Amdocs Limited

Thank you for standing by and welcome to the Amdocs Limited fourth quarter 2024 earnings conference call. At this time all participants are in listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. 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.

Thank you, Jonathan. Before we begin, I need to call your attention to our disclaimer statement on slide two 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's 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 finished with the SEC on form 6K. Participating on the call with me today are Shuki Sheffa, president and chief executive officer of Amdocs Management Limited, and Tamar Rappaport-Dugin, 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, Shuki will recap our business and financial achievements for the fourth quarter and full fiscal year 2024. And we'll update you on the continued progress we have made executing against our strategic growth framework, including generative AI and our continued sales momentum in cloud. Shuki will finish by discussing our financial outlook for the fourth fiscal year 2025, after which Tamar will provide additional details on our fourth quarter financial performance and forward guidance. And with that, I'll turn it over to Shuki. Thank you, Matt,

and everyone joining us on the call today. Starting on slide six, fiscal 2024 was another important year in Andox journey. My thanks for which goes to our thousands of employees worldwide who continuously serve our customer with innovative software products and services designed to, accept the migration and adoption of the cloud, monetize next generation networks, digitally transform the customer experience and automate their mission critical operations. Despite a continuously challenging industry demand environment, the year was notable in several respects. We expand activities with new and existing customers, winning important deals, AT&T, T-Mobile, Charter, Tartel, and Rogers in North America, Vodafone Zygo in the Netherlands, Excel and PLDT in Southeast Asia, and NTT in Japan. We achieved double digit growth in clouds, which now accounts for roughly 25% of total revenue. And further extend our industry leading position in Gen.AI. Many services deliver another record year. We execute our plan to accelerate profitability and we return more than 100% of free cashflow back to shareholders so our shares are purchased in dividends. Summarizing our fiscal 2024 financial performance on slide seven, we delivered record revenue of $5 billion up .7% from a year ago in constant currency, achieved non-gap operating margin of 18.4%, an improvement of 60 basis points year over year, and met our commitment to deliver double digit total short return for the first consecutive year in fiscal 2024. Reflecting non-gap earnings per share growth of 9% plus our dividend yield. As to the fourth quarter, we closed the year with strong sales momentum, which includes several important deal with. At T-Mobile, we want significant projects to deploy Amdoc's next generation monetization platform under the major multi-year digital transformation program we are supporting. Strong sales momentum continues in the cloud with key awards at AT&T Infant in Japan and Vodafone Italy. And we maintain a high renewal rate in many services signing expanded multi-year engagement with a tier one operator in Southeast Asia and Telia in Denmark. I'm also encouraged by the market rapid adoption of Amdoc SaaS based platform ConnectX as the comprehensive solution from MVNOs and MVNEs and we are making steady progress in Genotive AI where we have expanded activity to support T-Mobile's mission to revolutionize the customer experience. Regarding project for execution, Q4 included successful product deployment at AT&T, T-Mobile, 3OK, A1 Bulgaria, PZT in the Philippines, among others. At AT&T, we achieved major production milestone related to the consumer modernization and simplification program. Commence the migration of application from mainframe to the cloud under our new five-year agreement and collaborate with Cricut wireless to implement a new commission calculation system. Our reputation for consistent execution also extends to our customer industry consolidation strategies. Industry consolidation sometimes creates short-term business uncertainty, but often results in long-term opportunities for Amdocs to bring our post-merger integration and modernization expertise as we see following calls acquisition of Lumen, EMEA, Business Lassir, and for other US and European customers that are currently progressing consolidation strategies. Now, moving to slide nine. We remain confident in our multi-pillar growth strategy which is designed to provide our customers with the market-leading innovation and technology they need to accelerate the journey to the cloud, digitally conform the customer experience from consumer and B2B, monetize the future market potential of next generation networks, deliver dynamic connected experiences by streaming line automating complex network ecosystems, and to simplify and accelerate adoption of generative AI. Beginning with the clouds. Amdocs' unique ability to support complex multi-year cloud journeys as the primary technology partner continue to drive strong sales momentum in Q4. Amdocs was recently selected to modernize Vodafone Italy's business platform by implementing cloud-ready and cloud-native solution and migrating its business support system to the Microsoft Azure cloud. Structured under an extended five-year agreement, this modernization initiative will empower Vodafone Italy to deliver faster, higher quality, and next generation services and experiences to its customers, enhance operation efficiency, and reduce costs. Additionally, we expanded our relationship with NTT InfraNet in Japan. We selected Amdocs to modernize and migrate core system applications to the cloud under the business transformation and managed services agreement that will enable great cost control, increase efficiency, and improve business capabilities. Cloud accounts for roughly 25% of Amdocs' total revenue in fiscal 2024. And with this recent award adding to our strong book of business and an attractive pipeline of opportunities, we are positioned for another year of double-digit growth in cloud in fiscal 2025. Moving to digital modernization on slide 11. &E.PL is digital-driven mobile virtual network enabler in Poland and selected Amdocs' telco in a -staffs-based connect solution under a five-year agreement to launch an innovative telecom ecosystem that empowers communities across the country to create and manage their own telecom brands with underpriced speed and affordability. We are delighted by the rapid adoption of ConnectX, which has positioned Amdocs in the