Good day, and thank you for standing by, and welcome to the Amdocs Investor Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. 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, operator. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared 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 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 Also, this call includes information that constitutes forward looking statements. Although we believe the expectations reflected in such forward looking statements are based Such statements involve risks and uncertainties that may cause future results to differ from those anticipated.
These risks include, but are not limited The effects of general economic conditions, the duration and severity of the COVID-nineteen pandemic and its impact on the global economy and such other risks as Discussed 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 30, 2020, filed on December 14, 2020, and our Form 6 ks furnished for the Q1 of fiscal 2021 on February 16, 2021. 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 Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport Dagim, Chief Financial and Operating Officer. Finally, a copy of today's presentation slides will
Thank you, Matt. Good morning, everyone, and thank you for joining us today. Last week, on March 31, a short seller report was published By a previously unknown entity called Josephat Research. As we said in our press release last week, the report contains inaccurate statements, Grounded claims and speculation, they were solely designed to derive the stock price downwards to serve the short seller interest And to the detriment of Amdocs shareholders, our intention with today's call is to provide color and more details on our business. As you saw, we published a supplementary investor presentation earlier this morning, which we will walk you through today.
Tamar and I will provide overview of our business and also our strong Financial performance, cash generation and capital return to shareholders and the global organization we have built to ensure optimal efficiency And local compliance across our operations. Our financial outlook remains strong. We are fully confident in our accounting and business practices And believe that the company is well positioned to build on its success and create long term shareholder value. Frankly, We have no idea who Josephat is. We don't know who is behind the report and no one has contacted us.
We are very surprised to see the report and believe there is no merit to it. I will now begin to walk through the presentation followed by Thomas and we will open the call for Q and A. Matt, can you go to the agenda slide, please? Okay. So this is the agenda that We are going to cover today.
I will start with a short overview of Amdocs, and then Tamar will continue with our strong financial foundation, legal entities And then we'll open the call for Q and A. Matt? Next slide. Another one. So I'm sure the majority of you know Andos, but to those who are not, Andos is the factor, the market leader in our space, Which is in the telecommunication and media industry, in the obviously, in all the information technology system, OSS and BSS system.
Just by the numbers, you can see at the right side some interesting numbers I want to share with you. So the revenue, this is pretty much public $4,200,000,000 We have 26,000 employees and we are operating in 85 countries. Our estimated every Pretty much across the world 3,000,000,000 people are touching Endo system and we are managing roughly 1,700,000,000 digital journeys per day. We have over 3.60 customers, and I think that you can see the list of customers that we are very proud. Blue chip customers, we were very successful in the last year to actually to expand globally.
So if you go From the United States, obviously, you know our major customer AT and T, T Mobile, Charter, Comcast, Eucellulam, in Canada, Bell Canada, Rogers, Stellas. In Latin America, our main customer obviously are the main groups over there is Telefonica and America Movil. If you go to Europe, Vodafone is a huge customer for us between the different opticals In Italy, Germany, Spain, U. K, Netherlands, we are now working with Vodafone on what we believe one of the largest transformation In Europe, I'm working with Amdocs. We are definitely the market here in APAC between Singapore Telecom, Optus, Globe and PTT in the Philippines, Maxis in Malaysia, we have a lot of operation in Indonesia, It's Eduardo.
We can see all the list of customers. As I mentioned, Verizon in North America, as I mentioned, we are very proud with Blue Chip customers, and you can see our leading position is very much steady on the global view. Max? Andrew has a very unique Business model. So there are software companies and there are services companies.
Amdocs is what we call Because we are doing mainly three things. We develop software. So All our BSS and OSS platform that serve the big companies in the industry, so this is what we do. We have major R and D To develop this software, obviously, today, it's only cloud native and I think that we have cutting edge technology in In our software, we do the deployment of our products. So we are not just developing the product itself, but we are having the high level consulting, all All the implementation and deployment services for our products, we have unparalleled production So the company is going taking pretty much 80 production per quarter.
And I think by far, we are the market leader. We are running tens of transformation as we speak all over the world. So we are not just So we are developing the software. We are doing deployment services, and we also operate our system in many cases in many services form. This unique accountability is, I think, the end of Skype for Fame.
No one has this and this is what help us to be the market In our domain, there was some reference for us as a BPO company. I can tell you we are so far We are nothing but a PPO company. You can see what type of offering we are giving to the market. And as I said, it's a very, very unique offering. And this accountability model is very new to Amdocs and help us a lot to be in the market leading position that we are today.
So how can we do this globally? So Amdocs have many centers around the world. You can see it's between we have R and D centers, we have a software development center and we have operational center. What you see right now on this illustration is not all of them. We have much more.
