Q2 2021 Amdocs Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2021 Amdocs earnings conference call.
At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session now.
To ask a question. During this time, you will need to press star one on your telephone keypad.
So please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your Speaker today, Mr. Matt Smith head of Investor Relations. Thank you. Please go ahead.
Thank you operator before we begin I would like to point out that during this call. We will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order.
Order to exclude the effects of acquisitions and other significant items that may have a disproportionate effect 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 of the company's business and to have a meaningful comparison to prior periods from more infill.
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 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 net.
Assurance that our expectations will be obtained or 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, the duration and severity of the COVID-19 pandemic and its impact on the global economy.
And such other risks as discussed in our earnings release today and at greater length in 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 32020 filed on December 14, 2020, and our form 6K furnished for the first quarter of fiscal 'twenty. One on February 16 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 are Suki Shaffer, President and Chief Executive Officer of Amdocs Management Limited and Tomorrow, Rapaport again joint Chief financial and operating officer, and finally, a copy of today's prepared remarks will be.
Posted on the Investor Relations section of Amdocs CS website. Following the conclusion of this earnings call with that I'll turn it over to shoot you.
Thank you, Matt and good afternoon to everyone joining us on the call today I am pleased to reported another strong financial performance in our second fiscal quarter. My comments today will refer to certain financial metrics on a pro forma basis, where applicable to provide you with the sense of the underlying business trends, excluding the financial Inc.
Part of open market, which we divested at December 31st as previously announced.
Revenue in fiscal Q2 was well above the midpoint of our guidance and up five 7% full year ago on a pro forma constant currency basis operating profitability exceeded the high end of our target range is rebalanced accelerates R&D is the percentage of revenue with continued focus on operational excellence free.
Free cash flow generation was also robust driven by the successfully deliver delivery of project invoicing milestone and healthy cash collection with customer.
During Q2 return a record quarterly cash amount of more than 400 million dollar to shareholders by the way of share repurchases and dividends. This includes the net proceeds from open market in line with the commitment we made to shareholders in the prior quarter.
It was another strong sales momentum led by growing demand for our digital five D. Offering. Additionally, we solidified our market leadership in the public cloud domain by utilizing our strong balance sheet to acquire <unk> group, a leading global cloud consultancy business for a net consideration of roughly $75 million.
Cash.
Before moving on let me take a moment to address the situation in India, where the COVID-19 pandemic has recently escalated MISO.
My Soltau.
The Indian employees and their family members and the community at large during this extremely challenging time to those who have suffered personal loss I would like to express my deepest sympathies to those whose health has been impacted by the virus I offer my warmest wishes and hope that you quickly make a full and speedy recovery.
<unk> is the health and wellbeing of our employees and we are investing resources to provide support for those most affected by the pandemic, which include making vaccination available faster whatever wherever possible from a rep.
So that perspective, we can leverage the scale and the flexibility of our global delivery model and our extended capabilities in other parts of the world such as the U S and the U K, where the state of the pandemic is much improved and now called the vet KOL day.
<unk> and delivery centers in Israel, where activities are pretty much back to the offices. We are monitoring the situation in the daily to ensure business contribute continuity for our customers.
I am proud of our employees and I want to dig them for all their dedication and commitment throughout the pandemic and the ability to collaborate with and in support one another during this difficult time.
Now let me provide some color regarding our regional performance during Q2.
Beginning with North America, we delivered our best ever quarter on a pro forma basis as a healthy level of customer activity continued throughout the region.
North America emerges from the pandemic five gene net walk and fastest secure broadband connectivity, it's become recognized as the backbone of society service providers are investing heavily in fiber and fiber deployment is sweetness in the many billions of dollars allocated in the recent C band spectrum auctions to Monty.
It's their investment and maximize the Hawaii service provider must bring exciting new five G. Ofarrell offers and services to the consumers and enterprise customers to meet this need our customers are in a multiyear investment cycle in digital in five G system modernization cloud migration and next generation <unk>.
This platform four net wells all of which Amdocs is well positioned to support with our cloud native products and IP based services. Let me take you through a series of example to show how we are supporting our customers as they build the capabilities to address these market dynamics, it's AT&T will exit.
A wide scope of activities under the four wheels managed services deal we announced in November 2019 on top of bleach were accelerating new programs to modernize its consumer mobility domain support the journey to the cloud and deploy five G monetization solution leveraging open a charging and policy capabilities.