forefront on the MV&E and MV&O market with the growing customer leads, including AT&T and RISD, wireless in the U.S., Winnipeg in Brazil, and Melon Digital in South Africa. Additionally, Amdocs' fast-baked bill experience solution was recently chosen by Convera, a global commercial payments leader, to easily simplify the billing experience and improve customer satisfaction. We are excited to be working with Convera, with this the world demonstrates that Amdocs' solution can be applicable for enterprise-scale customers beyond telco when suitable opportunities arise. Turning to modernization and monetization on slide 12, Amdocs continue to deliver cutting-edge technology to help service providers monetize their investment in next-generation networks, including wireless 5G standalone, fixed wireless, access, and fiber. On top of the multi-year digital transformation we are delivering for T-Mobile, Amdocs has been selected for a significant project to deploy our next-generation cloud-native real-time monetization offering, giving T-Mobile customers the freedom to define their buying experiences while delivering complete business flexibility on a single, all-inclusive platform. We also expanded our partnership with Altis, SFR, one of France's leading telecom providers, on a five-year deal to transform the mobile and fixed-line B2C billing system onto a single, unified platform. This consolidation will reduce operating costs and improve efficiency while unlocking additional monetization potential and enabling the delivery of a seamless, enhanced customer experience. Moving to network automation on slide 13, Amdocs is a prime position to support the design and build of fiber network, investment in the US and globally. Having just introduced our next-generation fiber offering, which capitalized on a recent acquisition in this domain, including Procom Consulting in fiscal 2023. Demonstrating our breadth of capabilities, a leading provider of fiber optic internet service in the US recently chose Amdocs to effectively manage and streamline complex fiber rollout enabling it to accelerate sales, enhance agility, and realize new monetization opportunities in the fiercely competitive fiber-bonded market. Amdocs' growing market recognition in the network domain is also reflected by recent industry awards, including Network Technology Render of the Year at the 2024 Network as a Service Excellence Awards, and the prestigious Orchestration Award at FutureNet Asia 2024 with Amdocs Service and Networks Automation is now one two years running. Turning to slide 14, Amdocs continues to extend its position as an industry leader able to help service provider unlock the transformative potential of generative AI. First, our flagship CS24 now embeds CS co-pilot across Amdocs' catalog, monetization, intelligent networking, and many other components of the suite, while several customers are already utilizing such capabilities in production. Second, we have collaborated with NVIDIA to enhance our generative AI platform image with innovative new agenti capabilities that deliver immersive customer experiences with real-time interaction and visualization. Our first commercial platform awards are also materializing as we successfully progress many global production trials based on the maze across several key domains. As we alluded last quarter, ATI Salat by E in the United Arab Emirates is selected to integrate Gen.AI into its business systems. Leveraging a maze, this expanded collaboration with ATI Salat opens possibility for new revenue opportunities, business efficiencies, and improved customer experience for the telecom pillar of ATI Salat. Third, Amdocs continues to evolve our data AI and generative AI platform with new capabilities designed to meet the needs of the market and to simplify and enable generative AI adoption. The platform is now equipped with customer experience inside CXIs, embedded analytics, and a unified generative AI foundation, allowing service provider access to actionable customer experiences insights based on real-time data harness from any source. Our data AI and generative AI platform is already rallied by several service providers around the world, including Lobe Telecom in the Philippines, which recently selected Amdocs Data Intelligence Services. Similarly, we recently signed an expanded agreement to support our Data One Intelligence platform at T-Mobile, which is collaborating with OpenAI to revolutionize customer experience and deliver personalized services with the first ever AI enabled in 10-driven decision platform. Before addressing our outlook, last quarter we mentioned that we have been proactively evaluating Amdocs portfolio of products, services, and business line in relation to our strategic investment priorities for fiscal 2025. As a result of this review process, in fiscal year 2025, we've already begun to phase out several low margin, non-core businesses, activities that are becoming commoditized and hold little potential for long-term value addition or profitability enhancement. While T-Mobile provides further comment in their remarks, we believe this action will reinforce our level of business visibility, including a higher share of revenue for long-term and service engagement. This move also expected to sharpen our focus on higher margin strategic priorities like cloud, next generation monetization platform, and generative AI, where we are well-placed to further extend our communication industry leadership with our commitment to innovation. Wrapping everything together on slide 16, let me comment on our outlook for the coming year. We enter fiscal 2025 as an industry leader with unique competitive position, strong 12-month backlog visibility, and a high win rate. Moreover, we believe Amdocs is well positioned to monetize healthy pipeline of market opportunities while navigating a continuously challenging event demand environment. Adjusting for the phase out of the low-margin non-corrupt business activities I just discussed, we expect to perform a revenue growth of between 1% to .5% in constant currency in fiscal 2025, including another year of double-digit growth in cloud. As to our possibility, we expect our non-gaps operating margin to surpass 21% for the first time in fiscal 2025, a significant milestone and a better reflection of the platform technology and IT-based innovation we are delivering across our strategic areas of focus. Combined with robust early to cash conversion, we expect to deliver double-digit expected total shareholder return for the fifth year running in fiscal 2025. Assuming the midpoint of non-gap diluted earnings per share outlook of between .5% to 10.5%, plus our dividend deal. With that, let me turn the call over to Tamar for her remarks.