And actually, we are leveraging these global assets To deliver the services to more than 3 amorticity customers across the world in the most efficient way, as We operate all this obviously as we operate at 85 countries, this is comprised for 155,000,000 entities. But as I said, we will build a Competitive centers and R and D centers to make sure that we maximize efficiency, we maximize talent in the Territories, we have like over the same type of support for our customers. A lot of thought has been done in order to build this global infrastructure. The The support, as I said before, over 3 50 customers in 85 countries. So probably by now we understand that I'm very proud with Amdocs' position in the market.
So it's not only us think that we are the best. There is a huge market recognition that we are number 1 in our space. You'll see some of it on this slide from the Gardeners of the World and as a Mason and others, this is both For services and our products, so I think this is represent what the industry I don't think about Amdocs leadership in our domain.
Matt?
I will finish with that, Which is again another area that domain is we are very proud is the long lasting expanding relationship that we have with all our Customer around the world. So you see this list of number of customer from T Mobile to Vodafone, Verizon, Bell, Comcast, Charter, Telefonica, we are We're very proud. So not just that we are having a great strategic partnership with This type of customer, but this is a very long lasting relationship. I guess couple of examples here. We sell from left to right AT and T.
Now we are expanding our activities in AT and T. Actually, our revenue growth year over year, and we are busy right now in building the next generation Consumer mobility for AT and T. As part of AT and T 5 gs strategy, we have better services in AT and T. We have Activities in AT and T, AT and T Mexico, Cricket, we have a lot of activity in AT and T, and we see a very good progress Now for modernization activity with our activity to modernize AT and T consumer domain. T Mobile USA, another Good example of strategic account that used to be before 2 accounts of Amdocs, Sprint and T Mobile before the merger.
We just announced in February a strategic long term deal with T Mobile OS that comprise, obviously, transition Of all the system of T Mobile to the AmdocsONE cloud native platform, cloud operation and many, many other activity, This is a very important agreement that we are very proud of and actually reflects the strategic partnership that exists today between Amdocs T Mobile. So overall, you can see we have a very, very strong position with our customer. We see very nice consistently growth Across all geographies and we continue to push forward in getting more customers and continue to serve our existing customer in the best way we can. With that, I will move to Thomas Bart. Ned?
Thank you, Shuky. So with all That business capabilities and strategic focus we have business model, unique business model that translates to strong Financial performance and strong consistent operating margins. And when we look on The different characteristics of how this business model is translating to financial metrics, as you know, we publish every quarter a metric called 12 month backlog. And the 12 months backlog provides us strong visibility into the year to come. Usually, we start a year with around 80% visibility to the 12 months revenue as presented already by this backlog.
In addition to that, in general, we have highly recurring revenue streams. In many Long time engagements with our customers, we enjoy high recurring revenues. All of that is helping us plan and prepare for the of the commitment and the value that we are providing our customers. We are leveraging on the scalable global resource model based on the different centers around the And it's not just about locations, it's about building different competencies around the world. And whenever the demand It is planned.
We are obviously against that planning very accurately how we're going to supply This demand, including taking into consideration time zones, talent availability, competencies, Cost structure, etcetera, etcetera. So all of that is helping us create a good visibility on how we are planning our business. On top of Of course, we would like to continuously create operational excellence into the business, bring efficiencies, bring savings in how we do things, so the savings and Benefits from these efficiencies in our performing engines can be redeployed by our discretion into new investments. Investments in R and D, we mentioned before, we are Investing around $300,000,000 of R and D. We have accelerated R and D recently.
We are investing, of course, in penetrating into new countries, new So this balancing act that we see, this ongoing balancing act helps us to drive new customer penetration, new market penetration as well as over time, as you can see in this chart, constantly report on operating margins that are tracking at the higher end All of our prevailing guidance range at that time and over time enable us to trend upwards With the operating margins that the business results in. Let me so when you look on All of that and what does it mean in terms of generating cash, we've also shown a proven history of Converting over time those earnings into free cash flow from the business. You see here a full decade. So, obviously, in any given year, there may be performance that is below or above the 100% earnings to cash conversion. But over time, you can clearly see how we are tracking on par.
In fact, In this year, specifically, in 2021, after already having very strong 2 years of cash generated from the business, we have guided at the end of December for the fiscal year 2021, a conversion rate of 130 percent with 800,000,000 dollars of normalized free cash flow, of which our fiscal quarter ending December already generated close to 390. So, we spoke only projection, some of it has been natural in Q1 already. So, when we look on this ability to collect Our customers, obviously, they come to busy receiving models. The track record we have on delivering to our customers is translated into invoicing and collecting money from our customers managing efficiently ongoing spending and converting earnings to cash on par over the long term. Let's move forward.
