Q3 2020 Amdocs Ltd Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand I think you pay pension.
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Matt Smith head of Investor Relations. Please go ahead Sir.
Thank you very much up right before we begin I would like to point out the during this call. We will discuss certain financial information that is not prepared in accordance with got the company's management uses this financial information and its internal analysis in order to exclude the effects of acquisitions. Another significant items that may have a disproportionately.
In a particular theater accordingly management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations at the company's business and to have a meaningful comparisons to prior period for more information regarding our use of non-GAAP financial measures, including reconciliations of these measures.
We refer you to todays earnings release, which will also be finished with the FCC on form 6K also this call includes information that constitutes forward looking statements. Although we believe the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained all that any deviations will not be material.
Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include but are not limited to the effects of general economic conditions did you rationing severity of the Koby 19 pandemic and its impact on the global economy on such other risks as discussed in our earnings release today under great to lengthen the company's.
Things with the Securities Exchange Commission, including in our annual report on form 20-F for the fiscal year ended September 32019 filed on December 16, 2019, I not form 6K finished for the first quarter fiscal 20 on February 18, 2020 onto the second fiscal quarter fiscal 20 on May.
18, 2020, Amdocs may elect to update these forward looking statements at some point in the future. However, the company specifically disclaims any obligation to do so participating on the call with me today, our Shuki Schaeffer, President and Chief Executive Officer, with and that's management limited and Tomorrow Rappaport, the game joint Chief financial and operating officer and without.
Okay and services should be.
Thank you, Matt and good afternoon, everyone joining us today, so so fiscal quarter results.
So first full quarter operating under the global conditional to what we might seem from.
Consider wage I'm proud of the company's performance.
Revenue exceeded the midpoint of guidance and grew 1%.
We delivered a significant number of license deployments that looks like.
Operating execution uses a mall deployment Doom and gloom.
And we may stay stable profitability and robust free cash flow generation, the letter, which was leaving by healthy cash collection across our customer base.
He was also most of them for another quarterly minutes services.
Thank you grew 4.6% you will review.
This performance reflects the bulk of activities, we have new logos and longstanding customer when we continue to expand our scope of work under multi year agreements with highly recurring revenue streams.
Ready to seamlessly operate the mission critical system will focus on the without interruption Julie to cover 19 pandemic.
It's called the value Mpos consistent bring so Minnesota small.
I'm pleased to say this we ended Q3 was a sequential and year over year, increasing our clip on spectral.
After the close out into the quarter the faces the deciding to accelerate as Q3 progress, which we see an early but encouraging cycle business standardization following the disruption of marginally.
However, we see attractive in introducing pipelines opportunity is our customer focus on the critical investments needed to strike the full scope in 19 involvement.
Moving.
Digital modernization in consumer little plays B to B.
Fiveg deployments in monetization system integration to the cloud and launching media and entertainment offerings.
Our next is the best in class loved that you've entered into supports us investment to they remain committed to investing another deal the money to make sure we bring legalization of customer needs in the future.
We recently announced the acquisition of open it to Franco Fiveg and cloud integration capabilities as a Prime example.
I would come back to open. It later in my remarks, but first let me provide an update of our activities by region.
Beginning with North America, we delivered positive year over year revenue growth as we continue to work closely with the reagent allows service providers many of which are leading the wall fiveg investment into just with the cloud was 18 tea, we continue to see momentum supporting your wife's Coppa D.
Good 18th investment in customer experience because the other day movement data analytics and security other than most of your managed services deals we announced last November. Most recently, we have partnered with Microsoft as you want to see some 18 pick the application to the public cloud and I'm pleased to say that we've now started the program.
To modernize 18, these consumer mobility domain.
Let me also commented T mobile spreads, which unified the operation under the T mobile Brent nationwide on all the second.
This is blake acute all enabling the new T mobile major objectives, we wide range of activities, which reflects the deeper relationship. We have developed both you move and explain to me is moving forward, but continue to work hard to demonstrate that we have the right credentials to be T mobile ski partner in support of future strategic requirements.
Across the border most America resigning expanded agreement was a bit Canada, we selected our real time, Michael Sousa portfolio to further increase platform, a GDP and I've said it is clubs lots of GE and we want to Malta, you deal with a leading can he didn't operator under which endo suite of cloud based platform we provide color.
Just a few days should processing compliance and delivery services.
Moving to your performance was stable or do they do basis.
We still with both as we are on track with allows because of summation pause is progressing at Vodafone, Germany, Spain, both of which are adopting our latest next generation offerings deployed on modern cloud native to promote jockey.
Recently, we complete the medical summation positive three island, the because that's up system, which has led to a first project. It's much like a much larger three okay, but we have been selected the supply system integrator anymore thought you managed services deals for its enterprise would be to be segment.
Another example of our ability to expand within a major telecom galaxies Dawns group, but I wonder if it's not possible allegedly barrier to other its end to end digital enablement platform the opportunity, which resulted from initial entry point is on Spain. Additionally, others chosen by Cellcom, Israel to accelerate the pace of digital transformation.
Of course, all business lines and we also want you enrolled in the network domain to provide end to end cloud like these services orchestration solution to sleep and simplify the older. So there's the level of management processes for resi is the world's leading globus others operator.
So some of your if the breadth of an industry, leading product suite is providing highly relevant with new low highly relevant with new logos in existing customer and we remain well positioned to sustained growth in the region over the long term.
Turning to the rest of the world well, we are seeing contracts between stronger business conditions southeast SCR and the slope activity in Latin America.
India was among the operational highlights of Q3 women successfully because it is wonderful you'd see a large love. This of course with customer mill onto a single biggest had experienced platform that's been able to speed introduction of new services innovation pipeline bonding operational efficiencies.
So it's no secret partnership in the Philippines during the quarter.
Blocks delicate choose our cloud that you've got out of one of digital one solution as part of it project to transform it as opposed to operation is also planning to use our customer from management system to overcome kobin 19 related challenges needs Lejus, though.
