Amdocs Limited

Ladies and gentlemen, thank you for standing by. And welcome to the second quarter 2021 Amdocs Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. Now, to ask a question during this time, you will need to press star 1 on your telephone keypad. Also, please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Matt Smith, Head of Investor Relations. Thank you. Please go ahead.

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 furnished 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 a 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, 2020 filed on December 14, 2020 and our Form 6K furnished for the first quarter of fiscal 21 on February 16, 2021. I'll turn it over to Shuki.

Thank you, Matt, and good afternoon to everyone joining us on the call today. I am pleased to report another strong financial performance in our second fiscal quarter. My comments today will refer to certain financial metrics on a performer basis where applicable to provide you with the sense of the underlying business trends, excluding the financial impact of open markets, which we divested December 31st, as previously announced. Revenue in fiscal Q2 was well above the midpoint of our guidance and up 5.7% for a year ago on a performer constant currency basis. Operating profitability exceeded the high end of our target range as we balanced accelerated R&D as a percentage of revenue with continued focus on operational excellence. Free cash flow generation was also robust. Driven by the successful delivery of project invoicing milestones and healthy case collection with customers. During Q2, we returned a record quarterly cash amount of more than $400 million to shareholders by way of share repurchases and dividends. This includes the net proceeds from open markets in line with the commitment we made to shareholders in the prior quarter. This was another strong sales momentum led by growing demand for our digital 5G offering. Additionally, we solidified our market leadership in the public cloud domain by utilizing our strong balance sheet to acquire Source Group, a leading global cloud consultancy business for a net consideration of roughly $75 million in cash. Before moving on, let me take a moment to address a situation in India where the COVID-19 pandemic has recently escalated. My thoughts are with our Indian employees, their family members and the community at large during this extremely challenging time. To those who have suffered personal loss, I would like to express my deepest sympathies and to those whose health has been impacted by the virus, I offer my warmest wishes and hope that you quickly make a full and speedy recovery. Our priority is the health and well-being of our employees and we are investing resources to provide support for those most affected by the pandemic which include making vaccination available faster wherever possible. From an operational perspective, we can leverage the scale and the flexibility of our global delivery model and our extended capabilities in other parts of the world such as the US and the UK where the state of the pandemic is much improved and our core development and delivery centers in Israel where activities are pretty much back to the offices. We are monitoring the situation in the daily to ensure business continuity for our customers. I am proud of our employees and I want to thank them for all their dedication and commitment throughout the pandemic and their ability to collaborate with and support one another during this difficult time. Now, let me provide some color regarding our regional performance during Q2. Beginning with North America. We deliver our best-ever quarter on a performer basis as a healthy level of customer activity continues throughout the region. As North America emerges from the pandemic, 5G network and fast and secure broadband connectivity has become recognized as a backbone of society. Service providers are investing heavily in fiber and 5G deployment, as witnessed in the many billions of dollars they allocated in the recent C-band spectrum auctions. To monetize their investment and maximize ROI, service providers must bring exciting new 5G offers and services to their consumers and enterprise customers. To meet this need, our customers are in a multi-year investment cycle in digital and 5G system modernization, cloud migration, and next-generation OSS platform for networks, all of which Amdocs is well positioned to support with our cloud-native products and IP-based services. Let me take you through a series of examples to show how we are supporting our customers as they build their capabilities to address these market dynamics. At AT&T, we are executing a wide scope of activities under the 4 Years Managed Services Deal we announced in November 2019, on top of which we are accelerating new programs to modernize its consumer mobility domain support the journey to the cloud and deploy 5G monetization solution leveraging open charging and policy capabilities. In T-Mobile, we are accelerating the digital transformation under the strategic multi-year agreement we announced last quarter. Implementing the AmdocsOne product portfolio to support next generation communication services for its consumer and business customer and next generation hybrid cloud operation in the form of multi-year managed services engagement. At Verizon, we are implementing Amdocs Catalog One, our cloud-native platform designed to rapidly create and launch new 5G services offering. And we are now progressing an additional program in the network