Amdocs Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

Key Takeaways

  • Amdocs reported record revenue of $4.8 billion in fiscal 2023, up 7.7% in constant currency, with cloud activities exceeding 20% of total revenue and a 12-month backlog of $4.15 billion.
  • Their three-pillar generative AI strategy embeds AI into the CES product suite, offers industry-tailored solutions, and leverages partnerships with Microsoft and NVIDIA to boost customer efficiency and innovation.
  • Cloud momentum remained strong with double-digit cloud revenue growth, new engagements at AT&T, T-Mobile, 3 UK, Bell Canada and others, and the acquisition of Astadia to enhance end-to-end cloud migration and managed services.
  • Looking to fiscal 2024, Amdocs forecasts 1–5% revenue growth, continued double-digit cloud expansion, a non-GAAP operating margin of 18.1–18.7%, and a 10% increase in its quarterly cash dividend.
  • A resilient business model delivered robust free cash flow ($698 million in FY 2023), near-100% cash conversion, 100% managed services renewal rates, and a commitment to return the majority of FCF to shareholders.
AI Generated. May Contain Errors.
Earnings Conference Call
Amdocs Q4 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Thank you for standing by, and welcome to Amdocs' 4th Quarter Fiscal 'twenty three Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentations, there will be a question and answer session. As a reminder, today's call is being recorded. I would now like to turn the conference to your host, Mr.

Operator

Matt Smith, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Before we begin, I need to call your attention to our disclaimer statements on Slide 2 of the presentation. Note that some of the 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 ks. Participating on the call with me today are Shuky Shepherd, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport Dagim, Chief Financial and Operating Officer.

Speaker 1

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 We'll also be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the full year fiscal 2023 and I will update you on the continued progress we've made executing against our strategic growth framework, including exciting developments in cloud and generative AR.

Speaker 2

Thank you, Steve.

Speaker 1

We'll finish by commenting on our financial outlook for the full fiscal year 'twenty four, after which Tamar will provide additional details on our Q4 financial performance, our forward guidance And with that, I'll turn it over to Shuky.

Speaker 2

Go ahead. Thanks, Matt, and good afternoon to everyone joining us on the call today. To begin, I want to sincerely thank our talented and diverse group of global employees for a successful 2023, In which we continue to bring value to our customers while developing the innovative technology that forms the backbone of today's seamless digital world. Also, I would like to express my deep gratitude to our employees in Israel, which in the days following the horrific attack on October 7, I've shown tremendous resilience, dedication and commitment to Amdocs and each other. My heartfelt sympathies go to all of those We have lost loved ones who are directly suffering because of these terrible events.

Speaker 2

As a global company, We support a development center around the world. I'm proud the way Amdocs family has come together to support one each other on business mix And we will continue to give absolute priority to the safety and well-being of our people, doing everything necessary to ensure they have the support they need to navigate in difficult time. With that said, I'm pleased to report solid 4th quarter results Consistent with our guidance, wrapping up another strong year of healthy profitable revenue growth and robust free cash flow generation in fiscal 2020. Summarizing the fiscal year highlights on Slide 7. Record revenue of approximately 4,800,000,000 Grew 7.7% in constant currency as we supported our customer multi year journey to the cloud, digital modernization, Network automation and the deployment of monetization of 5 gs and fiber networks.

Speaker 2

We're also excited to report The revenue from cloud activities grew at a double digit rate and exceeded 20% With our Amdocs total revenue for the first time in fiscal 2023. Gross Insurance backlog was record $4,150,000,000 Up approximately 4.5% for a year ago and we delivered double digit non GAAP diluted EPS growth 11.5 percent, well above the 10% midpoint of our original outlook, reflecting top line growth, margin expansion and our consistent cash return to shareholders. Turning to Slide 8. Vista 2023 was another year of strong market recognition And many key wins as we continue to play a key word in our customer modernization journey. We significantly expanded activities within T Mobile, Cloud based digital transformation and continue to focus AT and T's multi year modernization.

Speaker 2

Additionally, We won major awards at Bay Canada, 3 UK, Globe and PDP in the Philippines and many other customers, Including partnership with Disney, which handles ubiquity is providing a direct to consumer platform support. Our global addressable activities and customer wins translated to a strong performance across regions in fiscal 2023. North America has a record deal as the Europe, which delivers strong double digit growth as we progress several amortization projects on behalf of leading operators Like Vodafone, Wintra in Italy and Group in Multicolor Affiliates. Rest of the world grew sequentially in Q4, Delivering strongest quarter in 4 years as we supported activities at Globe and PTT in the Philippines and M1 in Singapore. For fiscal 2023, overall rest of the world was lower for the year.