Additionally, it's PCT and this was selected to accelerate the bigger consummation of the enterprise business fully automating the company's operation by modernizing. It goes so that they think its operations support system because consuming it as opposed to this offer.
Most of them in college, but positive signs of demand we are seeing for our media offering in the rest of the world searches.
Oreo call Icky company, we just signed a multi agreement with the ability to persist as for content for Directv Latin America, Skype Wellesley inductive equal.
Regarding the outlook for the rest of the world, we're well positioned to support the store patterns of opportunity in southeast Asia, but market conditions are more challenging Latin America, well service provider away and they'll discretionary spending requirements to get the weak macroeconomic environment. The Colvin 19 pandemic and potential bucket considered.
Vision activity.
Now with molybdenum comments completed let me take a moment to discuss our printer position of open it's a leading provider of fighting shouting policy in cloud technologies, whose customers include several defaults top 10 service providers.
Well it is out.
Out of our strategy to accelerate the pace at which we believe understand things the communication industry to the cloud while also helping service provider to differentiate into Fiveg area.
This does take a cultural values playful.
First.
Opened its world class team of highly talented social professional and build a new fighting challenging policy and data management products, which are recognized worldwide for innovation and the more the open cloud Native architecture second we believe opened this technology naturally complement their multiplay capabilities, well probably hyper scale.
To put charging platform, it's bit of quality monetization and although handling solution. The combination of reach should greatly signed a leading technology position relating to the journey to the cloud and Fiveg adoption sales, we see an exciting opportunity to bring open it to a global customer base of more than 350 service.
Provider to federal proceed into wave of Fiveg investment there one cloud, it's compute aiotv and new customer experience.
Although we believe open at the present the rights acquisition at the right time, you dangerously and we look forward to adopt welcoming the innovative stable softer professional to endorse upon closing later this quarter.
To wrap up I'm proud of our Q3 performance in which we achieved our both financial targets, we seamless operation a conclusion using your most in digital capabilities.
With respect to our outlook for the remainder of the fiscal year, we are providing our current expectation based on information we have to date, but remind you that's where the time of great uncertainty regarding dispose the spread incivility over the coming 19 pandemic any to develop the effects of the global economy remains.
With this in mind, we believe a breather trains and graduate Terry towards the resumption of growth.
Outlets much better be showing early but encouraging signs of stabilization and supports an outlook for both you over the medium sequential revenue growth in Q4 is the guidance midpoint without including opening.
As such we now expect to Delever revenue was for the full year fiscal year between 1.6% the 2.6% on a constant currency basis, which is better than we expected three months ago, well exact will generate normalized free cash flow 500 million dollar, which is slightly better than the original.
It's a 400 makes it means all of which provided the beginning with our fiscal year.
Additionally, we see an attractive increasing pipeline of opportunities ahead of us, which we believe we can sustain for future long term goals as we leverage our market, leading and cutting edge product offering. So that's a good of institution pedigree of innovation and employee tablets. So why the final point I would like to take a moment <unk>.
As a global base of talented employees, who will take full for the extraordinary professionalism and commitment they've showed joined the global pandemic with that let me turn the call over to tomorrow or a mouse.
Thank you should be.
Third fiscal quarter revenue other billion point of three exceeded the midpoint of our expectation of 990 million to be for.
Also after adjusting for positive impact from foreign currency of approximately 5 million compared to our guidance assumptions.
What do we appointed basis revenue performance included the negative impact from foreign currency fluctuations of approximately 3 million relative to the second fiscal quarter of 2020.
On a year over year basis third quarter revenue grew by 1% in constant currency.
I'll jump in fourth quarter non-GAAP operating margin was 17.1%.
Also midpoint of our long term target range of 16, I have to 17.5% and consistent with our guidance that we will protect profitability. Despite the talking 19 related challenges.
Below the operating line non-GAAP net interest and other expense was $2.4 million in Q3.
Mixed up which include higher interest expense related to our recent shorten borrowings and send your won't issue offset by favorable foreign currency fluctuations.
For forward looking purposes, we continue to expect that foreign currency fluctuations will continue to impact on non-GAAP net interest and other expense line in the range of a few million dollars on a quarterly basis.
He looked at that end up as well the dollar seven cents excuse me the bulk of each point of our guidance range all the dollar for dollar and they can.
As anticipated our non-GAAP effective tax rate of 17.8% in third quarter was roughly in line with the high end of our annual target range of 13% to 17%.
He has got bps was 90 cents for the third fiscal quarter above the midpoint of our guidance range of 81 to 90, not one cents.
Free cash flow was $146 million in Q3.
This will comprise of cash from operations of approximately 187 million, let's 41 is less capital expenditures another.
No much free cash flow was $169 million in third fiscal quarter, which is consistent with our guidance that free cash flow, we convert at roughly 100% of non-GAAP net income in the second half or feel 2020.
Please refer to the reconciliation table provided in our Q3 earnings release for an explanation of the difference between normalized and reported free cash flow in the quarter and for the past periods.
Do you still have 85 days was unchanged year over year end up my three days as compared to the prime fiscal quarter.
To remind you that he is still may fluctuate from quarter to quarter.
The sequential gap between Unbilled receivables in deferred revenue why did point sevenmillion as compared to the second fiscal quarter 2020.
Selecting a decrease in total unbilled receivable of 10 million and a decrease in total deferred revenue fell short and long term 17 million.
Just two years ago, the gap narrowed by 3 million.
Changes. It is gap are primarily due to the timing of contract specific milestones related to the transformation project will deliver only four customers moving forward you should expect them to be able to Singapore. The total deferred revenue to fluctuate from quarter to quarter in line with normal business et cetera.
Moving on outflows on SAP flow was 3 billion point 48 at the end of the third fiscal quarter up 20 million sequentially from the end of the prior quarter and equivalent to young the growth of roughly 2.4%.