When we're thinking about what has it been to manage a multinational business with 155 legal entities serving 85 countries, it means that we are dealing also with a lot of local compliance in different countries. One of that implication is that you file in many countries by regulatory requirements in country something called statutory financial statements. However, the business performance is best represented by the consolidated financial groups. Consolidated financial groups cannot be established Through aggregation of some local statutory reports of specific subsidiaries. Definitely, it cannot be done by taking a selected number 17 agencies out of the total number of 155.
And just to remind you, our selected entities of 17 Mainly focusing on Europe definitely does not represent our global business in which North America, I. E, U. S. And Canada, represent the majority or 2 thirds of our And it also means one key operation that we have, which is Israel. So again, just my own example, how 17 On top of that, in consolidation, There is accounting that requires you to delete, eliminate intercompany transactions.
Sorry for getting technical here, but I do want to explain that point to an illustration. We have tried to simplify our real life through this illustration on this slide. Let's assume there is a deal with an end customer by And looks UK, in which we are selling a relatively small project of $10,000,000 digital transformation that includes 1 software model and include services of deploying that software into production until it goes live, which is part of what we do in many of the projects with our customers. So now, Alex UK, who signed an agreement with the end customer of $10,000,000 in this illustration, is engaging internally in the supply chain of the Alex Look, other legal entities in the group, in this illustration, is buying the software from Amdocs Cyprus for $2,000,000 is buying some services from Amdocs Israel for $3,000,000 and buying some services from Abbots India, again for $3,000,000 If you simply aggregate now, All this revenue recorded by those 4 individual legal entities, and let's assume each individual entity in this illustration, filed financial statements for compliance purposes locally, Just on this transaction, again, very simplified. You add up 10, plus 2, plus 3, plus 3, you get to 18.
Obviously, the deal and the value that Amdocs Group generated is $10,000,000 it's not 18. So you're just over inflected If you continue to do that and just ignore elimination of intercompany transactions, you also obviously have twisted Expenses on the other side. So you cannot draw conclusions from selecting 17 entities, taking the local financials, ignoring the elimination of intercompany Transaction and then try to compare it to the group numbers. Adding to that, additional 2 issues in that methodology attempted in the Juan is ignoring the accounting standards that vary between countries. At a group level, we report U.
S. GAAP and of course, all the numbers All the transactions, all the activities are aligned to use GAAP when we file our consolidated financials with the existing. When you file locally In different countries, to comply with local regulation, you apply the local GAAP relevant in that country. For example, in Europe, in many of the countries, it's IFRS. In some European countries, it's still very specific gap for that country.
Another problem Applied in the short term report is ignoring different fiscal years. Amdocs Group is reporting by September year end. And again, all the activities and everything we do around the world is aligned to fiscal year ending September 30 in our group financials. When you look on the local subsidiary reports filed for statutory purposes, different year end may apply usually By way of practice, in that country. So for example, in Cyprus, the local statutory report of the salary In Dublin, in Ireland, it's a February rent.
In India, it's March. So if you just add those numbers that are For different total year end, obviously, we get a mishmash of different set of numbers that are not relevant. So all of That is just to explain why we think that the whole design of the attempt that was done to select few legal entities, add numbers that do not adapt Together, then try to find from that the group financials or some correlations to the group financials, we think it's slowed by design. And As we said before, we believe our accounting is rigorous. We are very confident in our book financials.
We are generating constant operating And we are translating those margins into healthy free cash flow from the business, which is as far over time. I want to touch on the legal entities and auditors topic And explain practically how we are looking on this topic. Again, just to run a business over so many countries and activities, You need to be optimal in how you operate in the country, which means typically you need to open a legal entity at least 1 per country. So that way, Okay, so we have 85 countries, why don't you have 85 legal entities, why do you have 155? Because over time, for different We have more coming in usually by M and A.
With every M and A that we do as a company, we inherit first the The legal entities that are coming with the acquired business and then we can try and rationalize it over time. So non organically, we inherit over the years many entities beyond the ones we decided to open our Now we intentionally and strategically try to rationalize the number of entities and reduce it over time. So in the past few years, we have A dedicated task force is a dedicated program to try and rationalize the numbers and structure of our legal entities, and we've managed actually to reduce dozens of them But at the same time, as the team handling this always tells me they feel like they're swimming upstream. Why? Because with any M and A, A new batch of legal entity is coming in.
