Q4 2022 Amdocs Ltd Earnings Call
Yeah.
Thank you for standing by and welcome to Amdocs fourth quarter 2022 earnings call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone I would now like to hand, the call over to Matt Smith head of Investor Relations. Please go ahead.
Thank you operator before we begin I need to call your attention to our disclaimer statement on slide two of the presentation and note that some of our comments today may be forward looking statements and are subject to risks and uncertainties, including those described in Amdocs is FCC SEC filings and that we will discuss certain financial information that is not prepared in accordance with GAAP.
For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures. We refer you to today's earnings release, which will also be furnished with the SEC on form 6K.
Participating on the call with me today are <unk>, President and Chief Executive Officer of Amdocs Management Limited and Tomorrow rapid towards again, chief financial and operating officer.
To support today's earnings call, we are providing a presentation, which can be found on the investor Relations section of our website and as always a copy of today's prepared remarks will also be posted immediately following the conclusion of this call on today's agenda should give a recap of our business and financial achievements for the fourth quarter and full year fiscal 2022.
You on the continued progress we have made executing against our strategic growth framework Chica will finish by commenting on our financial outlook for the full year fiscal 2023, after which tomorrow will provide additional details on our fourth quarter financial performance and forward guidance. As a reminder, our comments today will refer to certain financial metrics on a pro forma basis, where applicable to <unk>.
You have a sense of the underlying business trends, excluding the financial impact of open market, which we divested on December 31, 2020, and with that I'll turn it over shaky.
Thanks, Matt and good afternoon to everyone joining us on the call today.
Let me begin by saying how extremely proud I am of Amdocs achievement in fiscal 2020.
In many respects was a landmark year for the company.
With our industry, leading portfolio of technology and services and global reach we delivered on our objective to sustain accelerating profitable revenue growth and we did so while playing a major holding serving the mission critical needs and strategic requirements of the global communication and media industry, which was.
Without question become more the backbone of society posted global pandemic.
Of course, none of this would be possible without the dedication and commitment of our global and diverse base of more than 30000 talented employees, who may wish to extend my gratitude for making fiscal 2022, an amazing year by providing market, leading innovation and exception.
Our service to our customers.
Turning to slide seven we wrapped up a strong fiscal 2022 financial performance with solid Q4 results that were in line with our guidance, despite persistent foreign currency headwinds and influential dairy pressure throughout the quarter.
Recapping the full year highlights our record revenue of approximately 457 billion increased 10, 3% on a pro forma constant currency basis and was consistent with our high end of our outlook for 6% to 10% growth is provided at the start of the fiscal year.
Reflecting heavy sales momentum we finished fiscal 'twenty to 2022 with record high 12 months backlog of $3 97 billion.
Up approximately 8% for me to go and we achieved record non-GAAP diluted earnings per share or $5 30 stand up 12, 1% on a pro forma basis as we delivered on our targets for accelerated and profitable topline goals.
To further add to cash conversion exceeded 100% in fiscal 2022, resulting in better than expected normalized free cash flow of $665 million, which returned more than 100% to shareholders via share repurchases and dividends.
To provide additional color on expect to Amdocs full year financial performance all three of our core operating regions grew revenue on a pro forma constant currency basis in fiscal 'twenty two as shown on slide eight.
The broad based growth across geographies demonstrate that our strategy to bring product and services innovation.
Gross five G monetization cloud network automation and digital is highly relevant and well aligned with the needs of our customers worldwide cooling.
Clearly expense North America delivered a record year driven by five G. In cloud transformation projects. In addition to AT&T and T mobile revenue grow across the broader North American region as we continue to expand activities with many customers such as Comcast charter dish very.
Eison Bell, Canada in modules.
To further expand in Europe , and rest of the World will also apparent in fiscal 2022.
We won important strategic awards with long standing customers like Vodafone and.
Telecom Globe Pvt, and excel at chapter and new logos like PPS Wolf border Corp, and is that a sale, which altogether demonstrate amdocs impressive global reach.