As a reminder, we believe our 12 month backlog continues to serve as a good leading indicator of our forward looking revenue.
I'm pleased with pools that revenue from managed services arrangement that generate high level of recurring revenue stream had a record quarter in Q3, comprising roughly 59% of total revenue.
That reflect high renewal rates the growing adoption for managed transformation model and the continued expansion of activities within existing customers.
Our cash balance at the end of the third fiscal quarter was approximately $1.2 billion, including aggregate boring so 750 million.
Our June 30 balance sheet does not just like the annual acquisition certainly they announced acquisition open it.
Which we expect will close in Q4 for next generation of roughly $180 million in cash.
During Q3, we seize the opportunity to proactively rape 650 million by way of a 10 year investment grade bond issue I think historically attractive interest rate of 2.5 roughly 8%.
And we also we paid our outstanding balance of 300 million under <unk> 500 million revolving credit facility and then existing shows a lot of 50 million.
And additional Showtime backlog of 100 million remain outstanding as of June 30.
As an at this point, we paid approximately $29 billion in cash with acquisition of business any tangible assets excuse me the majority of wage related to the purchase of the small software design and development company our project to two subsidiary in support of our digital strategy.
We remain comfortable with our balance sheet and believe me have ample liquidity to support our ongoing business needs, while retaining the capacity to fund strategic growth investments.
When the right opportunities right.
Additionally, we are committed to maintaining our investment grade credit right.
During the third fiscal quarter, you repurchased $60 million of our ordinary shares under our current authorization.
As of June 30, we had roughly $769 million the fourth of our capacity well share repurchases with no state of the expiration date, which will execute at the company discretion going forward.
Now turning to the outlook the prevailing level of macroeconomic and business uncertainty surrounding the magnitude installation of covers 19 pandemic remains elevated.
The midpoint of our revenue guidance for Q4 reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenario and Lilly mine due to the outlook may be impacted my feeling is of customers continue to illustrate the what did you business priorities and future fish testing.
With that said, we expect revenue for the fourth fiscal quarter 2020 to be within a range of experienced 15 and ability to 55, which is better than what we've previously forecasted.
Embedded within our Q4 revenue guidance when do you see pay the sequential positive impact from foreign currency fluctuations of approximately $4 million. This compares to kids to me.
Our fourth fiscal quarter revenue outlook does not incorporate enough acquisition of open up the transaction as Nokia close.
For your long term modeling purposes, we expect opened at the contributes roughly wanting to have person to Super Center revenue growth and kids. So 2021.
We will move quickly to bring opened its technologies into a broader portfolio Fiveg <unk> fine naturally merging it with of course, if it is within a few quarters of closing the acquisition.
Regarding the full fiscal year 2020, we expect to deliver total revenue growth in the range of roughly 1.6% to 2.6% she will be here on constant currency basis without including opening.
The midpoint of the new age is approximately 10 basis points higher than that of our previous expectation or half a percent to 3.5% people to you and highlights the resiliency of for business model and ability to sustain growth doing the pathetic.
Well the reported basis, we now expect full year revenue growth in the range of 1.1% to 2.1% without including opening as compared with a range of negative happen for persons two plus 2.5% of previously disclosed.
The new outlook anticipates, a negative impact from foreign currency fluctuations of approximately half a percent able to here compared to a negatively but the 1% previously.
But does it make all non-GAAP operating margin will remain at or above the midpoint of our unchanged annual target range of six and a half was 7% in the fourth fiscal quarter.
And similar to the levels of the last couple of quarters.
As we continue to operate within the environment of the ongoing pandemic, we remain focused on protecting our profitability without compromising operational excellence and one investing in the future engines.
We expect the fourth fiscal quarter diluted non-GAAP appears to be in the range of.
1.6 phase one point 22 daughters.
Our fourth fiscal quarter and I got PPS guidance incorporates an expected average diluted share count the frankly under the 34 million shares.
Excluding the impact of incremental future share buyback activity during the fourth fiscal quarter as the level of activity will depend on market position.
For the full fiscal year, we now expect to the labor diluted non-GAAP EPS growth of 1.6% to 3% year over year.
As compared to apply our expectation of zero to 4%.
We expect our non-GAAP effective tax rate to be with you know annual target range of still people, 17% for the full system you know 2020.
Sales of open that allows us non-GAAP diluted earning per share is expected to be neutral in the full fiscal year, 2020, and 2021 and accretive thereafter.
We can see just expect normalized free cash flow for fiscal 2020 year of approximately $500 million, which is slightly earlier than the original forecast for 480 million at the beginning of the here.
We are raising our outlook for reported free cash flow for fiscal year, 2020 to approximately $420 million compared to our previous quarter expectation of 400 million.
Before to free cash flow now includes a disciplined capital expenditure of up to $70 million in relation to development of our new campus in Israel, and how do I didn't switches reduced from our previous expectation of up to $90 million.
Regarding our capital allocation plan.
Expected returns the majority of our normalized free cash during fiscal 2020.
That said, we will continue to assess the deployment of capital carefully in the fourth fiscal quarter, having regardless of the status of the Cobiz I think pandemic dabble for M&A financial markets at prevailing industry conditions.
To conclude my financial comments, we are pleased with the financial discipline, we demonstrated in our Q3 performance and we are encouraged to be providing an improved outlook on a sequential basis for two floors.
With that we can Tony back now to go operator, and we'd happy to take your questions.
Thank you that's in line that to ask a question you'll need to patch Taiwan on your telephone to withdraw your question pressed upon key.
And the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, but we can probably can't give us there.
Our first question comes from shallow young with Oppenheimer. Your line is now open.
Thank you good afternoon to keep them our math congrats on the quarter.
The Q trend and the improved outlook.
Two quick questions on mine.
Okay, we keep hearing keep seeing.
That the new Cobot 19 environment. It is actually accelerating digital transformation journey.
