Amdocs : Q1 2022 Earnings Call Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

DOX.OQ - Q1 2022 Amdocs Ltd Earnings Call

EVENT DATE/TIME: FEBRUARY 01, 2022 / 10:00PM GMT

OVERVIEW:

Co. reported 1Q22 revenue of $1.1b and diluted GAAP EPS of $1.07. Expects FY22 YoverY reported revenue growth to be 3.4-7.4% and pro forma constant-currency revenue growth to be 6-10%. Expects 2Q22 revenue to be $1.110-1.150b.

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FEBRUARY 01, 2022 / 10:00PM, DOX.OQ - Q1 2022 Amdocs Ltd Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Joshua Sheffer Amdocs Limited - President, CEO & Director

Matthew E. Smith Amdocs Limited - Secretary & Head of IR

Tamar Rapaport-Dagim Amdocs Limited - CFO & COO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Charles Joseph Erlikh Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate

Hoonshik Yang Oppenheimer & Co. Inc., Research Division - Research Analyst

Jackson Edmund Ader JPMorgan Chase & Co, Research Division - Analyst

Maxwell Osnowitz Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst

Tal Liani BofA Securities, Research Division - MD, Head of Technology Supersector & Senior Analyst

P R E S E N T A T I O N

Operator

Thank you for standing by, and welcome to the Amdocs Limited First Quarter 2022 Earnings Conference Call. (Operator Instructions)

As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matthew Smith, Head of Investor Relations. Please go ahead, sir.

Matthew E. Smith - Amdocs Limited - Secretary & Head of IR

Thank you, John. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks and uncertainties as described in Amdocs' 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 6-K.

Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Joint Chief Financial and Operating Officer. Consistent with last quarter to support today's earnings call, we are providing a presentation, which can be found on the Investor Relations section of our website. And although as always, a copy of today's prepared remarks will also be posted immediately following the conclusion of this call.

On today's agenda, Shuky will provide an update on our recent strategic progress and business performance and Tamar will review our financial results and outlook for fiscal year 2022.

And with that, I'll turn it over to Shuky.

Joshua Sheffer - Amdocs Limited - President, CEO & Director

Thanks, Matt, and good afternoon to everyone joining us on the call today. I will start today's call by recapping our business and financial achievements for the first quarter of fiscal '22. Second, I will update you on the main pillars of our strategic growth framework and continued progress we have made in the past quarter.

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FEBRUARY 01, 2022 / 10:00PM, DOX.OQ - Q1 2022 Amdocs Ltd Earnings Call

I will wrap up by discussing our financial outlook, including our expectation for continuous revenue growth in fiscal year 2023 and 2024, which we are providing today. Tamar will then provide additional details on our first quarter financial performance and guidance.

As a reminder, our comments today will refer to certain financial metrics on a pro forma basis where applicable to provide you with a sense of the underlying business trends, excluding the financial impact of open market, which we divested on December 31, 2020. So let's get going.

Turning to Slide 7. I'm proud to report a great start to fiscal year 2022. At our analyst and investor business update last November, we outlined our strategy to deliver accelerated revenue growth by bringing market-leading innovation designed to meet industry needs for digital modernization, 5G monetization, journey to the cloud and network automation. Based on our first quarter performance, I believe our strategy is continuously gaining traction in the market. Evidenced by another quarter of strong sales momentum across long-standing global customers, such as AT&T, T-Mobile, Vodafone, Globe Telecom and others.

Additionally, we penetrated several new logos that support our ongoing growth and regional expansion, including PPF Group in Europe and Vodacom in Africa. Our customer investment in industry megatrends like 5G and cloud are gathering pace and translating to strong demand for our products and services. The relevancy of our offering to the market results from our past and ongoing commitment to R&D investment, which further extends our technological leadership and brings cutting-edge innovation to our customers.

To add a further point, I believe our capacity to win new business is a function of our unrivaled reputation for product delivery has demonstrated yet by another record quarter for the number of deployment milestone achieved for our customers in Q1.

M&A is another important tool we use strategically to accelerate our capabilities in key growth areas. Focusing our cloud strategy, I'm delighted to announce our position of DevOps Group, a boutique U.K.-based cloud company specializing in engineering, consultancy and training services for enterprises, implementing cloud endeavors.

DevOps Group geographically complements the high-end expertise required with last year acquisition of Sourced Group and further strengthen our professional services organization to support all aspects of our customer cloud journey, including consulting, cloud native software migration of Amdocs and non-Amdocs application, ongoing development and cloud operations.

Overall, I'm proud of our progress in Q1, which we achieved while striving to improve the life of people in our communities. Slide 8 highlights just some of many initiatives. Demonstrating our commitment to green environment, we recently completed the cloud migration project to support improve their quality in London by expanding the city's ultra-low emission zone.

