Amdocs Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Please be advised, today's call is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Matthew Smith. Please go ahead.

Speaker 1

Thank you, Kevin. And before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. And 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. 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 Chief 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 will also be immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the Q3 fiscal 2024 and we'll update you on the continued progress we've made executing against our strategic growth framework, including generative AI and our continued sales momentum in cloud. Shuky will finish by discussing our financial outlook for the full year fiscal 2024, after which Tamar will provide additional details on our Q3 financial performance, our forward guidance and our continued commitment to ESG. And with that, I'll turn it over to Shuky.

Speaker 2

Thanks, Matt, and good afternoon to everyone joining us on the call today. I'm pleased to report solid results for our 3rd fiscal quarter and would like to thank our employees globally for their commitment to helping our customer provide seamless connectivity and amazing user experience to billions of end users each day. The key financial highlights of the quarter can be found on Slide 7. Q2 revenue was a record $1,250,000,000 up nearly 2% from a year ago in constant currency and in line with the midpoint of our guidance after adjusting for unfavorable foreign currency movements. Notably, non GAAP operating margin was 18.6%, was the highest in many years, rising by 80 basis points year over year and 20 basis points sequentially as we continue to benefit from our ongoing margin expansion initiatives.

Speaker 2

Non GAAP earnings per share was $1.62 consistent with the higher end of our expectation and we ended Q3 with a record setting 12 months backlog of $4,250,000,000 up approximately 3% from a year ago. Demostructuring our confidence in Amdocs' unique business model and the future success of the company, we also increased our pace of buyback activity in Q3, repurchasing approximately $169,000,000 of Amdocs shares $1 of Amdocs shares. Turning to Q3 operational highlights on Slide 8. Demand for Amdocs cloud solution remained especially strong, highlighted by the significant 5 year cloud deal we recently announced with AT and T and newly signed partnership agreements to support the long term cloud migration journeys at TELUS in Canada and VodafoneZiggo in the Netherlands. Customer demand was also healthy across our broader strategic domain of digital modernization, 5 gs and fiber monetization and network automation as reflected by significant new deal awards at AT and T and Charter in the U.

Speaker 2

S, A1 Telecom in Austria and PLDT in Globe in the Philippines. As to generative AI, I'm happy to announce an important award with a leading global operator, which has chosen to integrate Amdocs Genai Telco specific MACE platform in its business operation. From an operational perspective, we delivered consistent execution and a substantial number of deployments, including major project milestone achievements with customers such as AT and T in U. S. Cellular, Vodafone Italy, Vodafone Germany and SCS, an European satellite communication provider, PILDT in the Philippines and Optus in Australia.

Speaker 2

Among the highlights, we successfully transitioned Claro Brazil's on premise infrastructure to Oracle Cloud Infrastructure, OCI, for about 48,000,000 subscribers, demonstrating Amdocs' capability to efficiently manage the type of large scale customer projects that underpins our high market win rate and the reputation as a dependable partner. Q3 was also a record quarter in managed services, reflecting the ongoing ramp up mission critical support activities and new logos and long standing customer, such as Rogers, where we newly expanded a multi year engagement is creating a pull through of our latest cloud native offering like enterprise catalog and charging. Now moving to slide 9, let me add some color around the growth strategy, which to remind you is designed to provide the market leading innovation and technology our customer need to accelerate the journey to the cloud, digitally transform the customer experience and consumer and B2B monetize the future market potential 5 gs standalone networks, fixed wireless access and fiber deliver dynamic connectivity experience by streaming and automation complex network ecosystems and simplify and accelerate the adoption of generative AI. Starting with cloud on Slide 10. Market interest and sales momentum for Amdocs cloud solution remains strong, with the growing list of service provider choosing us as a primary technology partner to support the cloud migration in core and surround the systems alike.

