Amdocs Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 7 speakers on the call.

Operator

Day and

Speaker 1

thank you for standing by. Welcome to the 2023 Amex Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Speaker 1

I would now like to hand the conference over to your speaker today, Matt Smith, Head of Investor Relations for Amdocs. Please go

Speaker 2

ahead. Thank you, operator. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. You'll note 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 ks.

Speaker 2

Participating on the call with me today are Shuky Shepherd, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport De Guim, 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. As always, a copy of today's prepared remarks will also be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the Q2 Thank you, Mr. Chairman.

Speaker 2

Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you, Mr.

Speaker 2

Chairman. With that, I'll turn it over to Shuky.

Speaker 3

Thanks, Matt, and good afternoon to everyone joining us on the call today. I am pleased with our 2nd fiscal quarter performance as we progress on our strategy to deliver the next generation cloud based software and services The global communication service providers needs to unlock the potential of 5 gs and broadband networks, Data driven intelligence and improved customer experience for the consumer in B2B. This quarter, we We deepened our relationship and expanded our footprint with existing customers, added 4 new customer logos, Sustain a high rate of successful project deployment, deliver a record quarter in managed services, expand our strategic partnership with Signed an M and A agreement to enhance the execution of our network strategy and launched CS23, our most advanced Customer experience Suite Yes, bringing fresh innovation across BSS, OSS and network, while sharpening our focus on the B2B movement. These achievements will not be possible without the amazing passion, agility and collaborative spirit of all our talented employees, People, to whom I would like to say thanks for the consistent quarterly execution, while also demonstrating The strategic vision necessary to drive Amdocs forward over the long term. Reviewing the financial highlights on Slide 7.

Speaker 3

Record revenue of $1,220,000,000 was above the midpoint of our guidance and up $8,200,000,000 plus year over year in constant currency. On the bottom line, non GAAP diluted earnings per share of $1.47 was consistent with the midpoint of guidance As we delivered ongoing margin improvements and strong free cash flow generation in the quarter, 12 month backlog was record high of $1,410,000,000 up roughly 7% from an either go in constant currency. Turning to operational highlights on Slide 8, we delivered continued sales momentum in Q2, while included which included a significant new digital mobilization award at T Mobile USA. Deal activity was strong in Europe, which as we have said before is a region of significant growth potential for Amdocs. Our multiyear investment to diversify and increase market share in Europe Our bearing fruit is reflected by record revenue and the award of several significant deals, including Digital modernization programs and 2 new logos this quarter.

Speaker 3

Similarly, rest of the world continues to present Active opportunities for Amdocs such as the new cloud engagements announced today with PNDT in the Philippines. Managed Services also had a great second quarter, which includes record revenue and newly expanded agreements with Globe, Also in the Philippines and a major operator in Western Europe. In media, Ambre's Vubiquity demonstrated continued growth as The trusted provider to the world's leading streaming services, signing a new agreement, which expand its decade long relationship with Wheelchair and Mater UK. Additionally, Infosat, a Spanish satellite communication operator with a new logo, chose Ubiquiti to bring digital content with customers In Augustina and Boston Latin America, Y Juice, which is part of Inviguity, was selected as the Sales for payment vendor under Amazon Prime Video's for payment vendor program. From an execution perspective, we maintained a high rate Our successful project deployment in Q2, achieving major milestone at many of the world's browser service providers.

Speaker 3

For instance, Endo played an important role in the recent launch of AT and T's fixed wireless access offering Internet Air In selected markets, which is running on the new cloud native digital platform, we are delivering under the BHCC Technology Modernization and simplification program with this customer. This quarter, we also took several strategic steps to strengthen our market leading position and long term growth profile. 1st, we expanded our strategic partnership with Microsoft to bring a new AI powered customer engagement platform, End of the Microsoft already began to execute a joint go to market strategy To bring this platform to service providers worldwide, we can only report encouraging signs of customer interest And expanding pipeline of opportunity involves consumer and B2B. 2nd, we sharpened our focus on the growth potential of B2B with the launch of PS23, which includes enhanced capabilities specifically developed to have service providers meet an increasingly complex demand of our B2B customers. 3rd, we are today delighted to announce Our intention to acquire the service assurance business of Peyocor, approximately $90,000,000 in cash.