So just by way of example, the recent acquisition we've done last summer of OpenEdge, that by itself Brought in 12 new legal entities. So that's how we're thinking about this, and we will continuously try to optimize the legal entities and the structure To support the global business and the operational model that Shubhik described before. Moving forward, When we look on this and the implication of that for all these purposes, when you have local subsidiaries around the world in many of the countries, You are required to file the statutory financial statements with a local auditor signing off on those financials, which means we need to appoint different auditors for those entities. I want to emphasize, none of our subsidiary level extended auditors initiated any designation. We, at our own initiative, conducted an RFP in 2018 for audit services in EMEA in order to rationalize 27 different audit firm engagements we had down to a select few.
Again, one way asking to how did you get to 27 different audit engagements, mainly over time through M and H. We inherited legal entities and we inherited them also with their predefined auditors that we did not appoint ourselves. And Going through these projects, after issuing this RFP, we successfully concluded and the outcome of this process resulted In the big four, local affiliates remaining the auditors for our key EMEA business subsidiaries, including those that were mentioned In the report, Ireland, Cyprus, the UK, while we have moved to non big four firms, for the majority of the remaining facility is selecting reputable non big firms that are working with other multinationals on exactly the same kind of service of auditing for Compliance purposes locally in country. And in accordance with local practices and regulation in many of these jurisdictions, the auditors may formalize I've initiated replacement with a resignation letter, which is just a formal action. At the group financials, as filed with SEC, It's a totally different topic because the group financials, when they're audited, have been audited For many years, actually since 1988 and definitely since we were republic in 1998, It's Envoy, New York who has been auditing our financials and this is filed with the SEC.
This is the set of numbers we are talking to investors and the public when we are talking about our financial statements. The responsibility of E and Y when they are signing off on the audit of the group financials is not divided Which means that whether it's in YSOLE affiliates or other local audit firms, They are not relied upon in the consolidated audit. So the team of BNY in New York, who is leading the global audit of Amdocs, He's taking that full responsibility. And all their opinions have been unqualified over the years. On top of that, just by way of best practice, which is very common, the NOI as a firm is doing partner, the lead partner Every several years, we have a new set of eyes to look in our financials and to look on the company controls, again, a very common aspect of the These four firms.
Moving forward, I want to address the point around the balance sheet and cash, which I think is extremely important. And we are very Proud about the strength of the balance sheet and the disciplined capital policy framework we have exercised over the years and talked Very openly with investors about. So to remind you, our guiding principles have been always maintaining a strong balance sheet and investment Great rating. Both by H&P and Moody's, we have been investing great rating for many years. We ensure continuous customer confidence.
We are serving our customers Mission critical systems in long term engagements, obviously, we want those relationships to have And the duration for many years and we want them to feel comfortable with our balance sheet. And we retain sufficient cash for working capital Then the operational considerations. As a global company operating in many countries, We continuously optimize our cash and move cash as needed for the operations at the group level. And I want to emphasize that at the group level, this is not done at the individual So as a group, we can move cash around where we need it. We collect the money.
Sometimes it's not where we actually need to pay suppliers or payroll. So We have the flexibility to move cash around. The whole notion of insignificant level of trapped cash is extremely important here. And I want to refer to the term trapped cash. First of all, if you ask me, do we have cash that we cannot access at all, I would say it's close to 0.
So when we talk about $60,000,000 so called trapped cash, what I refer to is cash But if used, we need to pay some extra tax costs. But even if we do pay this extra tax cost, it's equating the less than 1% of the group cash So we do not have any short track cash and this $60,000,000 is not something we need to tap And by the way, if we do, we will pay the $7,000,000 and use that cash. We do not have any external requirements to maintain a minimum cash level, not by customers, not by anyone else. And we are investing It's cash in a very conservative manner. We are giving full disclosure on the investment vehicles and our investment policy in the 20 F in the net refinings on a quarterly basis.
And you can see we are investing in the high rated securities, whether it's money market, funds, Treasury is highly rated corporate bonds all opposed to cash with Tier 1 banks. When we think about the company in our Naturally, beyond the fact we do generate very healthy cash flow from the business as I presented before, we want to have different sources of liquidity. And we have and we want And we have and we want flexibility. So in the last year, we issued a 10 year bond Of $650,000,000 it happened in June 2020 at an historically attractive rate of 2.538 percent, Very happy about this. We feel it's providing us with capacity to fund strategic growth investments when the right opportunities present themselves and to have that fire On top of that, we have, I would call, more tactical tools.
For example, we have a $500,000,000 credit revolver We use from time to time as a tactical vehicle to optimize cash efficiency. Why do we need it if we have so much cash available already within the group? Because from time to time, It's more economical to draw for a few weeks money from the facility, pay a small amount of interest rather than maybe take securities we invested in or take The projects in banks and break them, so we're doing an economical quick exercise of calculating what's better. And then if needed, we are tapping into the facility. The last time we've done such a short term to own the facility was actually way back in, I believe, Q2 of 2018.