Thank you, Shuki, and hello, everyone. Thank you for joining us. I'm pleased with our solid financial results for the fourth fiscal year as detailed on slide 18. Record Q4 revenue of approximately $1.26 billion was up .1% -over-year in constant currency. On a reported basis, revenue increased .7% from a year ago and was slightly above the midpoint of guidance, adjusting for a positive impact from foreign currency movements of approximately $3 million compared to our guidance assumptions. From a geographical perspective, we delivered -over-year growth in North America, Europe, and rest of the world this quarter. Europe and rest of the world grew 5% -over-year, while North America grew modestly by 0.2%. Shifting down the income statement, non-gap operating margin improved to .7% in the fourth quarter, up 90 basis points -over-year, and 10 basis points sequentially. Profitability in Q4 was consistent with the high end of our target range for the year, reflecting the cumulative benefits of disciplines, resource management, automation, and tools leveraging AI as well as generating AI to drive cost savings and efficiency gains across the board. Interest in other expenses amounted to roughly $7 million in the fourth quarter, including adverse foreign currency movements. On the bottom line, non-gap diluted EPS of $1.7 was in line in the midpoint of guidance and included a non-gap effective tax rate of 14.8%, which was consistent with our annual target range of 13 to 17%. Diluted gap EPS was $0.76 for the fourth fiscal quarter. This included the charge relating to our current restructuring program of approximately $83 million, or 64 cents per share, without which diluted gap EPS would have been at the higher end of guidance range of 134 to 1.42. Summarizing our full fiscal year 2024 performance on slide 19, revenue was up .7% in constant currency, consistent with the midpoint of guidance. As Shuki referenced, we achieved strong double digit growth in clouds, which accounted for roughly 25% of total revenue this year. On a geographical basis, we delivered record revenue across all three operating regions, with North America up slightly, and Europe and the rest of the world growing by .3% and .6% respectively on a reported basis. Highlighting the ongoing diversification of our business and growing traction in international markets, two of our top 10 customers were new logos added in the last 10 years. Additionally, the number of countries in which we generate annual revenue of more than $40 million has almost doubled over the 10 years. Some of those added to the list include Philippines, Italy, and India. Overall, we delivered non-gap diluted earnings per share growth of 9% in fiscal year 2024, consistent with the midpoint of guidance and driven by sustained revenue growth, improved operating profitability, and the benefits of our share repurchase activity. Turning to slide 20, managed services revenue was a record, $2.9 billion in fiscal 2024, up .7% from the prior year, an equivalent to approximately 58% of total revenue. During Q4, we signed important cloud migration deals with Vodafone Italy and entity InfraNet, both of which were structured under expanded multi-year managed services engagements. Additionally, we're extending our collaboration with Tellur-Denmark under a long-term agreement to provide managed services for their billing platforms through 2032. This renewal will enhance Tellur-Denmark's operational efficiency, empowering them to deliver more streamlined services to their customers. Now turning to the balance sheet and cash flow highlights on slide 21. DSO over 74 days increased by five days year over year and were unchanged sequentially. The sequential increase in unbilled receivables net of deferred revenue was $49 million in Q4, aggregating the short term and the long term balances. 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. Reflecting strong execution free cash flow before restructuring payments was $694 million for the full year fiscal 2024, roughly in line with our annual guidance target of 700 million. Including restructuring payments of 75 million reported free cash flow was 619 million. Overall, we ended the fiscal year with a strong balance sheet including a healthy cash balance of approximately $500 million and aggregated borrowings of roughly 650 million. With ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth. Turning to capital allocation on slide 22, we repurchased $120 million of our shares in the fourth quarter and paid cash dividends of $55 million. Overall, we returned a total of $775 million to shareholders with share repurchases and dividends in fiscal 2024, significantly exceeding free cash flow. Looking ahead, we expect free cash flow between 710 million to 730 million in fiscal 2025, which does not include additional payments we expect to make under our current restructuring program. A free cash flow outlook equates to conversion rate of more than 90% relative to expected non-GAP net income and translates to a healthy free cash flow yield of roughly 7% relative to under current market capitalization. Regarding our capital allocations in fiscal year 2025, we expect to return the majority of our free cash flow to shareholders. This includes dividends for which we are pleased to announce the proposed increase of 10% in our quarterly cash payments to a new rate of 52.7 cents per share subject to shareholders approval at the annual meeting in January. Turning now to slide 23, as mentioned last quarter, we have continued to invest in our strategic priorities while also evaluating ways to optimize our existing portfolio of product services and activities. Following a comprehensive