When you talk to customers one other one of the telling you about their spending priorities out. The two late June that's ongoing shift to the cloud even within that shape, what could be quite a lot for a prioritize first.
Versus some other.
Products or services.
I show.
Good to talk to you so you're right you see the straw that there are customers.
Reducing the the discretionary spending but I think we choose relates to to the cloud journey into the goes on formation, which are really needed for the past Koby 19 environment. This is where I think that they're not stopping and actually in some cases, though externally.
I think everyone understand or is that both I would like team that the.
Rick installs are going to be CLO people are using much more they get done capabilities from mobile application website et cetera. This is juan.
And so these are trading or almost become pretty much of the star though.
And the other thing is obviously the immigration to the cloud.
Getting rid of say or Prime you say, there's a said, though this is something that started before the koby 19 and make sure we have sort of lifted by the coping 19, So we do see boot trend and a good opportunities in these domain.
And I have they have although a follow up for tomorrow ads and the work from anywhere Oriental work from home phenomenon continues to accelerate are you having any second thoughts.
Any fresh slots about the campus is being built in Israel and the maybe some of your other local branches how to approach it longer term.
So when we look when our and philosophy around working from home versus working from the office. We he leaves that working together at the office creates.
Very important environment of collaboration and innovation that isn't necessarily the so called.
Yes flexibility as important until in my view head of Cobiz like theme or actually.
Encouraging our employees on the global basis to work one day, a week from home because we thought that flexibility not too, but as a matter of principle, we do hope to see a world where we can go back to more of a hybrid model.
And we've taken that into consideration planning or workspace globally as well as new them you can boast a build up in Israel to create as kind of flexibility and take that into considerations in the planning.
Thank you for that congrats.
Hi, Thank you.
Next question comes from Jackson Ader with JP Morgan Your line is now open.
Great. Thanks for taking my question My aim.
First one is going well then open that I think we'd just look at.
Tomorrow, you mentioned lead the expected contribution for maybe let's go 21 is pretty much in line with like you guys said like the annual revenue for anything that for the last couple of years, when you announced the acquisition and just curious.
What should we be expecting in terms, how you doing growth either acceleration whatever the lumber some great and what's fiveg deployment picking up on what you know why wouldn't hoping that maybe see a growth acceleration.
So when we open the financial model, let's open it had as a Standalone company.
It was a very typical of a separate product company or a the majority of revenue, it's coming from license maintenance support them and to some extent play someone from some professional services.
We believe that in conjunction with the Alex portfolio of products, we can never could take it to be something more robust and they go over time.
That's the type of sales cycles that we see ourselves and same goes for open that assumption usually take a bit more time and then once you close the deal takes some time to ramp up the deal in recognized revenue.
So anything that comes back into consideration and the fact, obviously to get that would want to accelerate the build up of the pipeline and see that.
Celebration coming later on in the form of closing deals with open it until the weakness of I'm dogs, we think that should accelerate of course overtime.
They make sense in them. So quick follow up actually just sticking with.
Opened a.
In terms of maybe little opportunity just sneak in all be Amdocs customer base <unk> you should do you mentioned that.
Third point anything for the strategic rationale was that you can help sell open not too bad global customer base. One box. So how much overlap do you have been clearing Portsmouth, Wally and what do you think about Oh Oh opportunity.
We have some overlap, but we have all sort of customer that we have a day dogs, probably as much more customer much much much more customer that we have a day thoughts and as it could become dope away.
I think that the fiveg, you're charging before opening it which is completed cloud native been recognized probably the best in the market.
I think to.
The.
Obviously, our core merrells, beating lead time feeling portfolio I think this is a unique combination in the market.
It's a everyone is moving to fiveg. They this cloud, making fiveg charging is pretty much litterbugs to every service provider obviously toward their books customer. So I think it's a good opportunity for us to come because holistic cloud native solution is it to address all their fiveg needs of food.
For comfortable.
Okay. Thank you.
Thank you as a reminder to ask a question you let me discuss star one on your telephone. Our next question comes from what happened with bad and I must tell open.
Hey, guys. This is Charlie early time for well thanks for taking the question.
I was hoping to stay with a one that and asked a question specifically on Fiveg I'm wondering now now with open that in the portfolio. How would you compare your product portfolio as it relates to Fiveg, you know compared to some of the other competitors that are also offering similar products.
And then you know related to that how would you characterize as the fiveg opportunity in general in terms of the possibility to accelerate the topline and potentially the timing around that thanks.
Yeah, honestly I'm biased, but definitely I believe that Oh portfolio portfolio would be domain is second to none of the I mean, they all the monetization platform and they have a de wanting to cut the one platform. The obviously we believe this is the.
In the market Oh real time billing.
That we have and now we added the charging for five Gee I think it completes the social entwined and actually we are going to integrate and open it solution to our suite in the way that the same catalog or kind of one.
Which we are for example, they we announced a law school build that another big gear in North America on the service provider chose a little by using the same caught a little we can have an end to end suite that support for energy.
To your point, all our customers are moving to Fiveg.
If I need to rank as the world probably North America is number one Europe is second and Apricus. So from from adoption of Fiveg all of all of them are looking to build capabilities for monetization and charging.
For Fiveg and I think we have the right portfolio social business.
Great. Thank you very much.
Okay.
Thank you.
Hi, I'm not showing any further questions at this time I would now they can tend to call back over to Matt Smith for closing remarks.
Thank you very much for joining our call today and for your interest in Amdocs will afford the hearing from you in the coming days and if you do have any additional questions. Please call the Investor Relations group have a great even thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.
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Ladies and gentlemen, thank you good standing by and come to the Amdocs 320, It's funny earnings conference call.
All participants I know listen only mode.
After the speaker presentation, there will be a question and answer session.
Yes. Good question. During this session that you want me to press Star one on your telephone if you're quite anywhere. This. It's then please press star zero I would now they can't MACOM, Vince do you actually get today.