Speaker 2

Focus execution was another hallmark of fiscal 2023 As measured by a record number of project milestone achievements, Andros will continue to support 5 gs fixed wireless Across expansion in North America, including launch at T Mobile and AT and T, as well as the strategic mobile offering with Comcast, Charter and NFTs. Overseas, we execute successful deliverables at 3 UK, Vodafone, Axis Poland in Southeast Asia and many others. Bennett services and other record deal, which includes recent multiyear expansion in the U. K. And expansion in Europe, Bonifour, Netherlands, As well as AT and T Cricket, DISH Network, Globe Telecom and other customers as reported earlier in the year.

Speaker 2

We also strengthened our managed services offering, launching our next generation Amdocs Cloud Management platform, Which integrate generative AI capabilities from our Remaze framework to enhance operating efficiency and agility. Now moving to Slide 9, I I would like to update you with respect to our growth strategy, the aim of which is to bring the market leading innovation our customer needs to accelerate the journey to the cloud, Create seamless digital experiences for consumer and B2B, launch and monetize new 5 gs services and deliver dynamic connected experiences with real time automated networks. Let me begin our webinar with generative AI, Which following the strategy we outlined last quarter, I would like to provide an update as we accelerate execution across the various domains. We think of our generative AI strategy in 3 pillars. 1st, the infusion of generative AI into our CES product suite, including Copilot capabilities, EngenAI's native functions, the flagship products via enterprise catalog, CPQ and monetization platforms.

Speaker 2

As a reminder, all of these capabilities are powered by our recently launched image NII framework, which Our proprietary telephone taxonomy that improve accuracy and ensure content aware responses, A library of industry tailored use cases keeps the packaged common functionality and importantly a robust Crafted AI layer that provides data security, observability and control. 2nd, We are providing a foundation that leverage generative AI to address key telecom industry challenges by bringing together our digital communication expertise A unique step for taxonomy to help our customers accelerate their adoption of generative AI. 3rd, we are building strategic partnership in the space. We clearly announced our engagement with Microsoft, where we are collaborating to integrate Microsoft's capabilities into our customer engagement platform, By leveraging Microsoft's OpenAI capabilities across our portfolio. Today, we also announced a partnership with NVIDIA, A world leader in our infrastructure.

Speaker 2

Together with the focus on utilizing the NVIDIA generative AI ecosystem To accelerate adoption and innovate to realize some of the industry's largest opportunities, sorry, from network operation For customer care, in general, we are working alongside several large flagship customers to prioritize high value developments of generative AI. Time to focus on where we expect to achieve meaningful financial and operational benefits for customers as a result. It's important to highlight that data plays an important role in the utility of generative AI. To that end, We continue to execute on our data strategy, which focus on cleansing, normalization and clarification The best data generated and stored by our industry, while at the same time ensuring it is readily accessible for generative AI tools. Finally, we continue to grow our use of generative AI capabilities to drive productivity and efficiency across Amdocs' organization, particularly in software development and operations, and we expect to generate ongoing benefits.

Speaker 2

Moving to the cloud on Slide 10. Customer momentum accelerated in fiscal 2023, Reflecting ongoing cloud programs with AT and T and T Mobile and new engagement with 3 UK, Bonneville Ireland, Wintrade, PZT, Bell Canada, Taylors and Claro Brasil. Our win momentum continued in Q4. AT and T Mexico extended an agreement with Andox to provide ongoing operations of all services for Andox application being moved to the public cloud. Andro's board is well with Rogers in alignment with the real time rating and metering program.

Speaker 2

This extended responsibility involves We're landing Rogers' cloud infrastructure to facilitate seamless processes such as CICD pipeline, Network integration and quality engineering testing and product deployment certification. Additionally, Australia TPG Telecom We wanted Amdocs and Multiyear Bill to modernize and consolidate TTG's modernization platform on AWS, replacing the cloud interface. Our ongoing list of cloud customer activities reflect Amdocs' unique telco industry expertise, robust product offering, Leading webscale provider partnerships and an ability to remove complexity by delivering end to end fully accountable cloud migration paths. Moreover, we continue to invest in our offering as we aim to further accelerate the industry's cloud journey. For instance, Service Providers now have the option to migrate the Amdocs classic application to Microsoft Azure or Oracle Cloud Infrastructure, enabling them to leverage existing investments while taking advantage of our less than 3 years portfolio.

