Good day, ladies and gentlemen and Welcome to the Amdocs Q3 2015 Earnings Conference Call. All this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Mr. Matthew Smith, Head of Investor Relations. Please go ahead sir.

Thank you, Candace. 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 effects 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 6-K. 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 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 20-F for the fiscal year ended September 30, 2014, filed on December 8, 2014; and our Form 6-K furnished for the first quarter of fiscal 2015 on February 9, 2015 and our Form 6-K furnished for the second fiscal quarter of 2015 on May 11, 2015. 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 Eli Gelman, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport-Dagim, Chief Financial Officer. With that, I’ll turn it over to Eli.

Thank you, Matt. And good afternoon to everyone joining us on the call today. We are pleased with our solid results for the third fiscal quarter and the continued progress we have made executing on our various growth initiatives. These include the launch of Amdocs CES 9.3, expanding our product set to bring new functionality around online commerce, interactive care, big data marketing and network analytics. Maintaining a healthy win rate amongst our competitors and renewal of seven managed services agreement while also expanding the scope of those customer relationships. Additionally, our long-term strategy to penetrate new customers and geographies resulted in the second consecutive quarter of record revenue in rest of the world. As usual, let me – first provide some regional color with respect to the company activity in the third quarter. Beginning with North America, performance was affected by uncertainty resulted from the consolidation activity, the potential impact of which we have discussed with you several times in the recent quarters. North American market dynamics supported growth at several customers, but the slow regulatory environment translated into holding pattern behavior with some others. Specific among them was AT&T, where we saw some signs of hesitation in certain discretionary programs that we believe mainly related to the protracted approval process for its measure we drive to it, which was finally completed last week. It is too early to say exactly how AT&T plans will evolve in the next few quarters but we remain confident in the value and the service we can provide AT&T over the long term. Now that the active measure has been approved, we will continue working hard to demonstrate our world class product functionality to AT&T as well as our capabilities in areas such as system consolidation, migration, and realization of synergies. Naturally, the…

Thank you, Eli. I’ll begin with our third fiscal quarter revenue – which was inline with the midpoint of our expectation on a constant currency basis. Third fiscal quarter revenue $908 million included a small positive impact from foreign currency fluctuation of about $1 million relative to the second fiscal quarter 2015. While our third quarter guidance range is better than negative sequential impact of approximately $2 million. So revenue performance was – therefore inline with the midpoint of our expectation, also adjusting for the additional positive impact of foreign currency fluctuations. Our third fiscal quarter, non-GAAP operating margin was 17.1%, an increase of 10 basis points compared to the second fiscal quarter of 2015. And towards the high end of our long-term target range of 16.2% to 17.2%. Below the operating line non-GAAP net interest and other expense was $1 million in Q3. For forward-looking purposes we continue to expect the non-GAAP net interest and other expense in the range of $3 million quarterly, due to foreign currency fluctuations. Diluted non-GAAP EPS was $0.84 in Q3 compared to guidance range of $0.79 to $0.85. Our non-GAAP effective tax rate of 14.9% in Q3, was within our expected annual range of 13% to 15%. Free cash flow was strong at $290 million in Q3. This was comprised of cash flow from operation of approximately $222 million, less $32 million in net capital expenditures and other. As a reminder, over the long-term free cash flow tends to convert at the rate on par with our non-GAAP net income. DSO of 74 days were flat with the prior quarter. This is consistent with our historic range. Total non-yield receivables were down by $7 million as compared to the second fiscal quarter of 2015. Our total deferred revenue short and long-term decreased by…

Thank you. [Operator Instructions] And our first question comes from the line of S.K. Prasad Borra from Goldman Sachs. Your line is now open.

Thanks for taking my question, couple if I may. First to probably start off on the Comverse BSS acquisition, can you give us a final split of revenues, which are recognizing across various geographies?

[Indiscernible] in terms of the revenue breakdown, but I can tell you that there were customer base and accordingly the revenue was very complementary to the Amdocs prior to the acquisition. As you know we are having the majority of our revenue in North America then Europe and rest of the world has been a growing vision for us. And then Comverse is bringing actually something that is almost like a mirror, bringing revenue in – in APAC and the majority of the revenue is actually coming in Europe, which is complementary – both in revenue and more importantly in new customers that were not part of our own customer base and now present in up-sell and cross-sell opportunity for the new offering we can bring to the table.

