AMDOCS LTD Q2 FY2025 earnings call

Business Highlights - Revenue of $1.13 billion was above guidance midpoint, up 4% pro forma constant currency year-over-year. - Profitability improved 10 basis points sequentially. - Generated $181 million free cash flow excluding restructuring-related payments. - Non-GAAP earnings per share was $1.78, above guidance range. - 12-month backlog of $4.17 billion, up 3.5% pro forma from year ago. ### Strategic Initiatives - Cloud: Strong sales momentum with work with Microsoft and PLDT, and Telstra engagement. - Digital Transformation: Consumer Cellular uses onnectX SaaS, MarketONE selected by CK Hutchison, eSIM cloud ranked #1. - Monetization Platforms: Comcast renews Bill Experience, A1 Bulgaria, Movistar El Salvador, Botswana Telecommunications deals. - Network Automation: Extended agreements at Claro Brasil, Costa Rica Grupo Ice, and PLDT Philippines. - GenAI: Spotlighted at NVIDIA's GTC, evolved amAIz platform, launched AI Factory, running PoCs with customers.

Revenue for the second quarter was $1.13 billion, up 4% pro forma constant currency from a year ago. Managed services contributed roughly two thirds of total revenue, with Q2 revenue from managed services at a record $747 million, up 3.7% from a year ago. Revenue from multiyear managed services engagements accounted for 66% of total revenue in Q2. The 12-month backlog was $4.17 billion, up 3.5% pro forma from a year ago.

• Reiterated midpoint of fiscal 2025 pro forma revenue growth outlook of 2.7% in constant currency, tighter range 1.7% to 3.7%. - On track for double-digit total shareholder returns for fifth consecutive year. - Free cash flow target between $710 million to $730 million in fiscal 2025. - Non-GAAP operating margins expected within 21.1% to 21.7% in fiscal 2025. - Non-GAAP effective tax rate for fiscal 2025 expected 15% to 17%. - Non-GAAP diluted earnings per share growth outlook 6.5% to 10.5% in fiscal 2025.

No specific risks detailed in the transcript beyond general mention of monitoring macroeconomic uncertainty and its indirect impacts on spending behavior.

Q: Can we focus on AI a minute? Is it starting to see material contributions to revenue growth from AI or improvements to the product? And how are you working with NVIDIA on AI? Any more color on that collaboration? And related to that, it sounds like cloud growth is accelerating, is that true? And is AI helping that growth? Or is it go-to-market or other improvements in the product there?

A: Shuky Sheffer said GenAI activities connect with data, see activity in data domain supporting GenAI, POCs maturing. Collaborating with NVIDIA in many domains, progress in network domain this quarter. Cloud growth is accelerating, GenAI supports data movement to platforms like Microsoft, AWS which is part of cloud growth.

Q: Great improvement to the margins here. Are you using AI to improve your own productivity much? And is there can you continue the pace of margin improvements going forward for a few years?

A: Shuky Sheffer said GenAI has three pillars: offering with amAIz platform and AI factory, products are GenAI enabled, and efficiencies in software development life cycle using GenAI tools, starting to see good results from new tools.

Q: Can you just talk a little bit about the customer spending behavior, what you saw this quarter versus what you saw last quarter? And we're into May already. There's obviously more risk and concern out there, but are your clients changing anything? Or is it really kind of the same?

A: Shuky Sheffer said they don't see any change in customer spending behavior yet, clients are still cautious but no change following recent months.

Q: The AR after several quarters of going up, has seen a couple of quarters of going down. It looks like you're hitting milestones and unbilleds are going down. Should we think about this as something that was kind of lumpy that you needed to go past or is this something where there's a certain range that you expect to operate within, and these are just kind of the fluctuations within that range? In other words, did you have a lot of projects that were unusual that you had the milestones kind of in front of you when you got past them? Or is this the normal cadence of bouncing around?

A: Tamar Rapaport-Dagim said the cadence is bouncing around due to a portfolio of different projects, running large transformations in North America, net difference between unbilled receivables and deferred revenue fluctuates with business activities and project progress, hard to predict exactly each quarter.

Q: There's a lot of POCs on the AI offerings, and we've been talking about that for the last few quarters. Is there anything large that has hit in terms of contracting yet? Or we still kind of waiting for the really big -- few big referenceable clients to kind of start the cascading?

A: Shuky Sheffer said they do see good progress in data-related activities to support GenAI, have at least a couple of customers with good commercial progress but couldn't name them yet, but they are referenceable.