In T mobile, we're accelerating the digital transformation, others strategic multiyear agreement, we announced last quarter implementing the Amdocs one product portfolio to support next generation Communications services for its consumer and be discussing that in next generation hybrid cloud operation in the form of multiyear managed.
Services engagement at Verizon, we are implementing Amdocs catalog, one our cloud native platform designed to rapidly create and launch new five day services offering and we are now progressing an additional program in the network domain, which level of this amdocs Neal a cloud native net generation always says five G plot.
Form for services and network automation Mir allows service providers to harness the power of cloud based Virtualized network with a more dynamic AGL and scalable.
Iran Cable and media. We are also busy we just completed successful subscribe immigration for Altice, USA falling edge, where traditional service electric cable TV last year and it will continue to implement our BSS and Oss platform for Comcast business, It chapter where the pouring our system to support spectrum mobile under a multiyear managed.
Services agreement, we announced last quarter and we were recently selected by dish to provide a cloud based billing for enterprise and wholesale customers. When it's an exploration five G network Amdocs Media's mean, Dci also extended its long term engagement with Vimeo, which will continue to use Vin diesel cloud based SaaS.
<unk> to enhance monetization of each substation and a one time purchase services.
Moving to Europe, we delivered healthy year over year revenue gross on a pro forma basis as we continue to program digital transformation project to support improved customer experience operating efficiency and multiple convergence strategies for our customers.
During the quarter. We saw continued demand for open its five G. Chartering policy solution, which are major tier one operator in the U K recently implemented on a day AWS public cloud to support its global platform in Italy, we expanded an existing relationship with phosphate, which we selected amdocs to millennials.
It's a mission critical inventory system is part of a transformation to create a five G ready platform to grow and differentiate its business and we expanded our relationship with S. Yes. It would be net content connectivity solution provider, which selected amdocs and to a testing framework to automate its floor.
<unk> process.
Turning to the rest of the world revenue agree over here and we began to see easily but encouraging signs of recovery in Latin America.
Amdocs was selected by American mobile to deliver a digital transformation and cloud Chilean Clower, Puerto Rico, and Amdocs to sign a three year agreement with Claro, Brazil to support cloud was postpaid business and to provide services and solutions for its digital transformation in Chile, because we get the extended its locked them standard relationship with V.
T out part of the Liberty Global and we signed a multiyear agreement with Telefonica expand to provide content licensing and processing for Movistar play service in the five markets, including Argentina, Chile and Peru.
In Southeast Asia gloves telecom in the Philippines implemented our net generation cloud native catalog one in digital one platform for its enterprise business, which we will operate and maintain under a multiyear managed services contract. We signed a partnership with India's air tail will be completed as seamless Mig.
Ration of Air total wireless postpaid customer to Amdocs modern digital business system, and we sign a new deal to provide open it's challenging for the data management product on Microsoft Azure for a more limited in Singapore.
Moving on let me update you on the strategy to grow by accelerating the communication industry journey to the cloud.
Its reaction.
As we outlined few quarters ago Amdocs to bring a full range of products and services.
We switch to offer every customer are ready and tailor made journey to the cloud I am pleased to report that we see an attractive and expanding pipeline of opportunities, which we hope to accelerate with the recent steps we've taken to solidify our leadership in this domain.
First we are today pleased to announce the acquisition of sales group, a leading global technology consultancy specializing loud say cloud transformation for sophisticated enterprise customer in different industrial industries, such as communications and financial services across North America Asia Pacific illustrate.
Yeah.
<unk> group is part of a wide gross companies investment in the cloud and breaks it woven cloud migration platform deployment in landing zone framework and process design processes alongside its deep partnership with AWS, Microsoft Azure and Google Cloud.
The acquisition also complements our portfolio of cloud native products and services and further expands and Diversifies our customer base line was to implement cloud at scale.
We are delighted the weighted soles team is joining amdocs, we are proud to bring such a great professionals and practices to our industry.
Second I am pleased to announce an expanded strategic collaboration with Microsoft to why did the availability of our portfolio and as usual the collaboration will enable service providers to turn so with cloud native solution and cloud services and deploy <unk> networks in the cloud with Azure for operators automated by the Amdocs Neal.
Sweet and monetize by Amdocs charging we have also extended our multiyear strategic agreement with AWS to include being detailed subscription management portfolio provided on AWS global cloud.
To wrap up let me briefly comment on the outlook for the remainder of our fiscal year 2021, we are raising our guidance for the full year revenue gross to reflect our solid performance in the first two quarters and our expectation for a stronger second half.
