Good day, ladies and gentlemen, and welcome to the Q3 2017 Amdocs Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Matthew Smith, Head of Investor Relations. Sir, you may begin.

Thank you, Ashley. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 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, 2016, filed on December 12, 2016, and our Form 6-K furnished for the first quarter of fiscal 2017 on February 13, 2017, and for the second quarter of fiscal 2017 on May 22, 2017. 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. And with that, I'll turn the table to Eli.

Thank you, Matt, and good afternoon to anyone joining us on the call today. I am pleased to report a solid quarter 3 performance, which reflects another quarter of record revenue, our highest level of profitability in recent years and strong sales momentum that included key awards in highly strategic areas as well as some important contract renewals. As usual, I would like to provide some color regarding our quarter 3 performance on a regional basis, including this time, some insights regarding the industry transition now in progress and why we believe Amdocs is positioned to benefit on this in the long term. Beginning with North America. Performance was strong, and we supported strategic initiatives of our customers. Regarding the broader business conditions in North America, wireless operators are being challenged to manage the imbalance between ongoing ARPU pressure and the high cost of 5G and spectrum investment. On the other hand, the region's Pay TV providers are investing to expand their offerings, improve customer experience and increase service agility. In light of these market dynamics, we believe the North American wireless and Pay TV industry has entered a first stage of multiyear transition that is also likely to play out globally in the form of 4 major avenues. This include, one, ongoing journey towards full-service integrated carrier; two, digital transformation to improve customer experience; three, network virtualization, or NFV, to reduce cost and improve service agility; and four, IT investments to realize opportunities in the enterprise B2B customer segments. As a result of investment in recent years, we secured new wins in each of these 4 avenues during quarter 3, which further support our belief that Amdocs is best positioned with the right strategic engine to monetize this broad industry transition. Let me take a moment to elaborate this.…

Thank you, Eli. Third fiscal quarter revenue of $967 million is slightly above the midpoint of our guidance range of $945 million to $985 million and include a small positive impact from foreign currency fluctuations of approximately $3 million relative to the second fiscal quarter of 2017. Revenue performance was at the midpoint of our expectations after adjusting for foreign currency fluctuations. As we expected, our Q3 revenue also included the sequential step-down of approximately $6 million in directory revenue. Our third fiscal quarter non-GAAP operating margin was 17.3%, an increase of 10 basis points year-over-year and in line with the higher end of our long-term target range of 16.4% to 17.4%. Below the operating line, non-GAAP net interest and other income was $1.2 million in Q3, primarily reflecting foreign exchange movements. For forward-looking purposes, we continue to expect a non-GAAP net interest and other expense in the range of a few million dollars quarterly due to foreign currency fluctuation. Diluted GAAP -- sorry, diluted non-GAAP EPS was $1.02 in Q3, above the guidance range of $0.93 to $0.99. Diluted non-GAAP EPS benefited from a lower non-GAAP effective tax rate of 10.6% in the quarter, which was below our expected annual target range of 13% to 17%. With respect to Q4, we expect our non-GAAP effective tax rate to be above the high end of our annual target range of 13% to 17%. Diluted GAAP EPS was $0.81 for the third fiscal quarter, above our guidance range of $0.69 to $0.77, mainly due to a lower GAAP effective tax rate. Free cash flow was $134 million in Q3. This was comprised of cash flow from operations of approximately $162 million, less $28 million in net capital expenditures and others. Regarding the full year outlook, we are tracking towards free cash…

[Operator Instructions] Our first question comes from Ashwin Shirvaikar of Citi.

My question was with regards to sort of the time of year where you guys are going through sort of strategic planning for the next fiscal year and so on and so forth. There is a very high level of industry consolidation-type activity and speculation, particularly in North America. I just want to ask, clarify, how does that affect your planning process as you think through it and your ability to talk about forward numbers?

So Ashwin, thank you for the question. Obviously, we don't want to get ahead of ourselves as we are preparing the operating plan for next year. But obviously, this high -- very high level of activity and especially in North America, I have never seen something like this in the last probably 10, 15 years. Everybody talks to everybody in all aspect. I mean, like CenturyLink and Level 1 (sic) [ Level 3 ] on the infrastructure and wholesale and all the integrated carriers, and everybody participates there and the MSOs. NLT is going to IPO with the notion that they want to gain more capacity to make more acquisitions. So obviously, it's really in a turmoil. Long term, as we mentioned several times, we believe it's actually good for Amdocs. When it comes to short term, next 6 months -- next 12 months is still short term in this tectonic shift. We try our best to run different permutations. But it's very difficult this time because you have so many permutations, and it changes on a weekly basis that we have to make all kind of assumptions. And we will probably come up with some best guesstimate. It will be an educated guesstimate, of course, because we are in this industry, and we believe we understand it quite well. But we will have to prepare for some fluctuations in the next few quarters until we see some stabilization, especially in North America, to a lesser extent in the Rest of the World and in Europe. So the process will be bottom-up, going through any account, estimating what is the effect and then add to that all the possible permutation we can think of. And we think there are many permutations right now. And then we'll have to prepare for…

I wanted to talk a little bit about the positive with regards to digital transformation, Pay TV and if we -- you announced, I think, DISH win, and is that the first time you have...