Last year, due to the pandemic, like many other companies, just for precautionary measures, we've drawn the facility around 3 In addition to that, another vehicle we put in place in 2018 was a factoring program. We We used it very little. Even in 2018, it was very immaterial in usage. And since then, we even reduced using the factory. So, I don't think it's of any significance to the overall picture of our cash or cash flow.
Just to be clear, all the strong cash flow That we performed over the last 2 years and the strong indication we provided as guidance for fiscal 'twenty one is not relying in any way on this factoring and it's all On top of that, we recently decided as part of our strategic process to sell open markets That was not core to our strategy. We sold it in November 2020 for around $300,000,000 of cash. And as we said in our February 2 Earning call, we are going to return the majority of that cash to shareholders on top way and above the regular Buybacks that we do and the regular dividend that we do, so just to be clear on top of all of that. Moving forward to the next slide. So when you look on one of the major uses of cash, which I think is of strong interest to the In 2012, so it's running for many years now.
We paid dividends every quarter since we increased the dividend every year since Including 2020, the pandemic year, we increased the dividend double digits, and we've been consistently buying our own shares. You can see in this chart that over the 5 years presented here, on average, we've returned over $500,000,000 per annum to shareholders in the form of Share repurchase and dividends, and that's roughly reflecting 101% in the aggregate for the 5 year period normalized free cash flow generated in that period. So we are clearly very consistent and continually Returning cash to shareholders and as I said before, to top that up with open market sale process, we are going to even do more than the usual in 2021. So very strong business model, strong position, very excited about strategy. We are continuously tracking In our operating margin in a consistent manner and converting that into cash flow from the business, which is then invested conservatively and used for growth initiatives and our strategy build up as well as continuing to return cash to shareholders over the years.
I suggest we'll open it up now for
Our first question comes from Tim Horan with Oppenheimer, your line is open.
Hi, guys. Just a brief question. Why not accelerate the stock buybacks And secondly, can you just describe your software in a little bit more detail? How unique is it and how scalable is it? I guess, how Terrible, is it from client to client?
Thank
you.
So on the buyback, just to make Sure. I heard well. Tim, the question was, I believe, on the acceleration of the buyback from the open market sales consideration. That Happened as soon as we got the consideration at the end of December. And as we said before, that is planned for over a couple of months, obviously subject The regulation of how much activity we can be involved in, in terms of market trading in any given day.
The second question was about
The second question was about the software product and Yes.
We have a very unique software offering. We actually over time we build a complete full stack To support BSS OSS solution for the largest customer in the world and it means that we are covering all the aspects of the business From the commerce activity to the billing activity to the network provision activity, charging rating, obviously, CRM system. So what we call it open and dynamic, I mean, on one hand, you can take the full stack from Amdocs end to end like, for example, what we do right now in Portugal, Germany. It's a full end to end Transformation from commerce back up to provisioning the services and the network. This is very unique.
The majority of our customers have pieces of the solution and we are the only one that have a pre integrated solution end to end. Although we have allowed customers to Obviously, to pick and choose based on business needs how to implement. But this is a very, very unique software stack. Everything is cloud native. We have great relationship With Amazon, with GCP and with Microsoft, and we are I think that we have the cutting edge technology in our software, and This is, I think, recognized by industrialists.
But really, from an overall full stack solution, this is we are the only one that can get All the solution from the commerce up to provisioning the services in the network.
Thank you.
Thank you. Our next question comes from Paul Liani with Bank of America. Your line is open.
Hi, guys. Thanks very much for the extra explanation of the entities. Are there any accounting benefits to having entities? Is there any tax benefits? When you move forward, you look at the next few years, do you think you'll maintain the same structure of having entities?
Can you talk about the benefits of the company from having these entities? Thanks.
I would say it's kind of, I would say, necessity Just to run the operations and the engagement with customers. So even before we're going to accounting and tax, it's like, first of all, Let's start with how we need to operate and where we are signing business with customers. And as you said, we are active in 85 countries. We need to pay payroll to employees, procure different services from vendors. So you need to have the structure to do that.
And the structure to do that involves legal entities in different countries. At the same time, you want to do it in the most efficient manner in In terms of how much it costs you to run this structure, what does it imply in terms of compliance? As we said before, many countries have their own local compliance requirements in countries, which obviously we need to comply with once we operate in that country and have entities there. And then, of course, there are the tax authorities that want their share in the pie. So we are taking that into consideration when we are looking at activities.