Fiscal 2022 was also a year in which we solidified.
<unk> reputation for execution.
Driven by our consistent focus on operational excellence, we achieved a record number of project milestone deployment in the fourth quarter full year fiscal 2022, including major go lives in Q4 as horizon.
K vivo and excel at charter to name a few.
As to our Boston investment, we accelerated R&D in fiscal 2022 to further extend our technological leadership is recognized by various industry analysts throughout the year.
Moreover, we now have dozens of accounts using the latest versions of our cloud native <unk> suites, which I believe is a testament to the rapid cadence and industry leading capabilities of our platform.
Additionally, we remain core to M&A <unk> to accelerate our growth strategy by implementation of our R&D investments during fiscal 2022, we accelerated the post merger integration of <unk> <unk> to schedule on our cloud consulting expertise and required one digital to expand our digital.
Experience capability.
We also initiated wants to add service assurance to our network automation portfolio, but with the planned acquisition of micro site, which subject to certain regulatory approval, we expect to close before the end of fiscal Q1.
Turning to slide nine let.
Let me also say a quick word about amdocs approach to corporate social responsibility, which is tightly into woven with amdocs business strategy.
Since the end of this quarter to empowering our incredibly connected world I believe we have an obligation to provide sustainable products that help our customers to advance the interests of the environment. While also taking a sponsor ability to enable digital inclusion whenever we can.
A great example is our work with <unk> Telecom, which is a rolling out <unk> network across remote communities in Brazil.
They need connectivity to more than 600 smaller municipalities and public school to help close the gap in a digital device.
Now.
Let me update you on our framework for strategic growth the key pillars of which shown on slide 10.
As a reminder, our gross strategy is clear and simple enable our customer to derive growth improved cost efficiency and providing amazing experiences to consumers and enterprises by bringing market leading innovation.
<unk> to end to end cloud platform and services.
Waiting seamless digital experiences by transformation, but transforming <unk> operations.
Monetizing new <unk> services, and delivering dynamic connected experiences with real time automated networks.
During Q4, we made additional progress executing against each of these growth pillars, beginning with cloud I'd.
Slighted to announce the AT&T Mexico.
<unk> has two integrated amdocs system from on premises to the cloud.
This five year agreement will enable AT&T, Mexico to quickly adopt the latest pipe <unk> novation facilitated new business models and allow unmatched flexibility and capacity by ensuring the right service infrastructure to support its network evolution and growing business needs.
Additionally, I'm proud to say that Amdocs is welcomed resort gels, Canada to move existing end of services and application towards private cloud.
Moving next to digital transformation, we've expanded our work with T mobile as they implemented Amdocs AI and data platform on the cloud to unlock business insights and an improved customer experience.
We signed a multiyear strategic managed services agreement with Telefonica is Pan America to deploy new BSS and cloud native or assess modules all the public clouds for telefonica entities in Argentina, Chile, and Peru, enabling cost reduction faster time to market for new services advanced ticket.
<unk> capabilities and an improved customer experience.
I'm also happy to announce of our digital transformation engagement with as I've said.
And as I'll be John based operational Amdocs modernized others, the BSS and Oss infrastructure with the cloud native platform to improve time to market for new products and services, while increasing efficiency by digitizing and slim streamlining processes.
Moving to five GMO demonstrate monetization.
Verizon recently went into production with Amdocs schedule of one hour.
Our cloud native platform designed to rapidly create and launch new <unk> services offering.
Earlier in Q4, we also launched our lead generation and of charging which combines the industry, leading charging and BSS capabilities with both amdocs that openness to support rapid time to market and the monetization of innovative new services across stand alone <unk> networks and beyond.
Leading service providers, including two tier one operator in North America are already using amdocs charging and we are busy working with many of our deals as they explore the ways to make a return on the <unk> investments.
To learn more about the significant market potential future <unk> use cases, we invite you to join US for what we know on December 12.
Would you share global perspectives and insights highlighting <unk> growing contribution to innovation services.