Our confidence is supported by the visibility of our 12 months backlog, which is up more than 9% for year ago on a pro forma basis.
And they believe that there is a rich pipeline of opportunities across our operating regions, which are walking hub, which we are working hard to monetize by executing on our growth strategy. We are focused on profitability and a disciplined use of cash we now expect it to deliver a double digit total shareholder return in the fiscal.
2021, including an improved outlook for pro forma non-GAAP earnings per share growth plus a dividend yield with debt. Let me turn the call over total MAU for our remarks.
Thank you Sophie.
Let's start with a quick housekeeping item with respect to open market, which was included in our reported numbers for the income statement and cash flow in the first fiscal quarter fiscal 2021 but is excluded for the second fiscal quarter of fiscal 'twenty 'twenty. One following the completed divestiture of these assets on December 31, 'twenty 'twenty two.
Finding with a sense of the underlying business trends my comments today will refer to certain financial metrics on a pro forma basis, which exclude the financial impact of open market from the current fiscal year and comparable fiscal year period.
Second fiscal quarter revenue of 1 billion and 49 significantly exceeded the midpoint of our guidance range of 1 billion 15, 2 billion 55 <unk>.
Revenue includes a positive impact from foreign currency fluctuation of approximately $3 million relative to the first fiscal quarter of 2021, and a negative impact of 1 million relative to guidance.
Additionally, Q2 revenue included a small amount of less than $2 million from two acquisitions, which we closed in the month of March source book.
The cloud consulting companies shoot you mentioned.
And another small one which I will describe later.
On a per foot basis revenue grew by five 7% year over year in constant currency in the second fiscal quarter.
Our second quarter revenue as reported grew by one by one by point.
0.1% year over year and was down 1.4 in constant currency given the comparable quarter of last year still included open market results.
Our second fiscal quarter non-GAAP operating margin of 17, 6% exceeded the high end of our long term target range of 16, and a half to 17, 5% and was up 30 basis points sequentially and 40 basis points from a year ago.
The non-GAAP operating margin improvement reflects the divestiture from open market as well as the initiative operational excellence, while accelerating our R&D investments in our strategic growth domains of digital five day in the cloud.
Below the operating line non-GAAP net interest and other expense was $3 $9 million in Q2, the mix of which includes interest expense related to our short term borrowing and 10 year bond.
And the impact of foreign currency fluctuation.
For forward looking purposes, we expect foreign currency fluctuations will continue to impact our non-GAAP net interest and other expense line in the range of a few million dollars on a quarterly basis.
Diluted non-GAAP EPS was $1.13 in Q2 slightly above the midpoint of our guidance range of $1 nine $2 15.
Our non-GAAP effective tax rate was 18, 2% in the second fiscal quarter, yet we are on track to meet our annual target range of 13% to 17%.
Diluted GAAP EPS was <unk> 91 cents per the second fiscal quarter in line with the midpoint of our guidance range of 87 to 95.
Normalized free cash flow was a $133 million in the second fiscal quarter as significantly as compared to 76 million a year ago.
On a reported basis free cash flow was 70 million in Q2. This was comprised of cash flow from operations of approximately $120 million less 49 million in net capital expenditures and other and included the annual cash bonus payments to our employees in January for the prior fiscal year 'twenty two.
Consistent with our guidance last quarter.
Yeah.
Please refer to the reconciliation table provided in our Q2 earnings release for an explanation of the difference between normalized and reported free cash flow in the quarter and for past periods.
These sales 79 days decreased by three days year over year and increased by one day as compared to the prior fiscal quarter.
Remind you that these sales may fluctuate from quarter to quarter.
As of March 31st total deferred revenue exceeded total unbilled receivables by $167 million.
This reflects a decrease in total unbilled receivables of $19 million and an increase in total deferred revenue of $8 million as compared to the first fiscal quarter of 2021.
Changes in Unbilled receivables and total deferred revenue, primarily due to the timing of contract specific milestones.
Moving forward you should expect these items to fluctuate from quarter to quarter in line with normal business activities.
Moving on our 12 month backlog was $3 billion.
54 at the end of the second fiscal quarter at approximately $50 million from the end of the prior quarter.
On a pro forma basis, our 12 months backlog was up roughly nine 3% year over year.
As a reminder, we believe our 12 months backlog continues to serve as a good leading indicator of forward looking revenue.
I am pleased to reported another record quarter from managed services arrangements, which comprised roughly 61% of total revenue.
