Q1 2023 Amdocs Ltd Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Thank you for standing by and welcome to Amdocs first quarter 2023 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.
To ask a question during the session you will need to press star one on your telephone to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program. Mr. Matthew Smith head of Investor Relations. Please go ahead Sir.
Thank you John before we begin I need to call your attention to our disclaimer statement on slide two of the presentation and noticed that some of our comments today may be forward looking statements and are subject to risks and uncertainties, including as described in Amdocs <unk> SEC filings and that we will discuss certain financial information that is not prepared in accordance with GAAP 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 shaky Shaffer, President and Chief Executive Officer of Amdocs Management Limited and Tomorrow, Rappaport again, chief financial and operating officer.
As for today's earnings call, we are providing a presentation, which can be found on the investor Relations section of our website and it was always a copy of today's prepared remarks will also be posted immediately following the conclusion of this call on today's agenda shaky well recap our business and financial achievements for the first quarter fiscal 2023 and will update you on the continued progress we've made executing it.
Thanks to our strategic growth framework should keep a finished by compensating on commenting on our financial outlook for the full fiscal year 2023, after which tomorrow will provide additional details on our first quarter financial performance and forward guidance.
I'll turn it over to <unk>.
Thanks, Matt and good afternoon to everyone joining us on the call today.
Starting on slide six I am pleased to report strong first quarter results sincere, thanks for which go to our incredible people around the world, who everyday work to support our customers' multi year journey towards digital modernization <unk> monetization cloud migration network automation.
Q1 revenue was a record $1 one $9 billion.
Up nine 5% year over year in constant currency and above the midpoint of our guidance.
12 months backlog, a 4.09 billion was also a record high up approximately 7% from a year ago on continued sales momentum and we delivered non-GAAP diluted earnings per share of $1 45, which was above the guidance range, primarily due to a better book.
The ability on a higher revenue base and a lower than expected non-GAAP effective tax rate.
Overall, our financial year is off to a strong start positioning amdocs to deliver consistent profitable growth in fiscal 2023 within the global macroeconomic backdrop that remained challenging and offset them.
To provide context for our financial performance, Let me review, our quarterly operating achievements as shown on slide eight.
To begin we continue sales momentum and further cultivate strong video driven partnership with new and existing customers during Q1.
Notably, we deepen our long standing relationship with customer like AT&T T mobile, Verizon and Comcast dish and cloud Brazilian the Americas, Vodafone a drink whooping Europe globally, the Philippines, and a tier one operator in Malaysia.
Additionally, we further diversified amdocs customer base by winning several new logos, including core technology services in the U K and Telefonica mobile inside of Adobe in Latin America with Amdocs charging system will replace the existing vendor.
And does the liquidity has also continued to execute well on its strategy of servicing leading studios and direct to consumer platforms.
Winning several new projects an extension over the past year, including Disney Warner Brothers Discovery MGM empower.
Yes.
Turning to execute turning to execution Q1 was another great quarter, which include major project milestone deliveries at AT&T T Mobile Verizon Bell, Canada, Excel and many others.
At <unk>, Brazil, we expanded our policy platform to allow for new use cases, such as voice over LTE and <unk> stand alone. In addition to which I'm happy to share that merely that nearly all the Brazilian postpaid customer.
Mike Wilde from <unk> have already been successfully integrated two hour model monetization platform.
I believe amdocs higher rate successful project execution is a direct outcome of our highly skilled work force unique global delivery model methodologies tooling automation and the original site strategy, which is constantly refined as we optimize our global talented pool.
I also like to highlight the competency of our managed services business, which this quarter delivered flawless execution for customers over the peak retail volume periods of Black Friday, and the holiday season.
In addition to sales and execution, we maintain a high level of R&D investment during Q1, and further extended our technology and product leadership.
The most advanced version of the Amdocs customer experience suite and services offering will be presented at the fast approaching mobile World Congress in Barcelona, where we are planning a significant presence in meetings with many customers and partners will also be showcasing innovative solution and exciting.