The potential economic impact across industries.
Well its real World example, illustrating amdocs critical role in bringing <unk> to life.
Switching to network automation, we are continuing to Boston is frankly, our relationship with FCA is a leading operator of multi orbit satellite to deliver enhanced form of connectivity.
And most recently signing an important new managed services agreement with Ses under which will provide anomaly detection monitoring diagnostics and remediation across SCS, new satellite communication system.
And also seeing increased customer demand for private enterprise networks as society becomes more reliant on ubiquitous connectivity.
As an example.
As our walk in with a new Brazilian communication services provider to build a private network for the Brazilian government.
Finally, I would like to quickly acknowledge amdocs media, where we are proud to say that juice, which is the part of ubiquity and in Netflix preferred fulfillment partner on the rewards.
For the.
The American region. This is Joe failed and PSP of deal wins, the most of any power since this program loans. Additionally.
Additionally, rubik witty.
Recently selected by Cellcom, Israel to ensure personalize detail content experience for silicones fiber TV viewers under our newly extended agreements.
Now moving to our fiscal year 2000, and swing outlook is presented on slide 11.
As expected we are closely monitoring the global macroeconomic environment, which has become even more complex since we spoke last quarter.
While amdocs and our global customer are not immune to macroeconomic cycle. We are confident in our unique and relatively resilient business model, which result in a highly recurring revenue stream and 12 based visibility from the mission critical system, we support.
The multiyear engagements.
We're already working with our customers to optimize their plans to address the complex macroeconomic situation.
Helping them to improve customer experience accelerated cost reduction and increase efficiency by bringing a highly relevant capabilities in digital cloud and automation.
We continue to see rich pipeline of opportunity, which I believe reflects amdocs position as a key technology enabler situated at the heart of the <unk> monetization and cloud related investments strategies that we believe our customer will continue to execute in the next several of us.
Turning everything together on slide 12.
We expect to deliver full year revenue growth of between 6% to 10% on a constant currency basis in fiscal 2023.
Consistent with the long term guidance range, we provided previously.
Our visiting our visibility our visibility is supported by record 12 months backlog.
Entering the fiscal year.
We expect all three of our core operating regions to grow on a constant currency basis in fiscal 2023, with Europe and rest of the world enjoying a stronger yield compared with fiscal 2022 as recent project awards continue to ramp up.
On the bottom line, we expect non-GAAP diluted earnings per share growth of roughly 8% to 12% in fiscal 2023.
The outlook assumes an increased level of stability.
Paired with the 2022 fiscal year.
Mainly resulting from ongoing efforts to improve operational excellence, so automation and other sophisticated tools, which are now yield benefits.
<unk>, we expect cost savings enabled by our move to the new campus in Israel.
We expect earnings to cash conversion to remain at around 1% in fiscal 2023 supporting another real strong free cash flow generation, the majority of which we plan to return to shareholders.
To summarize we expect to deliver double digit expected total shareholder return for the sales throughout the year and fiscal 2023, assuming a non-GAAP diluted earnings per share growth guidance, plus our dividend yield of about 2%.
With that let me turn the call over to Campbell or remarks.
Thank you <unk> and Hello, everyone. Thank you for joining us as a reminder, my comments today will refer to certain financial metrics on a pro forma basis, which exclude the financial impact to the open market, which we divested on December 31 2020.
Turning to our financial highlights on slide 14, I'm happy to report solid fourth quarter financial results rounding out the remarkable full year fiscal 2022.
Record Q4 revenue of approximately $1 17 billion was up nine 5% year over year in constant currency.
On a reported basis revenue increased seven 3% slightly above the midpoint of guidance, despite unfavorable foreign currency movements of approximately $9 million compared to our guidance assumption.
Moving down the income statement, our non-GAAP operating margin was 17, 6% in Q4.
<unk> with the prior quarter and up 10 basis points from a year ago.
