc. So we see the same pressure on spending, but it's the same. We don't see any change, I think, from this quarter to the previous quarter. We don't see any erosion. But at the same time, we don't see necessarily that these things are changing. But we believe we are navigating in pretty much the same environment that we have in the prior quarters.

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 the call. If you have any additional questions, please give us a call here in the IR department. And with that, have a great night. Thanks.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.