Q3 2024 Amdocs Ltd Earnings Call
Yeah.
Speaker Change: Good day, and thank you for standing by and welcome to the Amdocs third quarter 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you will then hear an automated message of biasing. Your hand is raised to withdraw your question. Please press star wouldn't want again, please be advised today.
Call is being recorded I would now like to turn the conference over to your Speaker today Matthew Smith. Please go ahead.
Matthew Smith: Thank you Kevin before we begin I need to call your attention to our disclaimer statement on slide two of the presentation.
Matthew Smith: Some of our comments today may be forward looking statements and are subject to risks and uncertainties, including those described in amdocs as the 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.
Tamar Rapaport-Dagim: Participating on the call with me today are shooting Shepherd, President and Chief Executive Officer of Amdocs Management Limited and Tomorrow Rappaport, the game, Chief financial and Chief operating Officer.
Speaker Change: To support today's earnings call, we all providing a presentation, which can be found on the investor Relations section of our website and I 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 will recap our business and financial achievements for the third quarter fiscal 2024, and we'll update you on the continued progress we've made execute.
Tamar Rapaport-Dagim: And against our strategic growth framework, including generative AI and our continued sales momentum in cloud.
Tami: I will finish by discussing our financial outlook for the full year fiscal 2024, after which tomorrow will provide additional details on our third quarter financial performance are forward guidance and our continued commitment to ESG and with that I'll see any type of sugar.
Speaker Change: Thanks, Matt and good afternoon to everyone joining us on the call today.
Speaker Change: I am pleased to report solid results for our third fiscal quarter and would like to thank our employees globally for their commitment to helping our customers provide seamless connectivity and amazing user experience to billions of end users each day.
Speaker Change: The key financial highlights of the quarter can be found on slide seven.
Speaker Change: Q2 revenue was a record 1.25 billion up nearly 2% for me either go in constant currency and in line with the midpoint of our guidance after adjusting for unfavorable foreign currency movements.
Speaker Change: Notably non-GAAP operating margin was 18, 6% was the highest in many years.
Speaker Change: By 80 basis points, and 20 basis points sequentially as we continued to benefit from our ongoing margin expansion initiatives.
Speaker Change: non-GAAP earnings per share was $1 $62 consistent with the higher end of our expectation and we ended Q3 with record setting 12 months backlog.
Speaker Change: For two $5 billion up approximately 3% for me to go.
Speaker Change: Demonstrating our confidence in Amdocs unique business model and the future success of the company. We also increased the pace of buyback activity in Q3, the parents of Singapore symmetry $169 million of Amdocs sales dollar of Amdocs shows.
Speaker Change: Turning to Q3 operational highlights on slide eight.
Speaker Change: Demand for Amdocs cloud solution remained especially strong highlighted by the significant five year cloud deal, we recently announced with AT&T.
Speaker Change: Newly signed partnership agreements to support the long term cloud migration Jeremy's, it tell us and Canada.
Speaker Change: Vodafone Ziegel intermediates.
Speaker Change: Customer demand was also healthy across our border strategic domain of digital digital modernization five G and five bell monetization and network automation, it's reflected by significant new deal awards, it's AT&T and charter in the U S. H, one telecom in Austria in PDT in glass.
Speaker Change: In the Philippines.
Speaker Change: As to General D V. I am happy to announce an important award with a leading global operator, which has chosen to integrate amdocs Jenny I telco specific amazed platform and its business operations.
Speaker Change: From a from an operational perspective, we delivered consistent execution and a substantial number of deployments, including major project milestone achievements with customers such as AT&T and U S cellular Vodafone, Italy, wonderful, Germany, and Ses in your opinion satellite communications provider.
Speaker Change: <unk> in the Philippines, and Optus in Australia.
Speaker Change: One of the highlights which are among the highlights we successfully transitioned clavell Brasil.
Speaker Change: I'll try and be seen infrastructure to overcame cloud infrastructure OCI for about 48 million subscribers.
Speaker Change: Suddenly amdocs capability to efficiently manage the type of loud scale customer projects. It underpins our high markets win rate and the reputation as a dependable partner.
Speaker Change: Q3 was also is that called quoted in managed services, reflecting the ongoing ramp up mission critical support activities of new logos and longstanding customer such as the all jealous when we newly expanded their multiyear engagement is creating false roof on the latest cloud native offering.