During Q4, we continued to balance accelerated R&D investments in a competitive labor environment with our initiatives to improve operational excellence and efficiency, so ongoing implementation of automation and other sophisticated tools.
Additionally, I would like to remind you that our foreign currency hedging program is designed to protect our profitability and free cash flow generation rather than revenue and we are once again pleased that this strategy is proven mostly effective through the volatile currency markets of Q4.
On the bottom line non-GAAP diluted EPS of $1, 29% was at the midpoint of our guidance range and included non-GAAP effective tax rate of 26%, which as expected was above the high end of our annual non-GAAP effective tax rate guidance of 13% to 17%.
For the full fiscal year, our non-GAAP effective tax rate of 15, 7% was within our annual guidance range.
Diluted GAAP EPS was $1 five for the fourth fiscal quarter, which was at the higher end of the guidance range of 98 to 106.
Summarizing fiscal 2022 on slide 15, we delivered revenue growth of 10, 3% on a pro forma constant currency basis slightly above the high end of the 6% to 10% guidance.
Range, we provided at the start of the year.
As <unk> mentioned, all three of our core operating regions grew on a pro forma constant currency basis for the full year.
Our growth in North America was very strong both at our top two customers as well as the rest of the region.
In Europe revenue declined as reported but realistically the region grew on a pro forma constant currency basis as new project activity has ramped up for the fiscal second half.
Additionally, rest of the World grew in both Southeast Asia, and Latin America in fiscal 2020.
To provide some further data points highlighting the results of our global diversification initiatives six of our top 10 customers were located outside North America in 2022, despite strong growth in North America.
We have this fixed customers were new logos added in the last decade.
Additionally, the number of countries in which we generate annual revenue of more than $40 million is almost <unk>.
Doubled over the 10 years.
Which is the result of our into Nash intentional geographic expansion.
On the bottom line, we achieved double digit non-GAAP diluted earning per share growth of 12, 1% on a pro forma basis in fiscal year 2022.
Driven by strong top line performance.
Slightly better non-GAAP operating margin and the benefit of our share repurchase activity.
Moving to slide 16, 12 month backlog was a record high at $3 billion 97 up seven 6% from a year ago as strong sales momentum continued in the fourth quarter.
On a sequential basis 12 months backlog was up $20 million as compared to the third quarter.
Our 12 month backlog is traditionally served as a good leading indicator of our business, having consistently averaged around 80% of forward looking 12 months revenue over the year.
Turning to slide 17, and delighted to report a strong fourth quarter and our best ever year in managed services.
Fourth quarter managed services revenue of $715 million was up 12, 1% from a year ago and accounted for about 61% of total revenue.
During Q4, we continued to expand our list of managed services customers with new multi year deals, including those with Telefonica is panel America and Sds, we took adjustments area.
Additionally, charter in Amdocs subsides and expansion to our managed services agreement, providing ongoing support for charters growth spectrum mobile.
These deals add to an already impressive year for managed services renewals, including with customers such as Bell, Canada build it T cricket wireless and BT in line with our track record of nearly 100% renewal rate.
Additionally, it is worth noting that we have virtually doubled our number of managed services accounts over the last 10 years.
To remind you our managed services engagements underpin the resiliency of our business with recurring revenue stream high renewal rates and expanded activities, which may sometimes include also transformation projects with existing customers.
Now turning to the balance sheet and cash flow highlights on slide 18.
DSO of 74 days declined by eight days sequentially in Q4, reflecting healthy customer collections in the period.
Additionally, the net difference of deferred revenue and Unbilled receivables declined by $7 million year over year.
We generated normalized free cash flow of $176 million in Q4, and $665 million for the full fiscal year 2022 exceeding our target of $650 million.
On a reported basis full year free cash flow was $530 million, including capex of $116 million in relation to our new campus in Israel.
I'm very excited to report that as we speak all employees in Israel are starting the process of moving into the new premises.
This phase will accomplish is now substantially complete we plan to stop disclosing moving forward normalized free cash flow starting from next quarter and only free cash that will be provided moving forward.