Speaker 2

For many service providers, cloud migration is a complex multiyear journey that is still in the early phases. Amdocs' cloud strategy is, thereof, designed to help service providers simplify and accelerate their journey to the cloud by offering an end to end suite of unique products and services delivered under a fully accountable cloud operational model. The journey typically begins with Amdocs cloud consulting and planning expertise, in addition to which we also support product deployment, including Amdocs latest CS suite or cloud enabled classic version, the migration of Amdocs and non Amdocs application including mainframe, cloud managed services or cloud ops and the benefits of our intimate partnership with Azure, AWS and Google Cloud. Furthermore, we continually enhanced our cloud services portfolio with a combination of organic investment and strategic M and A to provide additional bench beachhead from which to accelerate the industry journey to the cloud. A prime example is the last November acquisition of Astadia, which contributed high sophisticated management to cloud migration capabilities that are now supporting the previously announced expansion of our cloud activities in this new domain at AT and T.

Speaker 2

Among other recently signed deals, TELUS in Canada signed a multi year managed services agreement with Amdocs to migrate its monetization operation to the cloud. And what happens Ziggo in Netherlands choose Amdocs to modernize and migrate its monetization engines to the public cloud, including both Amdocs and non Amdocs application. Moving to digital modernization on Slide 11. AT and T has chosen ConnectX cloud native SaaS platform powered by AWS, enabling it to quickly launch new digital brands and services for different customer segments. Reflecting healthy market demand, this win adds to a growing list of connectors customer, which includes Viniti in Brazil and Mellon in South Africa.

Speaker 2

Globe in the Philippines has chosen Amdocs to deploy its AI and data platform for the Information Data Hub. The platform hosted on Google Cloud will enable Globe to access real time business data from various sources and system and use it to enhance customer experience, optimize operation and large personalized services. In Australia, our B2B Amdocs Configured Price Quad CPQ platform deployed together with Amdocs Catalog to support its enterprise business, while simplifying accelerate the sales journey for Optus agents in Australia, empowering them to offer an innovative business solution to enterprise, SMB and wholesale customer faster than ever. Turning to 5 gs and fiber monetization on Slide 12. N1 Telecom Austria recently selected Amdocs for a multiyear project to consolidate, upgrade and modernize its billing, charging and catalog solution, enabling fast and time to market, new revenue growth, operational efficiencies and improved customer experience.

Speaker 2

This key project will also support the launch of new services and products across all customer segments, including 5 gs IoT and other advanced services. Amdocs' next generation modernization offering are also providing relevant also proving relevant to telcos and newly emerging fiber operators that are investing to accelerate the rollout of fiber networks in the U. S. And internationally. Our capabilities include a full range of BSS and OSS offering to support all aspects of the fiber customer journey, including fiber service creation, ordering and activation, billing and customer support, as well as the planning automation of the fiber network rollout itself.

Speaker 2

Moving to Slide 13, I'm delighted to name PLDT in the Philippines as the Southeast Asian service provider that recently selected Amdocs end to end service orchestration solution, our key offering that was strengthened by our acquisition of Tioco's service assurance business last year. As an important component of PTT's and OSS and cloud modernization program, Amdocs will deliver unified network inventory, service and network orchestration and business process automation capabilities operating on the public cloud. Notably, the agreement also includes the customer service solution for case management, which is a component of the Amdocs customer engagement platform we build in partnership with Microsoft. Rounding out my strategic review, I would like to brief you on some exciting advancements in generative AI as illustrated on Slide 14. As you are aware, generative AI has been a top priority for Amdocs.

Speaker 2

We have progressed our gen AI strategy by leveraging our MACE platform to deliver generative AI super agents that directly address our customer most pressing business imperatives and forging strong collaboration with industry leaders such as NVIDIA, Microsoft and AWS. I'm therefore happy to share today's news that the leading global operator is showing our MS platform create new revenue opportunities, drive efficiencies and reshape customer experience. This important award in partnership with NVIDIA demonstrates our commitment to innovation and highlights Amdocs' unique role as one of the leading technology enablers in the telecommunication industry with the power to help service provider fully harness the potential of data and GenAI to deliver real world value and savings. For instance, Amdocs is in the heart of helping our customer to accelerate GenAI treatment technology disruption in their call center operation and to reimagine the care experience. As we showed in a recent production trial with a North American service provider that resulted in a remarkable 60% plus decrease in average call handling times for bill inquiry, achieving 90% successful case resolution and almost 100% accuracy.