Speaker 2

Additionally, I'm pleased to announce the recent acquisition of Astadia, which accelerates our customer cloud offering to include highly sophisticated Mention to cloud migration and modernization end to end from consulting to managed services. Moving to Slide 11. Andof's remain critical to enabling our customer digital modernization journeys, including the B2B segment, Well, service provider has potential to improve their market position with next generation IT, including the Andox Customer Engagement Platform, we launched in partnership with Microsoft. As a reminder, Ammos is already progressing 2 of the world's largest B2B transformation project in Comcast and T Mobile. Another great example is Australia Optics, We recently elected to modernize its enterprise operation with Amdocs cloud native B2B portfolio, enabling it To simplify and accelerate the sales journey of Optus agents with end to end automated order fulfillment.

Speaker 2

Elsewhere, Andros is working with India's Bauti AirTel to accelerate digital transformation in implementing an innovative monetization platform And automating billing processes to enhance end to end user experience. In Dubai, we work with EPI Salat Ian, who revolutionized their in store retail experience with 1 of the world's first AI enabled telephoto total store, Providing a personal next generation experience for shoppers, Enelos collaborates with Public Mobile, Canada's first strategy subscription for services for an easy application that enable customers to activate and manage their terms completely digitally. Bringing together communication and media, Android's Market 1 platform is enabling A1 Group to include Next week with the A1 portfolio services offering Across 6 markets. Juice, part of the nicotine and the 4th and its 4th Netflix Preferred fulfillment partner of the year for the Americas region, making them the highest performing partner since the program launched. Turning to 5 gs monetization on Slide 11 Slide 12.

Speaker 2

We continue to help service provider launch and monetize innovative offering For the 5 gs standalone area, Amdocs currently has more than 20 cloud based charging projects in production Across the range of public, private and hybrid environments, including the limited CSP in North America. This quarter, we won a multi year managed service extension with a leading tail from South Africa, which includes the BSS modernization to monitor its 5 key and data products while improving customer satisfaction. ATN International of the Caribbean selected Ardoxt to transform their monetization operation demonstrating People that have stepped forward achieving their strategic goal of becoming a truly customer cent organization. Turning to network automation on Slide 13. CSL23 was a year of progress during which we supported Successful expansion of Vishwireless 5 gs Open R network, hitting and exceeding SEC commitments to reach 70% of the U.

Speaker 2

S. Population. Other items include key projects with KOL Technology in the UK, Air Canada, Verizon and the strategic acquisition of Tioco's Service assurance business to strengthen our unique end to end service orchestration offering. More recently, Andos acquired Welcome Consulting, The U. S.-based digital transformation services and business consulting company, primarily serving operators in North America.

Speaker 2

Portal is a growth move for Anthos, providing us with an expanded offering to better support Telco's newly emerging fiber operators Our focus on accelerating the rollout of fiber networks in the U. S. And the rest of the world. An example If some important, a Florida based fiber optics service provider, which has selected Amdocs for a multi year deal To our fleet, there will be a success in OSS ecosystem. Today, we also announced Amdocs to join AWS integrated private wireless It's a strategic integrator, enabling service provider to unlock new innovations in mobile private networks for enterprise customer By bringing together Amdocs Mobile Private Network Solution with AWS reliable and secure infrastructure services.

Speaker 2

Moving to Slide 14. Fiscal 2023 can be summarized as a highly successful year in which we maintain a market's Hi, Vinhui. Accelerate customer and revenue momentum in cloud, establish technology and ease the leadership in generative AI And to reinforce our customer reputation for superb project execution and seamless mission critical operation support. Taking a moment to review the current environment on Slide 16. Amdocs continues to serve large addressable markets, The size of which has expanded significantly in recent years as we focus our strategy on delivering innovation to full service providers For investor journey to the cloud based 5 gs and fiber networks, generative AI and improved consumer and B2B experience.

