Ladies and gentlemen, thank you for standing by, and welcome to the Amdocs' Q3 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference to your I would now like to hand the conference to your speaker today, Matt Smith, Head of Investor Relations. Please go ahead, sir.
Thank you very much, 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 information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors 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 6 ks.
Also, this call includes information that constitutes forward looking statements. Although we believe the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, 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 in our earnings release today and at greater length in the company's filings with the Securities and Exchange Commission, including in our annual report on Form 20F for the fiscal year ended September 30, 2019, filed on December 16, 2019, and our Form 6 ks furnished for the Q1 of fiscal '20 on February 18, 2020, and for the 2nd fiscal quarter of fiscal 'twenty on May 18, 2020. 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, Joint Chief Financial and Operating Officer. And with that, I'll turn it over to Suki.
Thank you, Matt, and good afternoon to everyone joining us today to quarter results. This was our 1st full quarter operating under the global condition of the COVID-nineteen pandemic, consider which I'm proud of the company's performance. Revenue exceeded the midpoint of guidance and 1% year over year in constant currency. We delivered a significant number of live deployments demonstrating incredible operating execution using remote deployment tools and methodologies, and we maintained stable profitability and robust free cash flow generation, the latter which was driven by healthy cash collection across our customer base. Tier 3 was also notable for another record quarter in managed services, where revenue grew 4.6% year over year.
This performance reflects the ramp up of activities with new logos and long standing customer where we continue to expand our scope of work under multiyear agreement with highly recurring revenue streams. Our ability to seamlessly operate the mission critical system of customer without interruption during the COVID-nineteen pandemic further underscore the value Amdocs consistently bring to our managed services model. I'm pleased to say that we ended Q3 with a sequential and year over year increase in our 12 months backlog. After the slow start into the quarter, the pace of the deal signing accelerated as Q3 progressed, which we see an early but encouraging sign of business stabilization following the disruption of March April. Moreover, we see attractive and increasing pipeline of opportunity as our customer focus on the critical investments needed to drive the post COVID-nineteen environment, including digital modernization in consumer and enterprise B2B, 5 gs deployment and monetization, system migration to the cloud and launching media and entertainment offering.
Amdocs is a best in class cloud native engine to support our investment today, and we remain committed to invest in R and D and M and A to make sure we bring the innovation our customer will need in the future. Our recently announced acquisition of Openet to 5 gs and cloud migration capabilities is the prime example of this. I will come back OpenNet later in my remarks. But first, let me provide an update of our activities by region in Q3. Beginning with North America.
We delivered a positive year over year revenue growth as we continue to work closely with the region's largest service providers, many of which are leading the world in 5 gs investment and the journey to the cloud. With AT and T, we continue to see momentum supporting a wide scope of activities that includes AT and T investment in customer experience, digital enablement, data analytics and security under the multiyear managed services deal we announced last November. More recently, we have partnered with Microsoft Azure to shift some AT and T IT application to the public cloud, and I'm pleased to say that we've now started a program to modernize AT and T's consumer mobility domain. Let me also comment on T Mobile and Sprint, which unified our operation under the T Mobile brand nationwide on August 2. Adox is playing a key role enabling the new T Mobile merger objectives through a wide range of activities, which reflects the deep relationship we have developed both T Mobile and Sprint over many years.
Move forward, we'll continue to work hard to demonstrate that we have the right credentials to be T Mobile's key partner in support of future strategic requirements. Across the Board and North America, we signed an expanded agreement with Bell Canada, which selected our real time microservices portfolio to further increase its platform agility and accelerate its cloud strategy. And we won a multiyear deal with a leading Canadian operator under which Amdocs Media's cloud based platform will provide content aggregation, processing, compliance and delivery services. Moving to Europe, performance was stable on a year over year basis. I'm pleased to report that we are on track with the large digital transformation projects we are progressing at Vodafone, Germany and Holland, Spain, both of which are adopting our latest next generation offering deployed on modern cloud native technology archivists.
Recently, we completed a many transformation project at 3 Ireland, the great success of which has led to our first project at much larger to UK, where we have been selected as the prime system integrator in a multiyear managed services deal for its enterprise B2B segment. Another example of our ability to expand within the major telecom galaxies is the Orange Group, where Andos is now partnering with Orange Liberia to upgrade its end to end digital enablement platform, the opportunity which resulted from initial entry point at OAN Spain. Additionally, Anders chosen by Cellcom in Israel to accelerate the pace of digital transformation across all business lines, And we also won new awards in the network domain to provide end to end cloud native services orchestration solution to streamline and simplify the order and service delivery management processes for SDS, the world leading global satellite operator. To summarize, the breadth of our industry leading product suite is providing highly relevant with new logos and existing customer, And we remain well positioned to sustain growth in the region over the long term. Turning to the rest of the world, where we are seeing contracts between stronger business conditions in Southeast Asia and a slower pace activity in Latin America.
