Amdocs Limited

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Amdocs Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is now my pleasure to introduce Head of Investor Relations Matt Smith.

Thank you operator. Before we begin I would like to point out that during this call we will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. 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 finished with the SEC on Form 6K. Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions, the duration and severity of the COVID-19 pandemic and its impact on the global economy, and such other risks as discussed in our earnings release today and at greater length in the company's filings with the Securities and Exchange Commission including in our annual report on Form 20F for the fiscal year ended September 30, 2019 filed on December 16, 2019 and our Form 6K furnished for the first quarter of Fiscal 20 on February 18, 2020 for the second fiscal quarter of Fiscal 20 on May 18, 2020 and for the third quarter of fiscal 2020 on August 17, 2020. Amdocs may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Participating on the call with me today are Shuki Sheffer, President and Chief Executive Officer of Amdocs Management Limited and Tamara Rappaport-DeGim, Joint Chief Financial and Operating Officer. Finally, a copy of today's prepared remarks will be posted on the Investor Relations section of Amdocs' website following the conclusion of this earnings call. With that, I'll send it over to Shiki.

Thank you, Matt, and good afternoon to everyone joining us for our fourth fiscal quarter airing call today. I want to begin by reviewing our quarterly full-year operating performance, after which I plan to address some important strategic steps that we are taking to accelerate our long-term growth around 5G and the cloud. I'll wrap up with a quick summary of our financial outlook for fiscal 2021, including our expectations for faster-paced of revenue and non-GAAP diluted earnings per share growth in the year ahead. With that, I am pleased to report record fourth quarter results, which include the return to sequential revenue growth. Among additional operating highlights, we deliver consistent execution, accelerate R&D investments, maintain stable profitability, and achieve our best-ever quarter for cash collections. Amid the ongoing global pandemic, we are also pleased to see the acceleration in sales momentum. as reflected in our record 12-month backlog, which grew $140 million sequentially and 3.7% year-over-year in the fourth quarter. After the full fiscal year 2000, revenue grew 2% as reported, while non-GAAP earnings per share was up 3% year-over-year, both of which were at the higher end of the revised guidance we provided in Q2. Our ability to generate modest revenue and earning growth during a global pandemic is a testament to the strength of our technology and our product-led services model and the visibility provided by our solid-based highly recurring revenue streams. These recurring revenues accounted for roughly three-quarters of total revenue in fiscal 2020, a large portion of which flows from managed services engagement with customers under multi-year agreements. A further proof to our stable business model and the ability to meet our customer commitments, we generate normalized free cash flow of $527 million in fiscal 2020, which exceeded our initial target of $480 million for the year. Overall, I am proud of our financial performance in fiscal 2020, which was made possible by our talent employees, to whom I am grateful for their extraordinary professionalism and commitment throughout the ongoing pandemic. Additionally, let me again thank our customers for their continued trust in Amdocs as we partner to ensure the essential services the world needs at this difficult time. Now let me provide some quality regarding our regional business activities. Beginning with North America, we finished a positive year which included better than expected growth of AT&T and contribution from M&A. Across the broader region, we supported the strategic activity of customers like Comcast and many more. We are also a modular BSS and OSS platform being implemented to automate and streamline the scale end-to-end of customer lifecycle. Regarding the outlook in North America, regional market dynamics are favorable and supportive of growth. Service providers are continuing with strategic investment in digital modernization, media, 5G in the cloud, including AT&T, Last quarter we said that Amdocs has started a program to modernize the consumer mobility domain. We are encouraged by positive signs of momentum in this area, as demonstrated by today's news that AT&T has selected our 5G solution to quickly launch and monetize exciting new 5G services, including gaming, mobile virtual reality, vehicle-to-vehicle communication, remote health, and much more. This deal leveraged 5G monetization capabilities from recent acquisition of OpenEdge and highlights the way in which we are collaborating with AT&T to bring innovative 5G experience for the future. At T-Mobile, we continue our strategic partnership, working hard to demonstrate our ability to support T-Mobile's strategic domain of post-pay, media, enterprise B2B, 5G, network and more. In respect to 5G, Andros is collaborating with T-Mobile and Ander as one of the founding partners of the 5G Open Innovation Labs, which is focused on helping service providers accelerate the wave of 5G advancements around clouds, edge computing, IoT, and new customer experiences. Finally, we have won a notable new project with the North American Banking Group, where we've been selected as a partner to accelerate customer experience and digital transformation in Quotid's operations. This deal leverages the proven capabilities of Project 202, which, to remind you, is a digital consultancy we acquired in fiscal 2018 for its design and experience-driven methodologies across different verticals. Combined with AMDOC's transformation expertise, we look forward to teaming with this financial services leader to frame the design, development, and delivery of the very best experience of their customers and employees. Moving to Europe. We deliver our best-ever quarter, which includes new dream wins and ongoing project activity with some of the region's largest service providers, like Vodafone Germany and Orange Spring. During EU4, we maintain a high win rate that includes a digital transformation award at A1 Bulgaria, a cloud-based provisioning and 5G-ready converged