This performance reflects high renewal rates the adoption of managed transformation model and continued expansion of activities within existing customers.
To clarify the open market business was not classify those managed services and therefore, it's exited does not impact our revenue from managed services.
Our cash balance at the end of the second fiscal quarter was approximately $1 $2 billion, including aggregate borrowing of roughly $750 million.
Our balance sheet reflects the acquisition of source group, a leading global technology consulting CFO and net consideration of roughly $75 million in cash.
Additionally, we recently completed two small acquisitions, one in March but still within fiscal Q2 and the secondly in April.
In the first of all acquisition project to our digital experience group subsidiary acquired a decay from a net consideration of roughly $14 million in cash.
Based in Boston, Atk's user experience and application development company, which complements project two tools capabilities and has a diversified list of global enterprise customers, including Southern del Bang Mercer and Brown Forman.
Clearbridge mobile is the second small acquisition, so a net consideration of roughly $15 million in cash targeted to further expand our digital portfolio capabilities.
Clearbridge has a Toronto based mobile App development company, which provides user centric design and engineering service fill telcos, such as Bell, Canada and Holger.
And non telco customers like Kiss network and TD Bank.
For all three recent acquisitions additional consideration maybe peg later based on the achievement of certain performance indicators.
As additional color on use of capital in early May we repaid the $100 million of short term bank loans. We took on during the early part of the COVID-19 pandemic last year.
This payment was executed according to schedule under the original terms of the loan agreement.
We remain comfortable with our balance sheet and believe that we have ample liquidity to support our ongoing business needs, while retaining the capacity to fund our future strategic growth investments as and when the right opportunities arise.
Additionally, we're committed to maintaining our investment grade rating.
Now turning to the outlook, the preventing level of macroeconomic business and the operational uncertainty surrounding the magnitude and duration of the COVID-19 pandemic remains elevated including the recently escalated situation in India.
The midpoint of our revenue 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.
We expect revenue for the third fiscal quarter of 2021 to be within a range of $1 billion and 42 billion, an $80 million. Our Q3 revenue guidance anticipates, a negative sequential impact of approximately $3 million from foreign currency fluctuations.
Additionally, our guidance incorporates the benefit of the recently completed acquisition and just discussed.
Regarding the full year 2021 we are raising our outlook for revenue growth on a pro forma basis to a new range of approximately 5% to 8% year over year constant currency as compared to our previous range of free and a half to seven 5% year over year.
The new outlook equates to an improvement of run roughly 100 basis points at the midpoint of the range about half of which is attributable to core business and the other half from recently completed M&A.
On a reported basis, we now expect full year revenue growth in the range of 1% to 4% year over year as compared with our previous range of negative 3% to plus three seven percentage will be them.
The adjusted revenue outlook on a reported basis anticipated positive impact from foreign currency fluctuations of approximately 1% year over year as compared to a positive impact of $1 two previously.
Additionally, our outlook remains consistent with our previous guidance for an acceleration in day rate will be able to be a growth on a pro forma basis in the first.
In the so in the second fiscal half.
Moreover, we still expect to see all three geographical regions to deliver revenue growth on a pro forma basis for the full year fiscal 2021.
As a final point to further help with your modeling we remind you that we originally planned for open market to contribute revenue in the range of $300 million for the full year fiscal 2021.
Roughly 75 per cent of which was expected from North America with you won't be accounting for the rest.
Regarding profitability, we continue to anticipate quarterly non-GAAP operating margin to track roughly in line with the high end of the annual target range of 16, 5% to 17, 5%.
This outlook assumes accelerated R&D investment as a percent of total revenue to support our customers and future strategy balanced with our continued focus on delivering operational expense.
We expect the third fiscal quarter diluted non-GAAP EPS to be in the range of one point 14 to $1 20.
Our third fiscal quarter non-GAAP EPS guidance incorporates an expected average diluted share count of roughly 128 million shares.
We excluded the impact of incremental future share buyback activities during the third fiscal quarter as the level of activity will depend on market conditions.
Regarding the full year fiscal 2020, one we are raising our outlook for non-GAAP diluted earning per share go to a new range of seven 5% to 10, 5% on a pro forma basis.
As compared to five and a half to <unk> nine and a half previously.
The improved outlook is mainly the result of debt our business fundamentals.
On a reported basis, we expect to deliver full year diluted non-GAAP EPS growth of 6% to 9% year over year as compared to 42, 8% year over year previously.