Speaker 2

We continue to progress our active engagement running many pilots globally, including with our large flagship customers to enable important GenAI use cases and smart agent capabilities of the future. Now moving to Slide 15, I would like to comment on our current market and operating position before discussing our 4th quarter outlook. First, we continue to operate in a challenging industry demand environment, the condition of which are yet to improve. Nonetheless, we continue to see healthy pipeline of opportunities across our strategic areas of focus and we are positioned to maintain a high market win rate by leveraging our pedigree for innovation and technology, market leading portfolio, best in class execution and highly talented people. I'm especially pleased with our cloud related activities, which last year exceeded 20% of total revenue and which is on track for a double digit growth in fiscal 2024.

Speaker 2

Our GEN AI strategy is gaining momentum as we begin to make the shift from production pilots to commercial customer awards and our commitment to operational excellence and ongoing efficiency initiatives is also bearing fruit. Position us to achieve our targets for accelerated profitability gains in fiscal 2024. Wrapping everything together on Slide 16. We are on track to achieve the midpoint of our guidance for constant currency revenue growth in fiscal 2024. Additionally, we are reiterating the midpoint of our guidance for non GAAP diluted earnings per share growth of roughly 9% in fiscal 2024, which is in within the tightened range of 8.5% to 9.5%.

Speaker 2

Coupled with our dividend yield of more than 2%, we are positioned to deliver double digit expected total shareholder return for the 4th year in a row. With that, let me turn the call over to Tamar for her remarks.

Speaker 3

Thank you, Shuky, and hello, everyone. Thank you for joining us. I'm pleased with our solid financial results for the 3rd fiscal quarter as detailed on Slide 18. With record Q3 revenue of approximately $1,250,000,000 up 1.8% year over year in constant currency. On a reported basis, revenue increased 1.1% from a year ago and was consistent with the midpoint of guidance, adjusting for a negative impact from foreign currency movements of approximately $5,000,000 compared to our guidance assumptions.

Speaker 3

From a geographical perspective, North America declined slightly as compared with a year ago, but grew on a sequential basis. Europe was weak mainly reflecting timing differences between a natural roll off of completed projects and a gradual ramp up of new deal awards. Rest of the World delivered another record quarter with revenue growth of nearly 13% from a year ago. Shifting down the income statement, our non GAAP operating margins was 18.6% for the Q3, the highest in many years. Non GAAP operating margin improved by 80 basis points from a year ago and 20 basis points sequentially, reflecting our continuous drive to improve operational excellence through disciplined resource management, automation, sophisticated tools and leveraging AI, including generative AI to push for more cost savings and higher efficiencies across the board.

Speaker 3

Interest and other expenses amounted to roughly $7,000,000 in the 3rd quarter and reflected adverse foreign currency movements in the quarter. On the bottom line, non GAAP diluted EPS of $1.62 was the higher end of guidance and included a non GAAP effective tax rate of 16.7 percent, which was consistent with the higher end of our annual target range of 13% to 17%. Diluted GAAP EPS was $1.21 for the 3rd fiscal quarter. This includes a restructuring charge of approximately $15,000,000 or $0.11 per share, without which diluted GAAP EPS would have been at the high end of the guidance range of $1.24 to $1.32 We'll provide more context around the restructuring charge when I discuss our financial outlook later. Moving to Slide 19, 12 months backlog was a record $4,250,000,000 up approximately $2,700,000 from a year ago and $20,000,000 sequentially.

Speaker 3

Our 12 month backlog reflects a positive mix of projects awards, managed services renewals and expansions with existing customers and new logos and has traditionally served as a new leading indicator of our business. As an additional point, note that 12 months backlog includes less than a full year impact from the significant new deal we recently signed with AT and T, reflecting the phased ramp up of activities expected under the current plan of execution. Turning to Slide 20, Managed Services revenue was a record $741,000,000 in Q3, up nearly 3% from a year ago and equivalent to roughly 59% of total revenue. Managed services revenue was mainly driven by ongoing ramp of mission critical support activities with new logos and long standing customers, such as the extended multi year engagement we announced with Rogers last quarter that included an expansion into new domains like data and testing services and more. Managed services growth is also supported by our customers' migration to the cloud, as proven by our recently signed agreements with Telus in Canada and VodafoneZiggo in Netherlands and our previously announced 5 year cloud deal with AT and T, which expanded our activities in a new domain while extending our existing consumer domain engagements through 2029.