In other words like two-third, maybe 70% of the customers do not overlap our customers. So we’re talking about dozens and dozens customer that we’re getting with this acquisition. And opportunity to serve them and then to provide better services and new products and capabilities that Comverse did not have and that's why we believe that this deal is going to be a good one.

And probably on the remarks you have made around for the first 12 months, you expect the deal to be earnings neutral. Can you provide some guide on what kind of operating margins are you assuming? Or are you planning any cost reductions, any cost rationalization, any color would be very helpful?

So we saw this basically in Q4, we think it will be modestly negative in terms of the impact on the operating margin, but as you can see even though this is the case, we can maintain our annual guidance for the EPS and we are tracking towards midpoint. So, yes, it has some impacts and obviously over time we expect things to improve as we create the right synergies and the up-sell opportunities we come along. But like early sales cycle, these things can save time. So probably we will start having an impact in terms of synergy on the top line more towards Q3 and probably even Q4 of next year. And regarding specifically in fiscal 2016 and guidance for next year, I think, we will have to wait until we give as a whole the guidance for the company.

So a better way to think about this is – for the first half of the next 12 months, you probably expecting the deal to be slightly dilutive on earnings and second half…

I don’t want you to take it too technically because, you know, it sounds like we have very systematic projection now with a crystal ball exactly how things will be in each one of the quarters. It’s portraying too much of an accurate picture. But over time we should see improvement that would be the more accurate way to say it.

Thank you. And our next question comes from Ashwin Shirvaikar of Citi. Your line is now open.

Thank you. Good quarter. My question is as we look at the Comverse asset that you acquired…

Sorry, it’s not possible to hear you. There is lots of…

Is this better?

Try again

Tamar, can you hear me now?

I don’t think we can hear you well. Can you try from another phone maybe?

Can you hear me now?

Let’s try again and see if we can understand.

Can you hear me now?

Yes.

Okay. Sorry about that. So I guess the question is with regards to just the long-term potential from Comverse. Given that it's my impression from looking at it is that they underinvested in product for a variety of reasons. You can bring a better product portfolio for their customers. What is the overall opportunity set that they kind of left on the table? Just not a 2016 number but overall what can you do with the asset that you acquired?

So thanks for the question and sorry for the technical aspect that we could not hear you before because of the static. As for the long-term view on the Comverse deal, the best way to look at it is that we’re getting access to dozens of customers, vast majority of them would be the customers that we will pursue and in the way we get the opportunity to talk and serve this customer, talk to this customer and serve them better. And Comverse in a way, you can think about it was a revenue management engine, more about the charging and billing and aspect like this. But this is probably maybe one-fourth of – maybe even less of our offering. So first of all, in terms of the product set, we can upsell and cross-sell the customer management, the self service, dealership, CRM application from call centers all the way to e-commerce. Then we have the network applications then we have the OSS applications and so on and so forth. So we can definitely expand dramatically the product set. The second layer would be services. On each one of the product sets that we just talked about including revenue. Comverse would stay away from services, they could not generate the revenue or the quality that is required and, therefore, they would provide minimum services whereas we actually provide the maximum services possible because we like to have the capability and overall, with some stability for our services, regardless if it's ongoing support, or transformation or adding capabilities and so on and so forth. All the way to managed services, they have very little managed services and we offer managed services to about 50% of our revenue comes from managed services. So when you think about the potential in all dimensions of product services, managed services, and general capability, we believe that the opportunity that that Comverse represents for us or this acquisition is quite significant. The only reason why we are cautious a little bit in the beginning is a, we are just acquiring the Company. We're going through the post-merger integration. Most of the people we got, the engineers are in Boston and New Jersey which are very comfortable for us. Some other people are in India and other places. So we are accommodating all these engineers right now and accepting them into the Company. We are building the pipeline for the future across upsell, which takes some time, probably measured in quarters. But all together from the initial signs we got and the first few purchase orders that we signed right after the acquisitions, we are quite bullish on this acquisition.

That's very detailed and thank you for those buckets. You wish to think about them. The second question is with regards to AT&T DirecTV I guess in particular, does it present any opportunity for you in terms of product upsell?

Yes, definitely. Everything that AT&T does represent opportunity for us because we have this long-term relationship with them and a very established credibility with AT&T throughout the years on product set and on execution. Those activities are specifically is of an interest for us. Today, we are providing some revenue management, billing components of the legacy actually, but no customer management and this acquisition most likely will have to be built upon the notion of streamlining back-end systems. There is – we don’t believe that AT&T DirecTV can present and execute a smooth transformation of customer base as well as the synergies that are expected without a well established other consolidation. We hope to prove to AT&T that we are the best partner in this domain. We have a lot of credit with AT&T, both on the product and the capabilities in this regard because we have been their partner for many years, throughout the years of other consolidation activities that they had. Obviously at the same time we're trying to work with AT&T and to provide or kind of convince them that they can help them in their activities south of the border, which is mainly Mexico. And at last we can basically tell you that we are now serving them on the prepaid on the Cricket deal, sounded that we started quite some time ago but something that we can release only today.