As a reminder, this outlook includes the impact of open markets for the first fiscal quarter only.
We expect our non-GAAP effective tax rate to be within the annual target range of 13% to 17% for the full fiscal year 2020 one.
We now expect normalized free cash flow for the fiscal year, 2020, one of approximately $820 million, which is slightly improved from our prior guidance of $800 million.
The outlook is equivalent to about 8% of armour amdocs market cap and represents a conversion rate of roughly 130% relative to our expectations for non-GAAP net income.
As a reminder, we expect free cash flow to convert at a rate more on par with our expected non-GAAP net income over the long term.
Additionally, we now expect slightly better reported free cash flow for fiscal year, 2021 of approximately $620 million as compared with 600 million previously Ali.
Our reported free cash flow outlook anticipates expenditures of roughly $140 million in relation to the development of a new campus in Israel.
$40 million of capital gain tax in relation to the divested open market.
And other items as.
As previously stated we expect fiscal 2021 to be the peak year of capital expenditure for the new campus.
Note that the GAAP between the expected free cash flow on a normalized and reported basis has widened primarily due to the tax in relation to the capital gain of open market.
During the second fiscal quarter, we repurchased $360 million of ordinary shares under our current authorization, including roughly $260 million funded by the net proceeds from open market.
As we committed to in the previous quarter.
Roughly $100 million of our share repurchases in Q2 will execute at this part of the regular share repurchase program.
Regarding our capital allocation plans for the rest of fiscal 'twenty 'twenty. One we expect to return a majority of our normalized free cash flow to shareholders in the form of a quarterly dividend and share repurchase programs subject to factors such as the statute status of COVID-19 pandemic the outlook for M&A financial markets and prevailing industry conditions.
As of March 31st we had roughly $228 million of authorized capacity per share repurchases.
<unk> Board has today authorized another share repurchase plan of $1 billion, which we will execute at the company's discretion going forward.
Overall, we remain on track to deliver accelerated pro forma revenue growth improved profitability and strong free cash flow in fiscal 2021 the combination of which now supports an outlook for double digit total shareholders' return of roughly 11%, including 9% mid point of our pro forma non-GAAP earning per share.
Both guidance plus our dividend yield.
With that we can turn it back to the operator, and we're happy to take your questions.
Understood at this time I would like to remind everyone in order to ask your questions Press Star then the number one on your telephone keypad again that star one on your telephone keypad also participants who accused up.
All will be requested to ask one question and one follow up only thank you.
Pause for just a moment to compile the Q&A roster.
Okay.
Yeah.
Your first question comes from the line of Ashwin share.
Share Vikar from Citi. Your line is open.
Thank you.
Okay, Hi Tomorrow.
Congratulations.
Hi, congratulations.
Solid quarter healthy outlook raids.
And that's actually my first question.
Is.
With regard to the outlook I get the you know half of the improvement is because of acquisition, but the other part the inorganic piece.
In the 80 S has sort of the velocity of client demand reason and have you seen bigger project sizes or the speed of.
Find work coming in faster.
What's been the important change that you observed.
So actually it's a combination of all of golf the pillars that none of them in particular, but that's actually very exciting because in general we are seeing very positive momentum across.
Five G cloud digital transformation and so we are continuing to see that momentum building GAAP. You know we tried to give some color to the prepared remarks on the momentum we're seeing in North America, very broad based including.
Including key existing customers like AT&T and T mobile all the way to new logos such as Verizon.
Very happy also with the fact that Europe is they're continuing to play well for us.
Starting to see polythene charging.
What's happening in Europe in conjunction with continued digital transformations.
And also rest of the world that is.
Loan for the third quarter in a row.
Sequentially and back to year over year gross that's very important and with some even encouraging signs and kylo, which has been more of the slower part of the regions in the recent pandemic here so.
It's very encouraging both from a regional point of view as well as the growth pillars that we're seeing.
Got it understood and then with regards to solar and the other.
The two smaller acquisitions.
They have non telecom client.
Including financial services. For example is the intent to keep those clients grow the non telecom piece.
Italy any talks on now.
On debt.
So youre right, both salsa and the other acquisitions, both Sun financial services customer and definitely the main reason that we acquired the companies will support.
RTG soles to support our strategy for the journey to the cloud, they're really topnotch consultant, we got a lot of knowledge top knowledge consultants see capabilities.
In the AWS Azure and.