India was among the operational highlights of Q3, where we successfully migrated wonderful ideas, large list of postpaid customers onto a single digital experience platform that will enable speedy introduction of new services, innovation price plan, branding operational efficiencies. We also expanded our strategic partnership in the Philippines during the quarter. Globes Telecom chose our card native catalog 1 and digital 1 solution as part of a project to transform its enterprise operation and is also planning to use our customer flow management system to overcome COVID-nineteen related challenges in its retail store. Additionally, at PLDT, Ambrecht was selected to accelerate the digital transformation of the enterprise business, fully automating the company's operation by modernizing and consolidating its operational support system across consumer and enterprise services offering. We also remain encouraged by the positive signs of demand we are seeing for our media offering in the rest of the world, such as Vario Corp, AT and T Company, which has signed a multi agreement with Vubiquity to process SVOD content for DirecTV in Latin America, Sky Brazil and DIRECTV Go.
Regarding the outlook with the rest of the world, we are well positioned to support the stockpiles of opportunity in Southeast Asia, but market conditions are more challenging in Latin America, where service providers are weighing their discretionary spending requirements against the weak macroeconomic environment, the COVID-nineteen pandemic and potential market consolidation activity. Now with my original comments completed, let me take a moment to discuss our planned acquisition of OpenNet, a leading provider of 5 gs charging policy and cloud technologies whose customer includes several of the world's top 10 service providers. OpenEdge is part of our strategy to accelerate the pace at which we believe Amdocs can take the communication industry to the cloud while also helping service provider to differentiate in the 5 gs area. The strategic rationale is threefold. 1st, OpenNet's world class team of highly talented software professionals have built a new 5 gs charging policy and data management product, which are recognized worldwide for innovation in the modern open cloud native architecture.
2nd, we believe openness technologies naturally complement the multiplay capabilities of our hyperscale turbocharger platform as well our file demonetization and order handling solution, the combination of which should greatly strengthen our leading technology position relating to the journey to the cloud and 5 gs adoption. 3rd, we see an exciting opportunity to bring OpenEdge to our global customer base of more than 350 service provider to further succeed in the wave of 5 gs investment around cloud, edge compute, IoT and new customer experience. Overall, we believe OpenEdge represents the right acquisition at the right time in the industry, and we look forward to welcoming the innovative team of software professionals to Amdocs upon closing later this quarter. To wrap up, I'm proud of our Q3 performance in which we achieved our both financial targets with seamless operational execution using remote and virtual capabilities. With respect to our outlook for the remainder of the fiscal year, we are providing our current expectation based on information we have to date, but remind you that we are in a time of great uncertainty regarding the spread and severity of the COVID-nineteen pandemic and its adverse effects of the global economy remains.
With this in mind, we believe our business trends are gradually turning towards the resumption of growth. Our 12 months backlog is showing early but encouraging sign of stabilization and supports an outlook for both year over year and sequential revenue growth in Q4 at the guidance midpoint, without including OpenEdge. As such, we now expect to deliver revenue growth for the full year fiscal year between 1.6% to 2.6% on a constant currency basis, which is better than we expected 3 months ago. We are on track to generate normalized free cash flow of $500,000,000 which is slightly better than the original guidance of $408,000,000 which we provided at the beginning of our fiscal year. Additionally, we see an attractive and increasing pipeline of opportunities ahead of us, which we believe we can sustain for future long term growth as we leverage our market leading and cutting edge product offering, track record of execution, pedigree of innovation and employee talent.
To add a final point, I would like to take a moment to recognize our global base of talented employees to whom we are thankful for the extraordinary professionalism and commitment they've shown during the global pandemic. With that, let me turn the call over to Tamar for her remarks.
Thank you, Shuky. 3rd fiscal quarter revenue of $1,030,000,000 exceeded the midpoint of our expectations of $990,000,000 to $1,400,000,000 also after adjusting for positive impact on foreign currency of approximately $5,000,000 compared to our guidance assumptions. On a reported basis, revenue performance included a negative impact from foreign currency fluctuations of approximately $3,000,000 relative to the 2nd fiscal quarter of 2020. On a year over year basis, our 3rd quarter revenue grew by 1% in constant currency. Our 3rd fiscal quarter non GAAP operating margin was 17.1%, above the midpoint of our long term target range of 60.5% to 70.5% and consistent with our guidance that we will protect profitability despite the COVID-nineteen related challenges.