charging deal at Sky UK, and the signing of our first project and multi-year managed services deal at 3UK. This was a busy quarter in media. Ubiquiti extended its partnership with Israel Cellcom to provide content licensing and processing and was selected to provide content services under a multi-year agreement servicing AGI's European affiliates. Ubiquiti also successfully completed a significant and complex technology project for Sky and Virgin Media, whereby it processed over 1,200 hours of Sky 4K UHD content to Virgin Media's IP DoD platform via Ubiquiti's AWS cloud. Regarding the year ahead, we expected to sustain growth in Europe by executing against our healthy backlog and further expanding our customer footprint throughout the region. Turning to the rest of the world, sequential growth improved slightly in the fourth quarter. Demonstrating our technology leadership in 5G, we successfully deployed Catalog One for KT Corporation in South Korea. Additionally, NGU Plus, one of the fastest-growing 5G telecom providers in South Korea, has selected Amdor's Catalog One cloud-native solution to accelerate the launch of new 5G services, enabling its end-customers to benefit from more frequent services innovation and update plans and bundles. In many services, we reached a new multi-year agreement with India's Airtel to migrate postal, mobile, and boardroom customers to Amdoc's modern digital business system. While in Brazil, Telefonica Vivo extended our existing multi-year agreement with an expansion of scope to include the Amdoc's data management solution. Regarding the year ahead, in the rest of the world, quarterly trends are likely to fluctuate, reflecting healthy activity in Southeast Asia, ongoing market challenges in Latin America, and the project orientation of customer activities across the entire region. To summarize my regional comments, I believe we extended our market leadership in the first fiscal quarter. Our many project wins reflect the unique innovation we are bringing in the strategic domain where our customers are focusing their spending. One such domain is the Telecom industry journey to the cloud, which we believe is approaching a tipping point as service providers invest to realize the increasing agility, speed of innovation, fast time to market, and reduced cost of ownership that is needed to meet the business demand of today. As an asset customer partner, Andos is highly differentiated by our technology and product-led services model, which uniquely position us to accelerate the industry journey to the cloud. Antox VSS OSS is in the very heart of the customer experiences of more than 350 communication service providers worldwide, providing us with an intimate understanding of the communication environment and the expertise needed to help service providers transform the way they work. Our current great cloud-native VSS OSS products are best-in-class, and we are always investing to bring fresh innovation using DevOps teams, CICG approach, will constantly enhance our platform, drive agility, and shorten the customer time to value. Amdocs has a lifting range of services with which we offer every customer a ready and tailor-made journey to the cloud. These services include consultancy, migration and modernization, services for new and legacy Amdocs and non-Amdocs VSS or SS applications, as well as supporting customers' cloud-native application development, incorporating data into their capabilities. Additionally, Amdos offers end-to-end accountability for the customer cloud operation, including secure and optimized hybrid cloud operation, packaged under multi-year, next-generation cloud operation service agreements. The pedigree of Ardor Cloud's offering is well proven in the market, as demonstrated by AT&T's selection of open and charming solutions, which is designed to speed up its move to the cloud, in addition to monetizing 5G. Additionally, many other new existing customers were already choosing to monetize on Amdoc's newest cloud-native products, including Globetelecom, OronSpain, and Vodafone Germany. We see an expanding pipeline of opportunities as the world's premium service providers formulate and accelerate their cloud strategies. These strategies will be implemented gradually in the coming years, over which time we believe Amdoc's addressable market for cloud services will go to billions of dollars. To help accelerate the market potential and Amdoc's growth, we are today happy to announce a new multi-year strategic agreement with AWS. to deliver integrated cloud native BSS offering and to jointly build and promote a wide range of services to help customers migrate and modernize their system utilizing vesting cloud's cloud capabilities. We look forward to working closely with AWS as well with other firms like Microsoft Azure and Google Cloud to ensure that we are providing a gem to the cloud for all current and future MNUX customers. As part of another move to focus on our strategic domains, we have today signed an agreement for the divestiture of OpenMarket, an Amdoc subsidiary for $300 million cash with Infobit, a company which one equity partner is the primary institutional investor. Those of you who have followed Amdocs for a while may know OpenMarket as the leading provider of mobile messaging solutions to enterprises, including global one-way and two-way SMS, MMS and other application-to-person messaging solutions. With this transaction, Andros is divesting a non-strategic asset and being later focused on our core strategic growth initiative. We expect to complete the divestiture of open markets within the next few months and we plan to return the majority of the net proceeds to shareholders by way of our quarterly share repurchase program. Telling finally to our outlook for the year ahead, let me remind you that we remain in a time of great uncertainty regarding the spread and the severity of the COVID-19 pandemic and its adverse effect on the global economy remains. Having said that, we expect our revenue growth in constant currency will accelerate to 3.5% to 7.5% in fiscal 2021, which is more than twice the rate of last year. Our confidence in the outlook supported by the visibility of our record trade front backlog as well as the expanding deal pipeline we see across our strategic growth domains. Moreover, we are positioned to deliver expected total shareholder return of almost 10% in fiscal 2021, including non-GAAP earnings per share growth of 5% to 9% plus our dividend yield. With that, let me turn the call to Tamar Orelmak.