And Google that definitely we are going to leverage you know taking the industry to the cloud of the comps in the media industry, having said that they brought us some financial services customer we are going to continue to support this.
Financial services customer and at the same time, we have a value I think if we can obviously a push this.
Domain and actually discuss them and can get some additional savings from Amdocs. At this point is more opportunistic strategic but we we are financing this opportunity.
Understood. Thank you.
Thanks.
Your next question comes from the line of Paul Liana <unk> from Bank of America. Your line is open.
Hi, guys.
It's okay, there given what we're seeing in the news.
I wanted to ask you about.
First of all just a general question is there any disruption to your business given what's happening in the country number one and number two.
I wanted to ask about the spending environment.
And your participation in five G. I'm asking this question every quarter because I know you should be getting some upside from it and I wanted to know if you start to see any movement on carriers spending on five G spending with Amdocs on five G and what kind of projects here.
Thank you.
So from your first question there was no impact.
There is some maybe people are working from home a little bit, but as you know in the last 12 months. The majority of device a majority of the company because of the pandemic work from home. So I can tell you clearly there was no impact regarding the.
The second question, we are definitely enjoying the five G trained all of the and the cloud and which are very much tightly connected all our new projects in North America, all the big ones are related to five G. This is the consumer mobility.
And modernization in AT&T.
This is all day.
Organization that were doing a few more by which you know is pushing five G and definitely a horizon selected catalog mainly to support them.
A new five G. Offering. This is true also for Europe and develop APAC. So we see a lot of activity and I think we said before that actually five G initiated a new modernization cycle in doing organization systems, and and we feel that we have the right products and services to support this.
A new wave of investment in the five G. This is true not just for a while.
We are all doing solution and billing solution. This is true also for our network solution. As we mentioned we are doing in five G project with <unk> with Verizon and other customers. So away because if we discussed before in order to be able to to deploy five G services in the best way you need all day.
Utilization systems, obviously, you need a very sophisticated catalog and you know you need to make sure that all day provisioning of the services from the network is smoothly from the ongoing system down to the network. So we are very happy with this trend and I would say that definitely North America. The vast majority of our projects all related to <unk>.
Great. Thank you.
Thank you.
Your next question comes from the line of Tim Horan from Oppenheimer. Your line is open.
The book.
So look really strong can you give us a sense of maybe just how that's trending and any ex any.
Patients in.
Does this suggest a pretty good correlation to revenue growth for next fiscal year on kind of what we're seeing with bookings now and then maybe just secondly, I know you touched on Verizon and any more color on their thoughts here per for more outsourcing.
I didn't understand the second question, but I think I'll start with the first one.
We are very happy with the momentum and this is why.
We were excited to raise the guidance for revenue for this year. So we see accelerated growth and this is a further gross is because.
The spending trends that we see and the fact that we came very very well prepared with our products and services and we see a very very good alignment full from the market trends of a journey to the cloud five G convergence.
A b to B and agile domain. So there is a very good alignment, which we support our gross and this is why we see a very strong second half.
Oh for accelerated growth and we were able to raise the guidance, we're not giving at this point.
Any guidance for a net.
The next day.
The next fiscal year, but the but you can see you are hearing from our tone that we are very excited about the momentum.
Two points to add here, our 12 months backlog line like this.
Munition covers.
The next 12 months.
So it is an important leading indicator for what we see ahead of US again cannot translate that one per one with expected revenue growth, but it is a good indicator.
The other early choices nine point, yeah, and it's 99, 3% year over year on per home basis.
And the other point I would say is that we'll continue to see strong momentum in non managed services revenue, which is kind of the underlying recurring revenue base of our relationship with customers on top of which we bring the new deal. So I think it's very important that this growth from the new pillars is key.
Coming on top of a very robust and strong base of business that will continue to shift into.
A more lengthy I would say in the robust managed services engagements with our customers.
Thank you and then my second question was just around horizon their propensity to outsource more do you think and how we how do you think your position with the ability to kind of getting more of that outsourcing if they do so.
It's still early stages I can see you that day, we are enjoying a very good relationship with Verizon I think theres a lot of appreciation with Verizon for our products and services.
As I mentioned.
In my opening remarks, the leveraging our next generation. The catalog one is all cloud native platform to support all the offering this is going to be the master product catalog of horizon, and we have a lot of activity in the networking to service design and create and services around it so.
I still have I think so far it's moving very well ahead of me I believe that day. If you will continue to show value to horizon, we can even expanded their relationship.
Okay.