Below the operating line, non GAAP net interest and other expense was $2,400,000 in Q3, the mix of which includes higher interest expense related to a recent short term borrowing and 10 year bond issue, offset by favorable foreign currency fluctuations. For forward looking purposes, we continue to expect that foreign currency fluctuations will continue to impact our non GAAP net interest and other expense line in the range of a few $1,000,000 on a quarterly basis. Diluted non GAAP EPS was $1.07 in Q3, above the midpoint of our guidance range of $1 to 1 $0.08 As anticipated, our non GAAP effective tax rate 17.3% in 30th quarter was roughly in line with the high end of our annual target range of 13% to 17%. Diluted GAAP EPS was $0.90 for the 3rd fiscal quarter, above the midpoint of our guidance range of $0.81 to $0.91 Free cash flow was $146,000,000 in Q3. This was comprised of cash flow from operations of approximately 187,000,000 dollars less 41,000,000 in net capital expenditures and other.
Normalized free cash flow was $169,000,000 in the 3rd fiscal quarter, which is consistent with our guidance that free cash flow will convert at roughly 100% of non GAAP net income in the second half of year twenty twenty. Please refer to the reconciliation table provided in our Q3 earnings release for an explanation of the difference between normalized and reported free cash flow in the quarter and for the past periods. DSO of 85 days was unchanged year over year and up by 3 days as compared to the prior fiscal quarter. To remind you that DSO may fluctuate from quarter to quarter. The sequential gap between unbilled receivables and deferred revenue widened by 7,000,000 dollars as compared to the 2nd fiscal quarter of 2020, reflecting a decrease in total unbilled receivable of $10,000,000 and a decrease in total deferred revenue for short and long term of $17,000,000 Relative to a year ago, the GAAP narrowed by 3,000,000 dollars Changes in this GAAP are primarily due to the timing of contract specific milestones relating to the transformation project we are delivering for our customers.
Moving forward, you should expect unbilled receivables and total deferred revenue to fluctuate from quarter to quarter in line with normal business activity. Moving on, our 12 month backlog was $3,000,000,000 at the end of the 3rd fiscal quarter, up $20,000,000 sequentially from the end of prior quarter and equivalent to year over year growth of roughly 2.4%. As a reminder, we believe our 12 months backlog continues to serve as a good leading indicator of our forward looking revenue. I am pleased to report that revenue from managed services arrangements that generate high level of recurring revenue streams had a record quarter in Q3, comprising roughly 59% of total revenue. That reflects high renewal rates, the growing adoption of our managed transformation model and the continued expansion of activities within existing 3rd fiscal quarter was approximately $1,200,000,000 including aggregate borrowings of $750,000,000 Our June 30 balance sheet does not affect the annual acquisition sorry, the announced acquisition of OpenNet, which we expect will close in Q4 for a net consideration of roughly $180,000,000 in cash.
During Q3, we see the opportunity to proactively raise $650,000,000 by way of a 10 year investment grade bond issue at a historically attractive interest rate of 2.538 percent. And we also repaid our outstanding balance of 300 $1,000,000 under our $500,000,000 revolving credit facility and an existing short term loan of 50,000,000 dollars An additional short term bank loan of $100,000,000 remained outstanding as of June 30. As an added point, we paid approximately $29,000,000 in cash for the acquisition of business and intangible assets in Q3, the majority of which related to the purchase of a small software design and development company by our Project 202 subsidiary in support of our digital strategy. We remain comfortable with our balance sheet and believe that we have ample liquidity to support our ongoing business needs, while retaining the capacity to fund strategic growth investments as and when the right opportunities arise. Additionally, we are committed to maintaining our investment grade credit rating.
During the 30th quarter, we repurchased $60,000,000 of our ordinary shares under our current authorization. As of June 30, we had roughly $769,000,000 of authorized capacity for share repurchases with no stated expiration date, which we will execute at the company's discretion going forward. Now turning to the outlook, the prevailing level of macroeconomic and business uncertainties surrounding the magnitude and duration of the COVID-nineteen pandemic remains elevated. The midpoint of our revenue guidance for Q4 reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios. And we remind you that our outlook may be impacted materially as our customers continue to elevate their strategic business priorities and future facing investments.
With that said, we expect revenue for the 4th Q1 of 2020 to be within a range of $1,015,000,000 $1,055,000,000 which is better than what we previously forecasted. Embedded our Q4 revenue guidance, we anticipate a sequential positive impact from foreign currency fluctuations of approximately $4,000,000 as compared to Q3. Our full fiscal quarter revenue outlook does not incorporate the announced acquisition of OpenNet as the transaction has not yet closed. For your long term modeling purposes, we expect OpenEdge to contribute roughly 1.5% to 2% of revenue growth in fiscal 2021. We will move quickly to bring Opiant Technologies into our broader portfolio of 5 gs offerings, naturally merging it with our core activities within a quarters of closing the acquisition.