Matt Smith head of Investor Relations. Please go ahead Sir.
[music]. Thank you very much up right up before we begin I would like to point out. The during this call. We will discuss certain financial information that is not prepared in accordance with got the company's management uses this financial information in its internal analysis in order to exclude the effects of acquisitions. Another significant items that may have a disproportionately.
Back in a particular period.
Accordingly management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations at the company's business. That's I have a meaningful comparisons to prior periods for more information regarding our use of Nongaap financial measures, including reconciliations of these measures. We refer you to todays earnings release.
We'll also be finished with the FCC all form 6K also this call includes information that constitutes forward looking statements. Although we believe the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained all that any deviations will not be material such statements involve risks.
Uncertainties that may cause future results to differ from those anticipated. These risks include but are not limited to the effects of general economic conditions did you rationing severity of the Koby 19 pandemic and its impact on the global economy I'm such other risks as discussed in our earnings release today under great to lengthen the company's filings with the securities and exchange.
Commission, including in our annual report on form 20-F for the fiscal year ended September 32019 filed on December 16, 2019, I'm not form 6K finish for the first quarter fiscal 20 on February 18, 2020 onto the second fiscal quarter of fiscal 20 on May 18 2020.
I'm Docs may elect to update these forward looking statements at some point in the future. However, the company specifically disclaims any obligation to do so participating on the call with me today, our Shuki chef President and Chief Executive Officer, with Amdocs Management Limited and Tomorrow Rappaport the game joint Chief financial and operating officer without often said that there should be.
Thank you, Matt and good afternoon, everyone joining us today, so so fiscal quarter results.
This was our first full quarter operating under the global conditional the cold we might consider.
Let's see the wage I'm proud of the company's performance.
Revenue exceeded the midpoint of guidance and grew 1%.
Quantum coffee.
We've been able to significant number of life that like deployments that looks I think everybody operate.
Using a more deployment.
<unk>.
And we make taste every possibility and robust free cash flow generation. The let the wage was leaving by healthy cash collection at wholesale customer base.
He was also both of them for another quarterly minutes of it says well everything.
6% <unk>.
This performance reflects the that's helpful for.
New logos and longstanding customer will we continue to expand our scope default under multi year agreements, we likely going to revenue stream.
Maybe to seamlessly operates the mission critical to some of our customers without interruption joined the overnight pandemic.
It's called the value Mpos consistently brain so minutes or was this more.
I'm pleased to say this we ended Q3 was the sequential and year over year, increasing no clear one spectral.
After the slow stopped it for the quarter they face on the signing of <unk>.
With which we see an early but encouraging sign will be the stabilization following the disruption of miles <unk>.
Well as though we see attract even at leasing pipeline to football Julie.
A couple of falls on the critical investments needed to strike the postponement like involvement.
Moving.
Got it will do mutation in consumer business.
Fiveg deployment monetization system integration to the cloud and launching media and entertainment offerings.
I'm doses the best in class Bloodletting engines, so both of US investment today and remain committed to investing about India. The money to make sure we bring legalization of customer needs in the future Oh recently announced the acquisition of open it to Franco Fiveg cloud integration capabilities as a Prime example.
I would come back to open. It later in my remarks, but so let me provide enough digital books by region.
Beginning with North America, where they live in a positive.
Revenue growth, it's because you're going to work closely with the reaches allows service providers many of which are leading the wall fiveg investment and adjusting for the cloud.
I think TNT, we continue to see more mapping supporting your wife's Coppa D that includes 18 team investment in customer experience.
It doesn't that government data analytics and security are the most of your managed services deals we announced last November.
Basically we have positively the Microsoft as you'll see some 18 gig application.
Public cloud and I'm pleased to say this will now start to the pulled up to modernize 18, these consumer mobility domain.
Let me also comment a few more buttons frames, which usually find their operation I know the team on brands Nationwide's on all the second.
I'd also like a coupon, enabling then you'll see more by the major objectives were widely available.
Reflects the deeper relationship we have developed both you wouldn't spread over many years.
Moving forward, so well continue to work hard to demonstrate that we have the right. Because then shows to be but keep partner in support of the future developments across the border. Most I'm like are we starting to expand the game. It is a bit kind of that we selected our lead time, Michael Sousa portfolio to further increase spots on the GDP and I've said on it.
Lots lots of GE, and we want to Malta, you'll be because if you think that you didn't operator, other which I know suite of cloud based platform, we provide content on new patient processing compliance and deliberately services.
Moving to your performance was stable well they all the new bases.
We still would fall to spin on track with allows they get the formation of Paul just know possessing a wonderful in Germany, and Spain. Most of wage adopting the latest next generation offerings deployed on mobile and cloud native did well jockey do.
Recently, we completed the medical so measured project at three islands, because they successful which has led 12 fills biologic. It's much luck at a much larger three okay, well, we have been selected the surprise to integrate all in a more thought you managed services deals voice as opposed to be to be segment.
And that's what it is not going to follow ability to expand within a major steadicam galaxies. The owns group, but I know, there's no possibility because all that she barrier to other these end to end digital enablement platform. So potato reaches out to for my initial entry points. It's on Spain. Additionally, I've those chosen by cynical monies way to accelerate the pace of digital transformation.
Of course, all business lines and we also want you want was in the medical domain to provide into and cloud.
Services orchestration solution to sleep on it seems like the older seal the LIBOR the management processes for last years, there won't be the globus others operational.
So some of the breadth of thought leading product suite is providing highly relevant <unk>, even though he doesn't want me to new logos and existing government and remain well positioned to sustained growth in the region over the long term.
Turning to the rest of the world well, we are seeing contracts between stronger business conditions southeast SCR and the slope activity Latin America.