Speaker Change: Like enterprise catalog and charging.
Speaker Change: Now moving to slide nine let me add some color around the gross strategy, which do we might do is designed to provide the market, leading innovation and technology our customers need to.
Speaker Change: Accelerate their journey to the cloud.
Speaker Change: Did he transformed the customer experience and consumer and B to B.
Speaker Change: Monetize the future market potential <unk> stand alone networks fixed wireless access and fiber.
Speaker Change: We believe this dynamic connectivity experience by streaming and automation complex network ecosystems, and simplify and accelerate the adoption of generative AI.
Speaker Change: Starting with cloud and slide 10.
Speaker Change: Market interest and sales momentum for Amdocs cloud solutions remain strong.
Speaker Change: With a growing list of service providers choosing us as their primary technology partners to support the cloud migration and call and so long as the systems alike.
Jeremy: Many service providers cloud migration is a complex multi you know Jeremy that you're still in the early phases Amdocs cloud strategies. There are designed to help service providers simplify and accelerate their journey to the cloud by offering an end to end suite of unique products and services delivered under our fully accountable cloud operate.
Jeremy: Our model.
Jeremy: The July typically begin with Amdocs cloud consulting and training expertise. In addition to which we also support product deployment, including Amdocs latest C suite or cloud enabled classic version, the immigration of Amdocs and known Amdocs application, including mainframe cloud.
Jeremy: Cloud managed services or cloud ops, and the benefits of our intimate partnership with Azure AWS and Google cloud.
Speaker Change: Furthermore, we continue to enhance our cloud services portfolio with a combination of organic investment and strategic M&A to provide additional bench beachhead from which to accelerate the industry journey to the cloud.
Jeremy: I'm example, isn't is the last November acquisition of a steadier, which cultural beauty high sophisticated mainframe to cloud migration capabilities that are now supporting the previously announced expansion of our cloud activities new domain.
Speaker Change: The other main at AT&T.
Jeremy: Among other recently signed deals.
Jeremy: Tell us and Canada, signing a multiyear managed services agreement with Amdocs to me greatly is the monetization operation to the cloud.
Speaker Change: And what happened Ziegel at Nederland choose amdocs to modernize and migrate its monetization engines to the public cloud, including both Amdocs Amdocs application.
Jeremy: Moving to digital monetization on slide 11.
Speaker Change: AT&T has chosen correct X cloud native SaaS platform powered by AWS, enabling it to quickly launch new digital brands and services for different customer segments.
Jeremy: Reflecting healthy market demand this win adds to a growing list of connected customer which include.
Jeremy: <unk> in Brazil, and Mellon in South Africa.
Jeremy: Globally, the Philippines chosen amdocs to deploy its AI and data platform for the information data hub.
Jeremy: The platform also had on Google cloud will enable blob to access real time business data from various sources and system and use it use it to enhance customer experience optimize operation and large personalized services.
Jeremy: In Australia, our B to B Amdocs configure price quote <unk> platform deployed together with Amdocs catalog to support its enterprise business like simplify and accelerate the sales.
Jeremy: Jeremy for Optus agents in Australia, empowering them to offer English innovative business solutions to enterprise, SMB and wholesale customer faster than ever.
Speaker Change: Turning to five gene fiber monetization on slide 12.
Speaker Change: In one telecom, Austria recently selected Amdocs for a multiyear project to consolidate.
Speaker Change: Good and modernize its billing charging and catalog solution, enabling faster time to market, new revenue growth operational efficiencies and improved customer experience.
Speaker Change: This key project will also support the launch of new services and products across all customer segments, including five G Iot and other advanced services.
Jeremy: And of that generation monetization offerings are also providing relevant also proving relevant to telcos and newly emerging fiber operators that are investing their time and investing to accelerate the rollout of fiber networks in the U S and internationally.
Jeremy: All capabilities include a full range of BSS and Oss offering to support all aspects of the fiber customer journey, including fiber service creation, all doing an activation billing and customer support as well as the planning automation of the fiber network rollout itself.
Speaker Change: Moving to slide 13, I am delighted to named <unk> as the film in the Philippines is the Southeast Asian service provider recently selected Amdocs end to end service orchestration solution, our kick offering that was strengthened by our acquisition of the Yoko service assurance business last year.