Speaker 3

As a further highlight, I'm pleased to announce a multi year extension and expansion of our hosting and managed services agreement with Charter, under which Amdocs will continue to provide Spectrum Mobile with hosting and operational support for its mobile billing systems, along with its enhanced services to support the rapid growth of Spectrum's mobile and cable business, enabling innovative offerings for their customers. Now turning to the balance sheet and cash flow highlights on Slide 21. DSO of 74 days decreased by 5 days year over year and by 2 days sequentially in Q3. The sequential change in unbilled receivables net of deferred revenue was $40,000,000 in Q3, aggregating the short term and long term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter to quarter in line with normal business activities as well as our progress on significant multi year transformation programs we are currently running in North America.

Speaker 3

We generated free cash flow of $175,000,000 in Q3, comprised of cash flow from operations of approximately $191,000,000 less $16,000,000 in net capital expenditures, Adjusting for restructuring payments of approximately $18,000,000 reported free cash that would have been $193,000,000 in the 3rd quarter. Overall, we ended Q3 with a strong balance sheet, including a healthy cash balance of approximately $502,000,000 and aggregate borrowing of roughly $650,000,000 We have ample liquidity to support our ongoing business needs, while returning the capacity to fund our future strategic growth. Turning to capital allocation on Slide 22, we increased the pace of buyback activity to roughly 100 and $69,000,000 in Q3, reflecting our confidence in Amdocs' unique business model and the future success of the company. Additionally, we paid cash dividends of $56,000,000 in the quarter. Overall, for the year to date, we have already returned a total of $601,000,000 to shareholders through share repurchases and dividends, putting us on track to return more than 100 percent of free cash flow before restructuring payments to shareholders in fiscal 2024.

Speaker 3

For the full year of fiscal 2024, we're reiterating our free cash flow target of approximately $700,000,000 before restructuring payments, equating to more than 90% of expected non GAAP net income this year and a healthy free cash flow yield of roughly 7% relative to Amdocs' current market capitalization. Now turning to our revenue outlook on Slide 23, we are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty, which remains elevated in the current business environment. That the Q4 and full year fiscal 2024 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios. On a constant currency basis, we are reiterating the 2.7% midpoint of our fiscal 2024 revenue growth outlook, which we have tightened to a range of 2.3% to 3.1% year over year as compared to 1.7% to 3.7% previously. Our annual outlook includes 4th fiscal quarter revenue within a range of $1,240,000,000 to 1,280,000,000 which assumes an immaterial sequential impact from foreign currency fluctuations as compared to Q3.

Speaker 3

On a reported basis, we now expect full year revenue growth in the range of 1.9% to 2.7% year over year as compared with 1.6 percent to 3.6% previously. This outlook assumes an unfavorable impact from foreign currency fluctuations of approximately 40 basis points year over year as compared to 10 basis points previously. Moving down the income statement on Slide 24, the gradual sequential improvement in our profitability over the last three quarters puts us on track to deliver non GAAP operating margins around the midpoint of our annual target range of 18.1% to 18.7% in fiscal 2024. As I discussed last quarter, we remain committed to improving the company's long term cost structure and productivity by leveraging our unique business model, focus on operational excellence and implementing technology to achieve our goal of sustained profitable growth. With GenAI presenting a new wave of innovation and technology capabilities, we are proactively evaluating the portfolio of products, services and business lines in relation to our strategic investment priorities for fiscal 2025.

Speaker 3

Rebalancing our workforce and site strategy to meet our future needs and optimizing resources such as technology, infrastructure and workspace. Along these lines, we look we took additional actions under our latest restructuring plan during Q3, which resulted in the previously mentioned charge of $15,000,000 that was mainly comprised of employee severance and benefits arrangements. Looking out over the next several quarters, we expect to incur additional charges as we carry out our current restructuring plan in respect to which we will provide further updates as we move along. Bringing everything together on Slide 25, we are reiterating the 9% midpoint of our fiscal 2024 non GAAP diluted earnings per share growth outlook, which we have tightened to a range of 8.5% to 9.5% year over year as compared with our previous outlook of 7% to 11%. This full year guidance assumes a non GAAP effective tax rate within our unchanged annual target range of 13% to 17% for the full year fiscal 2024.