review, we've already started to phase out several low-margin non-core business activities that are becoming commoditized and hold little potential for long-term value addition or profitability enhancement in the future. These activities were barely a creative to net income. The activities being phased out include among others, certain low-margin software and hardware partner activities including phased out of some on-prem software and hardware infrastructure and other legacy type activities as we focus more on cloud related infrastructure and Gen.AI partner infrastructure. The big with this transactional video on demand business is another part of that where we see increasing demand and non-core subscription services. To provide some added context for our decision, Unbox has historically demonstrated the discipline to optimize our business activities in response to market conditions and ever changing telecommunications landscape. During the 2010-2015 timeframe, for instance, we managed a gradual decline of our historical Yellow Pages directory business, which we chose to hold on to while optimizing for positive free cash flow despite the persistent stop line headwinds. As another more recent example, in fiscal 2021, we announced the investor and sale of open markets, a rapidly commoditizing mobile messaging business that we elected to monetize while market conditions permitted. Back to our current decision, we believe phasing out certain activities will reinforce our level of business ability, including a higher share of revenue from long-term managed services engagements. It will also sharpen our focus on higher margin strategic priorities like cloud monetization platforms and Gen.AI where we are well-placed to lead the communication industry through our commitment to innovation. Most of all, we believe this move will substantially improve our profitability, a point that we'll come back to in a few minutes. Moving to slide 24, 12-month backlog was 4 billion .06 at the end of Q4. Adjusting comparable periods for the phase-out of the previously discussed business activities, 12-month backlog was up .5% from a year ago and up 30 million sequentially on a performer basis. The sequential increase reflects a combination of strong sales momentum in the quarter and ramp up of recently won deals within the next 12 months. As I just mentioned, phasing out certain business activities will also improve our overall level of visibility in the year ahead, with 12-month backlog now equating to roughly 90% of forward-looking revenue as compared with the historical average of roughly 80%. Now turning to our revenue outlook on slide 25, we are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty, which remains elevated in the current business environment. That's the first quarter in full year fiscal 2025 financial guidance reflects what we consider to be the most likely outcome based on the information we have today, but we cannot predict all possible scenarios. The activities we are phasing out were substantially already seized in the first quarter, and that will naturally impact reported revenue for the full year fiscal 2025. To therefore calculate our fiscal 2025 revenue growth versus fiscal 2024 in a comparable manner, we are providing an adjusted performance number based on our assessment that revenue from the phased out activities was roughly $600 million in fiscal 2024. So as you're modeling the regional mix of this revenue was similar to the overall company and contributed roughly $150 million per quarter. Overall, we expect revenue growth of between 1% and .5% on a performance on some currency basis in fiscal 2025, which does not include activities we are phasing out. The focus growth rate midpoint is similar to the prior fiscal year, includes some inorganic contribution and incorporates another year of double digit growth in clouds. As for the first fiscal quarter, we expect revenue within a range of 1.095 billion to 1.135 billion which is used the favorable sequential impact of 2 million from foreign currency fluctuations as compared to Q4. Moving down the income statement, I'm excited to share that we expect non-GAAP operating margin within a new and improved range of .1% to .7% in fiscal 2025. The midpoint of which equates to a substantial increase of roughly 300 basis points as compared to the full year non-GAAP operating margin of 18.4 in fiscal 2024. Assuming the midpoint of our new fiscal 2025 guidance, we believe our focus on operational excellence, automation and the gradual implementation of GEN.AI will support ongoing margin expansion of about 50 to 70 basis points, similar to the size of margin improvements we generated in fiscal 2024. The rest of the margin expansion in fiscal 2025 will result from phasing out non-COAR low margin business activities. Our margin outlook excludes additional restructuring charges we may take. Below the operating line, we anticipate that foreign currency fluctuations and hedging costs will impact our non-GAAP net interest and other expense line in the range of several million dollars on a quarterly basis. We expect our non-GAAP effective tax rates for fiscal 2025 to be within an annual target range of 15 to 17% for the full fiscal year 2025, and for Q1 specifically above the high end of that annual range. Bringing everything together on slide 27, we expect to deliver non-GAAP diluted earning per share growth of .5% to .5% in fiscal 2025, the midpoint of which positions us to achieve double digit expected total shareholders return for the 50 year running when including our dividend yield of roughly 2.3%. Based on the proposed 10% payments increase announced today. With that, back to you

