Good day, and thank you for standing by. Welcome to the Third Quarter 2023 Amdocs Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Smith, Head of Investor Relations. Please go ahead.

Thank you, Liz. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 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 also be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the third quarter of fiscal 2023, and we'll update you on the continued progress we've made executing against our strategic growth framework include last opportunity of the rapidly emerging field of generative AI. Shuky will finish by commenting on our financial outlook for the full fiscal year 2023. After which Tamar will provide additional detail on our third quarter financial performance and forward-looking guidance, and also elaborate on our continued commitment to ESG. And so with that, I'll turn it over to Shuky.

Thanks, Matt, and good afternoon to everyone joining us on the call today. I'd like to begin thanking our global base of talented employees for their hard work and incredible contribution towards another solid financial and operation performance in our third fiscal quarter, as we continue to execute against our core growth pillars for digital modernization, 5G monetization, cloud and network automation. As you can see, the financial highlights on Slide 6. Record revenue of $1.24 billion was slightly above the midpoint of guidance on a reported basis and was up 6.9% from a year ago in constant currency. Non-GAAP operating margin increased by 20 basis points from a year ago as we continued to realize the benefits of operational efficiency initiatives in our business. On the bottom-line, non-GAAP diluted earnings per share of $1.57 was above the guidance range, mainly due to a lower than anticipated non-GAAP effective tax rate in the quarter. 12-month backlog was a record-high $4.14 billion, up roughly 5% from a year ago despite some impact from a challenging macro and industry environment. Among the third quarter operational highlights, I am encouraged to report continued cloud-related sales momentum. As shown on Slide 7, following last quarter’s wins with PLDT and two leading European operators, Amdocs was recently selected to support the cloud-strategies of Bell and TELUS in Canada, and Claro in Brazil. Additionally, we won new awards and deepened relationships with Verizon and DISH in North America, M1 and Telkomsel in Southeast Asia, and many others around the world as we focused on driving greater adoption of our broad product offering and capturing more share of wallet at our customers. Significant long-term growth potential also exists in managed services, which delivered another record quarter driven by expanded activities with longstanding customers like Globe in the…

Thank you, Shuky, and hello everyone. Thank you for joining us. I am pleased with our solid financial results for the third fiscal quarter, the highlights of which you can see on Slide 15. Record Q3 revenue of approximately $1.236 billion was up 6.9% year-over-year in constant currency. On a reported basis, revenue increased 6.5% and was slightly above the midpoint of guidance, including a positive impact from foreign currency movements of approximately $5 million compared to our guidance assumptions. To clarify, there was no revenue contribution from the acquisition of TEOCO’s Service Assurance business in Q3 as the deal closed on the last day of the quarter June 30. On a geographical basis, North America delivered its best-ever quarter as we continued to support the strategic modernization journeys of customers across the broader region, while in Europe we achieved a second consecutive quarter of record revenue as project activity continued to ramp-up. Rest of World declined on a sequential and year-over-year basis in Q3, reflecting fluctuations in customer project activity. Moving down the income statement, our non-GAAP operating margin of 17.8% was up 20 basis points from a year ago and unchanged as compared with the prior quarter. On the bottom-line, non-GAAP diluted EPS of $1.57 was above the guidance range, primarily due to a non-GAAP effective tax rate of 12.3% which was lower than anticipated. Diluted GAAP EPS was $1.32 for the third fiscal quarter, which was above the guidance range of $1.16 to $1.26, also due to a lower than anticipated GAAP effective tax rate. Moving to Slide 16, I’d like to double-click on our non-GAAP operating margin which has trended higher in fiscal 2023, in line with the new and improved guidance range of 17.5% to 18.1% which we provided at the beginning of the year.…

Thank you, Tamar. As you can probably tell from our remarks today, we are pleased with our solid financial and operational position as we enter the final quarter of fiscal year, notwithstanding the uncertainty of the global macro dynamics and industry environment. With that, we are happy to take your questions.

[Operator Instructions] Our first question comes from the line of Tavy Rosner with Barclays.

You mentioned lowering slightly the midpoint of guidance due to industry pressure. Can you talk a little bit about the kind of pushback you're getting? Is it from a certain geography? Is it for a certain product? And how do you see the next couple of quarter evolving around that kind of push back?