Speaker 2

Anadarko has also relatively resilient business model with highly recurring revenue streams resulting For my support of mission critical system under long term engagements, including managed services. To remind you, however, adults are not immune to an increased level of macro uncertainty and industrial pressure, Signs of which we shared with you last quarter, some operators began to prioritize strategic multi inflation programs while reducing discussion and spending, including investment to enhance legacy systems. Turning to our outlook on Slide 16, we expect revenue growth within the range of 1% to 5% For the full fiscal 2024. On one hand, our full year outlook reflects the previously mentioned impact of macro uncertainty And industry pressure as well as revenue headwinds attributable to reduce legacy system investment of roughly 3%. With that said, we expect another year of double digit growth in the cloud.

Speaker 2

Plough has been one of Amdocs' strategic growth pillars in the last few years and exceeded 20% of revenue in fiscal 2023 As we leverage our position as the industry technology partner of choice for multiyear strategic modernization journeys. As we shared before, we believe the industry is still in the early innings of the cloud journey, a long term shift to which will be increasingly fueled By the arrival of generative AI. As we shown in fiscal 2023, our continued efforts to improve operational excellence So automation and other sophisticated tools are yielding results. Adding to which is the more recent potential of generative AI To further improve efficiency across our business, as a result, we expect to accelerate the pace of profitability improvement In fiscal 2024, as reflected by our new outlook non GAAP operating margin in the range of 18.1% 18.7%, the midpoint of which is 60 basis points better than the 2023 results. Additionally, we expect to maintain early to cash conversion of roughly 100% in fiscal 2024 And we expect to return the majority of free cash flow to shareholders in the U and S.

Speaker 2

Overall, We're in a great position to deliver double digit non GAAP diluted earnings per share growth for the 4th consecutive year In fiscal

Speaker 3

2024, in addition, I am pleased

Speaker 2

to say that the Board has today approved a 10% increase In our quarterly cash dividend payment equating to an annualized yield of roughly 2.3%. With that, Let me turn the call over to Tamar for your remarks.

Speaker 3

Thank you, Shuky, and hello everyone. Thank you for joining us. I'm pleased with our solid financial results for the 4th fiscal quarter, the highlights of which you can see on Slide 18. Cycle's Q4 revenue of approximately $1,243,000,000 was up 6.3% year over year in constant currency. On a reported basis, revenue increased 6.5% and was above the midpoint of guidance, including an immaterial impact From foreign currency movements compared to our guidance assumptions.

Speaker 3

Revenue from the acquisition of Propum Consulting in late August Was immaterial this quarter. On a geographical basis, North America delivered a record quarter. Europe delivered strong growth of nearly 20% from a year ago, but declined sequentially because of normal fluctuations in project activity. Rest of the world grew at a sequential and year over year basis to post its best quarter in more than 4 years, primarily due to improved activity Moving down the income statement, our non GAAP operating margin of 17.8% Was up 20 basis points from a year ago and unchanged as compared with the prior quarter. On the bottom line, non GAAP diluted EPS $1.42 was slightly above the midpoint of guidance and included non GAAP effective tax rate of 21.8%, which as anticipated was above our annual target range.

Speaker 3

Note that Non GAAP diluted EPS excludes restructuring charges of $46,000,000 incurred in the quarter. Diluted GAAP EPS was $0.86 for the 4th fiscal quarter, which was above the guidance range of $0.67 to $0.81 primarily due to lower than anticipated restructuring charges. Summarizing fiscal 2023 on Slide 19, Revenue grew 7.7% in constant currency, in line with our most recent guidance, but slightly below the original 8% midpoint we anticipated at As a new point of disclosure, revenue from cloud activities grew double digit rate and exceeded 20% of Amdocs total revenue for the first time in fiscal 2023. Revenue from cloud activities includes modernization projects Using our CES suite or our cloud enabled classic versions, cloud consulting, Cloud migration services and cloud operations and workloads. To clarify, in some cases, cloud revenue may also overlap With revenue from managed services when above activities are provided to our customers under a multiyear managed services arrangement.

Speaker 3

On a regional basis, North America and Europe had record years in fiscal 2023, The rest of the world saw a slight decline of roughly 2% despite growth in Southeast Asia. Further highlighting the long term diversification of our business, while we continue to expand our business in North America And while it is still our biggest region in fiscal 2023, 6 of our top 10 customers were located outside North America, 2 of which were new logos added in the last 10 years. For comparison, a decade ago, only 2 of our top 10 customers were outside North America. Additionally, the number of countries in which we generate annual revenue of more than $40,000,000 has almost doubled over the 10 years. Some of these new countries added were Italy, Germany, Mexico, India and Malaysia.

