Thank you for standing by and welcome to Amdocs Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I'd now like to hand the call over to Matt Smith, Head of Investor Relations. Please go ahead.

Thank you, operator. 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 is 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 furnished with the SEC on Form 6-K. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, 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 be also posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the fourth quarter and full year fiscal 2022 and we'll update you on the continued progress we have made executing against our strategic growth framework. Shuky will finish by commenting on our financial outlook for the full yea fiscal 2023 after, which Tamar will provide additional details on our fourth quarter financial performance and forward guidance. As a reminder our comments today will refer to certain financial metrics on a pro forma basis where applicable to provide you with a sense of the underlying business trends excluding the financial impact of OpenMarket, which we divested on December 31, 2020. And with that I'll turn it over to Shuky.

Thanks Matt, and good afternoon to everyone joining us on the call today. Let me begin by saying how extremely proud I am of Amdocs achievement in fiscal 2022, which in many respect was a landmark year for the company. With our industry-leading portfolio of technology and services and global reach, we delivered on our objective to sustain, accelerate and profitable revenue growth. And we did so by playing a major role in serving the mission-critical needs and strategic requirements of the global communication in media industry, which was without question become more the backbone of society post the global pandemic. Of course, none of this would be possible without a dedication and commitment of our global and diverse base of more than 30,000 talented employees to whom I wish to extend my huge gratitude for making fiscal 2022 an amazing year by providing market leading innovation and exceptional service to our customer. Turning to slide seven. We wrapped up strong fiscal 2022 financial performance with solid Q4 results that were in line with our guidance despite persistent foreign currency headwinds and inflationary pressures while the quarter. Recapping the full year highlights. The record revenue of approximately $4.57 billion increased 10.3% on a pro forma content currently basis and was consistent with our high-end of our outlook for 6% to 10% growth is provided at the start of the fiscal year. Reflecting heavily sales momentum, we finished fiscal 2022 with the record high 12 months backlog of $3.97 billion, up approximately 8% from a year ago, and we achieved record non-GAAP diluted earning per share of $5.30, up 12.1% on a pro forma basis as we delivered on our targets for accelerated impossible top line goals. To further add, our earning to cash conversion exceeded 1% in fiscal 2022, resulting…

Thank you, Shuky and hello everyone. Thank you for joining us. As a reminder, my comments today will refer to certain financial metrics on a pro forma basis, which exclude the financial impact of OpenMarket, which we divested on December 31, 2020. Turning to our financial highlights on slide 14, I am happy to report solid fourth quarter financial results, rounding out a remarkable full year fiscal 2022. Record Q4 revenue of approximately $1.17 billion was up 9.5% year-over-year in constant currency. On a reported basis, revenue increased 7.3% and was slightly above the midpoint of guidance despite unfavorable foreign currency movements of roughly $9 million compared to our guidance assumptions. Moving down the income statement, our non-GAAP operating margin was 17.6% in Q4, consistent with the prior quarter and up 10 basis points from a year ago. During Q4, we continued to balance accelerated R&D investments and a competitive labor environment with our initiatives to improve operational excellence and efficiency through the ongoing implementation of automation and other sophisticated tools. Additionally, I would like to remind you that our foreign currency hedging program is designed to protect our profitability and free cash flow generation rather than revenue, and we are once again pleased that this strategy has proven mostly effective through the volatile currency markets of Q4. On the bottom line, non-GAAP diluted EPS of $1.29 was at the midpoint of our guidance range and included a non-GAAP effective tax rate of 20.6% which as expected was above the high end of our annual non-GAAP effective tax rate guidance of 13% to 17%. For the full fiscal year, our non-GAAP effective tax rate of 15.7% was within our annual guidance range. Diluted GAAP EPS was $1.05 for the fourth fiscal quarter, which was at the higher end of the…

Thank you, Tamar. As you can probably tell from our remarks today, I am very proud of our achievements for the fourth quarter and full year fiscal 2022, and I believe we are in strong shape to deliver another year of profitable growth in 2023. With that, we are happy to take your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Tal Liani of Bank of America. Please go ahead. [Operator Instructions] We go to the next question. Our next question comes from Ashwin Shirvaikar of Citi. Please go ahead.

Thank you. Hey, congratulations on the good quarter.

Thank you so much.

Sure. My first question is related to the comments on macro, which is front and center for investors as well. Are you seeing perhaps a change in the nature of projects, maybe more cost savings like more cloud and more managed services instead of more growth-oriented new product type project? And could you sort of let us know in your base of revenues, does that lean more towards cost savings or growth?