Speaker 3

Andres and Teocco already passed on some opportunities, and we expect this move to enhance the execution of our network automation strategy By providing service provider with a unique end to end service orchestration offering, ensuring the quality of service Now let me address you the strategic progress our strategic is to continue to delivering market leading innovation designed to help service providers, accelerated the journey to the cloud, Create seamless digital experience by transforming IT operation for consumer and B2B. Large and monetize new 5 gs services and deliver dynamic connected experiences with real time automated networks. Starting with cloud on Slide 9, Service providers are still in the early stages of maximizing the value of potential of the cloud. And for the most, it will be a gradual journey over several years Before they fully realize expected benefits such as improved service agility, scalability, innovation, security I'm happy to share that more and more Amdocs new deals are cloud related and that growing number of operators will see Amdocs as the primary The value of Android's Lightning in product suite is already proven in the cloud We have the capacity capability to support the optionality of hybrid environments for customers.

Speaker 3

Andres also removes complexity for operators by delivering end to end fully accountable migration paths, which begin with strategic planning and stretches to cloud native product deployment and cloud managed services, while leveraging Our intimate partnership with Azure, AWS and Google Cloud. I'm delighted to report that BLDC, the Philippines and its wireless Amdocs will leverage cloud infrastructure to efficiently integrate business critical systems and applications to the cloud, We are also integrating cloud based application with the rest of the team's smart hybrid IT infrastructure. Among the recent cloud wins, Amdocs was selected by a Tier 1 Central European operator to support and enable its journey to the cloud for physical VSS application We expanded our managed services relationship with a major Western European provider To migrate and operate non end of applications on the cloud, we believe such deal momentum reflects the market's Congratulations of our unique cloud domain expertise and we look forward to supporting these and other customers as they continue their multiyear cloud journey in respect to their core systems. Moving to Slide 10, Service providers continue down the path of digital organization to grow revenue, reduce costs and improve experience for Consumer and B2B customers.

Speaker 3

I'm delighted to report that we expanded our role in digital transformation at T Mobile With Amdocs Commerce and Care Suites together with Amdocs' monetization suite, we empower insightful and transparent experience across all channels for T Mobile, consumer and B2B subscribers. Anders was also selected A major Eastern European operator to create and deploy new customer engagements platform designed to derive customer loyalty and retention And bolster in social media presence, while the 2nd Eastern Europe payment service provider chose Amdocs to modernize its IT infrastructure In the strategic, wide ranging digital transformation project, this will enable a harmonized, patientless customer experience across multiple channels in Dutch World. We are also collaborating with YES Network, the exclusive regional television home The shift from physical to software based SIM card is another digital theme creating opportunity for Amdocs. Our cloud based EmDose ECMO consideration platform was recently ranked as number 1 in the market By independent analysts' field counterpart research, recognize our growing list of eSIM customers Forward, you'll receive a word with Eastern Norway and Australia. Turning to Slide 11, global service providers continue to invest 1 of North American leading service provider recently deployed Andor's network policy solution on AWS to support millions of prepaid card subscribers.

Speaker 3

Another recent product example is WindTred, a large Italian mobile operator for which Amdocs just completed a monetization project to provide a future proof 5 gs ready monetization stack that draws on the cloud. This quarter Also, we were selected by MIGO Telekom in Hungary to provide the policy control function in the operated 5 gs standalone program. And we successfully completed a legal transformation project with Melita Limited that enables the Malta based operator to further monetize innovative new 5 gs and IoT based services for both consumer and enterprise customers. Turning to network automation, Slide 12, Androp is helping operators to prioritize 5 gs network slicing, which is needed to enable the rapid introduction of differentiated mobile services tailored for individual consumer or B2B customers. Amdocs recently held Bay Canada to successfully deploy its first use case with an automated 5 gs network slicing solution.