Overall, we ended the year with strong balance sheet and a healthy cash balance of approximately <unk> 8 billion, including aggregate borrowing of roughly $650 million.
Moreover, we have ample liquidity support our ongoing business needs, while retaining the capacity to fund strategic growth.
This includes the acquisition of Michael Moe sign, which subject to certain regulatory approvals, we expect to close before the end of Q1, FERC approximately $188 million cash.
Turning to capital allocation on slide 19, we repurchased $108 million of our shares in the fourth quarter and paid cash dividends of $48 million.
Overall, we returned a total of $694 million to shareholders through share repurchases and dividends in fiscal 2020 to equate.
Equating to roughly 104% of normalized free cash flow.
Looking ahead to fiscal 2023, we expect free cash flow of approximately $700 million.
Which represents a healthy free cash flow yield of about 7% relative to amdocs current market cap.
Market capitalization.
Our outlook assumes the conversion rates of approximately 100% relative to non-GAAP net income.
Regarding our capital allocations in fiscal year 2023, we expect to return the majority of our free cash flow to shareholders.
This includes dividends for which we are pleased to announce the proposed increase of 10% in our quarterly cash payment to a new rate of $43 five per share.
Subject to shareholder approval at the annual meeting in January .
Overall I believe fiscal 2022 was a remarkable year for Amdocs, which included record high revenue slightly better profitability strong free cash flow generation and double digit growth in non-GAAP diluted earnings per share.
Now turning to our outlook on slide 20.
<unk> indicated earlier, we are closely monitoring the prevailing level of macroeconomic business and operational efficiency, which remains elevated in the current business environment.
The first quarter and full year fiscal 2023 financial guidance reflect what we consider to be the most likely outcome based on the information we have today, but we cannot predict all possible scenarios.
With that said, we are positioned to deliver revenue growth in line with the midpoint of our long term guidance range of 6% to 10% year over year on constant currency basis in fiscal 2023.
Visibility to this outlook is supported by our record 12 months backlog and a strong pipeline we see.
Revenue growth for fiscal 2023 includes a contribution of about 60 basis points from Michael lowest side, given our expectation that subject to certain regulatory approvals. This deal will close before the end of Q1.
This is similar to the inorganic growth contribution that was assumed in the guidance initially for fiscal 2022.
Additionally, we expect to deliver revenue growth across all three operating regions of North America, Europe and rest of the world on a constant currency basis for the full year fiscal 2023.
Our annual outlook includes first fiscal quarter revenue within the range of $1 $1 5 billion to $1 195 billion.
On a reported basis, we expect full year revenue growth in the range of 48% year over year.
We anticipate an unfavorable foreign currency impact of approximately 2% year over year.
Moving down the income statement, we anticipate quarterly non-GAAP operating margins around the mid point of a new and improved annual target range of 17, 5% to 18, 1%, reflecting the.
The benefits of our ongoing initiatives to improve operational excellence automation added sophisticated tools.
Disciplined resource management.
As well as expected cost savings, resulting from our move to the new campus in Israel.
Below the operating line, we anticipate this foreign currency fluctuations in cost of hedging 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.
We expect that our non-GAAP effective tax rate will remain within an unchanged annual target range of 13% to 17% for the full fiscal year 2020.
Specifically, our non-GAAP effective tax is expected to be above that high end of the annual range in the first fiscal quarter.
Bringing everything together, we expect non-GAAP diluted earnings per share growth in the range of 8% to 12% for the full fiscal year 2020.
Overall, we expect to deliver double digit total shareholder return for the third year running in fiscal 2023, including our outlook for non-GAAP , earning per share growth.
Our dividend yield of about 2% based on the newly proposed quarterly cash payment to be approved by shareholders at January <unk> annual meeting.
With that tax issue.
Thanks Tamara.
As you can probably tell for our remarks today I am very proud of our achievements for the fourth quarter and the full year of fiscal 2023.
And I believe we are in a strong shape to deliver another year of profitable growth in 2000 2023.