Ever. First time ever. It's hard for Amdocs to get new logos. We're so entrenched in this industry. So we are especially proud. And it's a strategic and sizable project, too. It's not like a nuanced project.

Right, right. So the question I wanted to ask was in regards to the cumulative opportunity as you build up NFV portfolio, as you build up incremental share. Historically, the opportunity has always been there. It's just a matter of trying to figure out the pace at which it comes to you. Are you finding the pace at which it comes to you is increasing?

It's hard to tell. I think we are still in the midst of this turmoil that I just described. In general, I would say the following: in terms of -- depends on each engine. On the MSO transformation, no doubt that the pace is -- I think we won in the last 3 quarters more than anyone, including us, won in the last 3 or 4 years, okay? So the pace there is, by far, higher. Obviously, the results, the recognition, all of that will come only later in '18 and '19 and so on and so forth. But the pace of awards in the MSO transformation is no doubt significantly higher than anything we have seen in the past. When it comes to NFV, it's very new. It's in its infancy. So -- but we win where others not so much. So again, we cannot get 100% win rate, especially in such a new topic. But the fact that we are already seeing some projects, as we just shared with you, in Comcast, MSO, it's not exactly the places where we thought a year ago to find new business on NFV. So this is encouraging, of course. On the other hand, the industry is still in the early adopter mode. It's like the AT&T pushed the limit, Orange, Comcast, a few others. But most of the others are still waiting, I think, wrongfully so because I think we are proving in production use cases that can provide the benefits of NFV right now. Not huge projects, but it's the beginning. So this kind of on the runway is starting, taking off, relatively in the beginning. The business to business is a sweet spot for all customers. This new win with DISH is around the commercial B2B customers. We have projects in England with Vodafone. We have others in other places of the world. I think that's also in the beginning of the cycle. And I think it will -- can serve us in the long term. And the integrated carriers, go back to the dialogue we had on the M&As and all that. This is really, really wild. But as I make a comment, I truly believe we are the only vendor that can deal with it. The complexity is double and quadruple and the size and the volume and everything. So -- and the digital transformation is just the bread and butter for us. I mean, we keep on investing in R&D. We keep on investing maybe in M&As in the future to accelerate some of that, but that's kind of the heart of what we do. So that's kind of the normal pace. It was high before. It's high now. I think it will be relatively high in demand in the near future, too. So that's kind of a long answer to your very good question, actually.

Our next question comes from Jackson Ader of JPMorgan.

First one from me. Eli, you mentioned that the slowdown potentially at AT&T spending over the next 3 quarters or so as they start to wrap in Time Warner. So what could potentially elongate that 3-quarter time frame? And what could shorten it? What could you potentially see within AT&T to move that around?

So Jackson, first of all, we didn't say 3 quarters. We said next few quarters. We don't really have a very good estimate. If we judge by history not only in AT&T, but specifically also in AT&T, we see these large companies like going into some kind of a saving mode before they go into major acquisition. We saw it with the DIRECTV a few years ago. We saw it with the nonmerger of T-Mobile. So we think that a lot of it has to do with the broader context of the Time Warner acquisition. But it affects the entire organization because if you're going to saving mode, you slow down some of the discretionary expenses. I don't think it's so out of character for that. In terms of the -- what can accelerate it or prolong it, look, part of the unknown right now is that -- you probably read the same news that we are reading. We are a little bit closer than you probably to the facts. But they -- AT&T announced ahead of the official approval of the deal a major change in leadership. So I assume that this leaders will be in their position and up and running quickly. But if they decide to take another quarter to learn the new job and kick the tires first, it may -- it easily can prolong everything by a quarter or so. What can shorten it? I think competitive landscape, if someone else would create a similar move like AT&T, delivering in mobility plus video, that was the logic behind the acquisition of DIRECTV. And if Comcast does something on this respect or Charter or Sprint or any one of the other guys, it will create dynamics that probably will signal to AT&T that if they want to maintain the leading position, they will have to act faster. So I think that this is kind of the -- again, probably the other parameters. But if I need to give you like a short answer to your question, that would be the situation. So I think that -- and again, we may see some effect of it. We may not. But I'm just giving you the best color we can as we see it.