Use cases, including those resulting from our collaboration with service providers enterprises and partners at our Dallas <unk> experience lab.
To complement our growth pillars, amdocs remain committed to disciplined M&A.
S and when opportunities arise under this causes the evaluating a broader pipeline of exist exciting M&A opportunities and while the previously announced acquisition of Michael Moyle site did not move forward with this plan. We continue to look for suitable deals that can accelerate our growth strategies.
Before moving on I want to pause you recognize a recent achievement in the ESG domain is shown on slide nine.
It's probably announced Amdocs included in the S&P Dow Jones sustainability Index for North America for the fourth consecutive year <unk>.
Additionally, we are today pleased to announced that Amdocs has been included as a member of the 2022 Bloomberg's gender equity index, which we believe is a testament to amdocs progress towards achieving diverse diversity goals to which we are committed.
Our commitment to sustainability and corporate responsibility is also and several other recognition this quarter.
Amdocs, India was recognized as one of the most preferred walk places in.
And information technology enabled services for 2000 22023.
We improved environmental disclosure rating, it's CDP from B to a minus.
And a new state of Dallas campus in Israel has a LEED gold.
Certified forward system sustainable design and operation.
Priscilla <unk> recognition such as these reflect amdocs desire to make a positive impact on the environment and the communities in which we operate and I'd like to thank our global base of talented and committed employees for their essentially about making achievement like this possible.
Now, let me provide a progress update in respect to our multi pillar growth strategy. The aim of wages to bring market, leading innovation to help service providers to accelerate migration to the cloud.
Great seamless digital experiences by transformation like the operation.
Lounge, and monetize new <unk> services and deliver dynamic connected experience with real time automated network.
Starting on slide 10, we see growing number of service providers embarking on a multiyear cloud migration journey with Amdocs is supporting with our end to end suite of cloud platform and services I'm.
I'm happy to report a T mobile selected Amdocs cloud hosted intelligent networking suite and lead generation platform to enable provisioning of advanced <unk> services and <unk>.
But if on Ireland recently chose amdocs to modernize and migrate its amdocs data and application workloads from on premise to the cloud to enable greater flexibility in capacity and improved customer experience and rapid adoption of latest five G innovations.
Additionally, a leading tier one operator in southeast Sci selected amdocs to smartly migrate its existing Amdocs BSS suite to a modern cloud transformation, a two large regional affiliates, thereby enabling improved security and operability while defining the.
Long term journey towards the full cloud native environments.
Moving to treat yourself transformation on slide 11, most service providers are recognized recognizing the power of data to drive personalized customer experiences.
And it is working with Comcast on several new projects, including our building the new Amdocs data hub for mobile would be to be on the cloud.
Under a multiyear managed services engagement through UK selected amdocs to migrate to a modern cloud based data architecture to serve its customers and timely recommendations based on data driven decision making.
Finally, understood, providing AI driven data insights to globe telecom, a leading operator in the Philippines with nearly 88 million mobile subscribers subscribers implemented.
Implemented on the public clouds and delivers under a multiyear managed services agreement the service will empower globe to derive business growth tied to market agility and operational efficiencies.
Turning to slide 12, and five G monetization fixed wireless access is rapidly emerging as one of five <unk> first meaningful success stories and Amdocs is already playing.
An important parts for instance, a leading tier one operator in North America recently selected Amdocs home operating system, which utilize AI technology to simplify internet and device management automate customer support and introduce enhanced security features for fixed wireless broadband.
Customers.
More broadly amdocs is helping service providers to modernize and build agility in the <unk> area era by enabling by enabling the rapid launch of monetization of new <unk> products.
<unk> was recently commissioned by <unk>, a leading telecom operator in Macau to modify its online charging and billing infrastructure to support safety standards.
We recently extended our managed services relationship with Vodafone, Romania, we selected Amdocs to modernize its revenue management system with a modular platform and enabling <unk> to launch and monetize new product and services at speeds.