Shuki. Thank you Tamar. We enter fiscal 2025 with a strong 12 months backlog visibility supported by a unique business model. Across our large serviceable addressable markets and with the challenging demand environment, we continue to see healthy pipeline opportunity. And with our ongoing commitment to innovation and best in class execution, we are positioned to maintain a high win rate across our strategic domain, such as cloud, which continue to grow at a double digit rate, next generation monetization platforms, and Gen.AI, where we are starting to shift from production pilots to our first commercial worlds. We're also confident in our ability to drive ongoing margin improvement in a robust early to cash conversion, further supporting our commitment to deliver double digit expected total share returns in fiscal 2025. With that, we're happy to take your questions.

Certainly, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. We ask you please put yourself to one question and one follow up. Our first question comes from the line of Tim Horan from Opco, your question please.

Hi guys, two questions. How integrated were these businesses with other units and how difficult is it to carve it out or were they fairly distinct? And secondly, the free cash flow is growing the guidance by 3.5%, but earnings growing 8.5%. Why such a big gap in the two different growth rates? Thank you.

So Tim, those businesses, those activities that we decided to phase out from, were not much integrated with other things, and we've been working on that for some time now in terms of how to do it in the best way, of course, that it doesn't interfere with other activities that we have, and we feel comfortable that this is achievable, and this is why we said we already phased out as we started the fiscal year from these activities. And regarding the free cash flow, look, things are not tracking one to one in terms of earning growth to free cash flow, but if you look overall on the health of the business, ability to translate earnings to cash, we feel very comfortable looking on the past several years, you can see the good conversion rate, some years have been over 100%, some years in the 90%, so I don't think it's like a mathematical accurate formula, because of course we need to build it bottom up based on the plan of record, the different business activities, the projects, the different deals that we have, and we're trying to give the best outlook that we got in terms of what's happening. But I don't think there's any reason for concerning that, and I don't think there's any fundamental change in the way we run the business, in terms of the expectations that we should be tracking on par earnings to cash over time.

And then, just can you characterize the backlog, and I guess the overall demand levels out there, right now compared to what it was a year or a couple of years ago, thank you.

Regarding the overall demand environment, I think we've been seeing on the one hand a lot of excitement around the cloud opportunities that we can provide to our customers, and it's obviously presented in the very strong double digit growth we've been doing in the cloud activities in the last two years. And to remind you when we say cloud activities, with anything between cloud native products that are coming out of our R&D shop to be deployed to the customer, including gradual modernization to the cloud that we enable our customers to take with upgrading current or more, not current, sorry, prior product versions of Amdocs, migration into the cloud from different legacy platforms into the cloud platforms, and many services of cloud ops that we provide our customers. So it includes many, many aspects, including consulting, how to do it, et cetera. So from that point of view, the demand is strong. In terms of the overall environment, I would say we're not seeing relative to the prior quarter we've been discussing. I don't feel there's an inflection point, but we continue to see a strong pipeline. Still, in some aspects, I would say flow conversion of pipeline to deal, but you can see we have a very strong win rate. We've been winning a lot of deals, both in terms of managed services, renewal and expansion, as well as new transformations and new activities, very strong proof of concepts with the GenAI that we start seeing conversion into deals, et cetera.

Thank you.

Thank you.

And our next question comes from the line of Shlomo Rosenbaum from Stiefel. Your question, please.

Hi, thank you for taking my questions. I just wanted to ask you a little bit tomorrow about the cadence of revenue growth that you expect in fiscal year 25, because the high end of the revenue growth and even just the midpoint implies a tick up in growth over what you've been seeing over the last three quarters. And maybe you can just talk a little bit about that and how we should be thinking about it, or is it if I strip out the non-core businesses that you're exiting that it really is the same, just trying to think of what the trajectory of the business really is that you're expecting in the guidance.