Speaker 3

Andos also is bringing fresh innovation to help service provider rethink the way in which they manage and maintain network towers, which is also reducing their carbon footprint. Working with our partner, Beehive, Amdocs has developed a solution which POWER's autonomous drone flight to automatically create a digital three d twin of network towers Much more quickly and safely than deploying trucks with our tower climbing teams when they need to serve the site to serve their site. Demonstrating early market demand, we are excited to announce today that Verizon has selected our solutions to inspect its wireless network infrastructure. Now moving to our fiscal 13 outlook as presented on Slide 13. As we had repeatedly said over the last few quarters, Amdocs and our customers globally are not immune to economic uncertainty, And we are closely monitoring the overall operating environment during the current period, rapidly shifting market dynamics.

Speaker 3

As a key technology enabler and a trusted partner for the global communication industry, we believe Endox is positioned at the heart of the multiyear technology driven investment cycle centered around the major long term trends of 5 gs, network automation, digital modernization

Operator

and cloud. We also believe

Speaker 3

in our unique business model, which produces business highly recurring revenue stream For the Mission Critical Systems, we support under long term customer engagements. Taking everything into We are reiterating our full year fiscal 2023 revenue growth outlook within a tighter range 7% to 9% in constant currency, the midpoint of which is unchanged as compared with our previous outlook. On the bottom line, we are reiterating our outlook for non GAAP diluted earnings per share growth of roughly 9% to 13% in fiscal 2023, Which as you may recall, we already raised in the prior quarter from our initial full year to a growth target of 8% to 12%. Accordingly, we are well on track to deliver double digit expected total share return for the 3rd year running, including our dividend. With that, let me turn the call over to Tamar for her remarks.

Operator

Thank you, Shuky. Hello, everyone. Thank you for joining us. I am happy to report solid financial results for the 2nd fiscal quarter, the highlights of which you can see on Slide 15. Record Q2 revenue of approximately $1,223,000,000 was up 8 0.2% year over year in constant currency.

Operator

On a reported basis, revenue increased 6.8% and was slightly above the midpoint of guidance, including a positive impact from foreign currency movement of roughly $3,000,000 compared to our guidance assumptions. On a regional basis, we delivered another record quarter in North America, where we are continuing to execute a multiple transformation project In Europe, I'm also delighted to report our best ever quarter, where as anticipated, we are seeing double digit growth as new projects awarded over the last several quarters continue to ramp up. Similarly, Rest of the World accelerated on a sequential basis in Q2, driven by the positive impact of customer project activity. Moving down the income statement. Our non GAAP operating margin was 17.8% in Q2, up 20 basis points from a year ago and up 10 basis points sequentially as we continue to realize the benefits of automation and other sophisticated tools implemented to manage costs and drive efficiency gains in our business.

Operator

On the bottom line, non GAAP diluted EPS of 1.47 Dollars were consistent with the midpoint of our guidance range and included a non GAAP effective tax rate of 16.5%, which was, as anticipated, within our annual target range of 13% to 17%. Diluted GAAP EPS We are $1.26 for the 2nd fiscal quarter, which was above the midpoint of our guidance range of $1.18 to 1.26 For your modeling purposes, beginning the fiscal year, our quarterly GAAP and non GAAP net income includes a new line item for net income This reflects the earnings attributable to our joint venture partner In respect to the land we acquired in 2017 as the site for the new Amdocs Park and will amount to roughly $700,000 per quarter now that the campus is complete and operational. Moving to Slide 16. 12 months backlog was a record high at $4,110,000,000 up 5.7% year over year as reported and approximately 7% in constant currency. On a sequential basis, our 12 month backlog was up by $20,000,000 in Kitchen.

Operator

Our 12 month backlog has traditionally served as a good leading indicator of our business, having consistently averaged Roughly 80% of forward looking 12 months revenue over the year. Turning to Slide 17, Net services revenue was a record high at $719,000,000 in fiscal, up 8.4% has extended its partnership with Amdocs to reimagine their IT operations, enabled by digital transformation and cloud adoption For better business alignment under a multiyear managed services arrangement, this move will enable the company to create greater business value to improve customer experience that will result to revenue growth. Additionally, we signed an expanded managed services agreement with a major Western European operator To migrate and operate non AMBER applications on the cloud, as Shuki highlighted earlier. To remind you, Our managed services engagements underpins the resiliency of our business with the recurring revenue streams near 100% annual rate And expanded activities under multiyear engagements and main items include modernization projects, which deepen our relationship even further. Now turning to the balance sheet and cash flow highlights on Slide 18.