Additionally, globe Telecom recently selected Amdocs named generation charging platform to enable the monetization of new Standalone <unk> services to consumers and businesses, while reducing operational costs and Kt Corporation in South Korea signed a three year extension for ongoing support.
Services and fast rate development for Amdocs turbocharging in catalog platforms, which extend Amdocs and Kt Corporation until 2025.
Turning to network automation on Slide 13 Global service providers are considering investment in cloud native fully digitalized processes to better manage massive scale and complexity of core services at cost service ordering activation and provisioning for consumer and enterprise customers.
<unk> recently completed and operational support system modernization project for a leading Australian operator.
A variety of image with fully cloud native services, designing orchestration capabilities and running on a public cloud infrastructure to enable increased performance business agility and cost savings.
Along similar lines in the UK called Technology services has signed a letter of agreement for Amdocs to deliver the Amdocs resource manager.
The solution will be cornerstone in calls continuous modernization journey focused on delivery and digital infrastructure services, which empowers its customers and employees around the world.
We are also bringing value with respect to network deployment and optimization.
And this is providing system integration services for rerun in Verizon to derive mass scale for alpha automation and deployment efficiency, it's five <unk> orders out nationwide.
Recently, Telefonica, Germany has chosen Amdocs cloud native network optimization suite, enabling the operator to maximize network performance and accessibility in the end to benefit from greater flexibility scalability and automation.
Well I mean out my strategic review, let me, let me quickly comment on an interesting project that we recently implement for bank Hapoalim is one is one of Israeli largest financial services institution.
Bank Hapoalim is using Amdocs, leading catalog management software to rapidly create and deploy customer centric offers products and services such as digital lending so vastly improved time to market agility.
Now moving to our fiscal year total 2023 outlook as presented on slide 14 and 15.
To begin let me remind you with Amdocs and our global customer are not immune to economic cycles.
And we'll continue to closely monitor the current period of global macro uncertainty.
I'm Dax is well situated in the heart of the multiyear <unk> network automation digital and cloud driven event investment cycle with our market, leading software and services.
And the strong reputation for successfully delivering mission critical system transformation.
Formal vantage point as a trusted partner and key technology enabler, we continue to see an attractive pipeline of opportunity and healthy level of customer engagement.
We collaborate in respect to their next generation software application and services requirements.
In the current environment Amdocs is also very well placed to help service providers improve customer experience accelerated cost reduction and increase efficiency as demonstrated by the many customer activities highlighted today.
We are confident in our unique business model, which is modest brilliant due to the highly recurring revenue streams and strong business visibility, resulting from our support of mission critical system under multiyear engagements.
Wrapping everything together on slide 15.
We are reiterating our guidance for full year revenue growth of between 6% to 10% on a constant currency basis in fiscal 'twenty to 'twenty three with all three operating regions contributing positively although the full year.
On the bottom line, we are raising the midpoint of our outlook for non-GAAP diluted earnings per share rose by 100 basis points to a new range of roughly 9% to 13% in fiscal 2023.
The outlet reflect our strong Q1 financial performance and our commitment to further improve profitability by accelerating automation driving efficiency and tightly managing costs.
Additionally, we're on track to achieve our free cash flow guidance of approximately $700 million in fiscal 2023, the majority of which we plan to return to shareholders with that let me turn the call over to Tamara for her remarks.
Thank you Sue can allow everyone. Thank you for joining us.
Turning to our financial highlights on slide 17, I'm happy to report solid first quarter financial results kicking off a strong start to fiscal year 2023.
Record Q1 revenue of approximately $1 billion and $186 million at the higher end of our guidance range was up nine 5% year over year in constant currency.
On a reported basis revenue increased seven 3% and was above the midpoint of guidance, even if we exclude the favorable foreign currency, most length of roughly $9 million compared to our guidance assumptions.
On a regional basis, North America delivered another record quarter and Europe accelerated as we continued to execute on behalf of our customers.
Rest of the world declined during the first quarter, reflecting normal fluctuations in customer activity, but is on track for full year growth as new projects awards are ramping up.