That's great to hear. Thank you and congratulations.

Thank you.

Thank you. And our next question comes from Shaul Eyal of Oppenheimer. Your line is now open.

Thank you. Good afternoon, Tamar, Eli and Matt.

Hi.

Eli, maybe also on the heels of Ashwin's prior question, I want to relate to your AT&T comment you've made during the prepared remarks. If I’m not mistaken, please forgive me if I am, I think you used the terms a little bit of hesitation by AT&T and you from everybody you have known AT&T probably for more than 25 years now. Is this hesitation specifically related to the near-term potential bumps driven by DirecTV or just typical macro concerns?

Well, Shaul, thanks for the question. I think that also in the prepared remarks I referred to it that we believe that it's primarily related to the slow approval process of the DirecTV deal. When such a major deal is hanging in the air, obviously a lot of discretionary programs take a different priority. We believe it is a part of this and [indiscernible] few quarters from now but that’s our belief again based on the intimate relationship we have with AT&T. AT&T by no means is hesitating to go and attack the market. So I think it's in context of specific deal and now that the deal has been approved. We hope it will go back to higher expansion and more projects on the – discretionary projects. We have to emphasize it. It's all new discretionary projects. We are not talking about any hesitation on day-to-day on operation, on ongoing mobility project and stuff like this. So we talk about the new project, the potential project. And so it’s quite natural and we’ve seen it by the way before a few years ago, eventually did not go through. But we saw the same thing towards the decision about T-Mobile projected deal at that time. So we don’t think it’s something so unnatural. But this is the reality and we’re dealing with this reality. At the same time, we are – as I said, we are actively pursuing opportunities that have been accelerated like obviously – made – the acquisition of SSL and they are active in Mexico and we’re trying to be relevant and helpful in this project. The Cricket we have done and that is now completely new.

Got it. This is great clarification, thank you for that. Tamar I think you also mentioned Amdocs intention to potentially return cash substantially above your plan 50:50 plan. Is it something in the neighborhood of I think the 80% you’ve returned, if I’m not mistaken two to three quarters ago most likely. Should we be thinking along these lines give or take?

I don’t want to [indiscernible] number, but if you look – as we were preparing for the Comverse acquisition and we’re kind of reorganizing our cash we were relatively light in Q3 and even with this light activity of the one on cumulative basis I think we’re already over 70. So it would not be a stretch to get much higher, let’s put at it this way. And definitely we were encouraged by the continued free cash flow performance that has been going well. And of course we continue to push forward on collections, and making sure we continue to generate the cash and make the right set allocation of capital thereafter.

Got it, got it. This is great. Thank you, so much. Good luck.

Thank you, Shaul.

Thank you.

Thank you. And our next question comes from Mark Sue of RBC. Your line is now open.

Hi, good afternoon. Thanks for taking our call. This is Spencer for Mark Sue. You talked quite a bit about consolidation and customer dynamics. But could you talk a little about the competitive environment, who you’re seeing out there for deals and then as well as some of the pricing dynamics that you might be seeing for some of the renewals that you mentioned you won during the quarter and also how that might compare to new contracts that you’re going after?

So, Spencer, thanks for the question. In terms of the competitive landscape, I think that in the prepared remarks we related that we’re relatively comfortable with our competitive position in all regions. Our win rates year-to-date has been strong maybe even very strong. We cannot have 100% market share of new business or anything close to it, but it has been very strong. And I would say more than that, even in the few cases when customers going with some of our competitors, we always have a chance to come back to it because the execution of this project is completely different story in comparison to the sales of it. You can always drop the price and be aggressive and bundle it with something and we – but it’s a very different story when it comes to execution and we have seen it. We are seeing it today. We’ve seen in the past. That’s reality. So I think that both our winning capabilities and win rate is very high, but also our ability to execute a win to production is basically 100%. It’s almost going to guaranteed if you can call it this way. Our competitors win rate is low and execution after winning is very low. So this is kind of the competitive environment. And it is quite broad comments to all of our competitors. As a matter of fact, there are only few guys have managed from time to time to carry a project with Comverse, but now it’s part of Amdocs. So in terms of the pricing in renewal and so on, so forth, look, we are providing mission critical systems. We always had to be cognizant to the fact that we improve our operation as time goes by so we’re getting to better EBIT. Our operating…

Okay. Appreciate it, thank you. Good luck.