Speaker 3

Although we know that the rate is expected to be towards the higher end of this range in Q4. Overall, we are on track to deliver expected double digit total shareholders return for the 4th year running in fiscal 2024, assuming the sum of our non GAAP diluted earnings per share growth outlook plus our dividend yield of approximately 2%. Before handing it back to Shuky, I'm pleased to highlight that today we published Amdocs ESG and CSR report for 2023, 2024. Among the many achievements listed in this year's report, I'm especially proud of our significant environmental efforts, which have resulted in a 55% reduction in Amdocs Scope 1 and Scope 2 CO2 emissions since fiscal 2019, far exceeding our science based target commitments. Additionally, Amdocs' global consumption of renewable energy approached 59% in 2023, way up from just over 19% in 2021.

Speaker 3

Our progress was recently recognized by Time Magazine, which named Amdocs as one of the world's most sustainable companies in 2024, ranking us as one of only 500 inclusions out of more than 5,000 large companies initially assessed. For additional information regarding Amdocs' recent ESG and C, some initiatives and achievements, including our commitments to diversity, equity and digital inclusion, please refer to our report, which is now available for download on our website. With that, back to you, Shuky.

Speaker 2

Thank you, Tamar. As I said earlier, I'm pleased with our solid Q3 results. And while we continue to operate in a challenging demand environment, we remain well positioned to monetize a healthy pipeline of opportunities across cloud, generative AI and our other strategic domains by leveraging our market leading portfolio, best in class execution and highly talented people. With that, we are happy to take your questions. Thank

Operator

Our first question comes from Timothy Herring with Oppenheimer. Your line is open.

Speaker 4

Thanks guys. I wanted to focus on AI, the contract win and I think that was separate from maybe the trial that you did with the contact center. I guess on the contact center, can you just talk about how large the trial was? How extensive it was? And those sounded like some pretty amazing results.

Speaker 4

Have you been able to replicate them in other places? Or do you think you can roll it out relatively quickly? And any more color you can give around the AI contract one would be great. Thanks.

Speaker 2

So regarding this award, this is a very significant global operator that have many opcos. The initial deal actually consisted of us implementing our infrastructure, it's called the Andox Amaze platform and then setting up the first use case to one of these. This is the initial deal with the prospect to continue enhancing to more and more what we call super agents or use cases in this specific OpCo and then to other OpCos. As we mentioned, we are doing it with the partnership with NVIDIA. Regarding the operator in North America, this a good example how we using our technology actually we're able to build what we call super agents, especially for the care center that increases the productivity of the call center agent by tens of percent, extremely accurate.

Speaker 2

By the way, we are doing similar, I would say, proof of concept like this with other large operators in the world. The call center operation is a highly mission critical. So our customer want to make sure that this is working consistently in this type of accurate and become like another mission critical system as part of a call center. We assume that they will start to implement these tools across the call centers. This is going to completely disrupt the call center operation because it means that you can take a relatively young or or relatively new CSR that's working in call center and immediately bringing to capabilities and experience someone is working 3, 4 years in the call center.

Speaker 2

So we believe our customer, we use it not just obviously to take the cost saving, but it's also going to increase the quality of the call center, call in the time, consumer satisfaction. And we believe that this technology is going to disrupt all the call center of all our customers.

Speaker 4

And are you doing that in partnership with Microsoft still or any other partners there?

Speaker 2

We have many partners in this domain. I think this specific one we are doing it with NVIDIA, but at the same time we are running several proof of concept with Microsoft and others. So we are very diverse from this perspective.

Speaker 4

Congratulations. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from George Notter with Jefferies. Your line is open.

Speaker 5

Hi, there. Thanks a lot guys. I guess I wanted to ask about just the overall spending environment. If I go back the last few quarters, there's been a running narrative, customers focusing on transformation projects versus traditional projects. I think you guys talked about different M and A deals kind of slowing decision making down, slower to close type situations.

Speaker 5

Can you just talk about the bigger picture here, what you're seeing? And is there an opportunity to maybe see the business reaccelerate if those conditions get better? Thanks.