Altogether, we expect expect all three operating regions to grow in a constant currency basis for the full year fiscal 2023, as we anticipated at the beginning of the year.
Moving down the income statement, our non-GAAP operating margin was 17, 7% in Q1 up 20 basis points from a year ago and up 10 basis points sequentially. As we began to leverage the benefits of efficiency improvements automation and other sophisticated tools, while maintaining a high level of R&D.
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On the bottom line non-GAAP diluted EPS of $1.45 was above our guidance range, primarily due to improved profitability on a higher revenue base and from a lower than anticipated non-GAAP effective tax rate of 37%, resulting from internal structural changes in certain jurisdictions.
<unk> in which we operate.
Diluted GAAP EPS was $1 seven for the first fiscal quarter, which was toward the high end of our guidance range of a dollar to dollar 0.8.
This was primarily due to a lower GAAP effective tax rate than anticipated in the quarterly guidance, partially offset by restructuring charges of $25 million related to the alignment of our workforce around our global site strategy as well as the optimization of our hybrid work model.
Moving to slide 18, 12 months backlog was a record high of 4 billion or nine.
Up 6%.
From a year ago.
And consistent with our reported growth at the midpoint of our revenue guidance range.
On a sequential basis, our 12 months backlog was up by $120 million, reflecting continued sales momentum.
Our 12 months backlog that has traditionally served as a good leading indicator of our business, having consistently averaged around 80% of forward looking 12 months revenue over the years.
Turning to slide 19.
First quarter managed services revenue of $700 million was up six 1% from a year ago and accounted for about 59% of total revenue.
In addition to the expanded managed services deals sugar already mentioned of three U K, Vodafone, Romania, and Globe Telecom this quarter and happy to report that dish and Amdocs signed a new managed services agreement, which will offer an improved billing experience for this commercial TV customers.
To remind you our managed services engagements underpinned the resiliency of our business with recurring revenue streams near.
Near 100% renewal rates and expanded activities under multiyear engagements and may sometimes include modernization projects, which deepen our relationship even further.
Now turning to the balance sheet and cash flow highlights on slide 20.
DSO of 87 days increased by 13 days sequentially in Q1, while the net difference of deferred revenue and Unbilled receivables declined by $39 million sequentially.
We generated free cash flow of $50 million. In Q1. This was comprised of cash flow from operations of approximately $83 million less $34 million and net capital expenditures.
Free cash flow and DSO were impacted by the timing of roughly $100 million in cash collections, which were used for the payment around the quarter end or in the period, but which were subset sub sequentially. We see in January .
We are reiterating our full year free cash flow outlook of roughly $700 million with free cash flow in the first half of fiscal 2023 tracking in line with our expectations.
Taking into consideration the normal seasonal timing of annual bonus payments in the second quarter.
Overall, we ended Q1 with a strong balance sheet and a healthy cash balance of approximately $7 billion, including aggregate borrowings of roughly $650 million.
Moreover, we have ample liquidity to support our ongoing business needs, while retaining the capacity to fund strategic growth.
Turning to capital allocation on slide 21, we repurchased $100 million of our shares in the first quarter of $100 million of our shares in the first quarter and paid cash dividends of $48 million.
As I just mentioned, we remain on track to generate free cash flow of approximately $700 million for the full fiscal year, which equates to a healthy free cash flow yield of about six 3% relative to amdocs current market capitalization.
Our outlook assumes the conversion rate of roughly 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.
The way of our quarterly share repurchases and dividend payment program.
Now turning to our outlook on slide 22, as Chuck indicated earlier, we are closely monitoring the prevailing level of macroeconomic business and operational uncertainty, which remains elevated in the current business environment.
That's the second quarter and full year fiscal 2023 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios.
We are on track 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.
His ability to this outlook is supported by our solid Q1 performance our record 12 months backlog and strong pipeline we've seen it.
Our annual outlook includes second fiscal quarter revenue within a range of $1 2 billion to $1 24 billion.