Thank you.

Thank you. And our next question comes from Tom Roderick of Stifel. Your line is now open.

Yeah, guys. Good afternoon

Hi.

Hi, so looking at the operating margins, you've gotten right up near the high end of your sort of longer term range, at 15 to 17. So kind of butting up against the high end of that already. And I hear you talking about some accretion as we look out a year into the Comverse deal. Is there a potential for you to sort of bump that margin, those longer term margin targets up? And how do we think about some of the puts and takes with other managed, longer term managed services contacts as they come up for renewal and expiration over the next several years? Does it impacts the margins?

Thanks Tom, I want to be clearly, EPS opportunity for accretion after the first year post the deal closure is not necessarily coming from margin expansion. It's coming from top line synergies at a good margin. So that’s the main opportunity we're seeing here, again going back to Eli's comments about the customer base we're taking and the opportunities of coming to this customer base with the rich offering of explosions [ph] of products and services. Of course the thesis is this translates to revenue and then to bottom line. In terms of the margin, per se, in the immediate and we spoke about Q4 specifically, actually Congress is going to put a modest margin pressure. I don’t think there’s anything that we should worry about because as we move along and we get into the right cost structures as well this opportunity to continue to upsell things, we can still be within our regular rage. So I don’t think it’s talking us anywhere out of that in any sense. And that was comment that I was trying to make. I hope that’s clear enough. In general, going back to the managed services question, look, about half of the revenue of the Company is already under managed services arrangements. That means that, we have customers in which the majority of activities are under managed services agreement there could be some discretionary spending always in these customers that are accounted in these numbers as well. But we see all the time and then we have enough mileage by now to go through this extension and expansion cycle as Eli mentioned to create on the one hand the cost improvement and efficiencies and the operational excellence and on the other hand to continue to bring value to the customer and [indiscernible] try and expand the envelope in terms of what we do within any one of this engagement, which is creating the balance overtime and how to protect the margins. But yes there could be specific points in the given arrangement with the customer where we go from and margin of X to slightly down as we renegotiate and then get it up again. So there could be some cycles like that within any given deal, but we need to remember at the end of the day we have a portfolio of many deals that is comprising the top line and the margin of the company.

That’s great feedback, thank you. Eli, quick follow-up for you in terms of a topic I don't think we spent too much talking about this call or lately. But the emerging markets still a nice growth opportunity for you. Can you kind of provide an update in light of some recent macro changes and developments around the world, but particularly in some emerging markets. How is that impacting your business, what’s the opportunity look like and what’s the execution look like in that segment of the business.

So some in general we still look at the emerging markets and we have been looking at the emerging markets for quite some time. There’s a significant growth engine for the Company. I’m not sure that 30% year-over-year or 27% or whatever is sustainable necessarily, but double-digit is. And that was the overall thesis and we're executing right now a little better than that. And we see opportunities in the emerging markets of any kind and sort. And this is a beautiful thing about it, because we proved at our product set are the relevant one and the best one there. We proved that services of the quality we provide are appreciated and needed. We proved that many services is possible and as a result we also became significant player in this market both Latin America, Central America, Southeast Asia and the like. Including [indiscernible] the emerging components of these regions. So the way we look at it right now that the more established they are becoming suppose, we suppose to keep on penetrating this markets. So if we have one customer in a given region, we would try to go to the second one or the third one. In North America to remind you, we are working with almost everyone. This thing goes in England, the thing goes in many other markets of the world. And we want to imitate the same thing in other places. And we continue to see opportunities in every aspect of the business. Our competitive position is also quite strong. Again, we cannot get 100% market share and what have you, but our position against all the rest of the competitors in this market is very strong. And as these markets are moving in the food chain from simple prepaid to converge prepaid and postpaid, to their customer experience, all the way to some markets going into the most modern digital first thesis, which is basically providing all the customer management online service, e-commerce and becoming almost an Internet company, our offering is already there. So we don't see a difference between offering this newest technology to AT&T, or Telefónica or Vodafone and providing it to some carriers in the emerging market or the rest of the world in general. So all together we see strong pipeline. We see good execution. We think we ticked all the boxes and we should enjoy this investment that we have done in the last few years and keep monetizing it. I just want to remind you that most of these activities are project related. These are regions that be behave a little bit differently so lumpiness should be expected and it should not be too worried about it right now. We are not getting out of our way in terms of celebration when we have a very good few quarters. It may slowdown. But altogether we are very bullish about the rest of the world.