Amdocs Mexico was recognized by NGO human rights campaign as one of Mexico's best places to work for LGBTQ+ for 2021. And our deep commitment to diversity was recognized by the Peruvian government for promoting an inclusive society, which people with disabilities achieve full development. Amdocs Israel also won the diversity in the business prestigious award for our work to promote employability of the Arab minority in the tech industry.

As a mark of our commitment to sustainability and corporate responsibility, Amdocs was recently honored to be included in the prestigious S&P Dow Jones Sustainability Index for North America for the third consecutive year, placing us amongst the top 15 companies in our industry based on long-term economic, environmental and social criteria. I believe such recognition is a testament to Amdocs identity and reflects the value held by our 20,000 -- 29,000 employees worldwide.

I would like to take this opportunity to extend a warm welcome to all those who have recently joined the Amdocs family. And my sincere thanks to all our people for their dedication, resilience and commitment to ensuring a great start to our fiscal year. Our great start to fiscal year is reflected in our Q1 financial performance. The key highlights of each are on Slide 10.

We delivered record revenue of $1.1 billion, up 10.6% on a pro forma constant currency basis, and led by our best-ever quarter in North America, where we continue to see high activities level across our top customers. Strong sales momentum was reflected in record in our record 12 months backlog of $3.8 billion, which was up $140 million sequentially and 9.7% from a year ago.

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FEBRUARY 01, 2022 / 10:00PM, DOX.OQ - Q1 2022 Amdocs Ltd Earnings Call

On the bottom line, we delivered a non-GAAP earnings per share of $1.20, which was the higher end of our Q1 guidance range. Now let me update you on the recent progress we've made against our strategic imperative as presented on Slide 11. To remind you, our growth strategy is intentional and focused. As industry leaders around the world look to derive growth in modernized 5G, they rely on our market-leading innovation to deliver unparalleled experiences to their consumers and enterprise customers.

Our key innovation enablers include end-to-end cloud platform and services that ensure operational agility, scalability and ultimately clouded scale, monetization of new 5G services like ultra-low latency connectivity, immersive entertainment and connected industries, creating seamless digital experiences by transforming IT operations and reinventing user interactions and delivering dynamic connected experience with real-time automated network.

Beginning with cloud, I am proud to announce 2 key awards this quarter. First, we were selected by T-Mobile's partner to shift non-Amdocs application to the public cloud, thereby expanding our activities in the support of T-Mobile's multiyear cloud journey.

Additionally, we are excited to report a multiyear deal with T-Mobile to deploy and operate Data One, our data intelligence platform. Second, we are free to announce that PPF Group awarded us a digital cloud managed transformation of its next-gen business support system across all lines of businesses. Under which Amdocs will provide its wide set of cloud-native products to be operating on the public cloud as a part of a long-termmulti-country agreement.

This award demonstrates Amdocs' ability to expand internationally by penetrating new logos, and we look forward to supporting PPF's 8 million subscribers across Bulgaria, Hungary, Serbia and others. In 5G monetization, Amdocs Open 5G charging and policy solution was chosen by Vodacom. A new logo in Africa, which we are supporting to enable the quicker launch of new products, services and tariff for its operation in Tanzania, Mozambique and the Democratic Republic of Congo. In Malta, we extended our agreement with Melita Limited to provide charging solution that will expand its range of IoT and 5G offering for consumers and business customers. Additionally, we announced cooperation with Samsung Electronics America to deliver end-to-end 5G -- sorry, 4G and 5G private network solution to help U.S. enterprises across key industries to unlock next-generation use cases and to help close the digital divide in how to reach locations.

Turning to digital modernization. We are happy to announce 2 new North American logos in Q1, including Summit Broadband, a Florida-based service provider, which is selected Amdocs for a multiyear deal to uplift their BSS and OSS ecosystem; and Consumer Cellular, a postpaid mobile virtual network operator from Portland, Oregon, which selected Amdocs easing solution.

Additionally, Vodafone Turkey selected Amdocs for a 3-year deal to provide end-to-end quality engineering services that we quickly develop, test and bring to market new products and services for the benefit of its customers. Moving to network automation. I'm excited to share the 2 Tier 1 North American customer, including Lumen, have recently selected to modernize and upgrade on our cloud-nativenext-generation 5G network services orchestration platform. Additionally, we today announced a 3-year deal with Globe Telecom in the Philippines to provide radio access network optimization services to accelerate the expansion of its 4G and 5G networks and the time-to-market launching of new services.