On a reported basis, we expect full year revenue growth within an improved range of 5% to 9% year over year as compared with 4% to 8% year over year previously.
The new outlook anticipates, an unfavorable foreign currency impact of approximately 1% year over year compared with an unfavorable impact of 2% year over year previously.
Moving down the income statement, we anticipate quarterly non-GAAP operating margins to fluctuate around the midpoint of our annual target range of 17, 5% to 18, 1%.
Below the operating line, we anticipate that foreign currency fluctuations in cost of hedge 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.
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 2023.
Bringing everything together, we are raising our outlook for non-GAAP diluted earnings per share growth to a new range of 9% to 13% for the full year fiscal 2023, the midpoint of which represents an improvement of about 100 basis points compared with our prior guidance.
Overall, we are well on track 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 plus a dividend yield of about 2%.
With that back to you shortly.
Thanks Omar.
As you can probably tell from our remarks today, we are very pleased with the strong start we have made to fiscal 2023.
Putting us in a great position to deliver another year of steady and profitable goals with that we're happy to take questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone to remove yourself from the queue. Please press star one again and we ask that you. Please limit yourself to one question and one follow up one moment for our first question.
And our first question comes from the line of Ashwin <unk> from Citi. Your question. Please.
Thank you.
And congratulations on the good quarter here.
Yeah. So you know.
I wanted to start with.
The bookings and sales commentary I think.
They could top a corker history in terms of incremental dollars added to backlog.
And you know.
Your comments do sound positive, but you also had the.
Amdocs.
Amdocs is not immune type of commentary there. So let me ask what youre seeing in terms of your investor.
If your client conversations.
Regards to projects new sales.
How is it evolving in terms of speed of decision, making size of contract those types of things.
Hi, Ashwin.
So.
As we mentioned, yes, we are not immune.
We like ourselves that we have a very strong company, but we are not immune to everything that's going on around us, but I think that the overall.
We see a lot of demand for our services.
The area of growth for Amdocs today are highly strategic for our customers.
Everyone wants to be successful and then when.
When they deploy <unk> use cases fixed wireless network automation, everyone wants to move to the cloud so while there.
There is some uncertainty I can tell that we see that we continue.
The project with a customer does a highly important for them and we see a very rich pipeline ahead of us.
Understand and then.
During the quarter you did have layoffs.
Obviously the charge there.
The forward looking financial benefits from the end date now incorporated I mean, I know you still are seeing midpoint of.
All of the margin range, but why should it not be more towards the upper part.
So I think in general when we look on the on the opportunity for margin expansion as I'm sure. You will recall, we raised the operating margin range for fiscal 'twenty, three and the beginning of the year.
We're.
Now we are guiding to a midpoint of an elevated range. So we've definitely seen the impact of many.
Investments, we have done and continue to do in automation and tools and the methodologies of our deliberate thing and this is I think is at the heart of kind of unique opportunity in terms of how to bring value to customers as well as doing things in a more efficient way and other very important element that has to do also with managing labor.
In a smart way has to do with how we think about our global delivery and our global execution. When we are leveraging geographical locations around the world and what we see as our strategic sites around the world thinking about things like locations in terms of access to skills.
Structure proximity to customers et cetera, et cetera. There are many considerations that play and we are looking on that is something that is a major I think differentiator as well in speed to delivery and managing demand that may change from time to time et cetera and of course, it's about how we are investing in our people and how we are investing in talent.
To make sure that they all with high retention rates in the company that are moving and developing the skills in a way that can actually benefit them in their managing their careers as well as the company. So ashwin. We are very focused on all of these levers then yes, we have done some adjustments in workforce.
That we have mentioned, but I think in the Grand scheme of things, it's not something that is moving the needle either way from the company margin profile, but at the same time, it's a healthy shift that we felt that it's the right thing to do to adjust to how we are looking on our site strategy and Darryl.
The structure of how we deliver to our customers.
Understood so more about being nimble and.