domain which leverages Amdocs Neo, our cloud-native net generation OSS 5G platform for services and network automation. Neo allows service providers to harness the power of cloud-based virtualized networks that are more dynamic, agile, and scalable. Around cable and media, we are also busy. We just completed successful subscriber migration for Altice USA following its requisition of service electric cable TV last year, and we are continuing to implement our BSS and OSS platform for Comcast business. At Charter, we are deploying our system to support Spectrum Mobile under a multi-year managed services agreement we announced last quarter, and we were recently selected by Dish to provide a cloud-based billing for enterprise and wholesale customers on its next-generation 5G network. Amdocs Media's Vindicia also extended its long-term engagement with Vimeo, which will continue to use Vindicia's cloud-based SaaS solution to enhance monetization of its subscription and one-time purchase services. Moving to Europe, we delivered healthy year-over-year revenue growth on a performer basis as we continue to program digital transformation projects to support improved customer experience, operating efficiency, and multiple convergence strategies for our customers. During the quarter, we saw continued demand for OpenEdge 5G charging and policy solution, which a major tier one operator in the UK recently implemented on the AWS public cloud to support its global IT platform. In Italy, we expanded an existing relationship with Fastbep, which selected Amdocs to monetize its mission-critical inventory system as part of a transformation to create a 5G-ready platform to grow and differentiate its business, and we expanded our relationship with SCS, a world-leading content connectivity solution provider, which selected Amdocs' end-to-end testing framework to automate its flow validation process. Turning to the rest of the world, revenue grew over year, and we began to see yearly, but encouraging signs of recovery in Latin America. Amdoc was selected by America Mobile to deliver a digital transformation in Claro Chile and Claro Puerto Rico, and Amdoc has signed a three-year agreement with Claro Brazil to support Claro's prospect business and to provide services and solutions for its digital transformation. In Chile, BigWikity extended its long-term relationship with VTR, part of Deliberty Global, and we signed a multi-year agreement with Telefonica and Spam to provide content, licensing, and processing for Movistar Play service in the five markets including Argentina, Chile, and Peru. In Southeast Asia, Globe Telecom in the Philippines implemented our next-generation cloud-native Catalog One and Digital One platform for its enterprise business which we will operate and maintain under a multi-year managed services contract. We signed our partnership with India's Airtel where we completed a seamless migration of Airtel wireless post-paid customer to Amdoc's modern digital business system and we signed a new deal to provide open-end charging for the data management product on Microsoft Azure for M1 Limited in Singapore. Moving on, Let me update you on the strategy to grow by accelerating the communication industry journey to the cloud. As we outlined a few quarters ago, Amdocs brings a full range of products and services with which to offer every customer a ready and tailor-made journey to the cloud. I am pleased to report that we see an attractive and expanding pipeline of opportunities which we hope to accelerate with the recent steps we have taken to solidify our leadership in this domain. First, we are today pleased to announce the acquisition of Source Group, a leading global technology consultancy specializing in large-scale cloud transformation for sophisticated high-end enterprise customers in different industries such as communication and financial services, across North America, Asia Pacific, and Australia. Source Group is part of our wide cross-company investment in the cloud and brings a proven cloud migration platform, deployment and landing zone framework, and trusted design processes alongside its deep partnership with AWS, Microsoft Azure, and Google Cloud. The acquisition also complements our portfolio of cloud-native product and services and further expands and Darvesi Pfizer customer base allowing us to implement cloud at scale. We are delighted the Innovated Source team is joining Amdocs. We are proud to bring such a great professionals and practices to our industry. Second, I am pleased to announce an expanded strategic collaboration with Microsoft to widen the availability of our portfolio on Azure. The collaboration will enable service provider to transform with cloud native solution and cloud services and deploy 5G networks in the cloud with Azure for operators, automated by the Amdocs Neo Suite and monetized by Amdocs Charging. We have also extended our multi-year strategic agreement with AWS to include Vin Diesel subscription management portfolio provided on AWS Global Cloud. To wrap up, let me briefly comment on the outlook for the remainder of our fiscal year 2021. We are raising our guidance for the full-year revenue growth to reflect our solid performance in the first two quarters and our expectation for a stronger second half. Our confidence is supported by the visibility of our 12-month backlog, which is up more than 9% for a year ago on a performer basis, and the belief that there is a rich pipeline of opportunities across our operating regions which are working hard Thank you, Shuki.