But practically speaking, if you ask me, Charles, the overarching theme is that We're trying to reduce the number of entities that we have because sorry, it's kind of down over it that we need to handle and just to do the business and operations of the
Got it. And I asked about taxes. Just is there a tax benefit to having so many entities or entity per Country, is it every country is an entity or every client is an entity? How does it work?
No. Usually, every country needs at least an entity to operate Sometimes there are different consideration on how you structure it. But yes, of course, tax is part of the equation here. But it's not that for sake of tax planning, you just need to add more entities. It needs to be obviously relevant to what's happening in terms The activity, the functions that are done in that country, so whether this is an R and D activity, whether this is a service To support customers, whether this is a place in which we are actually only guide the So there are many considerations we're looking at.
Sometimes it's about point acquisition, what is the acquiring entity. A lot of decisions, obviously, are trying we are trying to optimize that. For example, when we did Converse in 2015, as part of the Converse deal, we Actually, look, okay, how should we buy Converse? To which entity? And the decision back then was the majority of the IT assets were acquired through Sykes In terms of different aspects that we looked at.
So of course, tax is part of the equation, but this is not the why of why Why you establish entities? You should be the why. It starts with you need to run operations, you need to sell to customers, you need to have a framework in which you can operate.
Got it. Great. I have an odd question, Tamar. Do you know who put out the report? Do you know the identity of the company that put out the report by chance?
I don't want to speculate, but we never heard about this name before, the first Never heard about this name before. The first time by the way, everyone that we talk with never heard Contact us, but so we have no idea who is behind it.
Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Your line is open.
Thank you. And thank you for doing this call and the additional information. Just a follow-up to that last question, the last answer that you gave Shuky. So if you Don't know who published the report. I guess that rules out legal action, but Have you considered kind of maybe working with regulators to figure out what it Seems like perhaps was targeting of the stock or any recourse that you can Action that you can take here.
Well, I I can tell you that what we do right now is what we do best: focus on the business, Focusing on return money to shareholders, deliver value to our Customers making sure that we have the best employees. I think this is the this is what we are focused on. We are not trying to look for anyone, And this is what
we do.
Got it. And the legal entity structure, That complexity is fairly common for most global companies. In the example that you gave, Tamar, I mean, obviously, revenues flow a certain way. Work is allocated a certain way depending on client requirements. Does profit flow back the same path or can you flow through different path?
Can you route it To maximize economic return to Amdocs, just trying to understand.
When you look on the allocation of the overall group profit for the different entities, it has to take into consideration what are the functions and the ownership of assets in those And obviously, as any global multinational, we have to and we are providing Very robust transfer pricing policy and studies that are evaluated by the different tax authorities around the world. So when you think about eventually, we have the group profits And how you allocate that profit to different entities, Helix has to do a lot with having the right functions allocation, the right Asset ownership, mainly I'm talking to you about software and IP asset ownership and what value you need to assign So the entities in terms of the profit that own those assets, who is taking which kind of commercial and legal In a manner that will make sense from transfer pricing policy of a global multinational. But all of that Think about it like an internal allocation of the value, which has nothing to do with how much value the group makes from engaging with the external world. Because eventually, the money, the profits we make is how much is the deal value we signed with an end customer and how much it really cost us.
Everything in between in terms of how you take that profit, let's say, my illustration, the $10,000,000 deal With $8,000,000 cost, let's say that really the profit to Amdocs is 2, just to simplify. So how you take that 2 and how it then Distributed between the different entities, I think, has no relevance to the fact that it's 2. And the checks that are done both by us, Our internal and rigorous accounting practices as well as the group audit done by YNY in New York is to check eventually that the total revenue And the total profit we make from engaging with the external world is the right one. Sorry for the cancel, but just wanted to print out quickly.
No, no, I think it's important. Thank you.
Thanks, Ashwin.
Thank you. Our next question comes from Tom Roderick with Stifel. Your line is open.
Hi Shuky, hi Tamar, hi Matt. Thank you for doing this. Really appreciate it. So I guess kind of sitting here On our side of the wall, we see these short reports pop up from time to time. We don't often see companies actually Spon, I'd love to kind of hear on your side of the wall, what sort of went into formulating the Did your Board gather to discuss the report?
Did E and Y engage you in any sort of discussion? Did any of your lenders Ask for more information. Just from your perspective, what drove the desire To communicate with The Street to respond to this and would love to just sort of hear what your independent advisors were asking For further information or anything like that?