There was in mind operational highlights of Q3, where we successfully because it is wonderful you'd see us large lumpiness of possible custom mill well into a single biggest had experienced thoughtful. This remains a speedy introduction of new services innovation pipeline bottling operational efficiency.
We also know petition filed the she'd be the Philippine during the past due loans.
Look the other cultures are cloud that you've got to the one is you get a one solution as part of it project will transform its enterprise operation is also planning to use our cost the local management system to overcome covert 19 related challenges and it seems as though.
Additionally, it's big City and this was selected to accelerate the because of consummation of the enterprise business fully automating the company's operation by modernizing and culturally they think its operations support this over the course consuming it as a place over this offer.
We also made in college, but positive signs of demand, we're seeing for media offering in the rest of the world such as video call. It gives you company. We just signed a multi agreement which is a big 62% as what content for Directv Latin America Sky boldly inductive equal.
Regarding the outlook for the rest of the World, we are well positioned to support the store profitable for both units in southeast Asia, but market conditions, a whole challenging Latin America, well service provider awaiting that they'll discretionary spending and good wireless against a weak macroeconomic environment. The covenant I think pandemic and the potential box.
Consolidation activity.
No we literally comments complete that let me take a moment to discuss opened up position of open it a leading provider of five each algae policy in cloud technologies will complement inclusive of this won't stop them service providers.
Well policies out either part of our strategy to accelerate the pace at which we believe understand things that communication needs us to do the cloud while also helping service provider to differentiate into Fiveg area.
This does seem to get us about his playful.
First.
Opened its world class team of five tenants. It's also professional other visit new five each accounting policy and data management border, which otherwise worldwide for innovation and the more the open cloud native architecture second.
Really opened its technologies naturally compliment their more deeply capabilities, well, probably hyperscale turbocharging thoughtful it's bit of caused people to accumulation and although ending solution. The combination of we should gradually signed a leading technology position relating to the journey to the cloud in Fiveg adoption.
We see an exciting opportunity to bring open it to our global customer base of more than 350 service provider to federal seeding. The wave will fight investment the wrong cloud edge compute aiotv annual customer experience.
We believe opened at the present the right. It was issue at the right time, you dangerously and we look forward to looked welcoming the innovative single software professional to endorse upon closing later this quarter.
To wrap up.
Part of our Q3 performance in which we achieved our board financial targets, we seamless operation that conclusion, using your most individual capabilities.
With respect to our outlook for the remainder of the fiscal year, we're providing our current expectation based on information we have today, but see mine you. It's about at the time of great uncertainty regarding dispose of the spread its ability of the probably 19 pandemic and it doesn't tell the effects of the global economy remains.
With this in mind, we believe will be the trends, how exaggerate Terry toward the resumption of schools.
That's much better be showing early but encouraging signs of stabilization and supports an outlook for both you will the integration of living it was in Q4 is the guidance midpoint without including open it.
As such we now expect to Delever revenue was for the full year fiscal year between 1.6% to 2.6% on a constant currency basis, which is better than we expected three months ago.
Well that will generate normalized free cash flow of 500 million dollar I'll, which is slightly better than the original guidance of 400 makes it even though we should go why did the beginning with our fiscal year.
Additionally, we see nuthrax, even increasing pipeline of opportunities ahead of us, which we believe we can sustain for future long term goals as we leverage our market, leading and cutting edge bought up offering. So they took a little bit diffusion pedigree of innovation and employees David.
Okay. That's fine a point I would like to take a moment <unk> lies our global base of tenant and employees, who will take for for the extraordinary professionalism and commitment they've shown joined the global pandemic with that let me turn the call orders with the amount for a mouse.
Thank you should be.
Third fiscal quarter, rather than the other billion, Portugal, we exceeded the midpoint of our expectations of 990 million 2 billion for.
Well go after adjusting for positive impact from foreign currency of approximately 5 million compared to our guidance assumptions.
What are your point basis revenue performance included the negative impact from foreign currency fluctuations up approximately 3 million relative to the second fiscal quarter of 2020.
On a year over year basis of third quarter revenue will say, 1% in constant currency.
I'll step in fourth quarter non-GAAP operating margin was seven people and 1% above the midpoint of our long term target range of 60, and they have to 17.5% and consistent with our guidance that we will protect profitability. Despite the coffee 19 related challenges.
Below the operating line non-GAAP net interest and other expense was $2.4 million in Q3.
The mix of which includes higher interest expense related to allay. Some short term borrowings and send your wallet issue offset by favorable foreign currency fluctuations.
Forward looking purposes, we continue to expect that foreign concentrations will continue being booked on non-GAAP net interest and other expense line in the range of a few million dollars on a quarterly basis.
He looked at that got BP is well the dollar seven cents in gives me the bulk of each point of our guidance range of a dollar for dollar makes sense.
I like this if they did though non-GAAP effective tax rate was 17.3% in third quarter was roughly in line with their lines of our annual target range of Turkey to 17%.
He has got bps was 90 cents for the third fiscal quarter above the midpoint of our guidance range. All make you want to 91 cents.
Free cash flow was $146 million in Q3.
Yes will comprise of cash from operations of approximately 187 million less 41 is net capital expenditures are not there.
Normalized free cash flow was $169 million in third fiscal quarter, which is consistent with our guidance that free cash flow weak on the birth of roughly 100% of non-GAAP net income in the second half or field 2020.
Please refer to the reconciliation table provided in our Q3 earnings release, one explanation of the difference between normalized and reported free cash flow in the quarter and for the past periods.
Do you still 85 days.
Age deal will be young and optimize three days as compared to the prior fiscal quarter.
So I remind you that it's still may fluctuate from quarter to quarter.
The sequential gap between Unbilled receivables in deferred revenue why did play several million as compared to the second fiscal quarter 2020.
Just like think a decrease in total unbilled receivable of 10 million and a decrease in total deferred revenue both short and long term of 17 million.
None of these two years ago, the gap narrowed by 3 million.