Operator

Despite the strong execution, I am pleased to report that we achieved many production and increasing high flow This quarter, resulting in healthy customer cash collection. DSO's 74 days decreased by 13 days By $102,000,000 sequentially. Seasonally, we generated robust cash flow of $259,000,000 in fiscal. Big Gasol's prime of cash flow from operations of approximately $294,000,000 less $35,000,000 in net capital expenditures and are strong despite the seasonal timing of annual bonus payments, which typically occur in the 2nd fiscal quarter. Overall, we ended Q2 with a strong balance sheet and a healthy cash balance of approximately $900,000,000 including Aggregate borrowing of roughly $650,000,000 Moreover, we have ample liquidity to support our ongoing business needs, While retaining the capacity to find strategic growth, including the planned acquisition of Tiago Service Assurance Business, which we expect to complete for roughly $19,000,000 in cash.

Operator

Turning to capital allocation, Slide 19. We repurchased $106,000,000 of our in the 2nd quarter and paid cash dividends of $48,000,000 In respect to the full fiscal year 2023, we are reiterating Our free cash flow outlook of roughly $700,000,000 This assumes a conversion rate of roughly 100% relative to non GAAP net income and equates to healthy free cash flow yield of more than 6% relative to Ambev's current market capitalization. Regarding our capital allocation in fiscal year 2023, we expect to return the majority of our free cash flow to shareholders by way of our quarterly share repurchases and dividend payment program. Now turning to our outlook on Slide 20. To begin, we are continuing to closely monitor the prevailing level of macroeconomic business and operational uncertainty, which remains elevated in the current business environment.

Operator

The Q3 and full year fiscal 2023 financial guidance reflects what we consider to be the most Based on the information we have today, particular predicts all possible scenarios. Taking into consideration our performance in the First two quarters and our visibility to the second half, we are reiterating our outlook for full year fiscal 2023 revenue growth Within a tighter range of 7% to 9% in constant currency, the 8% midpoint of which is changed as compared with our prior outlook of 6% to 10%. On a reported basis, we now expect full year revenue growth of 6% to 8% year over year as compared with 5% to 9% year over year previously. The new outlook anticipates an unfavorable foreign currency Impact of approximately 1% year over year, which is unchanged compared with our previous assumption. Our annual outlook includes 3rd quarter revenue within the range of $1,215,000,000 to 1.2 $55,000,000 Additionally, our fiscal 2023 outlook assumes an immaterial revenue contribution from Tioco's service insurance business.

Operator

On an annualized basis, this acquisition is expected to add roughly 50 basis points of total revenue in the 1st full year after closing. Moving down the income statement, we anticipate quarterly non GAAP operating margin to fluctuate around the midpoint of our annual target range of 17.5% to 18.1%. Below the operating line, we anticipate that foreign currency fluctuations and cost will continue to impact our non GAAP net interest and other expense line in the range of $2,000,000 on a quarterly basis. We expect that our non GAAP effective tax rate will remain within an unchanged annual target range of 13% to 7%, 13% to 17% for the full fiscal year 2023. Bringing everything together, we are reiterating our outlook For non GAAP diluted earnings per share growth in the range of 9% to 13% for the full fiscal year 2023, Rajashuki reminded you, we already raised in the prior quarter from our initial full year growth target of 8% to 12%.

Operator

Orthologia is on track to deliver double digit expected total shareholders' return for the 3rd year running in fiscal 2023, assuming the sum of our expected non GAAP EPS growth and our dividend yields of roughly 2%. Before passing it back Ashok here, I'd like to take a quick moment to comment on this year's mobile world congress in Barcelona, which for others was an opportunity to showcase our commitment to ESG On the global page, we published our 1st ever interactive map to show how Ambus is using technology to help its customers achieve their ESG In sustainable development goals, we use an immersive experience to demonstrate our Amdocs disclosing the digital divide by connecting consumers in rural I'm also pleased by our successful digital inclusion partnership with UNO Connected org, through which we donated 30 days Internet connectivity to approximately 2,000 girls And our families in India for every visitor to Ambu's booth. Among other recent ESG initiatives, Our International Women's Day campaign, Break the Bias, generated 14,000,000 campaign exposure in social media, And we partnered with U. S. To raise roughly $100,000,000 with an employee donation drive with company matching to support earthquake recovery in Turkey.

