AMDOCS LTD Q4 FY2024 earnings call

• Business achievements: In 2024 fiscal year, expanded activities with new and existing customers, won important deals in multiple regions; cloud business achieved double-digit growth; managed services set a record; executed profitability acceleration plan and returned over 100% of free cash flow to shareholders through share repurchases and dividends. - Fourth quarter highlights: Won important project for T-Mobile to deploy next-generation billing platform; cloud business remained strong with awards in Japan and Italy; managed services maintained high renewal rate with agreements in Southeast Asia and Denmark; Amdocs' SaaS platform connectX was rapidly adopted; expanded generative AI activities to support T-Mobile; successful product deployments for AT&T, T-Mobile etc. in Q4. - Multi-pillar growth strategy: In cloud, supported complex multi-year cloud journeys and got projects from Vodafone Italy and NTT InfraNet; in digital modernization, MVNE.pl chose connectX solution and Convera chose Amdocs' billing experience solution; in monetization, provided solutions for T-Mobile and SFR; in network automation, launched next-generation fiber product and won industry awards; in generative AI, CES24 embedded generative AI functions, collaborated with NVIDIA and advanced applications. - Business optimization: In fiscal year 2025, began to phase out several low-margin, non-core business activities, focusing on high-margin strategic priorities like cloud, next-generation monetization platforms and generative AI.

In 2024 fiscal year, cloud business achieved double-digit growth and accounted for approximately 25% of total revenue. Managed services revenue reached a record $2.9 billion in 2024 fiscal year, accounting for about 58% of total revenue. The company achieved record revenue of $5 billion in 2024 fiscal year, up 2.7% year-over-year in constant currency. Non-GAAP operating margin was 18.4%, an improvement of 60 basis points year-over-year. In the fourth quarter of 2024, record Q4 revenue was approximately $1.26 billion, up 2.1% year-over-year in constant currency. On a reported basis, revenue increased 1.7% from a year ago.

• Fiscal 2025 expectations: Adjusted pro forma revenue growth is expected to be between 1% - 4.5% in constant currency, including another year of double-digit growth in cloud; non-GAAP operating margin is expected to exceed 21%; free cash flow is expected to be between $710 million to $730 million in fiscal 2025; proposed to increase quarterly cash dividend by 10% to $0.527 per share; non-GAAP diluted EPS is expected to grow by 6.5% - 10.5%, and combined with dividend yield, is expected to achieve double-digit total shareholder returns for the fifth consecutive year. - First fiscal quarter expectations: Expected revenue is within the range of $1.095 billion to $1.135 billion, with a favorable sequential impact of $2 million from foreign currency fluctuations compared to Q4.

• Business environment challenges: The industry demand environment continues to be challenging, and some areas like traditional system implementation may face headwinds, affecting business growth speed. - Business optimization risks: There may be execution risks in the process of phasing out low-margin non-core business activities, needing to ensure no impact on other business activities and evaluate the effect of new strategy implementation.

Q: Tim Horan asked about the integration degree of the eliminated business with other departments and the difficulty of divestiture, and the reason for the large gap between free cash flow growth and earnings growth.

A: Tamar said the eliminated business has low integration with other departments and has been properly handled for some time; free cash flow and earnings growth are not one-to-one, but the conversion rate has been good in the past few years with no fundamental change.

Q: Tim Horan asked about the backlog situation and the comparison of current demand level with previous years.

A: Tamar said cloud business has strong demand including cloud-native product R&D and customer cloud migration; overall demand environment has slow pipeline-to-deal conversion but high win rate including managed services renewal and generative AI project conversion.

Q: Shlomo Rosenbaum asked about the revenue growth trajectory in fiscal 2025 and the real trajectory of the business after eliminating non-core businesses.

A: Tamar said the 1% - 4.5% growth is a comparable number after eliminating $600 million non-core business, and expects annual revenue growth to accelerate due to pipeline conversion speed and backlog confirmation speed etc.

Q: Tal Liani asked if cloud business substitutes other revenues and the definition of cloud business.

A: Shuky said cloud business includes large transformation projects and gradual modernization projects etc., not all revenues are substituted; Tamar supplemented that the company is growing overall with part being replacement of original activities and part being new activities.

Q: Tavi Rosner asked about concerns about customers turning to competitors' point solutions in the competitive environment and retention rate.

A: Shuky said confident in retention rate with cloud business' managed services model being strengthened and good customer retention.

Q: Gates Schwarzmann asked about details of the eliminated business lines, elimination mechanism and whether there are further business optimization opportunities.

A: Shuky said the elimination started immediately in the first quarter of 2025 based on strategic priority adjustment with non-core business having low margin and visibility; Tamar supplemented similar historical decisions to stop relevant business; Shuky mentioned this brought the milestone of operating margin exceeding 21%.

Q: William Power asked about inorganic contribution to fiscal 2025 and generative AI revenue expectation.

A: Tamar said growth is mainly organic with some M&A impact; Shuky said expected generative AI revenue to accelerate throughout the year with potential in data domain etc. and cooperation with T-Mobile etc.