With that we're happy to take your questions operator.
Thank you as a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. We would ask that you. Please ask one question and one follow up then return to the queue.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of.
Lonnie of Bank of America. Please go ahead.
First question comes from Tal <unk> of Bank of America. Please go ahead.
Yeah.
So allow me please make sure your line is muted and if you're on a speakerphone lift your handset.
Well go to the next question.
Okay.
Our next question comes from Ashwin <unk> of Citi.
Please go ahead.
Thank you.
Hey, congratulations on the good quarter.
<unk>.
Thank you Mike.
Sure.
I guess my first question is.
Related to the comment on macro which is front and center for investors as well.
Are you seeing perhaps a change in the in the nature of projects may be more cost savings like more cloud or more managed services instead of more growth oriented.
New product types.
Projects in and could you sort.
Let us know in our base of revenues does that mean more towards cost savings.
Our growth there.
I think ashwin.
If you think about what we are bringing to the market in terms of the investment.
Domains, we are supporting me.
Many of them already.
Relevant also in a more challenging macro environment. If you think about the journey to the cloud for example in terms of offering the service provider the agility, providing quick services matching.
In Israel way the peaks of capacity that is required around the peak season like holiday season, and a more agile cost structure. Those are things that are very applicable also in a more challenging macro environment same goes for how do you provide quicker time, some marketing ideas to customer experience.
Many of those things that we're looking at.
A very relevant also in more challenging times now one of the big changes we've done irrespective of the macro situation than this decision a couple of years back is to provide so more sophisticated technology, a faster time to market of our products too.
The production of the customer environment. That's been dealt point of view is creating faster value now one may say in this kind of environment, what kind of features and functions will they want relative to may be <unk>, but that's the beauty of the things that we can actually respond fairly quickly with bringing these ladies.
Production, given today's environment when comparing the two years back where it took us a yield two to develop a product version. So we are very close to our customers monitoring what are their needs you touched on managed services. I think this is absolutely one of the vehicles that we can bring to our customers in terms of.
Reducing their cost structure, we are seeing managed services growing as you have seen already 12% in Q4, continuing to enjoy very high renewal rate plus new engagements and new logos of managed services. So that continues to be a vector we push forward, but if you ask me are you seeing a big change as of now of the <unk>.
Behavior of customers not yet.
Never.
We have not noticed anything like that.
So we are continuing to look very carefully of course, and we are very close to what's happening out there.
Big impact frankly, the immediate impact you are seeing is inflation and currency volatility.
Understood No cutback.
And then on the campus.
Congratulations on competing long process.
I wanted to understand there should be ongoing benefit.
Things like rent expense goes down.
Maybe.
Because employees are together helped in terms of <unk>.
Bringing our product faster things like that could you kind of go through.
Some of the original benefits that you expected and at those kinds of things incorporated in your outlook.
Yes, definitely we are very happy to see that.
Coming to life and as you've indicated it was a long term and a very important investment in terms of the.
The talent that we're seeking to have as well as the productivity now to remind you when we talked about investing in the new campus.
And we believe that this is going to be economical beneficial we took into our business case, only direct savings, meaning tangible reduction in expenses of rent et cetera.
At the same time, absolutely agree with you, though also indirect positive influences in terms of productivity team engagement and things like that so talking right now in terms of the direct benefit that's already factored into the operating margin improvement we are guiding for 2023.
The full year impact of that will happen in 2020 full but already to a large extent we are enjoying that in 2023 and the indirect influence is something that is harder to measure an inaccurate way, but definitely something we are looking forward to seeing and feeling as we move into the new campus and I can tell you. The employees are highly excited about.
The move.
Thank you.
Our next question comes from Edward Yang of.
Oppenheimer. Please go ahead.
Thank you and congratulations on a nice quarter.
First the first question for me would just be around your fiscal 'twenty three outlook was a little surprised you kept the.
Fairly wide constant currency growth range, 6% to 10% for fiscal year 'twenty three.