Yes, I can start and Thomas will follow. So obviously, we were very surprised with the reports Last week, as we discussed again, we have no idea who is this entity whatsoever. By the way, every None of our advisors recognize this entity. But as Tamar mentioned, we saw that after So we issued a very short press release last week saying that we believe the report has no merit into it. And this week, we thought we should follow-up because some of the items in the report will be more complex to understand.
But I think that as part of being transparent to our investor, we thought this is the right thing to do. Tamar, you
want to add that the timing the report came out was the last day of our quarter. And as usual, we will come early May and report our results and provide an update about the business, etcetera, etcetera. But given It's still several weeks between when the report came out and when we have normal next interaction with the investor deals. We That it makes sense to give some additional details now and give some updates on how we see those things. And some of these topics are usually Not the kind of things that investors are really focused on, right?
I mean, number of legal entities and things like that, local compliance of statutory So we thought it makes sense to come out and classify some of these topics just to be on the safe side.
Yes, that's helpful. Shuky, follow-up For you, certainly one of the more salacious claims in the report was a suggestion that AT and T After 2023, we'd be looking to move to a different vendor across the board, which I guess for those of us that have followed the space for a long time, for Those like you that have been in the space for a long time, it would be a pretty extraordinary set of circumstances for a Tier 1 carrier like AT and T To move off a billing vendor point blank, much less to do so in 2 or 3 years. Can you take us Through your relationship in more recent times with AT and T that gives you comfort that that would just be not something that could happen And you're feeling that this is a relationship that's not only stable at the current run rate, but can grow from here?
I think that core is stable. This is not the right thing. I think that we enjoy now probably one of the top Strategic partnership with AT and T. This statement is completely disconnect with what's happening right now with AT and T. As we work on AT and T, I would say one of their main core engine is the consumer mobility.
So building with AT and T a Completely new modernized platform based on Amdocs 1, our cloud native platform, to modernize all AT and T consumer mobility, to allow AT and T to compete in the 5 gs domain, which is probably the most strategic area for AT and T. So from all by the way, we signed a 2 2 years ago, a long term or less than 2 years ago, a long term 2019. Managed services agreement. So I can tell you that this is completely disconnected from what is going on in the field, and I believe that we We are going to continue to be a strategic partner for AT and T for years to come. And by the way, As I mentioned before, our activities with AT and T is robust.
It's AT and T Consumer. It's AT and T Mexico. It's AT and Network deployment, AT and T Cricket and many, many other things. By the way, we partner with Microsoft Azure to help AT to move applications to the cloud. So I mean, there is we are doing testing with AT and T.
We are doing security. We are doing all the data for AT and T. So it's really Robust activity, and I think that the partnership now are stronger than ever.
Outstanding. Thank you, Shuky. Thank you, Timart. Thank you, Matt.
Thanks, Tom. Thanks.
Thank you. Our next question comes from Will Power with Baird. Your line is
open. Okay, great. Thanks. Yes, I guess a couple of questions. Yes, I'd echo, I guess, so thanks for hosting the call.
It seems like a lot of helpful background information. So maybe just to start, I think one of the other claims in the short report was that it got some attention from people that I talked with. Was that something that changed beginning in 2016 with respect to operating income and how the number was calculated? And I recognize It looked like the short report was only looking at a kind of a small subset of your overall legal entities. But any further color as to anything that might have changed from an accounting standpoint of the calculation of operating income kind of beginning of that 2016 timeframe?
So Yes. Relating to numbers that were put together in a flawed way, I don't think that's the right exercise. But in general, I would say that in any given entity, there could be change in profitability over time because of different reasons. Could be the mix of As I said before, we acquired Comverse, for example, in 2015, when it was bought through the Amdocs Cycles entity. So for 2016 and forward, we amortize intangibles for that entity.
So there are different things that are happening for any given entity. But to take the numbers that they have tried to do, I'm saying they because I have no clue it is, and ignoring the company elimination, ignore different We know that it's a different gap, but at the time, take all these numbers, ignoring all of that and try to match it up and then compare it to the group numbers, Totally float by design. So I think to try to analyze the set of numbers, I'm sorry, I don't feel it's worth your time or mine.
Okay. Yes, that's fair. I guess, other question just Tamar, just coming back to the presentation and you were speaking to the The strength of backlog and the visibility that provides, 80% visibility into a given year. Can you just remind us kind of the key Revenue components within that visibility, in rough terms, how much of that's managed services versus Software, professional services, what are the key elements, I guess, of that 80% visibility into a given year?
So what we include in the backlog is the recurring revenue the 12 month backlog, thanks. Okay. 12 month backlog, Is the recurring revenue in multiyear engagements that are signed? Typically, those are the managed services agreements, could be from Time to time also multiyear maintenance agreements, but usually this is the heavy numbers there are the multiyear managed services engagements in which we providing IT and automation services to our customers to run the systems for them. On top of that, we are including into the backlog recurring revenue of ongoing support that is something that we are doing for many years and we have very high level of visibility.