Jeremy: As an important component of it is in oilseeds and cloud modernization program I'm, not we deliver a unified network inventory service and network orchestration and business process automation capabilities operating on the public cloud.
Jeremy: Notably the agreement also includes the customer service solution for case management, which is a component of the amdocs customer engagement platform, we built in partnership with Microsoft.
Jeremy: Rounding out my strategic review I would like to brief you on some exciting advancement adjunctive.
Jeremy: As illustrated on slide 14.
Jeremy: As Youre aware <unk> has been a top priority for Amdocs, we have progressed bell journey ice strategy by leveraging our <unk> platform to deliver a charity of AI Super agents directly address our customers' most pressing business imperatives and forging strong collaboration with industry leaders such as <unk>.
Jeremy: <unk>, Microsoft and AWS.
Jeremy: I'm, therefore happy to share today's news that a leading global operator, it's still like a major platform to create new revenue opportunities drive efficiencies and reshaped customer experience.
Jeremy: This important award in partnership with Nvidia demonstrate our commitment to innovation and highlights Amdocs unique wall is one of the leading technology enablers in the local machine in the telecommunication industry with the power to have service provider fully harness the potential of data engine AI to deliver real world.
Jeremy: And savings.
Jeremy: For instance, Amdocs is at the heart of helping our customer to accelerate journey I Dream of technology disruption in their call center operation until we managing the care experience as we showed in our recent production trial with a north American service provider that resulted in.
Jeremy: The remarkable 60 plus percent decrease in average call handling times 4 billion inquiry, achieving 90% successful queso solution and almost 100% accuracy.
Jeremy: We continue to focus our activities on the active engagement running many pilots globally, including without a large flagship customers to enable important journey, our use cases and smart agent capabilities of the future.
Jeremy: Yeah.
Speaker Change: Now moving to slide 15, I would like to comment on our current market and operating position before discussing our fourth quarter outlook.
Jeremy: First we continue to operate in a challenging industry demand environment, the condition of wage although yet to improve.
Jeremy: Nonetheless, we continue to see healthy pipeline of opportunities across our strategic areas of focus and we are positioned to maintain a high market win rate by leveraging our pedigree for innovation and technology market, leading portfolio best in class execution and highly talented people.
Jeremy: I'm, especially pleased with our cloud related activities, which lasted actually 20% of total revenue and which is on track for a double digit growth in fiscal 2024.
Jeremy: Our strategy is gaining momentum as we begin to make the shift from production pilots to commercial customer rewards and our commitment to operational excellence and ongoing efficiency initiatives is also bearing fruit possess.
Jeremy: Position us to achieve our targets for accelerated profitability gains in fiscal 2024.
Jeremy: Wrapping everything together on slide 16, we're.
Jeremy: We're on track to achieve the midpoint of our guidance for constant currency revenue growth in fiscal 2024.
Jeremy: Additionally, we are reiterating the midpoint of our guidance for non-GAAP diluted earnings per share growth of roughly 9% in fiscal 2024.
Jeremy: Which is in within the tightened range of eight 5% to 90.
Jeremy: 5%.
Jeremy: Coupled with our dividend yield of more than 2% we are positioned to deliver double digit expected total shareholder return for the fall season in the world.
Jeremy: With that let me turn the call over to Tamara for our remarks.
Tamara: Thank you Schulke and Hello, everyone. Thank you for joining us.
Tamara: I am pleased with our solid financial results for the third fiscal quarter is detailed on slide 18.
Tamara: Record Q3 revenue of approximately $1 $25 billion up one 8% year over year in constant currency.
Jeremy: On a reported basis revenue increased one 1% from a year ago and was consistent with the midpoint of guidance.
Justin: Justin for a negative impact from foreign currency movements of approximately $5 million compared to our guidance assumptions.
Jeremy: From a geographical perspective, North America declined slightly as compared with a year ago, but grew on a sequential basis.
Jeremy: Europe was weaker mainly reflecting timing differences between the natural roll off of completed projects and a gradual ramp up of new deal Award.
Jeremy: Rest of World delivered another record quarter with revenue growth of nearly 13% from a year ago.
Jeremy: Shifting down the income statement, our non-GAAP operating margin was 18, 6% for the third quarter the highest in many years.
Jeremy: non-GAAP operating margin improved by 80 basis points from a year ago, and 20 basis points sequentially.