And then quicker to respond yes, yes definitely.
But thank you.
Thank you one moment for our next question.
And our next question comes from the line of Timothy Horan from Oppenheimer. Your question. Please.
I'd say, it's kind of a qualitative question as you have more and more cloud based services that the cloud.
Platform Okay.
You think you're helping your customers more can you help them drive more revenue can you help them.
Or automate a little bit more than the customers kind of recognize us at this point.
It was the question about moving to the cloud.
Yes, as you move I mean, how much more of an improvement it is for your customers as you move.
Thank you Tim for the question there are many many value of moving the moving to the cloud environments. I mean, there is some basic value like you know when you get to the CCT. We just mentioned in the prepared remarks.
We had a very good.
Peak retail season.
And early days and we have like an amazing service to our customers. So today in the on premise environment, you need to buy the hardware to support Black Friday, which is much bigger than the normal.
So you get some elasticity, but I think the main when you move to the cloud in many cases, it's part of modernization and then you get it.
Much secure environments much AGL environment's better operational tools. So you can do things faster and cheaper.
And it would be much more competitive and as I said. It's also help is the elasticity. So often so if we look at it there are many many benefits to our customers to move to the cloud and I think this is very unique agility.
Changing market offering to do things much faster much more secure environment, giving all the security threats with everyone.
Seeing today, so all in all I think it's a very it's holistic value proposition, which comprise of many many many areas.
And just to add to that artificial intelligence is becoming pretty important then the chart GPT seems to be a pretty big breakthrough or are you increasing your investments. There is there a way for you to use chat GPT maybe with.
For your customers for customer engagement decline to your systems.
So I think definitely we are evaluating this but generally speaking when we talk about how we use.
Sufficient relevance we.
Obviously in Amdocs system, we have a lot of data about our customers and as I mentioned today, we develop a cloud environment that are helping our customer.
To serve their customers their consumers better them in a way that understanding what is the consumer demand and what will be the right offer. So this is something which is I think a growing and we deploy more and more of these type of solutions to our customer to better sale.
They are consumable business based on what we know about them.
Regarding the GPT as we speak we are looking to add.
We think it's going to have some obviously some place in call Center application.
And the other thing that we are looking right now and I believe it's probably in a quarter or two but it would be in much more mature we now.
<unk>, how we can integrate into our platform.
And on the AI as a topic I think it's also important to think about it in the context of how we are automating how we do things for our customers. So when we think about things like zero touch operations and self learning processes.
We feel this is enhancing our operation to be much more technology led and innovative in how we can deliver value to our customers.
Thanks, guys.
Thank you one moment for our next question.
And our next question comes from the line titled Young from Bank of America. Your question. Please.
Hi of Madeleine Brooks on from for Tal <unk> with Bank of America today, just two questions from me.
Firstly looking at your guide and just wanted to understand the breakout of organic growth given that I mean.
The deal that was announced.
Last year. It was factor to have around 16 depth revenue growth in the guide.
Well I can't give you that that's not happening anymore I wanted to know just any commentary on organic growth without the deal.
So.
Given the fact that we are reiterating the guidance, even though that this deal is not coming so you understand that whatever was supposed to come from this deal to 60 basis points of growth are going to be coming from organic additional and incremental revenue and therefore, we can hold the line on our expectations of growth for the year.
So pretty much you can say that the year.
Is growing based on organic revenue growth. There is Tom May I would say full year impact of small deals we've done last year, but that's margin.
But we definitely are pleased to see an improvement in our organic performance. Despite the stack Michael is not happening.
Got it okay, and just to be clear just to be clear we are not counting on any future M&A that has not been announced to make the numbers.
This is based on the current known business and the assets that we have.
Okay perfect.
One follow ups, and then I'll pivot to the other follow up.
Wanted to see if there is any concern and spending the celebration with service providers and now have you noticed any incremental change as the first quarter progressed.