And to remind you, even during some stress periods Such as 2,008 and 2009 financial crisis or pandemic, we have not seen any change down in this kind of activity. So the level Consistency with C and D is very high. And for new projects, we only include in the backlog Things that have been signed and secured with the customer. So whenever we include, for example, if you remember, we had In the last two quarters, the fiscal Q1 of 'twenty one and the Q4 of 2020, we have very strong Sequential increases in the 12 month backlog. Highested.
The highest average, the record high of the company. A lot of that had to do with signing new deal activity That happened in the quarter. In the most recent quarter, for example, the new multiyear strategic engagements with T Mobile that added to the 12 months backlog. And as we further publishing this metric in order to give you better indication of how we are seeing the visibility
Okay. That's great. Thanks again for hosting the call here.
Thanks, Phil.
Thank you. Our next question comes from Jackson Ader with JPMorgan. Your line is open.
Great. Thanks for taking my questions, guys. Just following up on one thing that Tom asked earlier. Just to clarify, will there be a Board investigation into the accounting practices?
As always in this kind of situations, we're giving full update. First of all, by the way, before I want to say on my behalf, obviously, I want to read as we kind of report that comes out like that and double check and triple check, etcetera, etcetera, our accounting practices. A, we We believe we have rigorous accounting practices. We are very proud about that. And after reading all of the same in that report, I'm telling you there's no merit, We are also obviously making sure that we review it with our auditor, so they feel comfortable So there is nothing to it?
Yes. And then
we presented to the auditorium to the Board. Why we believe so? But it's not a topic of investigation. It's just a regular practice, I think, as the best learning practice that we want to have as a company.
Okay. All right. Got you. And then on the auditor turnover, I guess one question that We have and we feel that is what benefits Do you feel like you get from maybe going with a local auditor in a local country, which is essentially like a completely unknown to the investment Right. Like a reputation that's not good or bad, it's just completely unknown relative to what you might get From a big 4 accounting firm in that local country.
Just curious why local but unknown might be better sometimes?
So first of all, what we want to do is consolidate to fewer audit relationship. It That does not make sense. I assume you agree with me to run 27 different auditors engaged just in EMEA as a regional loan. So we try to consolidate. Now Rationale behind that and again, we're talking just about the local statutory financial statements.
We are not talking about the audit of the group, which is in Wynnew York So when we did this RSP, the rationale was to keep for the large Business entities, the key business entities in which there is more complex activity to keep a big fall firm. And in many of those entities, we reappointed ENY, in some PwC. So again, Depending on the strength of the firm in that country, so that's for the big and key business initiatives. But then You have different legal entities in which, for example, you have 50 employees, you just take payroll and all the revenue of that subsidiary is cost plus to another entity in the group, very simple relative here. So for that, frankly, the attention given by big four firms It's not that relevant and also the price premium that they charge for that.
So on that, we went and Selected a very reputable firm. It may not be a familiar name for you, but they are Top 15 accounting firm in the world. They have over 40,000 employees that have a if I remember correctly, something like $2,000,000,000 I'll turn over. They are doing these kinds of services for many reputable multinationals, AXA Insurance, Wells Fargo, Decathlon, all of those multinational companies have been references of So they're not nobody, just to be clear. And I think they're doing exactly what we need in terms of the level of service we need for those local statutory Of smaller entities within the group?
Again, they were selected, just to be clear, in EMEA. The We believe that the selection process has been very professional. We've had a very strong balance sheet going on with many Good responses. It's not the report to the investors. I want to be I'll now say for the 3rd time, but I want to be absolutely clear.
The consolidated financial statements of AngloGold as filed with the SEC has nothing to do with those local audits, nothing. In way, New York are taking Full responsibility, no dividing this responsibility in any way to those local audits. All these local auditors thing that we're talking about is just for filing Local reports are required by that country. It does not impact the old group on this afterwards.
Thank you. And I'm showing no other questions at this time. I'd like to turn the call back to Matt Smith for any closing remarks.
Yes. Thank you very much for joining us at China. I
think it's my turn. Okay. Thank you all for your questions. We hope the information we have shared today helps provide A clear picture of certain aspects of our business model and organization. Today Amdocs is well positioned to continue to benefit From secular trends driving customer demand for digital modernization solution, the adoption of 5 gs and the journey to the cloud, we are focused on execution of our strategy, Thank you for their continued confidence in Amdocs, and we look forward to providing further updates on our business in early May
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.