Thanks for the question, Shlomo. We've been trying to give a comparable number. So that's why when we say one to four and a half percent, that's after taking out the $600 million of the business we are fading out from. So from that point to here, we definitely feel that's like the real expectation of comparing apples to apples. The high end of that expect, I would say, better activity in terms of the pace of conversion of pipeline to build, as well to some extent, you know, we can see the backlog while we are trying to break the ability of 90% entering a deal. Of course, there are different moving parts in terms of pace of execution, different activities that we are taking into consideration. So that's also a good situation there.

So is it a, what's it called, is it really, it's basically you have line of sight to the vast majority, it's just a matter of how fast the pipeline is gonna move. Is that the way to think of it?

And in terms of- Yeah, it's a matter of, when you have some of the pipeline, you seem to close the deal, right? It's not guaranteed. So yes, it's about making certain estimations on how fast we can convert the deals into closure. But it's also to some extent about the pace of taking the back to the things that are in the backlog and recognizing it in the next year. So while we may have a lot, when you have a great visibility entering a year, it's based on certain estimations of how the business we already have in hand is going to convert into revenue, right? So we are taking some scenarios on that as well.

So should we see the revenue growth accelerating? That's kind of what I'm looking for. Are we gonna see an acceleration of the revenue growth through the year? Or is it just gonna be bumpy down to the average in quarters? The average likelihood,

yes, but we will see acceleration of the revenue through the year. It's hard to predict exactly the exact trajectory. But yes, overall, this is what they expect.

And then what should we think about in terms of the restructuring costs that we're gonna be backing out of, or adding back to free cashflow? Is there a number that you have a line of sight to or a range that we should think about that so we can get actual free cashflow and then kind of build back to the adjusted free cashflow?

I would expect something in the ballpark of what we've had in 2024. So I would take that assumption into consideration. So we're talking about roughly 70 million, 75 million.

Okay, thank you.

Thank you. And our next question comes to the line of Tal Eliana from Bank of America. Your question,

please. Hi, guys. I normally don't give compliments to management teams on the call, but I wanna give you a compliment for the transparency and great detail in your presentation, very clear. But now comes the tough question. You pay for it now. I wanna continue the last question in a different angle. So if I remove the 600 million, I'm still at the same growth rate of last year, which means, and that's the midpoint, which means the environment, so I assume, I just assume that the 600 million didn't have a high growth rate. So that means the core business is ex the 600 million is likely continuing the same weakness of last year. And the question is about the spending environment. I don't think, looking at your presentation, which is excellent and understanding what you're doing, I don't think we have any concerns whatsoever with what you offer, with your portfolio, with your added value, but we do have a concern over the spending environment. So can you take us through what happened in 2024, meaning how the environment deteriorated, what have you seen in 2024 and your expectations for 2025 when it comes to the spending environment, to the willingness of customers to spend money on these kinds of projects, and what changes the current weakness that we're seeing?

I don't think we see deterioration in 2025 comparing to 2024, but on the other hand, we don't see yet recovery of the environment. So far, while we have a lot of opportunities, we're experiencing the same demand environment, which means we are, win rate is high, but it takes more time to convert deals to, obviously to real projects and revenue and everything. On the other hand, as we report, we see a lot of growth on the cloud. So on one hand, we have this growth engine which is working pretty well for us. I mean, last year it said 20% of revenue, now it's 25% of revenue, it's going double digit. On the other hand, there is some headwinds in certain respects of legacy systems as we discussed before. So obviously this offset some of the nice activity that we see in the cloud. But overall to your question, we don't see deterioration in the demand environment. It's relatively similar, and we check ourselves also with other people to see that we are not seeing something else, and everyone pretty much see the same thing, is that we see relatively the same demand environment while extremely strong in areas like cloud, monetization and others, and less strong if you talk about legacy implementation, et cetera. So I think it's pretty much the same environment that this is why we didn't feel comfortable although we see a lot of opportunities to change the gross projection for next year.

Tell us, I do want to add one point which is about the amazing success we had in 2024 in renewal and expansion of managed services engagements which is positioned as a base in a strong way. And given the fact that we're continuing to bring new innovation to the table, and a lot of our success in winning new opportunities within existing customers as well as new logos has to do with the fact that, A, the base is secured, and then the fact that we can continue and upsell into these accounts the new innovation we bring. So I think that by that, we are positioned in a very good way so once the demand environment is accelerating, we are coming with the right offering, we have the right base of customers, we have secured our long-term agreement, and we can hopefully accelerate the sale of the new things we bring to the table.

But Tamar, if I take the question, is cloud substituting the other 75% of revenues? Because you said that cloud is 25% of revenues, you said it's gonna grow double digits. So if I take 10% on 25%, it's .5% growth. So that means almost your entire growth is cloud and the other 75% of the business is flat. That's just from taking your midpoint, deeper take. So the question is cloud.