That’s great detail. Thank you, Eli. Nice job.

Thank you, Tom. Welcome.

Thank you. [Operator Instructions] And our next question comes from Will Power of Robert Baird. Your line is now open.

Great, thanks for taking the question. So maybe first just a clarification. Did you give us the Comverse contribution and the Q4 revenue guidance.

You are talking about low tens of millions of dollars per quarter, just to remind you they were reporting standalone segment, the revenue has been continuingly going down, I think, the last quarter they reported on a standalone basis was already in the forties. And first of all, we are not acquiring all of the assets that they have in that segment and B), we are going through purchase accounting adjustments that are actually trimming some of the deferred revenue they could enjoy. So our starting base is somewhat lower and the idea of course is over time as we push the whole rational of the deal towards the upsell opportunities we'll start getting it higher.

Yes. Now I understand that part. Okay. And then the second question just turning back to North America and looking at some of the weakness there, I guess I just want to be clear. Is that really entire AT&T in the pause you're seeing there which presumably should reverse at some point or are there other sources of weakness, either sprint, the Canadian carriers, anything else you might call out you’re seeing in North America that might be negatively impacting you.

It’s never Will one – only one thing, because that would not be mathematically accurate but it's the vast majority of the impact is around AT&T. As a matter of fact we have seen some growth in a few other customers at the same time. So this environment that – and again there is a very clear explanation to that and then expected to go way overtime now that the specific deal has been approved. By the way, it’s not only the impact of the this approval of AT&T only because, it’s the market dynamics that may change, because I would expect that the entire Pay TV industry will take it quite seriously. Because AT&T with DirecTV is completely different anomaly, if you say is such a strong player in pay TV industry. We didn’t have it’s for long time in North American market. And we are talking about Charter giving up to buy one or two companies. So we hopefully should see some movement and some movement translating to some projects hopefully with Amdocs of the Pay TV industry and maybe that will be the beginning of a bigger swing of activities. So obviously we are relating right now to the stuff that we know which is within the AT&T context and this one staying at majority. But it may have its effect on other things as well in North America.

Okay. Thanks, good luck.

Thank you Will.

Thank you. And our next question comes from Jason Kupferberg of Jefferies. Your line is now open.

Hi guys, this is Amit Singh for Jason Kupferberg. Just may be quickly talk about your capital deployment. I know you talked about M&A that you are going continue to look into any available target. So you want to talk about like size that you are looking at, are you primarily going to be focusing on tuck-in type acquisitions or we could even see some bigger transformational type acquisitions from you guys?

. : So we should not expect this to pay billions of dollars for something that is. Generate EBIT. If we go to big deals, we'll go after things that have revenue and. We just believe in it. And if we go into the smaller deals, it will come with a certain characteristics and anything in between. So it’s more about the strategy, and the size and the price accordingly will be according to the quality of what we are buying and the ability to generate revenue and EBIT for Amdocs.

All right, perfect. And just quickly if you could – you have previously highlighted network optimization as one of the avenue of growth. And I believe a few quarters ago you had even said that it could be about $100 million plus revenue this year. So just wanted to get a sense of how that business or the growth in that business is playing out and what is your expectation going forward from here?

So network software in general, including network optimization, is moving along well. Its lumpy, because the deals there are not so smooth I would say in terms of the deals, the deal flow, not the execution. So we see progress. We actually expanding the offering, so it’s not only specific in the network optimization, it's not only around that product that we acquired we are now talking about more services, a broader view of the problem, not only the red optimization other network optimization as well. And as we are talk about that we are also trying to make our first moves into the network visualization which is the even the bigger potential in this network software space. But it’s slow, its – we are executing on some development, we have some dialogue with some customers. But these are completely new topics. So the ones that we have already are progressing well. The new ones are a big unknown. And what we are learning is that it is lumpy as many other projects.

All right. Thank you very much.

Thank you.

Thank you. Thank you and I’m showing no further questions at this time. I would like to turn the conference back over to Mr. Matthew Smith for closing remarks.

Thank you very much for joining our call this evening and for your continued interest in Amdocs. We look forward to hearing from you in the coming days. And if you do have any additional questions, please call the Investor Relations group. Have a great evening and with that we will conclude the call.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Have a great day, everyone.