I know it's in line with your long term outlook and you gave the same range last year for fiscal year 'twenty two.
But the low end, 6% would be a fairly draconian slowdown from the growth or constant currency growth rates Youre seeing right now so.
What kind of scenarios is this conservatism or what kind of scenarios do you see where.
Potentially the low end could play out in that range.
Okay.
So when we look into how we are guiding for the year in terms of demand, it's not different than what we've done a year ago and also two years ago, just to give you some context and the reason for the range is that eventually when we're thinking about our visibility is pretty good as we've talked about having 12 months backlog.
Roughly 80% of our business.
And having a solid pipeline ahead of us but at the same time, we're enjoying a peak level of transformation project activity, which by itself is just thinking about what does it entail purchased about having signed agreements about handling the plan of execution aligns with the customer with different milestones. So we.
Need to be considering that as part of the moving parts and hopefully we have given the midpoint. The most likely scenario based on the plan of records, we have right now with our customers, but we need to take into consideration. Some changes that may come along to the upside as well as announcing and in addition to that is about the <unk>.
Manned environment because of ongoing with 80% visibility into the year, we still have 20% to make up some new signings.
And just looking on what's in the pipeline and the conversion rates that we're expecting we're trying to give the possible scenarios within that range.
I would say the bottom line is yes, there is a range, but we are guiding to something we believe is the midpoint to be the most likely scenario.
Fair enough and my second question would just be on your backlog.
The backlog slowed somewhat was that driven by currency.
Or any change it doesn't seem like there were any changes in customer ordering patterns.
Or macro and.
If it was impacted by currency what would the constant currency backlog growth look like in the <unk>.
Quarter. Thank you.
Tom I can give you the details, but we don't guide the backlog in constant currency, but definitely there was a currency impact on the backlog this quarter, primarily want to predict I think what the.
So looking on the 12.
The year ahead. The next 12 months of revenue completion, we're talking about a 2% headwind.
It's coming from currency year over year.
So definitely part of that is reflected also in the backlog that we have.
I would say in general we don't see slowdown in terms of the momentum some quarters in terms of specific signings can be different than others, though I won't find too much into it.
But I think we're encouraged to see more deals coming in we gave a lot of examples today in the comment in the prepared remarks.
And to me and I hope to message to get across the fact that we're continuing to sign deals with existing customers with at the same time, adding new logos.
<unk> intentionally diversifying our customer base and entering new countries is extremely important.
We obviously love our existing customers, who want a relationship with last two decades and sell to them more of the next generation and great technology, we're bringing to the table, but we want to expand the number of customers and the number of countries in which we operate and the momentum and that is extremely important and continues to be.
Something we expect to see in 2023 and just to add.
Growth in all three regions and in the pipeline.
Great.
Okay.
Thank you and again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question comes from the line of Charles <unk> Bank of America. Please go ahead Sir.
Army now.
Not only can finally, we can hear you.
Bad memories for my ex-wife I used to tell her I'm talking but you are not hearing me.
Yeah.
Everything is like all the time.
Okay.
Okay.
Sure.
I wanted to go back to the guidance for next.
Next quarter and the year so the.
The guidance for next quarter and revenues is about $15 million below consensus and for the year, it's about $80 million. So that means it's.
And I'll just Q1.
Below the consensus for the next few quarters.
And I wanted to understand.
I'm going to have two sets of questions. One is on revenues on the other one is on margins. So this one is on the revenue side. So the question I have is.
What is driving this guidance versus expectations is it is there a specific region is there any big projects that is ending or can you give us more information about the trends that you're guiding just given that it is below consensus.
The answer is pretty simple, it's called foreign currencies.
If you think about the $90 million, we are expecting as a headwind going into the yield 2023.
That spread over the year, we said explicitly.
<unk> for Q4 relative to original guidance Q4, lower by $9 million. If we look ahead, we continue to see this.
And negative impact. So if you just take the 90 and divided by four to make it simple.
The spend that the magnitude is roughly 20 something million per quarter.