Speaker 3

On the bottom line, we delivered double digit non GAAP diluted earnings per share growth of 11.5% in fiscal year 2023, Exceeding 10% midpoint of our initial outlook for the year and driven by strong top line performance, Non GAAP operating margin improvement and the benefits of our share repurchase activity. Moving to Slide 20, 12 months backlog was a record high at $4,150,000,000 up 4.5 percent. On a sequential basis, our 12 months backlog was up by $10,000,000 in Q4. During Q4, we continued to sign deals with new logos And existing customers additionally, existing deals in backlog are progressing and our managed services renewals remain close to 100%. As a reminder, our 12 months back to book is roughly averaging around 80% of forward looking 12 months revenue over the years and has therefore traditionally served as a good leading indicator of our business.

Speaker 3

Turning to Slide 21, Managed Services closed out another record year with strong 4th quarter revenue of $718,000,000 equivalent to about 58% of total revenue. Our managed services engagements support the resiliency of our business with recurring revenue streams, 100% renewal rates and expanded activities under multiyear engagements. A great example is 3 UK,

Operator

which I

Speaker 3

am pleased to say has appointed Amdocs as a single supplier to simplify its IT operations under a 5 year deal, which extends our relationship following the business recent IT transformation. As another example, We recently signed a multiyear managed services extension with Vodafone Siego in the Netherlands under which we will be Now turning to the balance sheet and cash flow highlights on Slide 22. DSO of 69 days decreased by 5 days year over year in Q4 and decreased by 10 days sequentially. Unbilled receivables is higher than deferred revenue by $86,000,000 aggregating the short term and long term balances. As a reminder, the net difference between deferred revenue and unbilled receivables fluctuates from quarter to quarter in line with normal business activities.

Speaker 3

Reflecting strong execution, we reported free cash flow of $698,000,000 for the full fiscal year 2023, Comprised of cash flow from operations of $823,000,000 less $124,000,000 in net capital expenditures and other. Full year reported free cash flow included non recurring restructuring payments of $20,000,000 which was not assumed in our annual free cash flow guidance $700,000,000 for fiscal 2023. Overall, we ended the fiscal year with a Strong balance sheet and a healthy cash balance of approximately $743,000,000 including aggregate borrowings of roughly 6 $50,000,000 Moreover, we have ample liquidity to support our ongoing business needs, while retaining the capacity to fund our future growth Strategy, including the acquisition of Stadia, which closed in November for a net cash consideration of $75,000,000 sorry, dollars 75,000,000 with additional consideration to be paid later based on achievements of certain performance metrics. Turning to capital allocation on Slide 23, We repurchased 155,000,000 of our shares in the 4th quarter and paid cash dividend of $52,000,000 Overall, we returned a total of $689,000,000 to shareholders through share This is in dividend in fiscal 2023, equating to almost 100% of reported free cash flow. Looking ahead, we expect Free cash flow of approximately $750,000,000 in fiscal 2024, which does not include remaining restructuring payments of approximately 20 $6,000,000 Our free cash flow outlook equates to a conversion rate of approximately 100% Relative to non GAAP net income and a healthy free cash flow yield of roughly 7.6% relative to Amdocs' current market capitalization.

Speaker 3

Regarding our capital allocations in fiscal year 2024, 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 increase of 10% in our quarterly cash payments To a rate of $0.479 per share, subject to shareholder approval at the Annual Meeting in February and represent our 11th consecutive annual dividend increase Since our first payment in 2012. Overall, I believe fiscal 2023 was another landmark year of Amdocs, which includes record high revenue, consistent profitability improvement, robust free cash flow generation and strong double digit growth in non GAAP diluted earnings per share. Now turning to outlook on Slide 24. To begin, we are continuing to closely monitor The prevailing level of macroeconomic, geopolitical, business and operational uncertainty, which remains elevated in the current business environment.