Finally, let me quickly highlight the Amdocs Media, which continues to expand outside North America. In Indonesia, we extended a multiyear agreement with XL Axiata, we selected our SaaS-based Amdocs MarketOne platform to offer its customers seamless access to international local and regional content services.

Additionally, Amdocs recently worked with Astro, a leading Southeast Asia media and entertainment company to successfully launch new content and broadband bundles, including Netflix, to provide customers with premium, affordable entertainment in a streaming world.

Now turning to Slide 12 and our financial outlook. Let me begin by addressing the revenue growth projections we are providing today for the 3 fiscal years 2022 through 2024. Last quarter, we guided to fiscal year 2022 revenue growth in the range of 6% to 10% on a pro forma constant currency basis. And we are now projecting annual revenue growth in the range of 6% to 10% constant currency in 2023 and 2024. Our conviction in this outlook founded on our technology leadership and the strength of Amdocs unique business model from which we derive highly recurring revenue stream, strong business visibility and durable multiyear engagement supporting our customers' mission-critical operations. Second, we are excited to see large funnel of market opportunity in front of us, the size of which is continuously expanding.

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FEBRUARY 01, 2022 / 10:00PM, DOX.OQ - Q1 2022 Amdocs Ltd Earnings Call

This dynamic is consistent with our view that global operators are still in the early innings of a multiyear investment cycle driven by mega trends such as 5G and the cloud. Third, our strong sales momentum in recent quarters supports confidence that Amdocs is well positioned with the right strategy to monetize the market opportunity, leveraging our innovative cutting-edge technology, which continue to support the future road map of our customers and constantly extend our competitive lead in the market.

Our execution track record, which is the best in the industry and our highly skilled and talented employee base, which is focused on delivering value to our customers worldwide. As a final point, our 3-year revenue growth projection does not depend on a material level of M&A activity. To summarize our long-term view, we firmly believe that Amdocs has entered a new era of accelerated growth as reflected into the 3-year outlook we have provided today.

Turning attention to the current fiscal year 2022, we believe revenue growth is tracking at the higher end of our 6% to 10% guidance range on a pro forma constant currency basis, given our encouraging start of the year to the year. On the bottom line, we are also on track to achieve pro forma diluted non-GAAP earnings per share growth at the higher end of our expected range in fiscal year 2022 outlook, putting us in a strong position to deliver double-digit expected total shareholder returns for the second year running, including our dividend yield.

With that, let me turn the call over to Tamar for her remarks.

Tamar Rapaport-Dagim - Amdocs Limited - CFO & COO

Thank you, Shuky, 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 of open market, which we divested on December 31, 2020. Turning to Slide 14. I would like to echo Shuky's comment that we are off to a great start to the fiscal year, and we are very proud of our Q1 financial performance.

Record Q1 revenue of $1.1 billion was up 10.6% year-over-year on a pro forma constant currency basis, driven by our best-ever quarter in North America with a great momentum in our top customers. Revenue was above the midpoint of guidance despite an unfavorable impact from foreign currency fluctuations of $2 million relative to guidance, which mainly impacted our European region.

Moving down the income statement. Our Q1 non-GAAP operating margin of 17.5% was in line with the midpoint of our long-term target range. Compared with a year ago, our non-GAAP operating margin improved by 20 basis points as accelerated R&D investments were more than offset by a focus on operational excellence and the divestiture of open markets.

On the bottom line, diluted non-GAAP EPS of $1.20 was at the higher end of our guidance range. Diluted non-GAAP EPS includes a non-GAAP effective tax rate of 19.9%, which as anticipated, was above the high end of our annual target range of 13% to 17%. Diluted GAAP EPS was $1.07 for the first fiscal quarter, above the guidance range of $0.91 to $0.99, primarily due to a net gain of $0.06 per share from contingent performance-based consideration in the final amount of $10 million received in relation to last year's divestiture of open markets.

Moving to Slide 15. Strong first quarter sales momentum translated to record high 12 months backlog of $3.83 billion, which was up 9.7% from a year ago. On a sequential basis, 12 months backlog was particularly strong, rising by $140 million as compared to September 30. 12 months back will continue to support an expectation for growth on a constant currency basis across each of our 3 core operating regions in fiscal year 2022.

As a reminder, 12 months backlog has traditionally served as a good leading indicator of our business, having consistently averaged around 80% of our forward-looking 12 months revenue over the years. Q1 was also a record quarter for revenue from managed services engagements, which grew roughly 6% from a year ago, equating to roughly 60% of our total revenue. Our multiyear managed services engagement to underpin the resiliency of our business with recurring revenue streams, high renewal rates and expanded activities with existing customers. Among the customer highlights this quarter, BT Group renewed its relationship with Amdocs for application development and maintenance of non-Amdocs business systems in relation to BT's EE brand.

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