Changes in this gap I really do so the timing of contract specific milestones related to the transformation projects throughout the literally far customers moving forward you should expect them to be able to receivable. The total deferred revenue to fluctuate from quarter to quarter in line with normal business et cetera.
Moving on our 12 month backlog was 3 billion point 48 at the end of the third fiscal quarter up 20 million sequentially from the end of this part quarter and equivalent to young the growth of roughly 2.4%.
As a reminder, we believe our 12 month backlog continues to serve as a good living indicate no of all forward looking revenue.
I'm pleased to was pulled the travel your from managed services arrangements the generate high level of recurring revenue stream had a record quarter in Q3, comprising roughly 59% total revenue.
That reflects hiring youre right the growing adoption of momentum transformation model and the continued expansion of activities within existing customers.
Our cash balance at the end of without fiscal quarter was approximately $1.2 billion, including aggregate boring so 750 million.
I'll just any balance sheet does not reflect the annual acquisition certainly they announced acquisition open it.
Which we expect to close in Q4, four net consideration of roughly $880 million in cash.
During Q3, we seize the opportunity to proactively raised 650 million by way of attenuated that great bond issue I said historically attractive interest rate of 2.5 roughly 8%.
And we also repaid all outstanding down 300 million I'm going off 500 million revolving credit facility.
The existing shows a lot of 50 million.
An additional shows them back flown on 100 million remain outstanding as of June 30.
And then at this point, we paid approximately $29 billion in cash with acquisition of business any tangible assets excuse me the majority of wage related to the purchase of the small software design and development company our projects to keep subsidiary in support of our these does strategy.
We remain comfortable with our balance sheet and believe this we have ample liquidity to support the only Blake business needs, while retaining the capacity to fund strategic growth investments.
When the right opportunities are right.
Additionally, we are committed to maintaining our investment grade that'd be great.
During the third fiscal quarter, you repurchased $60 million of ordinary shares under all Collins with organization.
At June 30, we had roughly $769 million of both of our capacity for share repurchases. We know stated expiration date, which will execute at the company's expression going forward.
Now turning to the outlook the prevailing level of macroeconomic admitted with uncertainty surrounding the magnitude installation of the covenant I'd seen pandemic remains elevated.
The midpoint of our revenue guidance for Q4 reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios and remind you that the outlook may be impacted my feeling is not comfortable proceeding to elevate the digital business.
And future fishing industry.
With that said, we expect revenue for the focus was quoted 2020 to be within a range of feeling 15, an ability 55, which is better than what we've previously forecasted.
Embedded within our Q4 revenue guidance was used to pay the sequential positive impact from foreign currency fluctuations Brooks $54 million as compared to Q3.
All fourth fiscal quarter revenue outlook does not incorporate Vietnam acquisition of open I thought the transaction has not yet flows.
Well you will note on modeling purposes, we expect opened at the contributes roughly wanting to have person to 2% the revenue growth in fiscal 2021.
We will move quickly to bring opened its technology into a broader portfolio fiveg offline naturally emerging needs adult quote activity within a few quarters of closing the acquisition.
Regarding the full fiscal year 2020, we expect to deliver total revenue growth in the range of roughly 1.6% to 2.6% year over year on constant currency basis without including open it.
The midpoint of the new age is approximately 10 basis points higher than basketball previous expectation or half a percent to 3.5% Sylvia.
Hi, Alex the resiliency of our business model and ability to sustain growth doing the permitting.
Well the reported basis, we now expect for your revenue growth in the range of 1.1% to 2.1% without including opening.
As compared with a range of negative haven't supposed sense to plus 2.5% as previously disclosed.
The new outlook anticipates, a negative impact from foreign currency fluctuations of approximately half a percent deal with me here compared to a negative you bumped up 1% previously.
They did you break all non-GAAP operating margin will remain at or above the midpoint of our unchanged annual target range upticks in the house and seven.
In the fourth fiscal quarter.
And similar to the levels of the last couple of quarters.
As we continue to operate within the environment of the ongoing pandemic remain focused on protecting our profitability without compromising operational excellence and one investing in the future engines.
We expect the fourth fiscal quarter diluted non-GAAP appears to be in the range of.
1.6 phase one point $22.
Our fourth fiscal quarter non-GAAP EPS guidance incorporates an expected average little to check top of roughly under the 34 million shares.
Make sort of the impact of incremental future share buyback activity during the fourth fiscal quarter as the level of activity will depend on market conditions.
For the full fiscal year, we now expect was the labor diluted non-GAAP EPS growth of 1.6% to 3% year over year.
As compared to our pilots professional zero to 4%.
We expect our non-GAAP effective tax rate to be with you know annual target range of still people, 17% for the full system you know 2020.
They bits of open that allows us non-GAAP diluted earning per show is expected to be neutral into full fiscal year, 2020, and 2021 and accretive thereafter.
We can see this expects normalized free cash flow for fiscal 2020 year of approximately $500 million, which is slightly on here then the original forecast for 480 million at the beginning of the here.
We are raising our out to fully faulted free cash flow from 15 to 2020, so approximately $420 million compared to operating as quarter expectation of 400 million.
Reported free cash flow not until this display with capital expenditure of up to $70 million in relation to development of our new campus in Israel, and how do I do which is sort of beautiful my previous expectation of up to $90 million.
Regarding our capital allocation plan.
Expected returns the majority about anomalistic Ashley fiscal 2020.
That said, we will continue to assess the deployment of capital carefully the fourth fiscal quarter, having regardless of the status of the called me. They seem from then examples for M&A financial market the prevailing industry conditions.
That concludes my friend actual comments, we are pleased with the financial discipline. We demonstrated you know acutely performance as well in college to be providing an improved outlook on a sequential basis.
[music].
With that we can Tony back now to go operator, and we'd happy to take your questions.
Thank you that's in line to ask a question you on mute the patch Taiwan on your telephone to withdraw your question press the pound key.
