Amdocs : Q1 2023 Earnings Call Transcript

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EDITED TRANSCRIPT

Q1 2023 Amdocs Ltd Earnings Call

EVENT DATE/TIME: JANUARY 31, 2023 / 10:00PM GMT

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JANUARY 31, 2023 / 10:00PM GMT, Q1 2023 Amdocs Ltd Earnings Call

CORPORATE PARTICIPANTS

Joshua Sheffer Amdocs Limited - President, CEO & Director

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

Tamar Rapaport-Dagim Amdocs Limited - CFO & COO

CONFERENCE CALL PARTICIPANTS

Ashwin Vassant Shirvaikar Citigroup Inc., Research Division - MD & Lead Analyst

Madeline Nicole Brooks BofA Securities, Research Division - Research Analyst

Timothy Kelly Horan Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

William Verity Power Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

PRESENTATION

Operator

Thank you for standing by, and welcome to Amdoc's First Quarter 2023 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, Mr. 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, including 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, Chief Financial and Operating Officer.

To support today's earnings call, we are providing a presentation, which can be found on the Investor Relations section of our website. And as always, a copy of today's prepared remarks will also be posted immediately following the conclusion of this call.

On today's agenda, Shuky will recap our business and financial achievements for the first quarter of fiscal 2023, and will update you on the continued progress we've made executing against our strategic growth framework. Shuky will finish by commenting on our financial outlook for the full fiscal year 2023, after which Tamar will provide additional details on our first quarter financial performance and forward guidance.

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.

Starting on Slide 6. I am pleased to report strong first quarter results, sincere thanks for which go to our incredible people around the world who every day work to support our customers' multiyear journey towards digital modernization, 5G monetization, cloud migration and network automation.

Q1 revenue was a record $1.19 billion, up 9.5% year-over-year in constant currency and above the midpoint of our guidance. 12 months backlog of $4.09 billion was also a record high, up approximately 7% from a year ago on continued sales momentum and we delivered a non-GAAP diluted earnings per share of $1.45 which was above the guidance range, primarily due to a better profitability on a higher revenue base and a lower-than-expectednon-GAAP effective tax rate.

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JANUARY 31, 2023 / 10:00PM GMT, Q1 2023 Amdocs Ltd Earnings Call

Overall, our financial year is off to a strong start, positioning Amdocs to deliver consistent and profitable growth in fiscal 2023 within a global macroeconomic backdrop that remains challenging and uncertain.

To provide context to our financial performance, let me review our quarterly operating achievements as shown on Slide 8. To begin, we continued sales momentum and further cultivate strong value-driven partnership with new and existing customers during Q1. Notably, we deepened our long-standing relationship with customers like AT&T, T-Mobile, Verizon, Comcast, DISH and Claro Brazil in the Americas. Vodafone and Three Group in Europe, Globe in the Philippines and a Tier 1 operator in Malaysia.

Additionally, we further diversified Amdocs' customer base by winning several new logos, including Colt Technology Services in the U.K. and Telefónica Móviles El Salvador in Latin America, where Amdocs online charging system will replace the existing vendor.

Amdocs Vubiquity has also continued to execute well on its strategy of servicing leading studios and direct-to-consumer platforms, winning several new projects and extensions over the past year, including Disney, Warner Brothers, Discovery, MGM and Paramount.

Turning to execution. Q1 was another great quarter, which included major project milestone deliveries at AT&T, T-Mobile, Verizon, Bell Canada, XL and many others. At Claro Brazil, we expanded our policy platform to allow for new use cases such as voice over LTE and 5G stand-alone. In addition to which I'm happy to share that nearly all the Brazilian postpaid customers Claro acquired from Oi have already been successfully migrated to our monetization platform.

I believe Amdocs' high rate of successful project execution is a direct outcome of our highly skilled workforce, unique global delivery model, methodologies, tools and automation and a regional site strategy, which is constantly refined as we optimize our global talented pool.

I'd also like to highlight the competency of our managed services business, which this quarter delivers flawless execution for customer over the peak retail volume periods of Black Friday and the holiday season.

In addition to sales and execution, we maintained 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 and meetings with many customers and partners. We'll also be showcasing innovative solution and exciting use cases, including those resulting from our collaboration with service providers, enterprises and partners at our Dallas 5G Experience Lab.

To complement our growth pillars, Amdocs remain committed to disciplined M&A as and when opportunities arise. Amdocs is constantly evaluating a broad pipeline of exciting M&A opportunities and while the previously announced acquisition of MYCOM OSI did not move forward as planned, we continue to look for suitable deals that can accelerate our growth strategies.

Before moving on, I want to proudly recognize our recent achievement in the ESG domain as shown on Slide 9. As previously announced, Amdocs included in the S&P Dow Jones Sustainability Index for North America for the fourth consecutive year. Additionally, we are today pleased to announce that Amdocs has been included as a member of the 2022 Bloomberg Gender-Equality 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 has also earned several other recognitions this quarter.

Amdocs India was recognized as one of the most preferred workplaces in IT and information technology enabled services for 2022-2023. We improved our environment disclosure rating at CDP from B to A-, and our new state-of-the-art campus in Israel has a LEED Gold certified for its sustainable design and operation.

Prestigious ESG recognitions such as these reflect Amdocs' desire to make 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 essential part in making achievements like these possible.