You're talking about the same time. Some of the cloud activities, not all of them are incremental. For example, if we had a managed services on-premise and we do a project and the migration to the cloud and we are moving from all-premise managed services to cloud-off, there is some incremental, but you cannot assume that everything is incremental because so you're replacing one type of managed services, which one which is more expanded one, but it's like everything is incremental. Got it.

And on a set basis, eventually the company is growing given the phenomena that Chuki mentioned, as well as the fact that we are continuing to add new scope in certain customers. So in some aspects, it's replacing activities we've done before and in some aspects, it's new activity. It's a combination of

replacing on-premise activities with cloud and in many cases, some incremental. But it's not. Lastly. Yeah.

I understand. So lastly, how do you define cloud? Meaning I saw the chart and on the right-hand corner on top, you say partnership with Amazon and others. So can you, I understand what you're doing with cloud activities with telecom providers, which you just described. What do you do with cloud titans? Meaning how do you participate in the cloud titan environment and how important is that part to your business?

So it's a good question. We have different types of cloud activities. It runs from our activities in a T-Mobile and AT&T, which is a complete rip and replace. We are replacing everything in the legacy platform to a completely our next generation platform, which is cloud native. And we are bringing to the customer a full, a model of holistic value proposition from the system, the operation, the cloud consumption, everything. They are just paying us and we are obviously getting the whole service A to Z. This is like the model that we are running now, use transformation program for T-Mobile and AT&T. We have some customers, for example, the one that we recently signed, Vodafone Italy. This is more like a gradual transformation. We take the current version that the customer is running and we are opening to the cloud version. So this is not a complete rip and replace like we do in AT&T, T-Mobile, and Vodafone Germany and others, and here we are actually, they are embarking on a more gradual modernization journey. We have a customer that we take a non-AMDOX system, which are in our domain and we transition to the cloud. This is another example. Another very good example is the deal we signed with AT&T. Over there, we're taking hundreds of main from application of AT&T and we are moving them from the main from domain and then we're converting from Cobalt to Java OC and then moving and doing the services running them and running them on the cloud environment. We have our platform on cloud diagnostic. So in some customer, we run it on AWS. In some customer, we run it on Microsoft Azure. For example, T-Mobile is AWS, AT&T is Microsoft Azure and when we talked about our partnership with the BEP scale, it depends on which cloud we are running, what type of infrastructure we are bringing to this type of modernization. It could vary between the different cloud providers.

Got it. Thank you very much for the detailed answer.

Thank you, Todd. And our next question comes from the line of Tavi Reznor from Barclays. Your question, please.

Hi, good afternoon. Thanks for taking my question. I just wanted to ask about the competitive environment and especially around the strategic domains. Are you concerned that some of your customer, whenever they will transition from on-prem to the cloud, might they be tempted to use kind of point solution for your competitors or you're still confident around your retention rate?

We are very confident. First of all, we have a major, I mean, an excellent 100% retention of all our customers and actually we discussed it before in our using the cloud operation. It's a bit, they are even more expanded comparing to the on-premise and I will give an example. In most of the cases in the on-premise environment, our managed services operation were for the most part including running our MDoc system or other system in the data center. All the data center operation was, in most cases was running by the customer. When we move to cloud operation, actually we are taking everything. We are both running our system in the managed services and at the same time we are running all the cloud infrastructure. It's part of the managed service. So I would argue that our position in the cloud definitely is not eroded. If any, it's even more stronger.

Thanks for that Shuki. That's all for me. Thank you.

See you tomorrow.

Thank you. Our next question comes from the line of Ryan Potter from Citigroup. Your question, please.

Good afternoon Shuki and tomorrow there's a gauge for what's been on for Ryan Potter. We're just gonna dive back into the phase out. I was curious if you could maybe go into a little bit more of the color on the business lines that are being included here and the mechanics of how that will be phased out. Sounds like it's already begun, but curious if it's like a gradual phase out there at 2025 or is this something that you guys are expecting to happen by a certain point in time? Is there any attempt at selling these businesses prior to phasing them out? And to what degree is free cashflow being impacted by these phase outs? Thank you.