Okay, great. That's helpful. And then, Tamar, just a quick one for you. The shift in taxes, what was the -- just quickly, what was the reason behind that?

As always, we've had some different moving parts. But if I need to single out one that contributed more than others, that would be an elapsed statute of limitation in certain jurisdictions that enabled us to release some tax uncertainty reserves. Other than that, everything is kind of the normal fluctuations we've seen in taxes from quarter-to-quarter. And I think the most important point here to make is that on an annual basis, we are keeping the 13% to 17% range we guided for in the beginning of the year.

Our next question comes from Shaul Eyal of Oppenheimer.

Eli, I know you had some bits and pieces with respect to your prepared remarks, specifically on the NFV opportunity. Can you talk to us about the interest or probably the pipeline you are seeing, having in this market, clearly understanding this is early innings but one that could quickly accelerate as we have seen since you've introduced ECOMP as an example about a year ago?

So look, the pipeline is global. That is to say we have serious dialogue with the European carriers, with Asian ones, with the Latin Americans and, of course, North America. I mean, like everyone in North America is interested in that. And I think that a year ago, maybe even 9 months ago, people will still have some feasibility questions and whether it's possible, and that we moved this hurdle. And now we're talking about use cases, what can they implement, how can we implement in what we call hybrid environment, like the project we announced in Comcast. And by the way, Comcast announced that they are part of ONAP now, which is really helpful for us because it's again an indication that we are -- we made the bet on the right direction. But specifically, I want to mention that SD-WAN, service-defined wide area network, is the most profound net service for enterprises. This call right now with 30, 40 people are done on a VPN, on a virtual private network, which acts like private, but it's actually part of the public network. SD-WAN is the next-generation software-defined VPN. So it's fundamental as this, we are talking about the most important services for enterprises. So the fact that we can do that in real life, on real customer and in a hybrid environment, that is to say that some of the calls are being terminated on physical, all the network and some of them are pure software network, it's quite remarkable. So what we see today is more use cases. So different people can choose what is -- fits their liking. So it's global. It's only with top carriers, okay? So the Orange of the world, Bell Canada of the world, AT&T, Comcast, these are names. You should not expect Timbuktu Telecom to be on the NFV pipeline. But it's healthy. Now we start seeing services in the pipeline, which means that it's not only the core technology. We're talking about the implementations. It's really complex. And the fact that we have one with the best reservoir of engineering and engineers and know-how and so on and so forth, and we're accumulating more and more knowledge as we have more projects. It's like feeding itself. So that's kind of the color I can give you about it. And the fact that it's early innings, as we said, it's early innings, but I think it's going to be an exciting game.

[Operator Instructions] Our next question comes from Tal Liani of Bank of America.

This is Mike Feldman on for Tal. So a question on -- I have 2. I have one on AT&T, just around the potential softness you see in the pipeline around discretionary spending. Do you expect the magnitude of this to be similar to what we saw when they were combining with DIRECTV, where it in part pulled down North American growth mid-single digits to low double digits? Or are there -- is there something different this time around that potentially offset that or maybe soften any slowdown there? Then I do have a follow-up on something else.

So Mike, on the first question, literally, we don't really know. But if you ask me from what we see on the ground, on the working level so on and so forth, probably in similar order of magnitude. We're not talking about the meltdown, like the AT&T will pull the plugs, do nothing for the next 2 or 3 quarters and then will come back. We don't think this is the case. But it's really hard to know. And when it compounded with the fact that there is a lot of leadership changes -- different people actually may have different opinions on how they need to run the job. So it's a little bit tricky timing. Probably in a month or 2 from now, we'll know much better. Just because the trend of the transformation and the preparation for the big M&A, we are seeing probably several weeks already, and we understand the dynamics of it because it's typical and we saw it before. The fact that it's combined and compounded with a leadership change may affect it. But I don't really -- we're not panicking from this. It may affect short-term expenses but -- and even our numbers, but I don't think it's something that really put brakes on AT&T in discretionary. We have so many activities with them. So some of them may slow down, some of them may not.

Okay, fair enough. And then one on the deal you announced with DISH. Can you just discuss maybe the dynamics around that. Was that a competitive displacement in any way? And then who did you compete with? And ultimately, why is your win rates so high currently in Pay TV? What is contributing to that?