Jeremy: <unk>, our continuous drive to improve operational excellence through disciplined resource management.
Jeremy: <unk> sophisticated tools, and leveraging AI, including generating of AI to push for more cost savings and higher efficiencies across the board.
Jeremy: Interest and other expenses amounted to roughly $7 million in the third quarter and reflected adverse foreign currency movements in the quarter.
Jeremy: On the bottom line non-GAAP diluted EPS of $1 $62 was the higher end of guidance and included a non-GAAP effective tax rate of 16, 7%, which was consistent with the higher end of our annual target range of 13% to 17%.
Jeremy: Diluted GAAP EPS was $1 21 for the third fiscal quarter. This includes a restructuring charge of approximately $15 million or <unk> 11 per share.
Jeremy: Without which diluted GAAP EPS would have been at the high end of the guidance range of $1 24 to $1 32.
Jeremy: We will provide more context around the restructuring charge when I discuss our financial outlook later.
Jeremy: Moving to slide 1912 months backlog was a record $4 $25 billion.
Jeremy: Proximately, two seven from a year ago.
Jeremy: And $20 million sequentially.
Jeremy: Our 12 months backlog reflects the positive mix of products towards managed services renewals and expansions with existing customers and new logos and has traditionally served as a new leading indicator of our business.
Jeremy: As an additional point note that 12 months backlog includes less than a full year impact from the significant new deal, we recently signed with AT&T.
Jeremy: <unk> the phased ramp up of activity is expected under the current plan of execution.
Jeremy: Turning to slide 20 managed services revenue was a record $741 million in Q3 up nearly 3% from a year ago and equivalent to roughly 59% of total revenue.
Jeremy: Managed services revenue was mainly driven by ongoing ramp of mission critical support activities with new logos and long standing customers.
Jeremy: The extended multi year engagement, we announcement Rogers last quarter that included an expansion into new domains like data and testing services and more.
Jeremy: Managed services growth is also supported by our customers' migration to the cloud.
Jeremy: Proven by our recently signed agreements with tell us and Canada, and Vodafone, Netherlands, and our previously announced five year cloud deal with AT&T, which expanded our activities in the new domain, while extending our existing consumer domain engagements through 2029.
Jeremy: As a further highlight I am pleased to announce a multiyear extension and expansion of our hosting and managed services agreement with charter.
Jeremy: And in which Amdocs will continue to provide spectrum mobile with hosting and operational support for its mobile billing systems, along with its enhanced services to support the rapid growth of spectrum mobile and cable business, enabling innovative offerings.
Jeremy: Their customers.
Jeremy: Now turning to the balance sheet and cash flow highlights on slide 21.
Speaker Change: DSO of 74 days decreased by five days year over year and by two days sequentially in Q3.
Jeremy: The sequential change in Unbilled receivables net of deferred revenue was $40 million in Q3.
Jeremy: <unk>, the short term and long term balances.
Jeremy: As a reminder, the net difference between Unbilled receivables and deferred revenue fluctuates from quarter to quarter in line with normal business activities as well as our progress on significant multi year transformation programs. We are currently running in North America.
Jeremy: We generated free cash flow of $175 million in Q3 comprised of cash flow for operations of approximately $191 million less $16 million and net capital expenditures.
Jeremy: Adjusting for restructuring payments of approximately $18 million reported free cash flow would've been $193 million in the third quarter.
Jeremy: Overall, we ended Q3 with a strong balance sheet, including a healthy cash balance of approximately $502 million in aggregate boring of roughly $650 million.
Jeremy: We have ample liquidity to support our ongoing business needs, while retaining the capacity to fund our future strategic growth.
Jeremy: Turning to capital allocation on slide 22, we increased the pace of buyback activity to roughly $169 million in Q3.
Jeremy: <unk> our confidence in Amdocs unique business model in the future success of the company.
Jeremy: Additionally, we paid cash dividends of $56 million in the quarter.
Jeremy: Overall for the year to date, we have already returned a total of $601 million to shareholders through share repurchases and dividends.
Jeremy: Putting us on track to return more than 100% of free cash flow before restructuring payments to shareholders in fiscal 2024.
Jeremy: For the full year fiscal 2024, we are reiterating our free cash flow target of approximately $700 million.
Jeremy: Before restructuring payments equate.
Jeremy: Equating to more than 90% of expected non-GAAP net income this year.