I will start with the first of all, it's starting immediately. It already started in our first quarter in fiscal 25. So we are implementing this immediately. This is the whole phase out process is a result of a very slow, I would say methodological process that we've gone through and is throughout the second part of 2024 as we prepare for 2025. And when we talk about the business, when we are phasing out, it's clearly impacted by the strategic priorities of the company. When we move much more to cloud activities and cloud operations, and we are actually phasing out on-premise activity, when we move to support more type of data, generative AI and this type. So actually we did not see any point to continue to hold a low margin business, which is a less, lower visibility, low margin. There's not so much much more on-premise and legacy activities. And that we thought we didn't see any way to improve the profitability or to make it much more strategic. So the priority was on the strategic domain of the company. And this is where we are investing and this is where we want to make sure that we continue to grow. And this was the rationale for the phase out. Tamar, do you want

to? I just want to say that as we explain to some historical examples, when we decide that there is a business that is not going to be part of a future strategy, naturally we ask ourselves whether we want to keep it and milk it for margins and cash, do we want to sell it or we just want to cease doing it. And given these kinds of activities that we are talking about now, unlike maybe other decisions we had in the past, in this case we decided the best approach would be to stop doing it and we've prepared ourselves to doing it. Of course, making sure that we do it in the right way and we are taking into consideration all aspects and this is how we got to the conclusion. So it's not something that makes sense to sell in any way.

And as a result, I think as we discussed with the new, I would say milestone in the stability, which is over 21%.

Gotcha, and are there any opportunities, like additional opportunities here to optimize the portfolio that you guys are evaluating, is that possible maybe to near term, but just curious about that.

I'm excited, I think any healthy company should ask this, we should ask that question on an ongoing basis, right? I mean, so never say never, there isn't anything imminent that we can talk about, but it's something that we need to assess all the time and ask ourselves that question, what do we want to accelerate, what do we want to keep doing versus what do we need to stop doing? But it's something that I feel big about when I say next week, because we forgot to mention that.

Gotcha, yeah, that makes sense. And last question for me is just on some of the business lines that we're phasing out, just here it seems like some of these were from, whether they were related to acquisitions that we made in prior years and the thought process around M&A and maybe the due diligence process there changed at all and has your approach for M&A, has your inner 2025 changed at all or really capital allocation more broadly?

Yeah, but just to put some frame up to that, the one piece there that is related to M&A was something that we've done in 2018, so it's quite a while ago and it's a specific piece of it that has to do with video on demand. So it's not that the whole business there is changing, it's just that video on demand became something that is really reduced and not relevant as it was in the past. But back to M&A, we're actually very happy with the M&A we've done. When you look on some early success signs of recent M&A, like in the case of Tioko, which is around service assurance, we've won a big deal of Next Gen OSS in APAC that we mentioned last quarter in which the offering of Tioko has been a major piece. We talked about the large deal of AT&T of mainstream to cloud in which capabilities we acquired from the Astevia deal, the deal that we've done last November was a part of. So we're actually pretty pleased with the recent M&A activities that we've done and we will continue to look on the right opportunities. There isn't anything to talk about in terms of change of M&A strategy. We've been continuing to do tap on deals where we may find opportunities to enhance our offering, the original spread, et cetera. So I think you should consider that approach as something we will move on and do also in the future. Perfect, thank you.

Thank you, and our next question comes from the line of William Power from Baird. Your question, please.

Okay, great, thanks. I guess maybe a couple of follow-ups. I guess, Tamar, it'd be great if there was anything you could share on the inorganic contribution to fiscal 25, any kind of framework there I think would be helpful. And then maybe for Shuki, I just want to get your perspective on the generative AI momentum you're seeing, customer conversations, how we should expect the revenue on that front to potentially build over the course of the year.

So I will start with the generative AI question. I think we will see it accelerate throughout the year. Remember when we talk about generative AI, there are different layers or domains that we see potential revenue acceleration. There is the high-end generative AI when we partner with NVIDIA and OpenAI and others and we create the agents or the super agents and the capabilities. But as we discussed before, generative AI is everything is about data. And actually the whole plumbing that you need to do under the hood to allow the models to be accurate and to be efficient. And so it's a very big data play. So we see a lot of potential in data play. For example, we announced that we are collaborating with OpenAI and T-Mobile to doing a data platform called Data One to be able to provide all the relevant data in real time, which is relevant for all these activities. So we won a couple of deals. One of them we cannot announce this quarter because we didn't get approval. So we see, I believe that we led throughout the year when more and more proof of concept become real projects and we see more adaption to our platform and the data domain that we see acceleration in revenue.

Now I

forgot the first

question. Yeah, now go back to the question about the inorganic contribution to the growth rate. So the majority of the growth is expected to be organic. Yes, we did factor in some impact also from M&A that will come through the year. And from margin point of view, definitely organic. Based on a lot of activities we do around operational excellence, automation, the tool, the GenAI, et cetera, as well as the change in the business mix given the phase of the discussion.

Okay, thank you all. Thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matthew Smith for any further remarks.

Yeah, thanks John. And thanks everybody for joining us this evening. If you have any additional questions, just reach out to us here in the IR group and we're back. Have a great night. Thanks.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.