Speaker 3

So what we're seeing is on the one hand customers looking for ways to transform and some of them, as we said in the past, decide to take kind of the bigger approach of taking out legacy and putting in new. Some of our large North American and European customers, for example, are going with this. And many more customers are actually looking for the gradual modernization path, which is something we cater to very well, given the fact our portfolio is modular, given the fact we are allowing them different ways to modernize and take the journey to the cloud, whether they want to put the new stack in place or whether they want to take the classic existing applications and make them cloud enabled. We can have them with the migration to the cloud and many other activities around that. Having said that, we do see more scrutiny in decision making.

Speaker 3

We do see a tougher environment in terms of the pace in which those decisions are being taken. Our win rate continues to be very high. The relevancy of our offering remains very strong. And in terms of the consolidations, overall, I would say consolidation in the industry is a good thing for us. We've been historically benefiting from these situations as typically when carriers in the market consolidate, they're looking to provide a different value proposition to their customers.

Speaker 3

We are coming with a very strong experience in supporting them in doing that. We provide the systems that they need. But in the short term, sometimes when there is a situation, let's take the example of U. S. Cellular, which is a customer of ours in North America.

Speaker 3

As they are waiting for the regulator to approve the

Speaker 6

And

Speaker 3

so we do see this kind of phenomena from time to time. But I would say generally speaking, looking back on a merger activities between between T Mobile and Sprint, merger activities that are happening. One of the big transformations we are running right now is Vodafone Germany, for example, that has been acquiring different assets along the years and we're helping them to build 1 stack to support online of business. So if I need to generalize, we are typically enjoying consolidation in the industry, even though sometimes in the short term, it may create some delays in some investments.

Speaker 5

Got it. And then any insights into maybe when some of these effects might come off? Is it just a question of sort of the business environment? Is it a question of, I

Speaker 2

don't know, elections? I mean,

Speaker 5

the M and A part, I guess, certainly, but

Speaker 3

I think it's about the business environment as a whole. I'm not talking just about the U. S, I'm talking globally. We've been seeing this scrutiny that I've mentioned, this phenomenon. So I think it's about the business environment as a whole in terms of the pace and the pickup of investments that we are looking for.

Speaker 3

So again, there could be some specifics of some examples of a carrier in a specific situation, but I think it's more about the business demand overall and how we should see that unfolding as we move along. Thank you. Thanks, George.

Operator

Our next question comes from Tal Liani with Bank of America. Your line is open.

Speaker 6

Hi, guys. I'm in a public space, so I'm whispering.

Speaker 3

Hi, Todd.

Speaker 6

Good, good. You and the entire bus here hearing me. I have two questions. Number 1 is the $20,000,000 increase in backlog, is it related to the AT and T contract that you spoke about last quarter? And the second question is much more philosophical.

Speaker 6

So if I look at the last 40 quarters years or 8 years or 7 years, they were the needs of carriers never changed. The story changes, but the need to do what you're providing never changes. It's always high in the priority. But when I look at the quarters, there were many more quarters where you grew 2% a year versus quarters that you grew 6% or 8% a year. And when I look at your growth rate over the last few quarters, 4 quarters ago, you were at 6.5% growth year over year and now you're guiding to 1.4% growth, which is more in line with kind of the averages or more in line with what we've seen in the last 10 years.

Speaker 6

So the question I have is and again, it's philosophical, but I want to understand what drives it. Can the environment support growth of 6% to 10% as you said 3 years ago? Can the projects and what the carriers are doing, can it support growth that is higher than 2% to 3%? And if that's the case, then what drives the growth to accelerate over the next few years? Thanks.

Speaker 2

Considering the fact that you are in a public space, it's a relatively long question. Let me try with the second one. I think that the difference if you compare us previously and I think that at the time I think we have maybe 1 or 2 growth engines and today we have 5. Not all of them are working at the same pace. For example, we highlight again and again the cloud the journey to the cloud engine that is more than 20% of our revenue and growing double digit.

Speaker 2

And obviously, when we expanded to adults, so the total addressable market that we're offering today is much higher comparing to what we had maybe 10 years ago. But I think that what we are saying is that in the current in a normal demand environment, which is not the situation right now, we believe we can go back to single digit growth. And in the current demand environment, there is some industry pressure, macroeconomic pressure, interest rates and other customer are cutting CapEx because of this and focusing on free cash flow and other things that the industry by the way, maybe also some other things are going through given the current pressures, it will be difficult for us. It will be more in the range that you mentioned historically, but we believe with some support from the macro and some improved in demand condition, we can get back to what you call more like close to a middle single digit like 5% in this area. Regarding the backlog part of it, maybe Tamara?