Jeremy: And the healthy free cash flow yield of roughly 7% relative to amdocs current market capitalization.
Jeremy: Now turning to our revenue outlook on slide 23, we are continuing to closely monitor the prevailing level of macroeconomic geopolitical business and operational certainty, which remains elevated in the current business environment.
Jeremy: That's the fourth quarter and full year fiscal 2024 financial guidance reflects what we consider to be the most likely outcomes.
Jeremy: On the information we have today, but we cannot predict all possible scenarios.
Jeremy: On a constant currency basis, we are reiterating the two 7% midpoint of our fiscal 2020 for revenue growth outlook.
Jeremy: We have tightened to a range of two 3% to three 1% year over year as compared to one 7% to three 7% previously.
Jeremy: Our annual outlook includes fourth fiscal quarter revenue within a range of $1 24 billion to $1 28 billion.
Jeremy: Assumes an immaterial sequential impact from foreign currency fluctuations as compared to Q3.
Jeremy: On a reported basis, we now expect full year revenue growth in the range of one 9% to two 7% year over year as compared with one 6% to three 6% previously.
Jeremy: This outlook assumes an unfavorable impact from foreign currency fluctuations of approximately 40 basis points year over year.
Jeremy: As compared to 10 basis points previously.
Jeremy: Moving down the income statement on slide 24, the gradual sequential improvement in our profitability over the last three quarters.
Jeremy: US on track to deliver non-GAAP operating margins around the midpoint of our annual target range of 18, 1% to 18, 7% in fiscal 2024.
Jeremy: As I discussed last quarter, we remain committed to improving the companys long term cost structure and productivity.
Jeremy: Leveraging our unique business model focused on operational excellence and implementing technology to achieve our goal of sustained profitable growth.
Jeremy: We generally I presenting a new wave of innovation and technology capabilities, we are proactively evaluating the portfolio of products services and business lines in relation to our strategic investment priorities for fiscal 2025.
Jeremy: Rebalancing, our workforce and site strategy to meet our future needs and optimizing resources, such as technology infrastructure and workspace.
Jeremy: Along these lines.
Jeremy: Look we took additional actions under our latest restructuring plan during Q3, which resulted in the previously mentioned charge of $15 million that was mainly comprised of in place severance and benefits arrangements.
Jeremy: Looking out over the next several quarters, we expect to incur additional charges as we carry out our current restriction restructuring plan in respect to which we will provide further updates as we move along.
Jeremy: Bringing everything together on slide 25, we are reiterating the 9% mid point of our fiscal 2024, non-GAAP diluted earnings per share growth outlook.
Jeremy: We have tightened to a range of eight 5% to nine 5% year over year as compared with our previous outlook of 7% to 11%.
Jeremy: This full year guidance assumes a non-GAAP effective tax rate within our unchanged annual target range of 13% to 17% for the full year fiscal 2024.
Jeremy: Although we know that the ramp is expected to be towards the higher end of this range in Q4.
Jeremy: Overall, we are on track to deliver expected double digit total shareholder return for the fourth year running in fiscal 2024.
Jeremy: Assuming the sum of our non-GAAP diluted earning per share growth outlook, plus our dividend yield of approximately 2%.
Speaker Change: Before handing it back to sugar and I'm pleased to highlight that today, we published Amdocs ESG and CSR report for 2023 24.
Speaker Change: Among the many achievements listed in this year's report I'm, especially proud of our significant environmental and food, which have resulted in a 55% reduction in amdocs scope, one and scope two seal to emissions.
Speaker Change: Since fiscal 2019.
Speaker Change: Far exceeding our science based targets commitments.
Speaker Change: Additionally, amdocs global consumption of renewable energy approach, 59% in 2023 way up from just over 19% in 2021.
Speaker Change: Our progress was recently recognized by time magazine, which named Amdocs is one of the world's most sustainable companies in 2024 ranking us as one of only 500 inclusions out of more than 5000 large companies initially assessed.
Speaker Change: For additional information regarding Amdocs recently, as GNC sound initiatives and achievements, including our commitments to diversity equity and digital inclusion. Please refer to our report which is now available for download on our website.
Speaker Change: That's the issue.
Tamara: Thank you Tamara.
Speaker Change: I am pleased with our solid third quarter results and while we continue to operate in a challenging demand environment, we remain well positioned to monetize the healthy pipeline of opportunities of course cloud <unk> and our other strategic domains by leveraging our market leading portfolio best in class execution and.