Operator

Finally, we are already seeing the benefit for the implementation of the new worldwide policy exceptional work environment that fosters growth, collaboration and innovation. I'm heartened by the even greater energy levels I'm experiencing among global employees since moving back to the office, including the new Amdocs Park Campus, which opened recently. Thank you to all our employees for making Andlook such an amazing place to work. With that, back to you, Shuky.

Speaker 3

Thank you, Thomas. As you can probably tell from our remarks today, we are pleased with our solid financial and operational position at the midway point of fiscal year. And while the global macroeconomic and industry environment remains challenging, we are Actually, focus on delivering a strong second half and another real steady and profitable growth. With that, we are happy to take your questions.

Speaker 1

And our first question We'll come from Tal Liani of Bank of America. Your line is open.

Speaker 4

Hey, guys. This is Tomer Zilberman on for Tal. So two quick ones for me. So first, you talked about some solid service provider wins, including T Mobile. We've heard from some networking vendors in this And last quarter about weakness in service providers.

Speaker 4

Can you talk a little bit about the spending environment and why you're positioned to keep winning business Despite this apparent spending slowdown in that segment?

Speaker 3

Sure. Hi, this is Shokie. Good evening. Send my regards to Tal. I think as part of our strategy and we talk about the areas that we focus today, which is Digital transformation, 5 gs deployment and monetization, the journey to the cloud in B2B and consumer, All I would argue that all these pillars are extremely strategic to our customers.

Speaker 3

So while Obviously, we watch carefully the environment and we believe that our customer are pushing forward the strategies. And what we do for them is really in the heart of their strategic domain. So as I said always, I don't think that mDOT is immune, By the fact that we are running their mission critical system and most of the projects that we do are in the heart of the strategy, Help us to mitigate headwinds that some of our customers are facing.

Speaker 4

Got it. And if I can sneak in a follow-up quickly, can you give just a little more color around the tightening of the revenue growth? What exactly is driving that? And as a result of that, do you still see 8% constant currency growth in fiscal 2024? Thank you.

Operator

So as we move along the year and already halfway True. We are obviously tracking very well with a strong half one. And looking forward, both in terms of the backlog that Presenting over the contribution for the next 12 months of what we've signed as well as the pipeline that is looking strong. We feel that it's making sense to In terms of the revenue growth, keeping, of course, the midpoint of the 8% constant currency growth unchanged. Now in terms of the difference between the Reported revenue growth and the constant currency revenue growth, we are maintaining this 1% headwind that we talked about already in the prior quarter.

Speaker 4

Got it. Thank you, both.

Operator

Thank you.

Speaker 1

One moment for our next question. And our next question will come from Ashwin Shirvaikar of Citi. Your line is open.

Speaker 5

Hey, Good evening, folks. How are you? Good quarter and year. I wonder obviously, the big topic On every earnings call nowadays is with regards to macro. And you guys have called out not just this time, but last time as well That you and your clients are not immune.

Speaker 5

But when I kind of look at sort of the wins, I mean, I would have expected perhaps maybe sort of Client decisioning to move more towards cost and productivity type things, say for example, Network automation or cloud optimization, things like that, but you're actually signing all across the board. Is there any difference that you see from a client perspective with regards to how they're engaging with you, sort of the Contract terms, decision making time, ramp time, anything like that that you can call out As far as your portfolio is concerned?

Speaker 3

Hi, Ashwin, it's Yuki. I don't think we see different change. I think that the deal cycle are pretty much the same. The pipeline is very rich. And yes, in some of the deals, I would say that TCO reduction is getting maybe a bit more of, I would say recognition than in regular times.

Speaker 3

But this is always true. We announced a very large Managed Services deal in a very large Western European operator. Obviously, it Moving to the cloud, so the benefit is obviously business agility, higher security environment and TCO reduction is part of So I will not say that TCO reduction is the main, major definite loss. Most of the deals, as you mentioned, we have a very nice Solid quarter in sales in every parameter of our strategy. So I will not say that CCO reduction is not getting more highlights.