And the interests of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, but we can probably candy roster.
My first question comes from shallow young with Oppenheimer. Your line is now open.
Thank you good afternoon to come our math congrats on the quarter.
The Q shouldn't that be improved outlook.
Two quick questions on my end up to keep we keep hearing.
Seeing.
That the new Cobot 19 environment, it's exactly accelerating.
Digital transformation journey.
When you talk to customers what other what are they telling you about their spending priorities as it relates to the ongoing shift to the cloud even within that shape, what could be quite a lot of prioritize first versus some other.
Products or services.
I show.
Hey, good to talk to so you're right you de Souza straw that there are customers.
Reducing the the discretionary spending but I think we choose relates to the cloud journey and to do you get a transformation reach out they needed for the past Koby 19 environment. This is where I think that they're not stopping and actually in some cases, though externally.
I think everyone understand Paul is that both maybe like team that the.
The recent stover going to be CLO people are using much more digital capabilities for mobile application website et cetera. This is juan.
So these are trading or almost become pretty much who's been though.
And the other thing is obviously the integration to the cloud.
Getting rid of a off or prime is a data center is something that started before the koby 19, and make sure we have sort of us and by the Koby 19, So we do see boot trend in a good opportunities domain.
And I have they haven't although a follow up for tomorrow ads and the work from any work or work from home phenomenon. A continued to accelerate are you having any second thought any fresh slot.
About the campus being built in Israel, and maybe some of your other global branches how to approach it longer term.
So when we look we're not I know philosophy around working for the whole worse is working through the office, we believe that working together at the office create.
Very important environment, though collaboration that utilization that didn't necessarily that close.
Yes flexibility as important them to remind you had the coffee maintain or actually a encouraging our employees on the global basis to work one day week from home because we thought that flexibility now too, but as a matter of principle, we do hope to see a world where we can go back.
Back to more of a hybrid model.
And we've taken that into consideration planning work space globally as well as new them you can boast a build up in Israel.
Okay, that's kind of flexibility and take that into considerations into planning.
Thank you for that congrats.
I think yeah. I next question comes from Jackson Ader with JP Morgan. Your line is now open.
Great. Thanks for taking my question my.
First one is I'm, hoping that I think if we just look at.
Tomorrow, you mentioned the the expected contribution for they'd be fiscal 21.
Pretty much in line with why you guys said was the annual revenue for open that for the last couple of years, when you announced the acquisition. So just curious yeah.
What should we be expecting in terms of you know growth either acceleration one of them, although some growth and what's fiveg deployment picking up.
What you know why wouldn't hoping that maybe see growth acceleration.
So when we look one of the financial model that open it had as a Standalone company. It was a very difficult suffer product company or a the majority of revenue, it's coming for license maintenance support and to some extent like the one from some professional services.
[music].
We believe that in conjunction with the Alex portfolio of products, we can evidently take it to be something more robust and they go over time and.
But the type of sales cycles, but we see ourselves and things all for ultimate assumptions, usually take a bit more time and then once you close the deal takes some time to ramp up the deal unrecognized revenue.
So anything that comes back into consideration and the fact that obviously to get that we want to accelerate the build up of the pipeline and see that acceleration coming later on in the form of closing deals with open until the when there's a lot of dogs, we think that should accelerate of course oversight.
Right that make sense in one quick follow up actually just sticking with.
Open that.
In terms of maybe little opportunity just given all the amdocs customer base should be you mentioned that.
Third point I think the strategic rationale was that you can model that will open to buy global customer base. So how much overlap do you have been current customers law and what do you think about Oh Oh opportunity.
We have some overlap, but we're also lots of customers that we had a date dog globally are much more customer much much much more got some of the two we have a day thoughts and it looks a bit of the off of it.
I think that the Fiveg childree before opening it which is completely cloud native been recognized probably the best in the market.
I think well.
To.
Oversee our coal merrells, beating they've done feeling portfolio.
This is a unique combination in their markets.
It's a everyone is moving to Fiveg.
These cloud 95, do charging is pretty much Litterbugs every service provider well this week toward their books customer. So I think it's a good opportunity for us to Congress holistic cloud, making solution. It's address all their fiveg needs. So full focus.
Okay. Thank you.
Thank you as a reminder to ask a question you let me discuss star one on your telephone.
Next question comes from well probably with Baird. Your line is now open.
Hey, guys. This is Charlie Ehrlich on for well thanks for taking my question.
I was hoping to stay with a one that and ask the question specifically on.
Oh Gee I'm wondering now now with open that in the portfolio how would you compare your product portfolio as it relates to Fiveg, you know compared to some of the other competitors that are also offering similar products and then related to that.
How would you characterize as the Fiveg opportunity in general in terms of the possibility to accelerate the topline and essentially the timing around that thanks.
Yeah, obviously, I'm biased, but definitely I believe that Oh for portfolio would be no money seconds on on the they I mean, they all the monetization thoughtful and Oh, the one of the couple of one platform. The obviously we believe this is the best.
The market.
Our next time billing.
That we have and now we ended the child thing for Fiveg I think it completes the solution into and and actually we are going to integrate it opened it solution to our suite in a way to the same catalog I'll cover one.
Which we are for example, we announced a law school build that there's another big here in North America on the service provider chose a little by using the same caught a little we can have an end to end suite that took a little fiveg not to your point all our customers are moving to Fiveg.
If I need to rank as the world probably North America is going to why Europe is second and Apricus. So from from adoption of Fiveg. All of all of them are looking to build capabilities for monetization and charging it for Fiveg and I think we have the right portfolio to address or isn't it.
Great. Thank you very much.
Thank you.
I'm not showing any further questions at this time I would now that could turn the call back over to Matt Smith for closing remarks.
Thank you very much for joining our call today and for your interest in Amdocs. We look forward to hearing from you in the coming days and if you do have any additional questions. Please call the Investor Relations group have a great even thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.