Speaker Change: Highly talented people with that we're happy to take your questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered you assume of yourself from the queue. Please press star one again.
Speaker Change: We will pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Timothy Horan with Oppenheimer. Your line is open.
Timothy Horan: Thanks, guys I wanted to focus on AI.
Speaker Change: Contract win and I think.
Speaker Change: That was separate from maybe the trial that you did with the contact of the contact center.
Speaker Change: I guess on the contact center can you just talk about how it how large the trial wells how extensive that was.
Speaker Change: Those sounded like some pretty amazing results.
Speaker Change: Have you been able to replicate that in other places or do you think you can rolled out relatively quickly and any more color you can give around the AI contract one would be great. Thanks.
Speaker Change: So regarding the <unk>.
Speaker Change: This.
Speaker Change: Walt this is a very significant global operators that have many of course.
Speaker Change: The initial deal actually.
Speaker Change: Consisted of us implement infrastructure, let's call. It the Amdocs domains platform and then setting up the first use case to one of these.
Speaker Change: This is the initial deal with the prospect to.
Speaker Change: To continue enhance into more and more what we call the super agents. So we use cases.
Speaker Change: The specific Opco and then two other op cost.
Speaker Change: As we mentioned we are doing it with the partnership is Nvidia.
Speaker Change: Regarding the operator in North America. This is a good example of how we are.
Speaker Change: Using our technology actually we were able to build what we call Super agents, especially for the Kendall Center.
Speaker Change: The increases the productivity.
Speaker Change: The call center agents by tenths of percent extremely accurate.
Speaker Change: By the way we are doing similar.
Speaker Change: I mean, similar I would say proof of concept like this.
Speaker Change: These are the allowed.
Speaker Change: Operators in the world.
Speaker Change: The the call center.
Speaker Change: Operation You know is a highly mission critical so customers want to make sure that.
Speaker Change: The Dcs Walkley consistently in these type of accurate and become like another mission critical system as part of a call center.
Speaker Change: Assume that.
Speaker Change: They will start to implement these tools across the call centers.
Speaker Change: This is going to completely disrupt the call center operation.
Speaker Change: Because it means that.
Speaker Change: You can take.
Speaker Change: Relatively young.
Speaker Change: No.
Jan: Jan go relatively new.
Speaker Change: Sounded working with call center, and immediately bring into capabilities and experience someone who's walking three or four years and the call Center.
Speaker Change: So we believe our customer.
Jan: We use it not just obviously to take the cost savings, but it's also going to increase.
Jan: The quality of the call center quality time customer consumer satisfaction.
Speaker Change: We believe that.
Speaker Change: This technology is going to disrupt.
Speaker Change: All the call center of all our customers.
Speaker Change: And are you doing that in partnership with Microsoft still or any other partners there.
Speaker Change: We we have many powerful in this domain.
Speaker Change: Seeing this specific one way we're doing it with Nvidia, but at the same time, we are running <unk>.
Speaker Change: Several proof of concept with Microsoft and others and so we have a very diverse so from this perspective.
Speaker Change: Congratulations thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from George Notter with Jefferies. Your line is open.
Speaker Change: Okay.
George Notter: Hi, there. Thanks, a lot guys I guess I wanted to ask about just the overall spending environment.
George Notter: If I go back the last few quarters theres been running narrative.
Speaker Change: Customers focusing on transformation projects versus traditional projects I think you guys talked about.
Speaker Change: Different M&A deals kind of slowing decision making down.
Speaker Change: Lower to close types.
Speaker Change: Type situations can you just talk about the bigger picture here, what you're seeing in.
Speaker Change: Is there an opportunity maybe seen business reaccelerate, if those conditions get better.
Speaker Change: So let's see.
Speaker Change: And on the one hand customers looking for ways to transform and some of them. We said in the past decided to take a.
Speaker Change: The bigger approach of taking out legacy and putting in new some of our large north American and European customers. For example are going but this and.
George Notter: Many more customers actually looking for the gradual modernization path, which is something we cater to very well given the fact that portfolio is module or given the fact, we are allowing them different ways to modernize and take the journey to the cloud whether they want to put the new stack in place or whether they want to take the <unk>.
Speaker Change: <unk> <unk>.