Speaker 3

That the Q1 and full year fiscal 2024 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. Beginning with the top line, we revenue growth within the range of 1.2% to 5.2% year over year in constant currency in fiscal 2024, The 3.2% midpoint of which is roughly half organic. We expect a stronger second half to the fiscal year based on our Expected plan of execution for deals already in the 12 month backlog, plus new opportunities, which we anticipate will convert to sign deals and contribute to revenue this fiscal year. We expect another year of double digit cloud revenue growth in fiscal 2024. Additionally, our outlook assumes no material change in the current macroeconomic backdrop and the revenue headwind of roughly 3% Attributable to reduced customer investments in legacy system enhancements among other factors.

Speaker 3

Our annual outlook includes First fiscal quarter revenue within a range of $1,225,000,000 to 1.26 $5,000,000,000 and assumes a negative $5,000,000 sequential impact from foreign currency fluctuations as compared to Q4. On a reported basis, we expect full year revenue growth in the range of 1% to 5% year over year, which anticipates a small but unfavorable impact in foreign currency of approximately 20 basis points year over year. Moving down the income statement, we anticipate quarterly non GAAP operating margin within a new and improved annual target range of 18.1 percent to 18.7 percent as shown on Slide 25. Our new target range for fiscal 2024 continues the path of consistent margin expansion we have delivered over the years. Moreover, the 18.4% midpoint of our new range represents an accelerated improvement of 60 basis points as compared with our full year non GAAP margin of 17.8% in fiscal 2023.

Speaker 3

The improvement in margin will happen gradually through the year. This reflects the cumulative benefit of our continual to improve operational excellence, automation, other sophisticated tools and disciplined resource management, Added to which, we expect the implementation of GenAI to drive additional cost and efficiency improvements across our business. Below the operating line, we anticipate that foreign currency fluctuations and cost of hedging will impact our non GAAP net interest and other expense line in the range of several $1,000,000 on a quarterly basis. We expect that our non GAAP effective tax rate will remain within an unchanged annual target range of 13% to 17% for the full fiscal year 2024. Bringing everything together on Slide 26, We expect non GAAP diluted earnings per share growth in the range of 8% to 12% for the full year fiscal 2024, the midpoint of which is expected to mark the 4th straight year of near double digit growth.

Speaker 3

Similarly, we expect to deliver double digit total shareholders return for the 4th year running in fiscal 2024, including our outlook for non GAAP earnings per share growth, plus a dividend yield of about 2.3% based on the newly proposed quarterly cash Payment to be approved by shareholders at February's Annual Meeting. Moving to Slide 27, this August, we published our latest CSR and ESG reports for the period 2022 to June 2023, which we showcased with our 2nd annual ESG webinar for investors in September. During Q4, we continued our focus on the environment, digital inclusion and diversity, which represent key pillars of our ESG strategy. Among the highlights, we announced our task to carbon neutrality for COAT-one and 2 emissions by 2024, Launched a program to support over 1,000 women for digital and financial inclusion in Mexico and recognized Hispanic Heritage Month Celebrating Latino Communities in North America. I'd also like to make a new Comments about actions we have taken following the terrible events in Israel on October 7.

Speaker 3

Since which, our primary concern has been the safety and security of our And on providing support to them during this difficult time. We are in continuous contact with all employees in Israel, sharing specific information about the support and services we can provide for them and their families. Amdocs is also supporting the wider community. Over the last several weeks, we have donated to mental and physical healthcare organizations and communities in Israel's South. Many Amdocs employees have also volunteered their time to support evacuated families, local farmers and other initiatives.

Speaker 3

I've also been incredibly humbled and proud to hear from our employees worldwide, the vast majority of which are located outside of Israel. With our support and development centers around the world, we have come together as Rand family to serve our customers seamlessly, providing 20 fourseven service and support to all our customers and business operations worldwide without interruption. With that, back to you, Shuky.

Speaker 2

Thanks, Tomal. As you can probably tell from our remarks Today, we are pleased with our solid financial and operational performance in fiscal 2023, and we are looking forward to delivering the 4th consecutive year of double digit non GAAP earnings per share growth in fiscal 2024. With that, we are ready to take your questions.

Operator

Thank We do ask that you please limit yourself to one question and a follow-up. One moment please. Our first question comes from the line of Ashwin Shirvaikar Of Citigroup, your line is open.

Speaker 4

Thank you. And good to hear from both of you. I guess, the first question I have is with regards to The double digit EPS growth plus the dividend, of course, on top of that, and the flexibility that you seem to have with regards to Scaling up margin improvement to make up for the lower rev growth. How much Visibility do you have into that scaling up of margin improvement in terms of each of the factors that you have named?