I think, Ashwin, if you think about what we are bringing to the market in terms of the investment domains, we are supporting. Many of them are relevant also in a more challenging macro environment. If you think about the journey to the cloud, for example, in terms of offering the service provider, the agility of providing quick services, matching in an easier way, the peaks of capacity that is required around the peak seasons like holiday season and a more agile cost structure. Those are things that are very applicable also in a more challenging macro environment. Same goes for how do you provide quicker time from marketing ideas to customer experience. So, many of those things that we're looking at are very relevant also in more challenging times. Now one of the big changes we've done irrespective of the macro situation, we've done this decision a couple of years back is to provide for more sophisticated technology, a faster time to market of our products, to the production of the customer environment that from their point of view, is creating faster value. Now one may say in this kind of environment, what kind of features and functions will they want relative to maybe prior times, but that's the beauty of the thing that we can actually respond very quickly with bringing these to production, given today's environment is on comparing it two years back, where it took us a year or two to develop a product version. So, we are very close to our customers monitoring what are their needs. You touched on managed services. I think this is absolutely one of the vehicles that we can bring to our customers in terms of reducing their cost structure. We are seeing managed services growing as you've seen already 12% in Q4, continue to enjoy very high renewal rate plus new engagements and new logos of managed services. So that continues to be a factor. We push forward. But if you ask me, are you seeing a big change as of now of the behavior of customers? Not yet, I hope never, let's say. We have not noticed anything like that. So, we are continuing to look very carefully, of course and we are very close to what's happening out there. The big impact is -- frankly, the immediate impact we are seeing is inflation and currency volatility.

Understood. Got that. And then on the campus, first of all, congratulations on completing a long process. I wanted to understand there should be ongoing benefits, things like rent expense goes down, maybe because employees are together, it helps in terms of bringing our products faster, things like that. Could you kind of go through what some of the original benefits were that you expected? And are those kinds of things incorporated in your outlook?

Yeah. Definitely. We're very happy to see that coming to life. And as you've indicated, this was a long-term and a very important investment in terms of the talent that we are seeking to have as well as the productivity. Now to remind you, when we talked about investing in the new campus, and we believe that this is going to be economically beneficial, we took into our business case only direct savings, meaning tangible reduction in expenses of rent, et cetera. At the same time, I absolutely agree with you, there are also indirect positive influences in terms of productivity, team engagement and things like that. So, I'm talking right now in terms of the direct benefit. That's already factored into the operating margin improvement. We are guiding for 2023. The full year impact of that will happen in 2024, but already to a large extent, we are enjoying that in 2023. And the indirect influence is something that is harder to measure in an accurate way, but definitely something we're looking forward to seeing and feeling as we move into the new campus. And I can tell you the employees are highly excited about the move.

Thank you. Our next question comes from Edward Yang of Oppenheimer. Please go ahead.

Thank you and congratulations on a nice quarter.

Thanks.

First question for me would just be around your fiscal 2023 outlook. I was a little surprised you kept the fairly wide constant currency growth range 6% to 10% for fiscal year 2023. I know it's in line with your long-term outlook, and you gave the same range last year for fiscal year 2022. But the low-end, 6% would be a fairly draconian slowdown from the growth -- constant currency growth rates you're seeing right now. So, what kind of scenarios -- is this conservatism? Or what kind of scenarios do you see where potentially the low-end could play out in that range?

So, when we look into how we are guiding for the year in terms of the range, it's not different than what we've done a year ago and also two years ago, just to give you some context. And the reason for the range is that eventually, when we're thinking about our visibility, it's pretty good, as we talked about having the 12-months backlog, covering roughly 80% of our business and having a solid pipeline ahead of us. But at the same time, we're enjoying a peak level of transformation project activity, which by itself is just thinking about what does it entail, it's not just about having the signed agreements, it's about having the plan of execution aligned with the customer with different milestones. So, we need to be considering that as part of the moving parts. And hopefully, we have given the midpoint, the most likely scenario based on the plan of record we have right now with our customers, but we need to take into consideration some changes that may come along to the upside as well as the downside. And in addition to that, it's about the demand environment, because while going with 80% visibility into the year, we still have 20% to make up from new signings. And just looking on what's on the pipeline and the conversion rate that we're expecting, we try to give the possible scenarios within that range. I would say the bottom line is, yes, there is a range, but we are guiding to something we believe is the midpoint to be the most likely scenario.

Fair enough. And my second question would just be on your backlog. And the backlog slowed somewhat. Was that driven by currency or any change? It doesn't seem like there were any changes in customer ordering patterns or macro? And if it was impacted by currency, what would the constant currency backlog growth have looked like in the quarter? Thank you.

Tamar can give you the details, but we don't guide the backlog in constant currency, but definitely there was a currency impact on the backlog this quarter. Tamar, do you want to take it from me?

I think what if we're looking on the 12 -- the year ahead, the next 12 months of revenue completion, we're talking about a 2% headwind coming from currency year-over-year. So, definitely part of that is reflected also in the backlog that we have. I would say in general, we don't see a slowdown in terms of the momentum some quarters in terms of specific signings, it can be different than others. So, I wouldn't sign too much into it. But I think we're encouraged to see more deals coming in. We gave a lot of examples today in the prepared remarks. And to me, and I hope the message got across the fact that we are continuing to sign deals with existing customers, but at the same time adding new logos, and intentionally diversifying our customer base and entering more new countries is extremely important. We, obviously, love our existing customers. We want to have relationships of last four decades and sell to them more of the next-generation and great technology we're bringing to the table, but we want to expand the number of customers and the number of countries in which we operate. And the momentum on that is extremely important and continued to be something we expect to see 2023.

