Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Amdocs Ltd (DOX, Financial) achieved record revenue of $1.25 billion, up 2.0% from a year ago in constant currency, slightly better than the midpoint of guidance.
- Non-GAAP operating margin improved by 60 basis points year-over-year and 30 basis points sequentially, driven by ongoing initiatives to accelerate profitability.
- Record 12-month backlog of $4.3 billion, up approximately 3% from a year ago, reflecting Amdocs Ltd (DOX)'s market leadership and healthy sales momentum.
- Successful execution of strategic growth initiatives, including advancements in generative AI and cloud services, contributing to strong market positioning.
- Solid financial outlook for the full fiscal year 2024, with expected revenue growth of between 1.7% to 3.7% on a constant currency basis and non-GAAP diluted earnings per share growth of between 7% and 11%.
Negative Points
- Revenue growth projection for fiscal 2024 was revised down by approximately 50 basis points due to slower pipeline to sales conversion.
- North America revenue declined by 0.7% from a year ago, primarily due to slower pipeline to sales conversion.
- Challenges in converting deals in the pipeline to sales, particularly with large deals taking longer to close.
- Free cash flow expectations for fiscal 2024 reduced to approximately $700 million from previous outlook of approximately $750 million, mainly due to timing of collections related to payment milestones.
- Persistent macro uncertainty and industry pressure impacting the business environment and potentially affecting future performance.
Q & A Highlights
Q: I wanted to start by asking about the reduction in expectations for top line, I guess, 50 basis points at the midpoint. Can you talk about this? Is this something that's more like execution related for Amdocs? Is it something maybe where customers are slowing down the progress on specific projects? Or any more detail there would be great.
A: George, let me correct you. We didn't say that the impact of the 50 basis points of the revenue growth is related to milestone. We said that we see in some cases that the time it takes to convert deal in the pipeline to sell and then to start to execute, take some longer. I think a good example is the significant AT&T that we just mentioned. This is something that in the work for a lot of time. We saw that we'd be able to close it early in Q2. Eventually, we just closed it in the last week. So this is a good example of a very good deal to Amdocs and definitely for AT&T, very significant that it took us more time.
Q: Got it. Okay. And then as I think about your business, you're around 83% of next 12-month sales in backlog. I guess as I thought about your visibility as a company, I guess, I tended to think about your pipeline being pretty full for the subsequent 3 quarters and then 4 quarters out is really the revenue that you're chasing and projects that you're kind of filling out. So I guess I'm a little confused around why we're seeing shortfalls in the next quarter or 2 because of this pipeline effect?
A: In any given quarter, even in current quarter, we don't have 100% coverage by a backlog. It's a very nice visibility. And you're right that as we look closer on time line, the visibility is better. But still, there are specific deals that have to be signed in order to fulfill the rest of the revenue. I would say that on top of that, when we are talking about 12 months backlog, it's not just about having something signed already, it's about predicting exactly how this signed business is converting into revenue in the next 12 months.
Q: Okay. I guess probably a question for Shuky. I'm just -- I'm interested in thoughts around generative AI. It feels like you put a lot of the pieces in place, whether it's CES24, the relationships with NVIDIA, Microsoft, et cetera, what's it going to take? I guess, or what are the next kind of catalyst to kind of turn the generative AI capabilities into revenue? Is it the telcos have to get their data organized catalog, to get the right quality in place? And how long does that take? What kind of needs to happen, I guess, to start actually generating revenue for you all here?
A: I mean this technology is evolving. I mean, you cannot even compare what we had a quarter ago with what we have today. But typically, since this is a completely new domain for our customers, usually, this type of engagement starting with proof-of-concept. So as we speak, we are engaged with many proof-of-concept with the customer trying to define the best use case, getting some traction we're convinced that we are getting the right accuracy. So this is where we are right now. We are in the process of converting some of these proof-of-concept to deal and sign them.
Q: Okay. Yes, that makes sense. And I guess for the second question, looking at North America, it was a bit weaker overall, I guess, underperformed the other geographies. Does that come back just to the prior kind of legacy spending comments? Anything else you call out there?
A: No, not at all. I mean, it's -- I will start and Tamar will add in. It's related to the same impact. I mean some of the significant deals that we are working right now, by the way, we talked about AT&T that was signed are in North America. So it's not -- we don't see any more deterioration in the legacy that we discussed at the beginning of the year. It's more of the same pattern that we see some slow conversion of pipeline to deals, mainly on the large deals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