Looking at looking on this deal signings and the strong momentum in sales. We've done in Q1, you can clearly see the outcome of that in the strength of the backlog and the fact, we're reporting a record number and a very strong sequential increase of $120 million to the backlog versus prior quarter.
We are seeing a solid pipeline, yes naturally people are focusing sometimes about how to create an immediate impact of shorter term impact, we're bringing them a lot of tools and capabilities that enable them both to accelerate revenue generation as well as deal with efficiencies and cost structure.
For example, our model of managed services or what we call them transformational and managed services together.
Like the sweet spot of both we can help our customers with our product suite modernize their systems move to the cloud to be ready for the five G and digital world and at the same time provide them under a multiyear agreement the committed cost structure.
Pre defined Kpis and we take full accountability for that so we are coming either with this model or some some of it depends on their appetite on how we want to go about it.
Got it thanks, so much.
Thank you. Thank you.
Thank you one moment for our next question.
And our next question comes from the lineup will power from Baird. Your question. Please.
Great. Thanks, Yeah. It looked like a nice results I guess.
First question is just on a couple of other geographies I mean, North America of course strong.
I'm curious on the European strength, if theres any other color there on what drove that year over year growth and really just trying to understand the durability.
This higher revenue level, but I guess on the flip side.
Rest of World was weaker year over year I know you expect that to still grow so I'm just trying to understand the confidence level.
The drivers of growing that rest of world business year over year.
Yes sure. So yes, we're very pleased with the performance of North America continues to be strong and to remind you in Europe , specifically has been talking for some quarters now about the fact that Europe is drawing on a constant currency basis, but unfortunately the reported number.
And look as much because the currency was a big headwind finally now when we have.
A quarter, where the currency was not a headwind you can clearly see the reported number of Europe growing so it's not only just the constant currency growth. Its also on a reported level growth and the fact is we have been seeing a very strong momentum of wins and new activities in Europe for some quarters now.
Fueling our business. So it usually takes a bit of time between signing and deals starting to recognize revenue and we continue to see very nice signings. So it's not just that we are using in a way that past deals that have already gone into the backlog, we're continuing to see new deals you have seen the pipeline and the new logos.
That we've talked about for example, called in Europe , as well as expansion of relationship and modernization with Vodafone and we pay and there are many other examples that we could not name specifically so we are happy about the momentum we're seeing and we feel it will continue and regarding the rest of the world our business in the rest of it.
They're all depends also on project activity and.
Sometimes there is there a specific quarter like we just had in Q1, where certain activities naturally and as they mature and the project go live and then doesn't matter of the timing of the beginning of the New project Awards. So that's why we have on the one hand Q1 with some softness but the confidence we see.
Fast recovery and for the full year that we will see growth in the region.
Okay, and then tomorrow, if I can slip in one more I know you all focus more on the operating margins, but the gross margin has kind of continued to tick up.
I Wonder if you have any comments on kind of the key drivers of the gross margin expansion.
And what that what the outlook is for that going forward.
So as we usually say we're focused on the operating margin more so than the elements underneath there such as the gross margin versus the R&D and we are investing in R&D and we have accelerated investments R&D and some of this investment goes into automation that helps us do our execution better and more efficiently.
But it's not necessarily.
That you should take the gross margin per se on a standalone basis and draw significant conclusions from that and the other and for example, you can see that the SG&A was a bit higher this quarter again, there are some specific items that go into that look necessarily consistent.
Expected in the next quarter. So that's why we are very focused bottom line on the operating margin and we feel that we will be.
Be able to execute on the operating margin around the midpoint of our new elevated range give or take a few tens of basis points, maybe one one direction or the other direction. We think that this will be the continued consistent over activity of the company.
Okay that makes sense. Thank you.
Thanks.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.
And this does conclude the question and answer session of today's program I'd like to hand, the program back to Matthew Smith for any further remarks.
Thanks, John and thanks, everyone for joining today's call and for your ongoing interest in Amdocs. We do look forward to hearing from you soon please reach out to US here in the IR group. If you do have any additional questions and with that have a great evening.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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