Speaker 3

I think it is. But I think it's reflected in many of the deals as an additional The value that we can bring as part of the deal, I don't think this is the number one reason to do this deal. The number one reason to that we are able to deliver our services and product is I think because the value, Which is critical to our customer in their journey.

Operator

One thing to add maybe is that given the new Architecture and technology of our products and the way we continuously deliver it to production to our customers in a continuous manner in very fast pace,

Speaker 3

Lots of information.

Operator

TimesMLs can enjoy the benefit very fast from our Arrende shop to what they can enjoy in their production environment. So The value creation is in a very different speed than what it used to be in the past, which I think is very compelling in this environment where Customers would like to move fast, but also see faster returns to their investments.

Speaker 3

Just to add on top of it, definitely, The level of automation that we introduce in all our product and services, I think, also creates a great opportunity It's for our customer to reduce the cost. Understood.

Speaker 5

With regards to talent, one of the things we've kind of seen obviously, again, related to the environment, Is that the supply side is becoming a little bit easier, lower wage inflation, lower attrition, things like that. If you could comment on your what you're observing and how it sort of Your, I guess, inclination to kind of increase headcount In particular areas, if you could comment on that.

Operator

So I think we clearly see a Change in the environment in terms of the labor market, but I think our focus on making sure that Employee engagement is high, has begun way before the great resignation era and we continue post the great resignation era. We are very focused on people as a key talent and then a key asset of the company. It's not just a slogan. So it has to do with many things that we are doing. And clearly, yes, The competition on talent has eased up.

Operator

And yes, we see voluntary attrition going down, but our focus on making sure that we Hi, the best talent, onboard them in the most effective way, continue to have high motivation and engagement, Focused on upskilling people that they can move internally and all of those things that we've been doing in the last couple of years continues and it should continue. But clearly, the supply is up. And I think that another point is that we are seeing this as an opportunity, of Of course, to also continue and elevate the new skills that are required. And this is happening all the time, whether we're talking about Cloud, whether we're talking about experience design or any of those skills that are required today, talking about data, analytics, whatever it is, It's clearly on our agenda.

Speaker 3

Yes, but the bottom line, as Thomas said, the labor environment is in completely Different place compared to what it used to be probably a year ago.

Speaker 5

Absolutely. Let me hand it back. I might come back later on for another question.

Speaker 1

And our next question will come from Timothy Haran of Oppenheimer. Your line is open.

Speaker 6

Hi, Shuky. Hi, Tamar. This is actually Edward Yang for Tim. Congratulations on another clean quarter. Thank you.

Speaker 6

Just my first question on backlog growth. That has moderated somewhat. It was like 10% about a year ago. It's come down at 6%. What's driving that?

Speaker 6

And What would get that to pick back

Operator

up? So just to clarify the numbers, we've mentioned that you did 5.7% on a reported basis, But constant currency basis, year over year growth of the backlog is 7%. And I think while we are talking always and For a good reason on backlog as a leading indicator, we shouldn't take it kind of mathematically on every quarter. It's not something that is necessarily consistently moving like a Swiss club. I think the most important thing is the trajectory is very strong.

Operator

We are continuing to sign important deals. Some of the deals we announced today actually are going to fuel much beyond The next 12 months revenue, therefore, it's not factored into the 12 months backlog. For example, the new managed services expansion and cloud migration with the Leading West European carrier. Major. Major deal will take time to set up.

Operator

It will get to the full run rate of revenue, Only mainly impacting 2024. So we definitely see this kind of phenomena, but it's great. It's giving us visibility beyond the next 12 months. So we are tracking, of course, all the time our backlog and our pipeline and we're looking

Speaker 6

forward to Okay. That's good color. And just looking at the U. S. Wireless industry, Industry phone ads are coming down year over year somewhat mid single digits.

Speaker 6

Are you sensitive to that volume change? And within that, the composition of net adds has been changing where this quarter we saw cable MVNO is grabbing much more market share versus The telcos grabbing more like half the subs, postpaid subs versus about a third last year. Does that mix shift affect your revenue and margin?