Your next question comes from the line of Tom Roderick from Stifel. Your line is open.
Her shoe care Tomorrow, Hi, Matt Great to hear from you. Thank you for taking my questions. So schuh Kian and tomorrow I really appreciated the mid quarter call, you're getting a lot of questions.
From clients and there were some skepticism that I appreciated you take it from time to answer some of those questions. You know one of the one of the themes that sort of seem to be up for question. When we did that last call was the durability of your relationship with some big tier ones, particularly AT&T at the heart of it when I listen to your remarks today shoot it seems very very key.
Clear that not only is north America growing that AT&T is a particular customer seems to be on very solid footing. So I'd love to hear you know just your perspective on the durability and sustainability of the projects that you're working on as you look at these type of projects are they recurring revenue in nature and long standing that'll.
Extend beyond just 2021.
Tell us about the strategic nature of what Youre doing there and getting tied into their future as opposed to you know catch up projects and and band aid fixes that might only be per se 2021.
<unk>.
Okay. So.
As I mentioned, the word they'll sell to the pillars to our relationship with AT&T. Besides the fact that the.
Really strong we have a partnership with AT&T, probably more than twenty's. So.
So there is the first pillar of a very significant managed services that we announced in.
In late 2019, as we signed four four years and this is managed services for many many system of AT&T and some of them are amdocs system and by the way some of them are marked amdocs system.
On top of it we discussed about the fact that day and we haven't started the modernization journey of AT&T consumer mobility now if you look at AT&T AT&T is doing very well definitely the mobility domain.
<unk> mobility is in the house of <unk>.
<unk> started <unk> and the fact that we were selected to do this project was AT&T. It means that this is a very strategic project for us and AT&T and definitely this is not a cluster or something like this is a very long term.
The activity that we do for AT&T and this would be the next generation cloud native system of AT&T useful to Houston from it.
Additionally, we are very involved with AT&T journey to the cloud.
We are working together with Microsoft and day is taking different applications to the cloud not the vast majority of them are multi been amdocs and this is a very significant day.
The activity that we do with AT&T on top of it is you might know we are pretty much running the AT&T cricket AT&T, Mexico, we are doing a lot of data related activity and security activities. So I would say that day.
Our partnership with AT&T is strategic than ever and we are walking with AT&T and the more strategic domains of AT&T.
I hope really healthy right now.
Really helpful and very clear thank you <unk>.
Tomorrow, you know now that we have some of the numbers on the balance sheet behind the quarter end, you know ability to kind of comment a little bit further on some of the questions around liquidity.
Can you kind of take us through a little bit more on your philosophy on you know on your strategy.
<unk> regarding liquidity any any recent needs to draw on the revolver I know that's a question you've been getting from some investors, but but maybe bigger picture. If I look at this share buyback of $360 million in the quarter that'd be a pretty tough thing to do if you were having liquidity issues.
So again, if you can kind of highlight some of those strategies and then Ah.
Repeat what you what you talked about with respect to where the share buyback goes from here. Thank you.
Sure. Thanks, Tom.
I think we need to start with the fact that our business model is one that generates.
Consistent and healthy margin.
Then converged into cash flow. So as we always say that our business model should generate on par the earnings to cash conversion over time.
Some years slightly less some years more specifically 2020. One we are 130% earnings to cash conversion. So while this is not necessarily sustainable for many years, obviously, it's a good place to be at now taking that in terms of the use of cash we've always been looking on the balanced approach where we can.
Do both return of cash to shareholders and I believe we've been very consistent about debt well the majority of our free cash flow over the years have been returned to shareholders with a dividend debt has been introduced already six or seven years ago increased every year in double digit.
Gross and share repurchase program that has been running for many years and again authorized again and upload of additional $1 billion to that program. So we've been consistently returning cash while continuing to fund the M&A strategy of the company.
Looking specifically into the question of the recent drawn facility during the peak of the pandemic beginning period literally we did see a stress was all over the markets. We decided as a short term move to draw some money in the facility, which has been return fairly quickly.
Then as the more strategic move we enjoyed the historically low interest rates in the market probably the lowest I've seen in the last 14 15 years.
And each of the public bond for 10 years at $650 million, that's adding to our capacity is something that is supposed to have we declared we're continuing to maintain an investment grade rating.
And we're going to use this cash if and when the right strategic opportunities present themselves.
In terms of return of cash to shareholders. We've been returning over the last five years about half to $1 billion every year to shareholders. This year, obviously is going to be much more just this quarter, we have a day.