Speaker Change: Existing applications and make them cloud enabled we can help them with the migration to the cloud and many other activities around them, having said that we do see.
George Notter: More scrutiny in decision, making we do see a tougher environment in terms of the pace in which those decisions are being taken on win rate continues to be very high the relevancy of our offering remains very strong.
Speaker Change: And in terms of the consolidations overall I would say consolidation in the industry is a good thing for US we've been historically benefiting from these situations is typically win.
George Notter: Carriers in the market consolidate they're looking to provide a different value proposition to their customers. We are coming with a very strong experience in supporting them in doing that we provide and the systems that they need but in the short term sometimes when the situation. Let's take the example, if you sell a lot which is a customer of ours in North America.
Speaker Change: I'd say they are waiting for the regulators to approve the acquisition by T. Mobile naturally they will not put a lot of money into long term investment day.
Speaker Change: So we do see this kind of phenomenon from time to time, but I would say generally speaking you know looking back on it.
Speaker Change: And merger activities between team a balanced freight merger activities that are happening.
Speaker Change: And one of the Big transformations, we are running right now Vodafone Germany. For example that has been acquiring different assets along the years and we helping them to build one stack to support all lines of business. So if I need to generalize, where typically enjoying consolidation in the industry, even though sometimes in the short term.
Speaker Change: It may create some delays and some investments.
Speaker Change: Got it and then any any insights into maybe when some of these effects might come off is it just a question of.
George Notter: The business environment is it a question of.
Speaker Change: I don't know elections.
George Notter: Yes.
George Notter: Part of it certainly.
George Notter: I think it's about the business environment as a whole.
Speaker Change: In outlet.
George Notter: Got.
Speaker Change: I'm not talking just about the U S I'm talking globally.
George Notter: We've been we've been seeing the scrutiny that I've mentioned this.
George Notter: This phenomenon. So I think it's about the business environment as a whole in terms of the pace and the pickup of investments that we are looking for so again, there could be some specifics.
George Notter: Some examples of a carrier in a specific situation, but I think it's all about the business demand overall and how we should see that unfolding as we move along.
Speaker Change: Okay. Thank you.
George Notter: Thanks George.
Speaker Change: Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
Speaker Change: Our next question comes from Kelly Bania with Bank of America. Your line is open.
Kelly Bania: Hi, guys I'm in a public space some with spring.
George Notter:
Speaker Change: Hi, its actually quite well.
Speaker Change: Good good.
Speaker Change: And the entire bus here hearing me.
Speaker Change: I have two questions number one is the $20 million increase in backlog is it related to the AT&T contract that you spoke about last quarter.
Speaker Change: And the second question is much more.
Speaker Change: Philosophical so if I look at the last 40 quarters, or 10 years or eight years or seven years.
Speaker Change: Sure.
Speaker Change: The needs of carriers never changed the story changes, but they need to do what you're providing never changed it's always high in the priority.
Speaker Change: But when I look at the quarter there were many more quarters, where you grew 2% a year versus quarters that you grew six 8% per year.
Speaker Change: And when I looked at your growth rate over the last few quarters.
Speaker Change: Quarters ago, you were at six 5% growth year over year, and now you're guiding to one 4% growth, which is more in line with.
Speaker Change: The averages are more in line with what we've seen in the last 10 years. So the question I have is and again its philosophical but I wanted to understand what drives it.
Speaker Change: Can be environment supports growth of 6% to 10% as you said three years ago.
Kenneth: Can the projects and what the carriers are doing Kenneth support growth that is higher than 2% to 3% then and if that's the case then what drives the growth to accelerate over the next few years.
Speaker Change: Yes.
Speaker Change: Considering the fact that you are in the public space, It's a relatively long question.
Speaker Change: Let me try with the second one and I think that.
Speaker Change: The difference.
Speaker Change: If you compare us previously and I think that the.
Speaker Change: At the time I think we have maybe one or two growth engines and today, we have five knots.
George Notter: Not all of them away or walking at the same pace. For example, we highlight again and again the cloud.
George Notter: The journey to the cloud and gender she has more than 20% of our revenue and growing double digits.
George Notter: Obviously, when we expanded to other so the total addressable market that we operate today is much higher comparing.
George Notter: Comparing to what we had maybe 10 years ago.
Speaker Change: But I think that what we are saying is that.