Speaker 2

Hi, Ashwin. Good to hear you. We have a very good visibility. As a reminder, we are talking for at least for the last We are about all the automation, the improvements we are doing and best in class processes and many, many sophisticated tools that we are Implementing cost of organization, both on operation and development life cycle. Additionally, if you remember, we announced already in Q3 That we are doing a cost cut process in Amdocs that actually almost completed in Q4.

Speaker 2

I think another layer that we increasingly seeing impacting our portability is all the innovation that we see in the efficiency from generative AI. So you need to assume that the majority of the post cutting, not all, but the majority was taking place already in Q4. So we wanted to be in a position that we in 2024, we have realized all benefits of this activity. So I would say I would argue there is a very good visibility.

Speaker 4

Understood. And then, Want to get a little deeper into sort of the revenue growth range 1% to 5%. How much of that is a, I guess, inorganic contribution. And with regards to the revenue headwind of The 3% that's going to attributable to reduced customer investment in legacy sort of system enhancements. Could you give an example of the kind of work that that might entail?

Speaker 4

And I know you mentioned cloud, but it would Seem to me that in a time like this, the whole range of what you have should be beneficial with regards to Selling to clients, I mean, network automation and some of the other factors also. So Could you maybe

Speaker 2

So let me start with the second question because I forgot the first one. So, in most of our customers, and you're talking about our big customers, and this is Like T Mobile, AT and T, Vodafone and many others across the world, we are in the Last several, we started a very significant modernization program. You need to think that our customer was spending both In building the new platforms, this is the new most all of them are cloud platforms with all the new capabilities of the end of the new platform, Including some JLT, Miracapabilities, why we continue to run from them in managed services and both at the same time, We are doing development on the legacy platforms as we are running for them. By the way, this is most of them, this is the system that are the core system today, Because the modernization program are not just starting and we are in the process of building the new platforms. So at the same time, we spend money with Both of the legacy platform enhancements and building the next generation platform, which is the future of all the Now, what we shared with you already last quarter, given the headwinds that everyone is because of the macro environment and some of the headwinds that the industry is facing, they have done prioritization.

Speaker 2

So they want to double down on the monetization platform, while reducing the spend on the legacy platform. Well, I hope this is a bit clarify what we meant.

Speaker 3

With respect to the first question about the inorganic contribution, at the midpoint, it's We have coming from those recent acquisitions we talked about. So we feel that In terms of the overall picture, on the one hand, we are very excited about our growth pillars. We talked about the cloud continuing to grow double digit. On the other hand, we do see some macro impact on this discretionary spending to enhancing legacy systems. But I think the important point is that Our customers are monetizing and building the next generation stack with us.

Speaker 3

So that's really important factor as we're looking into the future. And we are continuing to see very good win rates with new customers joining us.

Speaker 4

Got it. Okay. Thanks.

Operator

Thank you. One moment, please. Our next question comes from the line of Tal Liani of Bank of America. Your line is open.

Speaker 5

Hi. I think it was me. I didn't hear the name. Two questions. First, Hello, hello.

Speaker 5

Two questions. First, so cloud is at least 20% And growing at least 10%. So that means it contributes 2% to the growth. So if I take your guidance for next year and I remove the cloud, It's between minus 1% to plus 3%. That's the growth for next year.

Speaker 5

So give us the historical In times of slowdown, what happened to spending or what happens to Amdocs when customers reduce spending? How long down cycles kind of lasted? And just in general, what did companies do and what They didn't do during slowdowns. Another kind of follow-up question on the same topic is, do you think that this one is different given that the Strength was so strong. I mean, the cycle was so strong in the last 2 years.

Speaker 5

Does it mean that maybe the Slow down is going to linger a little bit more than historical. I'm just asking it because we see it in other areas. So that's my first question. My second question is quick. It's easy.

Speaker 5

It's about hedging. Can you tell us, Given that there is a war in Israel, sometimes the currency kind of fluctuates. What's your hedging strategy? For how long do you do it? And what's typically the policy around it?

Speaker 5

Thanks.

Speaker 2

Let me try start with the first question and then Thomas, take the second one. I don't necessarily agree to you mathematics. We grew over 7% last year. And you need to think that the cloud was part of the growth engine in double digit, We cannot disclose the denominator also in 2023. Now going to next year, when we talk about the impact of the 3% and this is another phenomena that I want to explain.