Thank you for the question, Tavy. So I just want to remind the several facts. First of all, as you know, roughly 60% of our business is managed services will be pretty solid. We don't see any -- actually, business continue to grow. As I mentioned last quarter and this quarter, we see very strong momentum of all the cloud-related deals. You can see that we announced some of this today, last quarter, but we really see a great momentum in our activities, in taking our customers to the cloud and you see more and more deals and momentum around this. At the same time, we see also acceleration in all the large modernization program that we are doing for our largest customer, AT&T, T-Mobile, Vodafone, Three and others. So we see a real acceleration in the modernization program. And we don't have any cancellation from any projects. What we -- where we see some pressure, if you know -- if you remember, we -- in most of our customers, we are running both the legacy platform or the car platform in parallel, while we are building the next-generation platform for these customers at the same time. So what we see is more -- to reflect to your question, -- what we see lately is more prioritization done by our customer, and they are prioritizing much modernization program that we are doing for them comparing the current or legacy platform that we continue to maintain with them. And we usually continue to enhance them also as we speak. But we see some pressure in this area of enhancing the current on the legacy system comparing the other domain that we see acceleration. So all in all, this is the area that we see some pressure. Historically, we see ups and downs in this, what we call legacy our current system spending. I can tell you that at the end of the day, why we spend with our customer a lot of attention and money and efforts to deploy the next-generation platform. The current platform is actually what is running the business today. So this is -- you still need to invest in this platform while we are bringing or building together the next generation platform. But this is the key reason that it's reflecting the pressure. And another reminder, and I will start with that you can remember when we gave the guidance at the beginning of the year, we anticipate at roughly 0.5% or something like this also a contribution from the MYCOM service assurance company that was in my numbers. This -- as you recall, this -- unfortunately, this acquisition did not materialize. So this is obviously a revenue that is not part of our guidance. But I think all in all, just to make the long story short, the main pressure is coming from investment in the current or legacy platform.

That's helpful. And maybe as a follow-up, most of the presentation, the slides really talk about the strategic domains, like the new domains and strategic initiatives? And perhaps it would be interesting to understand where the growth is coming from, like because you seem to emphasize mostly the new domain. So is it fair to say that most of the growth nowadays is really the new domains rather than -- I would call it legacy, but perhaps the existing kind of infrastructure, like can we get a sense of how much is coming from existing business, new?

For the most part, you are right. I mean there are some -- not too many, by the way. customers of Amdocs that are running current or legacy systems that don't have at this point at least or did not start any monetization program. So these customers are still investing heavily in the current platform because this is what is running their business. I was reflecting more to the customers that are actually building a very, very robust modernization plan while running the platform still on legacy. But you're perfectly right. The growth is coming from the growth engine. As I mentioned, the cloud-related deals momentum that we see. Everything around 5G monetization, network automation, giga transformation in general. This is -- I think this is the pillar, of course, that we see, while as I said, we continue to maintain many, many activities in a current platform and modernization platform. But overall, this -- as I said, this phenomena is more related to customers that are investing heavily in modernization. And we have a lot of customers that are not investing yet in this monetization. So for this customer, they will continue to invest a lot in the legacy platform.

And maybe just housekeeping questions. You mentioned the acquisition of -- what kind of revenue contribution will they bring if you look at it on a 12-month basis?

It will be roughly 0.5%, as we said before, starting -- naturally starting slower and then ramping up as we move along the -- so that's why we said specifically in Q4, contribution is insignificant, and we believe that it will build itself up as we move through 2024.

[Operator Instructions] Our next question comes from the line of Timothy Horan with Oppenheimer.

A few questions. So can you give us some sense of the magnitude here of what you're talking about? Like what percentage of your revenue is this? I'm assuming it's just that, that legacy business isn't growing, but can you give us a sense of how much of your incremental growth came from, I guess, upgrading or doing whatever you need to do on the legacy business? And was that reflected in the quarter and the third quarter? Are you seeing that in the fourth quarter? Do you expect to hit that next year? Just kind of any sense of the magnitude that we're talking about here?

That was actually the majority of growth, as Shuky said, is coming from the new drivers for modernization, right? Everything we are talking about growth pillars, while investing in the future while building the next-gen stack, typically customers would like to make changes in terms of go-to-market approach, adjustment to the existing systems, et cetera. So it's something that is managing them to run their current business while they are building the next-generation stack. So it never was a growth driver. It's more of a kind of keep the existing capabilities while building the right stack for the future. We have started to see that a bit more during Q3, and we're taking that into consideration for Q4. We are not guiding right now specifically for next year. And of course, we will have more data points as we move along and say how is that happening? But I really want to emphasize again -- we see the momentum in the pipeline. We see the signings of new deals. We don't see any project cancelation, 100% renewal rate advantages. So I would really want to just to put some focus on that phenomena. But we need to take it into perspective. It's not a big part of the overall story. And definitely, you can see the growth and the sequential increase. Also we've seen in the backlog of $30 million, which is continuing to be healthy.

As seen historically, this is not the first time that we see fluctuation in -- so we see -- it's not new to us, this phenomenon.

Okay. Great. Verizon, can we get a sense of how big of a contract this is or step up? Is this a 10% increase in their revenue spend with you? Was it a 50%, 100%? Just any kind of sense of what's going on here. And yes.

As you know, we don't share this type of information. I can tell you that this is a very important strategic project for Verizon in all the service orchestration domain, which actually is doing the old orchestration of all the new 5G services. So it's not -- it's a strategic project. It's not a niche project. What we expanded this quarter is actually we were implementing the offering in the prior quarters, what we're expanding is actually the operation of this service SDOC, the service delivery orchestration. This is what we've done in prior quarters. And in this quarter, actually, we're expanding the operation of this platform. Just a reminder, also, Verizon is running our catalog. So all the service offering -- all the offering of Verizon are running through our catalog too.