Speaker Change: In the current in a normal demand environment, which.
Speaker Change: It is not the situation right now we believe we can go back to single digit growth.
George Notter: In the current demand environment, because you know there is some industry pressure macroeconomic pressure interest rates another.
George Notter: Customer cutting.
George Notter: Cutting capex because of this and focusing on free cash flow and other things that are.
George Notter: The industry by the way maybe.
George Notter: So some other things are going through giving the current.
Speaker Change: A press shares it will be difficult for us it would be more in duration that you mentioned historically.
Speaker Change: But we believe with some support from the macro and some of the in.
George Notter: In the main condition, we can get back to the.
George Notter: We can get back to.
George Notter: The what you call it more like close to middle single digit.
George Notter: Okay.
Speaker Change: Like 5%.
George Notter: This area.
George Notter: Regarding the backlog part of it maybe let's say look naturally we always during the quarter.
George Notter: The backlog by recognizing revenue and signed many new deals. So it's definitely part of it I think the interesting.
George Notter: Once to make here is that.
George Notter: We're talking about the 12 months backlog and the reason I made the comment that the current 12 months backlog does not reflect a full year of this deal because.
George Notter: As planned and as expected we did not take effective control of that.
George Notter: <unk> of that IP environment immediately it takes time, we need to learn the environment we need to.
George Notter: Transition, we need to set up certain capacities so.
George Notter: We do not have full 12 months yet of that deal reflected in the number we reporting as of June 30.
George Notter: But everything I can assure you is going well according to plan and we will definitely see the full run rate of that.
George Notter: In the middle of calendar 2025.
George Notter: And back to your first question I have said.
George Notter: Normal demand environment, I think we can get close back to the mid single digit growth rate.
George Notter: Right now.
Speaker Change: The industry and the.
George Notter: And everyone is under pressure.
George Notter: I think it will be tougher than the.
George Notter: You would expect more of the historical level of revenue growth.
Speaker Change: Great. Thank you.
Speaker Change: And remember for next question.
George Notter: Our next question comes from William Power with Baird. Your line is open.
William Power: Great. Thanks, Jonathan more sand per well thanks for taking the question just to follow up on some of the comments you were making a second ago about the spending environment in the market generally.
Speaker Change: So when we're thinking about what growth might look like in fiscal 'twenty fire.
Speaker Change: At this point it sounds like we should be expecting similar growth this fiscal 'twenty four.
Speaker Change: Are there any near term drivers I guess other than an improved spending environment that would lead you to expect a reacceleration.
Speaker Change: Any guideposts or directional color would be great yes.
Speaker Change: Yes.
Speaker Change: We're not guiding yet for 2025, but we were trying to give some more color how we see the environment. So.
George Notter: Typically for example, our 12 months backlog is a good leading indicator don't take it literally as I'm, telling you now okay. If 12 months backlog grew two 7%. That's the growth next deal, but I think what youre seeing is hoovering around this these levels right now and we need more change in the demand environment too.
George Notter: You see an acceleration that's the message we're trying to get across.
Speaker Change: Thanks, that's helpful. And then should we expect a continued accelerated buybacks or do you expect M&A to become more significant use of cash next year any outlook on that Rob.
Speaker Change: Yes.
Rob: I would say generally speaking I believe we have the capacity and we are always trying to do both I don't think it's one versus the other at the same time M&A is something we are always looking at there's always a pipeline that we are actively evaluating but it's harder to predict the pace and the specific day.
George Notter: That will mature.
George Notter: In closing so we've been very consistent with our buyback you've seen us out there.
George Notter: Always in also believing in ourselves of course and in the story of Amdocs.
George Notter: We definitely think that the cash allocation back to shareholders through buyback is definitely an important vehicle at the same time, we are going to look for M&A and we will probably do more M&A now strategic domain. So I think the simple answer both announcing that one should be on account of the other necessarily.
Speaker Change: Makes sense. Thank you very much.
George Notter: Thanks.
George Notter: Showing any further questions. This time I'd like to turn the call back over to Matt for any closing remarks.
Matt: Thanks, Kevin and thanks, everyone for joining today, if you do have any additional questions. Please reach out to us here in the IR group and we look forward to speaking with you soon have a great night.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Matt: Okay.
Matt: [music].
Matt: Okay.
Matt: Okay.
Matt: [music].
Matt: Yes.