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JANUARY 31, 2023 / 10:00PM GMT, Q1 2023 Amdocs Ltd Earnings Call

Now let me provide a progress update in respect to our multi-pillar growth strategy, the aim of which is to bring market-leading innovation to help service providers to accelerate migration to the cloud, create seamless digital experiences by transforming IT operations, launch and monetize new 5G services and deliver dynamic connected experience with real-time automated network.

Starting on Slide 10. We see a growing number of service providers embarking on a multiyear cloud migration journeys that Amdocs is supporting with our end-to-end suite of cloud platform and services. I'm happy to report that T-Mobile selected Amdocs' cloud-hosted intelligent networking suite, a next-generation platform to enable provisioning of advanced 5G services and Vodafone Ireland recently chose Amdocs to modernize and migrate its end of data and application workloads from on-premise to the cloud to enable greater flexibility and capacity and improved customer experience and rapid adoption of latest 5G innovations. Additionally, a leading Tier 1 operator in Southeast Asia has selected Amdocs to smartly migrate its existing Amdocs BSS suite to a modern cloud transformation at 2 large regional affiliates, thereby enabling improved security and operability while defining the long-term journey towards the full cloud-native environment.

Moving to digital transformation on Slide 11. More service providers are recognizing the power of data to drive personalized customer experiences. Amdocs is working with Comcast on several new projects, including upgrading the new Amdocs data hub for mobile and B2B on the cloud. Under a multi-year managed services engagement Three UK selected Amdocs to migrate to a modern cloud-based data architecture to service customers timely recommendation based on data-drivendecision-making.

Finally, Amdocs is providing AI-driven data insights to Globe Telecom, a leading operator in the Philippines with nearly 88 million mobile subscribers. Implemented on the public cloud and delivered under a multiyear managed services agreement, this service will empower Globe to the right business growth, time-to-market agility and operational efficiencies.

Turning to Slide 12 and 5G monetization. Fixed wireless access is rapidly emerging as one of 5G's first meaningful success stories, and Amdocs is already playing an important part. For instance, a leading Tier 1 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 5G area -- era by enabling the rapid launch of monetization of new 5G products.

Amdocs was recently commissioned by CTM, a leading telecom operator in Macau, to modify its online charging and billing infrastructure to support 5G standards. We recently extended our managed services relationship with Vodafone Romania, which selected Amdocs to modernize its revenue management system with a modular platform, enabling it to launch and monetize new products and services at speed. Additionally, Globe Telecom recently selected Amdocs' next-generation charging platform to enable the monetization of new stand-alone 5G services to consumers and businesses while reducing operations costs. And KT Corporation in South Korea signed a 3-year extension for ongoing support services and fast-track development for Amdocs' Turbo charging and catalog platforms which expand Amdocs and KT's cooperation 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 across services and cost service ordering, activation and provisioning for consumer and enterprise customers. Amdocs recently completed an operational support system modernization project for a leading Australian operator, providing it 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 U.K. Colt Technology Services has signed a letter of agreement for Amdocs to deliver the Amdocs Resource Manager. The solution will be cornerstone in Colt's continuous modernization journey focused on delivering on digital infrastructure services, which empower its customers and employees around the world.

We are also bringing value in respect to network deployment and optimization. Amdocs is providing system integration services for vRAN and Verizon to drive mass scale of automation and deployment efficiency as 5G rolls out nationwide. Additionally, Telefonica Germany has chosen Amdocs' cloud-native network optimization suite, enabling the operator to maximize network performance and accessibility

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JANUARY 31, 2023 / 10:00PM GMT, Q1 2023 Amdocs Ltd Earnings Call

and to benefit from greater flexibility, scalability and automation.

Rounding out my strategic review, let me quickly comment on an interesting project that we recently implemented for Bank Hapoalim. It's one of Israel's largest financial service 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 2023 outlook as presented on Slide 14 and 15. To begin, let me remind you that Amdocs and our global customers are not immune to economic cycles, and we are continuing to closely monitor the current period of global macro uncertainty. Amdocs is well-situated at the heart of the multiyear 5G network automation, digital and cloud-driven investment cycle with our market-leading software and services and a stronger potential for successfully delivering mission-critical system transformation.

From our vantage point as a trusted partner, and key technology enabler, we continue to see an attractive pipeline of opportunity and a healthy level of customer engagement as 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, accelerate cost reduction and increase efficiency as demonstrated by the many customer activities highlighted today.

We are confident in our unique business model, which is more resilient 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 2023, with all 3 operating regions contributing positively over the full year.

On the bottom line, we are raising the midpoint of our outlook for non-GAAP diluted earnings per share growth by 100 basis points to a new range of roughly 9% to 13% in fiscal 2023. The outlook reflects our strong Q1 financial performance and our commitment to further improve profitability by accelerating automation, driving efficiency and tightly managing costs. Additionally, we are 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 Tamar for her remarks.

Tamar Rapaport-Dagim Amdocs Limited - CFO & COO

Thank you, Shuky, and hello, 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 $1.186 billion, at the higher end of our guidance range was up 9.5% year-over-year in constant currency. On a reported basis, revenue increased 7.3% and was above the midpoint of guidance even if we exclude the favorable foreign currency movement 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 project awards are ramping up. Altogether, we expect all 3 operating regions to grow on 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 investment.

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-anticipatednon-GAAP effective tax rate of 13.7% resulting from internal structural changes in certain jurisdictions in which we operate. Diluted GAAP EPS was $1.07 for the first fiscal quarter, which was toward the high end of our guidance range of $1 to $1.08. This was primarily due to a lower GAAP effective tax rate than anticipated in the quarterly guidance,

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