Okay. Lastly, on the AI side. Can you -- I mean the -- I think you said 80 different use cases. I mean, could this be material to margins? And where are you with deploying this for your customers, some of the same capabilities?

So for our customers, we are building many, many amazing use cases I will give you 1 example of what we implemented. So in our catalog today, when you want to build offering, you will say, I want to -- actually -- you can talk I want to build an offering in Dallas area for millennial in this range, Tell me what you think will be the population and what will be the right offering. And this will generate four, five different options for you. And we'll also anticipate what will be the uptake. So this is like a game changer in the way you -- this is 1 example, and we have many of these how to create offering. So this is from a customer perspective. We are implementing a lot of improvement for what we call the SDOC, the software development life cycle, automating many areas in this domain from testing to requirements gathering, I think that we probably will be more mature next quarter. But I can tell you that part of the -- our cost leadership thing that we are doing today and we announced most of them are relying on previously automation will be developed and a lot of them are related to expected capabilities that we are going to get from a generative AI. So this is for from what we do. I mean this is true for managed services for development for everything that we do run software development. And the last thing, like every good corporate, I mean, we see a lot of opportunities in our corporate activities in HR and finance and other, that also believe we could do things faster and cheaper and also will contribute to our margin expansion.

Our next question comes from the line of Ashwin Shirvaikar with Citi.

And good execution here. I guess my question is with regards to some of these types of projects that you're signing a cloud, moving existing on-premise work to the cloud. How does the economics of what you're doing? I mean, how does your economics change when that happens, if you could provide maybe some color around that, that would be useful?

I don't know if the economics change. Let me share first what we do. So when we do -- when we are doing a cloud project is mainly start with consulting. So we look at the ecosystem of the system. By the way, this is true for Amdocs system for non-Amdocs system. And then we come with a combination of what is the right plan. And then the next step after we agree, we're actually doing all the execution of building the platform in the cloud and then doing all the migration of the data to the cloud. And then we are doing the operation. What -- this is, as I said, this is the cloud operation. So it's a very robust end-to-end accountability program. By the way, in many cases, we are also managing the -- all the cloud itself and the -- how they call it the…

The workload.

The workload, [PNOC]. All of this is part of -- and as you know, we have a very good relationship and strategic partnership with Microsoft recently. So I don't think there is a big change in dynamics. I can tell you, as we shared before, that obviously, the new platforms, especially the 1 that we are investing heavily in generative AI give us more opportunities for margin expansion in the future. Because when you implement a well-architected micro services environment of in the cloud. This is where we put our offer to automation generative AI, definitely in the future, there is a potential margin expansion.

Maybe just to add, Ashwin, I think we can back it to 3x of move to the cloud. One, the customer is deploying our next-gen stack, cloud native. We take it…

Mobile, NTT, Vodafone.

From consulting to modernization projects, all the way potentially to cloud ops, et cetera. The second is that they want to take a more gradual approach. And they're moving from an existing version of an Amdocs product, and we've allowed them to actually step up to the cloud and then modernize over time. And the third could be that they want our help in migrating some applications that were running on-prem to the cloud, sometimes our own application to non-Amdocs applications, such as the examples we've provided in the past in AT&T and other examples where we are helping them actually do that. So we're giving them a very wide variety of how to go about it. which is accepted very well and customers feel that they can take a modular and gradual approach, they can do it in a more aggressive way. So that's perceived and accepted very well by customers and giving them a lot of optionality.

That's very useful and comprehensive. I just have to ask about the environment, the business environment, you mentioned in your prepared remarks as well, the business dynamics are decelerating growth rate. So as you kind of sit here in beginning of August, are planning for next year, how should we -- how should we consider at least this framework for next year, and you can't give guidance now, but at least the framework in terms of the ability and the pieces to get to a double-digit shareholder return?

So I think that -- first of all, I think that we feel confident that we can continue to double digit or term. We believe it's not -- we are not guiding right now. But it will come as more. But definitely, we want to continue in this past, and we'll give you more details when we talk in November. Regarding the environment itself, I think that -- what we reflect right now, what we see now, as I said, there was fluctuation in these activities and we come with the full guidance. There are , as I mentioned before, there are certain elements of our revenue like managed services that we see increase, and these are -- I don't think there's any impact from anything that we see around us from the macroeconomic environment. There are areas that we see some headwinds, as I mentioned, some type of legacy systems in some customers. But overall, I think that as you might imagine, we are doing all the bottom-up and top-down took down activities to come with the guidance next quarter.

[Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to Matt Smith for closing remarks.

Thank you, Liz, and thanks, everyone, for joining the call this evening. We do look forward to hearing from you very soon. And if you have any questions, just reach out to us here in the IR group. Have a great evening. Thanks a lot.

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