Speaker 3

First of all, the answer that we are not connected to this. Obviously, we want to see the customer going faster, but There is no correlation between the net adds to our revenue. But if you brought it, I mean, we see a very interesting phenomena The cable guys are talking about wireless. By the way, we are very happy, as we announced before, that we are behind the Comcast, Charter, Altice, all of them are using our platform for their mobile offering. And then the opposite, actually, the wireless guy are talking about fixed wireless, Which also we are very happy to support in T Mobile, in AT and T, in some other big customers.

Speaker 3

By the way, Also AT and T launched their 1st Internet Air product on our new platform this quarter, although they have a fixed wireless offering. So there is no direct connection, and I can tell you that we are very busy working with our customer on the strategic, I would say, direction. We mentioned a very important deal in T Mobile this quarter, which is critical for T Mobile for the future growth. So we are very happy in the way we are supporting our customer.

Speaker 6

If I could just squeeze one more question in. Just the The strategic partnership with Microsoft on the AI customer engagement, I know you announced that during Mobile World Congress, but How has the selling motion been for that product? And is this more of an Expansion into existing customers or are you bringing on new logos or displacing competitors?

Speaker 3

It's both, and we are very excited about this partnership. I think this, As I mentioned in my script, this unique combination of Andis, bringing our pretty much market leading CS Suite for all the monetization, fulfillment aspects, integrating with the very strong cloud based dynamic application, other application Of Microsoft, obviously, integrating generative AI as part of the full offering, It creates what we believe is by far the best offering in the market. Now we together are working very closely with Microsoft. In some cases, We are talking about going to a completely new logos for MSR and for Microsoft. In some cases, it's expansion with existing customer.

Speaker 3

We see Very I mean, this was really relatively new. This is like 2 months old. We see a very, very nice growth in Potential pipeline, a potential deal, and we are working very close to with Microsoft to make sure that we are able to mature these deals. But I think the bottom line, this joint offering give us together Very, very, I would say, by far, the leading suite for both consumer and B2B.

Speaker 6

Thank you.

Speaker 3

Thank you.

Speaker 1

One moment for our next question. And our next question is a follow-up from Ashwin Shikhar of Citi, your line is open. Okay.

Speaker 5

Thank you. The follow-up was more Product related, I want to ask about AI, Important topic, obviously, and you mentioned it a couple of times

Speaker 2

in the course of this call.

Speaker 5

But the way I understand it, AI is integrated and a part of CF23. The way your approach to AI is embedded solutions that use AI for a variety of functions. Is that the right way Look at it because this is obviously an important topic of conversation with investors And there seems to be a lot of noise on the topic. So if you could sort of lay out

Speaker 3

Thank you for this question, Ajmin. First of all, we are very happy for this partnership With Microsoft, it should get us very closer to this generative AI capabilities and while we are building and integrating right now what Recall the customer engagement platform with Microsoft is going to where we it's definitely we're accelerating The generative AI capabilities. We see generative AI capabilities and we are actually evaluating all the potential options right now And we see a lot of opportunities. It's both internal and external. I can give a couple of examples.

Speaker 3

Internal, We see to the opportunities to generate automatic test cases and using in our very large testing business. So this is one area that we are looking. I believe you some examples, but many more. We see in some cases when We need to do a cost conversion, so we are going to use these capabilities. And many other places, this is more like internal.

Speaker 3

Externally, we're already looking internally and together with partnership with Microsoft to see how we can actually elevate self-service application To do much more and we talk about our monetization platform, how we can drive better offering to consumer and B2B using these type of capabilities. And this is early days. I can tell you that there are many teams in the company and together with partners like Microsoft Elevating the potential, we believe the potential is huge And it's in many automated services engagements, in our development And capabilities and others, I believe that probably we are going to be much more mature Probably in a couple of months, but definitely it gets a lot of attention. And I think that as I said that The partnership with Microsoft gets us a great access to these capabilities.

Speaker 5

Thank you for that. Thank you. And

Speaker 1

I'm showing no further questions. I would now like to turn the call back to Matt

Speaker 2

Yes. Thank you, and thank you, everyone, for joining the call today. We look forward to hearing from you very soon. Please reach out to us here in the IR group if you have any questions. And with that, have a great night.

Speaker 3

Thank you, guys.

Operator

Thank you. Bye bye.

Speaker 1

And this concludes today's conference call. Thank you for participating. You may now

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Amdocs Q2 2023
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