And over $400 million and over the overall fiscal year 2020 one.
We indicated we're going to return the majority of the 800 or so million dollars generated this normalized free cash flow. So clearly we are returning a lot of cash to shareholders. Both specifically in 2021 and in a consistent manner over the last five years.
Really helpful. Thank you Tomorrow I appreciate it.
Thanks, Tom.
Again for anyone else, who wants to ask questions. You May press star one on your telephone keypad.
Your next question comes from the line of Jackson Adder from JP Morgan Your line is open.
Great. Thank you.
So shaky on the on the source acquisition.
I think a lot of us think of docs as being able to handle.
The complex digital transformations are moves to the cloud.
So just curious what expertise.
Does the source group have that maybe would be complementary.
Two dogs.
Hi, Jackson.
<unk> group have over 120 50.
Top professional.
Understand.
The cloud environment extremely well developed their own tools landing zone other capabilities.
And when when your sales in the market today for cloud capabilities, you know, it's not easy to get talent.
What we.
We were able to get a really top notch talent with the sales group.
Actually we have obviously at the same time and we are always keeping our employees, we have thousands and thousands.
Oh for employees.
Which are cloud certified AWS Azure and more and this is a great addition.
But more from the consultancy perspective.
That we added to our capabilities. So it complements our cloud native system implementation capabilities operational capabilities now we have also a very strong consultancy.
We stopped not topnotch ex.
Bruce.
Okay, Great and then tomorrow.
Just a quick clarification from my follow up.
The acquisition.
Acquisitions in the quarter any commentary you can give on how much they contributed to the backlog number the ones that were actually close before quarter end and then.
Any margin color you can give on those.
And so there's very little usually what happens when we acquired those more of a consulting and name.
And development arms there.
<unk> of the business the way they used to run it.
Is pretty low so we are very of course conservative as we acquire them in terms of how much we add to the backlog.
Basing that Justin signed and very high.
Any visibility business so.
Most of the $50 million sequential increase has nothing to do with those acquisitions.
I believe that book Youre seeing in terms of the pattern of the backlog you know we've seen two very strong quarters before Q2.
We've had 140 sequentially than 150 sequential additions towards 12 months backlog as we said before this is not sustainable. Unfortunately in this space and certainly every quarter, but definitely with 50 I feel very good if you remember our past track record.
Used to be mainly quarters of 20 $30 million sequential increases in 12 months backlog, so having another strong quarter with a 50 million dollar sequential edition is definitely an indication of the strong business momentum we are seeing.
Great. Thank you.
Thanks.
Your next question comes from the line of Willpower from Baird. Your line is open.
Okay, great. Thanks, I guess first a clarification and then I have a second question.
The press release, you indicated net revenue was down I think $37 million sequentially. It sounds like that was principally open market, but I just want to be clear I think market by itself would have been a fair amount more than that right. So that would imply some offsets so I guess just.
Maybe just a little clarification on that first.
Yeah, that's absolutely our open market as we've indicated was expected to generate around $300 million in fiscal 'twenty, one silly, we assume for simplicity.
Linearity, let's say 75 per quarter.
So absolutely we are in a positive.
Momentum and that's why when we are indicating that the pro forma performance. We are talking about five 7% year over year growth in Q2 pro forma constant currency. So the momentum is strong in real terms.
Okay, Alright, and then my second question I think we got sugar that said that the North America Pro forma revenue was was a new record I don't know if we got an update on the other two geographies I guess I'd just be curious.
Pro forma without open market, if you looked at Europe.
Rest of the World how are those two trending what are some of the puts and takes.
Year over year there.
So as we said about a quarter of them open market revenue was coming from Europe.
So you can see that also if we take you off the performance has been strong on a pro forma basis.
Some of that a little piece of that has to do with currency, but even if I take out the currency impact has been a strong quarter for your appeal of the year as well.
And just to clarify in the rest of the World numbers. There was no impact of open market. So the open market revenue was about three quarters going into North America, and a quarter going into your Andrea in each line.
Like the sales sequential growth.
And the rest of the world Yes.
Quota in the law in which we're growing.
Okay alright, thank you.
Thanks, Paul.
There are no more questions at this time, turning the call back to Mr. Matt Smith for closing remarks.
Okay. Thank you everyone for joining the call today and for your interest in Amdocs and we look forward to hearing from you in the next few days and if you have any additional questions. Please call the Investor Relations group and with that have a great evening.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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