Yes. Look, obviously, it was very competitive, okay? There are not that many transformation in the industry, definitely not in North America, and everybody and his wife would show up for these bids. Even the shortlist was a very competitive bid. Look, there are some incumbent players in DISH. You know them. And obviously, a win like this is taking away from some of their position. There are some other people that try to get into DISH, as we want the relationship. Other people want to do the same thing. The reason why I believe that eventually -- well, I can tell you what is not the reason. The reason is not because we were cheaper or just promising the moon. We are very serious about what we can do and what it costs us to do and so on and so forth. And usually, we do not come up as the most -- the cheapest solution. So I think that, in reality, the combination of the quality of the product and the ability to execute, the combination thereof is really the reason why we win DISH and why we win so many other deals in the industry. Look, I think that there's nothing in the industry -- we just got maybe lucky, maybe smart. So the journey of CES 8 to 9 to 10 in the last 3 or 4 years, this CES is second to none. It's well engineered, best technologies. And then you compound the ability to execute -- you need to realize, I'm not saying it in any -- I'm not necessarily enjoying it. But the reality that all of our competitors one by one, and sometimes more than once, marching safely into the hall of shame. And they have less and less project to show…

Just to add to that. We just talked on the prepared remarks about Vodafone Netherlands, for example, creating a joint venture with Ziggo, which is a cable asset in Netherlands owned by LGI. And the fact that they deploy the Amdocs before that joint venture when they were wireless only enables them now to go through this in a much smoother way and create the synergies much faster as they go and approach this multi-play strategy. And we've seen many of our customers, whether they're coming from the wireless industry or coming from the Pay TV industry, seeing that as a major advantage that Amdocs can bring to the table, whether they are already in the shift to being a multi-play or just wanted strategic optionality. People do not invest in new systems and new stacks every 2 years. They do it usually for the long term. So they want to know that once they do it, they do have that strategic optionality available already.

And then Telefónica Argentina is another example and SingTel and their operation in Singapore and in Optus. I mean, like when you take all of these examples of recent wins in recent year or 2, it just repeats itself. It's just the same thing. And I believe that what we'll have in North America as well with MSOs, regardless if they are going to do it in the near future or, as Tamar said, they want optionality -- the optionality is a very, very important thing for them. And now they talk about it openly, whether they will do it through an MVNO or through WiFi or through owning the network or whatever, this optionality to have full service is very important for the future. And CES 10 and the platform that we produce comes ready with it. So we -- again, we bet in the right direction. But we did that 2.5, 3 years ago, and we invested hundreds of millions of dollars to create it. So even if some of our competitors will listen to this call and understand it, I don't think they can respond fast at all.

Our next question comes from Will Power of R.W. Baird.

This is actually Charlie Erlikh on for Will. On geographic trends, it looks like North America continues to do well. Could you talk a little bit more about what's driving that growth? Is it mainly the strength in the cable sector? And likewise, what would you need to see in Europe that could drive that region back to growth?

So Charlie, first of all, North America, yes, part of it is cable, Pay TV, MSOs. And now we don't know how to call them because how would you call DIRECTV under the AT&T? It's an integrated carrier. But yes -- but the video, Pay TV drives it. T-Mobile is a growth engine for us because the Uncarrier. AT&T, we have so many domains in AT&T. That's also related to the Comcast projects, which are NFV. It's not exactly -- it's a MSO customer, but the project could be an NFV. So I can give you many examples like this. In terms of Europe, I think we need more customers like Vodafone. Vodafone is an early adopter in Europe. The rest of the big carriers in Europe right now is somewhat in a transition mode. You read the newspapers and the transition of Telecom Italia, for example. Just they have a lot of issues with leadership and proxy fights and stuff like this. But once they stabilize, they will have to do something. Especially, we won Vodafone Italy, and we announced it recently, it generates dynamics in the Italian market. And it's the first time we are in Italy. It's like an emerging market for us because it's so new. I think the same would go with Germany. O2 Germany announced already that they want to go to an accelerated mode of activity. Vodafone Germany and Deutsche Telekom, D1 would have to do something about it. England has always been a very active market, the Netherlands as well. So I think that it's a combination of things. But I think the integrated carrier, first of all, could be an accelerator for Europe. Digital transformation also could be, and these are most of the country that are techie in nature, not all of them but some of them. And of course, we can expand into other businesses in Europe or other countries in Europe that we don't have business today. And they are quite a few of them. So we still remain long-term bullish about Europe, and now our capabilities are definitely the things they need.

I'm showing no further questions. I would now like to turn the call back to Matthew Smith for any further remarks.

Thanks, Ashley, and 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 give us a call at the investor relations group. With that, have a great evening, and we'll conclude the call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.