And again, it's not behaving in a linear way, but just to make it simple.
Now obviously this is something that everybody is talking about everybody is looking at our hedging.
Program is designed to protect the bottom line not the top line.
We are quite effective in doing so both in protecting the margins as well as protecting the cash flow.
We will continue to focus on doing so.
Got it.
Okay.
So the next question is on margins.
You don't give guidance for the margin, but you give guidance for EPS and EPS isn't that about 90% slower than the streets for next quarter.
We actually guided.
To add.
<unk> guided to the fact, we believe operating margin is going to be elevated relative to file with the range of 17, 5% to $18 one.
And we are actually looking on if you compare it to well aware until 2021 17 and Apple's the high end of our range. So you can understand that we are pushing forward on the margin to an improved Q regarding EPS I think there are a couple of things at play here and one in.
When we are looking on.
What's happening around the final line with currency, yes, we are heavily trying to hedge but at the end of the data also means there is some cost of hedging that goes into the numbers.
And while we are extremely focused on trying to hedge everything possible. Obviously based also was effective in terms of cost. So I'll give you. An example, if there is a.
Thinking about Argentina for example.
It doesn't make sense necessarily to go into extensive hedging in Argentina, if it's very expensive to do so so this is one aspect that goes into into the numbers. So although operating margin are improving and by the way while continuing to have an elevated level of R&D. So it is not coming because we cut R&D is coming while we're continuing to have strong R&D.
Investments.
And we are continuing to focus on hedging and trying to protect the bottom line.
Does have some costs.
Got it.
But when I compare your Q1 guidance for the full year.
There is about 9% difference between your guidance and consensus for next quarter.
But there is.
<unk> difference for the year, so that means you're expecting that after Q1, you should be fine with EPS versus expectations. So.
Do you I guess guidance I want to be clear.
I cannot take accountability for consensus I can explain what we our guidance yes.
We are guiding for an EPS growth rate year over year of 8% to 12% targeting the midpoint of 10% growth for the year specifically in Q1, we said that we expect a higher tax rate specifically in Q1 for the full year, we take the same position in brown the range of the tax rate being 30.
<unk> to 17%.
Specifically in Q1, given the recent volatility in tax rate between the quarters, we think it's going to be higher and Thats why Q1, EPS is lower relative to the full year got it great.
Great.
The last question is about the cash conversion rate now that the investment is over can you talk about you improve the cash conversion rate over the last few years can you talk about your plans for 2023 and beyond then what are the puts and takes in it.
Calculation.
So the bottom line is we continue to focus on everything that has to do with converting earnings to cash and that's why we are confident in the message that we are targeting 100% earnings to cash conversion also in 2023, which leads to the target number of roughly $700 million.
Free cash flow generated.
We've seen that of course, there are many moving parts starts obviously with very strong focus on converting the greater business activity that we have into invoicing and money in the bank collected from customers.
Which is something we are very focused on.
And then of course, it's managing the outflow of cash in a disciplined manner as we've done always.
I make it sound simple obviously it requires a lot of activities around that.
And within the company there is a very high focus on that as we are continuing to to look forward into other.
Other aspects.
The one thing I wanted to take notice that if fed during the cycle of investing in the campus was reported two metrics the reported cash flow and normalized cash flow.
To give you full transparency of the investments we're making in the campus now the states. It's practically done we don't need to continually report normalized cash flow moving forward and there will be one metric of the reported cash flow.
Thank you at this time I would like to turn the call back over to Matt Smith for any closing remarks, Sir.
Thanks, operator, and thanks, everybody for joining the call today and for your interest in Amdocs.
Always we do look forward to hearing from you in the coming days and if you do have any additional questions. Please reach out to us here in the Investor Relations group with that have a great evening. Thank you.
This concludes today's conference call. Thank you for participating and you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yes.
Yeah.
[music].
Okay.
[music].
Sure.
Yes.
[music].
Sure.
[music].
Yes.
[music].
[music].
[music].
[music].