Speaker 2

The phenomena is that when most of the legacy enhancement projects are part of it was like, I want to say like it was almost business as usual. I mean, we have large system that we have, having a good time, we have teams in place, We're doing the projects and the revenue was pretty much secure. When we have a headwind of 3% in this domain, you need to assume To cut spending happen very fast. So when customers decide because of the pressure To prioritize modernization over the legacy, The cutting spending is almost in place. On the other hand, all the new programs and there are many of them and new wins that we won And actually last quarter in the early fiscal 2023, it takes time to ramp This project is up.

Speaker 2

I will give you one example. We announced the UK. It's a very significant managed services that we've signed last quarter. We are going, if I'm not correct, going to start to recognize full revenue only towards the Q3 next year. We won a many transformation program last year.

Speaker 2

We need to put the teams in place. We need to ramp up to go through the phases. So Sometimes it can take us a quarter or 2 from the time that we win the project until we start to ramp up and recompense revenue. So the phenomena, while the headwind of the legacy revenue is almost immediate, Replacing this revenue takes some time when we build up. This is why we also see that we see acceleration in sequential growth in hubs 2, While we have all these ramp up programs will be in place and all the wins that we've gone through last year.

Speaker 2

Regarding the cycle, I don't think we can predict right now. As you are right, we've gone through these cycles for Many years, I don't think you could predict if this one will be longer than others. I can tell you another data point that I believe that at some point, our customer will have to continue to invest also in legacy, Because right now, this is the whole system. This is how they compete in the market. So you cannot completely dry out legacy.

Speaker 2

And at some point, if you want to compete, you need to invest. I think it's important point as I want to mention, but I'm not sure I can tell right now if this The cycle is longer or not, because we've been in this cycle before and I think at some point, we will have to invest because The modernization program taking years. We are talking a very, very complex modernization programs that until all the Subscribers will be migrated from the legacy platform to the new one. It will take years. So I don't think that they can keep the legacy system without investment because this is the Tools to compete right now.

Speaker 5

And Shuky, on modernization programs.

Speaker 3

The hedging.

Speaker 5

Sorry. Go ahead. If you don't mind before Yes. Before the hedging, if you don't mind, just a follow-up on what Shuky said. If a modernization program starts, Then the customer continues at the scheduled pace.

Speaker 5

What's the risk that they say You need to migrate customers to modern systems, etcetera. What's the risk that this part slows down or that it's It's more challenging for customers to slow down modernization programs.

Speaker 2

We did not see any slowdown in modernization because remember, when talking about modernization, this is moving the value For our customers, moving to the cloud, much more agent environment. As we mentioned already, all the new Implementation of use cases will generate the AI capabilities targeted to new platform and not to the legacy platform. So So if you want to get to these capabilities to be successfully to be able to successfully Competing the market with a very strong platform on the cloud, a very fast time to market and many, many Other things we need to modernize, we do not see any slowdown in the notation. If any, some customers will do acceleration.

Speaker 3

Just to add it on that point, drawing from past down scenario as well as the financial Crisis or even in the midst of the COVID, we did not see any modernization project slowdown. So just to back up, what we are seeing right now is not surprising.

Speaker 2

Did you get my point as I just mentioned that when you replace sometimes when you replace legacy revenue, sometimes it takes some time to catch up?

Speaker 5

I fully understand it. Now I understand it. Absolutely.

Speaker 2

Okay. Omar?

Speaker 3

Regarding the currency and then our hedging, in general, we are looking forward For hedging on an ongoing basis, so we're not waiting for a certain market opportunity as we want to protect the bottom line, which means practically in the near term when we look for example on Q1 2024 or even on fiscal 2024 as a whole, We are already coming into the year with pretty high coverage of our hedging. Yes, taking advantage of Weakness of currency as we've seen now in the Israeli shekel means we can improve the effective rate of our hedging for The latter part of 2024 and May for 2025, which of course we are doing as we speak.

Speaker 5

Thank you.

Operator

Thank you. One moment please. Thank you. I'm showing no further questions at this time. Let's turn the call back over to Matt Smith for any closing remarks.

Speaker 1

Thank you, operator, and thanks, everyone, for joining the call this evening. We do look forward to hearing from you very soon. And as always, if Have any additional questions, just reach out to us here in the IR group. With that, have a great evening.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

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