Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Amdocs Ltd (DOX, Financial) reported record Q3 revenue of $1.25 billion, up nearly 2% year-over-year in constant currency.
- Non-GAAP operating margin was 18.6%, the highest in many years, reflecting ongoing margin expansion initiatives.
- The company ended Q3 with a record-setting 12-month backlog of $4.25 billion, up approximately 3% from a year ago.
- Amdocs Ltd (DOX) increased its pace of buyback activity in Q3, repurchasing approximately $169 million of shares.
- Strong sales momentum in cloud solutions, highlighted by significant deals with AT&T, TELUS, and VodafoneZiggo.
Negative Points
- North America revenue declined slightly year-over-year, although it grew sequentially.
- Europe showed weaker performance due to timing differences between project completions and new deal ramp-ups.
- The company continues to operate in a challenging industry demand environment with no immediate improvement in sight.
- Amdocs Ltd (DOX) incurred a restructuring charge of approximately $15 million in Q3, impacting GAAP EPS.
- The macroeconomic and geopolitical uncertainties remain elevated, affecting the overall business environment.
Q & A Highlights
Q: Can you provide more details on the AI contract win and the contact center trial? How large was the trial, and can these results be replicated quickly?
A: The AI contract win involves a significant global operator implementing our Amdocs amAIz platform, initially setting up the first use case with prospects for expansion. The contact center trial in North America showed remarkable results, including a 60% decrease in average call handling times and 90% successful case resolution. We are conducting similar proof-of-concepts with other large operators globally, aiming to disrupt call center operations by significantly enhancing productivity and accuracy.
Q: What is the current spending environment like, and is there an opportunity for business re-acceleration if conditions improve?
A: Customers are focusing on transformation projects, with some opting for gradual modernization. We see more scrutiny in decision-making and a tougher environment for the pace of decisions. However, our win rate remains high, and we are well-positioned to benefit from industry consolidations. The overall business environment, including macroeconomic factors, will influence the pace of investment and potential re-acceleration.
Q: Can you explain the $20 million increase in backlog and its relation to the AT&T contract?
A: The $20 million increase in backlog includes contributions from the AT&T contract. However, the full impact of this deal is not yet reflected in the 12-month backlog due to the phased ramp-up of activities. We expect to see the full run rate of this deal by mid-2025.
Q: Given the historical growth rates, what drives Amdocs' growth, and can the environment support higher growth rates?
A: Historically, we had fewer growth engines, but now we have five, including cloud migration, which is growing double-digits. In a normal demand environment, we believe we can achieve mid-single-digit growth. However, the current industry pressures and macroeconomic conditions make it challenging to exceed historical growth rates.
Q: What should we expect for growth in fiscal 2025, and are there any near-term drivers for re-acceleration?
A: While we are not providing specific guidance for fiscal 2025 yet, our 12-month backlog serves as a good leading indicator. We need an improved demand environment to see significant acceleration. Current conditions suggest growth levels similar to fiscal 2024 unless there are positive changes in the macroeconomic environment.
Q: Should we expect continued accelerated buybacks or more significant M&A activity next year?
A: We aim to balance both buybacks and M&A. While M&A is harder to predict, we consistently engage in buybacks, reflecting our confidence in Amdocs' future. We will continue to look for strategic M&A opportunities while maintaining our buyback activities.
Q: How are you leveraging partnerships in your AI initiatives, particularly in the call center domain?
A: We are partnering with NVIDIA for the AI initiatives mentioned, and we are also running proof-of-concepts with Microsoft and other partners. These collaborations help us enhance our AI capabilities and offer innovative solutions to our customers.
Q: Can you provide insights into the impact of industry consolidations on Amdocs' business?
A: Industry consolidations generally benefit Amdocs as they create opportunities for us to support carriers in providing new value propositions. While there may be short-term delays in investments during consolidation periods, we typically see long-term benefits from these activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