And just to add, we see growth in all three regions and the pipeline is great.

Thank you. [Operator Instructions] Our next question comes from the line of Tal Liani of Bank of America. Please go ahead.

Can you hear me now?

Yes. Finally we can hear you, sir.

Bad memories from my ex-wife. I used to tell her I am talking, but you are not hearing me.

Everything is revolved with us.

Yeah. Okay. I want to go back to the guidance for next quarter in the year. So, the guidance for next quarter in revenues is about $15 million below consensus. And for the year, it's about $80 million. So that means it's not just Q1, it's below the consensus for the next few quarters. And I want to understand -- I'm going to have two sets of questions. One is on revenues, and the other one is on margins. So, this one is on the revenues. So, the question I have is, what is driving this guidance versus expectations? Is it -- is there a specific region? Is there any big project that is ending or can you give us more information about the trends that you're guiding just given that it's below consensus?

The answer is pretty simple. It's called foreign currencies. If you think about the $90 million we are expecting as a headwind going into the year 2023, that spread over the year. We said explicitly our numbers for Q4 relative to regional kind of Q4, lower by $9 million. If we look ahead, we continue to see this negative impact. So, if you just take the $90 million and divide it by 4 to make it simple, you understand that the magnitude is roughly $20 something million per quarter. And again, it's not behaving in a linear way, but just to make it simple. Now obviously, this is something that everybody is talking about, everybody is looking at. Our hedging program is designed to protect the bottom line, not the top line. We're quite effective in doing so, both in protecting the margins as well as protecting the cash flow, and we will continue to focus on doing so.

Got it. Okay. So, the next question is on margins. You don't give guidance for the margin, but you give guidance for EPS and EPS is about $0.09 lower than the street for next quarter.

We actually guided -- just to add, we've guided to the fact we believe operating margin is going to be elevated relative to prior year with a range of 17.5% to 18.1%. And we are actually looking on -- if you compare it to where -- until 2021, 17.5% was the high end of that range. So, you can understand that we are pushing forward on the margin to an improved view. Regarding EPS, I think there are a couple of things at play here. One, when we are looking on what's happening around the finance line with the currencies, yes, we are heavily trying to hedge, but at the end of the day, it also means there is some cost of hedging that goes into the numbers. And while we are extremely focused on trying to hedge everything possible, it's obviously based also of what's effective in terms of cost. So, I'll give you an example. If there is a -- thinking about Argentina, for example. Doesn't make sense necessarily to go into extensive hedging in Argentina, if it's very expensive to do so. So, this is one aspect that goes into the numbers. So, although, operating margin are improving. And by the way, while continuing to have an elevated level of R&D. So, it's not coming to we cut R&D and coming, while we are continuing to have strong R&D investments, and we are continuing to focus on hedging and trying to protect the bottom line, it does have some costs.

Got it. But when I compare your Q1 guidance to the full year, there is about $0.09 difference between yours and consensus for next quarter, but there is $0.08 difference for the year. So that means you're expecting that after Q1, you should be fine with EPS versus expectations. So, do you expect--?

Again, we're guiding for the -- I want to be clear. I cannot take accountability for consensus. I can explain what we are guiding.

Yeah.

We are guiding for an EPS growth rate year-over-year of 8% to 12%, targeting the midpoint of 10% growth for the year. Specifically in Q1, we said that we expect a higher tax rate, specifically in Q1. For the full year, we take the same position around the range of the tax rate being 13% to 17%. Specifically in Q1, given the recent volatility in tax rate between the quarters, we think it's going to be higher. And that's why Q1 EPS is lower relative to the full year.

Got it. Great. Last question is about cash conversion rate. Now that the investment is over. And can you talk about -- you improved the cash conversion rate over the last few years. Can you talk about your plan for 2023 and beyond? And what are the puts and takes in the calculation?

So, the bottom line is we continue to focus on everything that has to do with converting earnings to cash we are confident in the message that we are targeting 100% earnings to cash conversion also in 2023, which leads to the target number of roughly $700 million of free cash flow generated. Within that, of course, there are many moving parts that obviously with a very strong focus on converting the great business activity that we have into invoicing and money in the bank collected from customers, which is something we are very focused on. And then, of course, it's managing the outflow of cash in a disciplined manner as we've done always. I make it sound simple. Obviously, it requires a lot of activities around that. And within the company, there is a very high focus on that, as we are continuing to look forward into other aspects. The one thing I wanted to take note is that if during the cycle of investing in the campus, we reported two metrics, the reported cash flow and normalized cash flow to give full transparency of the investment we are making in the campus. And now that it's practically done, we don't need to continue to report normalized cash flow moving forward, and there will be one metric of the reported cash flow.

Thank you. At this time, I'd like to turn the call back over to Matt Smith for any closing remarks. Sir? End of Q&A:

Yeah. Thanks operator, and thanks everybody for joining the call today and for your interest in Amdocs. As always, we do look forward to hearing from you in the coming days. And if you do have any additional questions, please reach out to us here in the Investor Relations group. With that, have a great evening. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.