Speaker 3

I would say, look, naturally, we always during the quarter eat the backlog by recognizing revenue and sign many new deals. So it's definitely part of it. I think the interesting points to make here is that we are talking about the 12 months backlog. And the reason I made the comment that the current 12 months backlog does not reflect the full year of this deal because as planned and as expected, we do not take effective control of that operation of that IT environment environment immediately takes time. We need to learn the environment, we need to transition, we need to set up certain capacities.

Speaker 3

So we do not have full 12 months yet of that deal reflected in the number we're reporting as of June 30. But everything I can assure you is going well according to plan and we will definitely see the full run rate of that in the middle of probably calendar 2025.

Speaker 2

And back to your first question, I said, normal demand environment, I think we can get close back to the mid single digit growth rate. Right now with the industry and everyone is under pressure, I think it will be tougher and you'd expect more of the historical level of revenue growth.

Speaker 6

Great. Thank you.

Speaker 3

Thanks, Doug.

Operator

One moment for our next question. Our next question comes from William Power with Baird. Your line is open.

Speaker 7

Great, thanks. It's Yani Samolis on for Will. Thanks for taking the question. Just to follow-up on some of the comments you were making a second ago about this spending environment in the market generally. So when we're thinking about what growth might look like in fiscal 2025, at this point, it sounds like we should be expecting similar growth as fiscal 2024.

Speaker 7

Or are there any near term drivers, I guess, other than an improved spending environment that would lead you to expect some reacceleration? Any guideposts or directional color would be great.

Speaker 3

Yes. We're not guiding yet for 2025, but we were trying to give some more color how we see the environment. So typically, for example, our 12 months backlog is a good leading indicator. Don't take it literally as I'm telling you now, okay, if 12 months backlog grew 2.7%, that's the growth next year. But I think what you're seeing us is hovering around these levels right now, and we need more change in the demand environment to see an acceleration.

Speaker 3

That's the message we're trying to get across.

Speaker 7

Thanks. That's helpful. And then should we expect continued accelerated buybacks? Or do you expect M and A to become more significant use of cash next year? Any outlook on that front?

Speaker 3

Yes. First of all, I would say, generally speaking, I believe we have the capacity and we are always trying to do both. I don't think it's one versus the other. At the same time, M and A is something we're always looking at. There's always a pipeline that we are actively evaluating, but it's harder to predict the pace and the specific deals that will mature to closing.

Speaker 3

So we've been very consistent with our buyback. You've seen us out there always and also believing in ourselves, of course, and in the story of Amdocs. We definitely think that the cash allocation back to shareholders through buyback is definitely an important vehicle. At the same time, we are going to look for M and A and we will probably do more M and A in our strategic domain. So I think the simple answer both and I don't think that one should be on account of the other necessarily.

Speaker 7

Makes sense. Thank you very much. Thanks.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Matt for any closing remarks.

Speaker 1

Thanks, Kevin, and thanks, everyone, for joining today. If you do have any additional questions, please reach out to us here in the IR group, and we look forward to speaking with you soon. Have a great night.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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Key Takeaways

  • The quarter delivered record revenue of $1.25 billion, a 2% constant-currency increase, non-GAAP operating margin of 18.6%—the highest in years—and a record 12-month backlog of $4.25 billion, with $169 million in share repurchases.
  • Demand for cloud solutions remains robust, anchored by a five-year deal with AT&T and new migrations for TELUS and VodafoneZiggo, driving cloud revenue to over 20% of total and fueling double-digit growth.
  • Amdocs secured a major generative AI award to deploy its MACE platform with a leading global operator and showcased a North American trial that cut average call handling times by over 60%.
  • Management cited a challenging macro and geopolitical backdrop, narrowing full-year FY24 constant-currency revenue guidance to 2.3%–3.1% growth amid ongoing industry headwinds.
  • Q3 included a $15 million restructuring charge for employee severance as Amdocs rebalances its workforce and site footprint, with further charges expected under its efficiency initiatives.
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Earnings Conference Call
Amdocs Q3 2024
00:00 / 00:00