Regarding the full fiscal year 2020, we expect to deliver total revenue growth in the range of roughly 1.6% to 2.6% year over year on a constant currency basis without including OpenEdge. The midpoint of the new range is approximately 10 basis points higher than that of our previous expectation of 0.5% to 3.5% year over year and highlights the resiliency of our business model and ability to sustain growth during the pandemic. On a reported basis, we now expect full year revenue growth in the range of 1.1 percent to 2.1% without including OpenEdge as compared with the range of negative 0.5% to plus 2.5% previously disclosed. The new outlook anticipates a negative impact from foreign currency fluctuations of approximately 0.5% year over year as compared to a negative EBITDA of 1% previously. We anticipate our non GAAP operating margin will remain at or above the midpoint of our unchanged annual target range of 6.5% to 17.5% in the 4th fiscal quarter and similar to the levels of the last couple of quarters.
As we continue to operate within the environment of the ongoing pandemic, we remain focused on protecting our profitability without compromising operational excellence and one investing in the future engines of growth. We expect the 4th fiscal quarter diluted NAND gap EPS to be in the range of $1.16 to $1.22 Our 4th fiscal quarter non GAAP EPS guidance incorporates an expected average diluted share count of roughly 134,000,000 shares. We excluded the impact of incremental future share buyback activity during the 4th fiscal quarter as the level of activity will depend on market conditions. For the full fiscal year, we now expect to deliver diluted non GAAP EPS growth of 1.6% to 3% year over year as compared to our prior expectation of 0% to 4%. We expect our non GAAP effective tax rate be within our annual target range of 13% to 17% for the full fiscal year 2020.
The impact of OpEx on Amdocs non GAAP diluted earnings per share is expected to be neutral in the full fiscal year 2020 2021 and accretive thereafter. We continue to expect normalized free cash flow for fiscal 2020 year of approximately $500,000,000 which is slightly higher than the original forecast of $480,000,000 at the beginning of the year. We are raising our outlook for reported free cash flow for fiscal year 2020 to approximately $420,000,000 compared to our previous quarter expectation of 400,000,000 dollars Reported free cash flow now includes anticipated capital expenditure of up to $70,000,000 in relation to development of our new campus in Israel and other items, which is reduced from our previous expectation of up to $90,000,000 Regarding our capital allocation plan, we expect to return the majority of our normalized free cash flow in fiscal 2020. With that said, we will continue to assess the deployment of capital carefully in the 4th fiscal quarter having regard to the status of the COVID-nineteen pandemic, the outlook for M and A, financial markets and prevailing industry conditions. To conclude my financial comments, we are pleased with the financial discipline we demonstrated in our Q3 performance and we're encouraged to be providing an improved outlook on a sequential basis for Q4.
With that, we can turn it back now to the operator and we're happy to take your questions.
Thank you. Our first question comes from Shaul Eyal with Oppenheimer. Your line is now open.
Thank you. Good afternoon, Shuky, Kumar, Matt. Congrats on the quarter execution and the improved outlook. Two quick questions on mine. Shuky, we keep hearing, we keep seeing that the new COVID-nineteen environment is actually accelerating digital transformation journeys.
When you talk to customers, what are they telling you about their spending priorities as it relates to this ongoing shift to the cloud? Even within that shift, what could be prioritized first versus some other products or services?
Hi, Shaul. Good to talk to you. So you are right. This is true that our customers are reducing the discretionary spending, but I think which in relates to the cloud journey and to digital transformation, which are really needed for the post COVID-nineteen environment, this is where I think that they are not stopping and actually in some cases they are accelerating. I think everyone understand in the post COVID-nineteen that retail stores are going to be closed, people are using much more digital capabilities from mobile application, website, etcetera.
This is one. And so legal training or commerce become pretty much the standard. And the other thing is obviously that the migration to the cloud, getting rid of on premise data center, this is something that started before the COVID-nineteen and accelerated by the COVID-nineteen. So we do see good trends and good opportunities in this domain.
And I have a follow-up for Tamar. As the work from anywhere or work from home phenomenon continues to accelerate, are you having any second thoughts, any fresh thoughts about the campus being built in Israel? And maybe some of your other global branches, how to approach it longer term?
When we look in our kind of philosophy around working from home versus working from the office, we believe that working together at the office creates a very important environment of collaboration and innovation that is necessary in the tech world. Yes, flexibility is important. And to remind you, ahead of COVID-nineteen, we're actually encouraging our employees on a global basis to work one day a week from home because we thought that flexibility matters. But as a matter of principle, we do hope to see a world where we can go back to more of a hybrid model. And we've taken that into consideration in planning our workspace globally as well as in the new campus was filled up in Israel to create that kind of flexibility and take that into considerations in the planning.
Our next question comes from Jackson Ader with JPMorgan. Your line is now open.
Great. Thanks for taking my questions tonight. First one is on OpenNet. I think if we just look at Tamar, you mentioned the expected contribution for maybe fiscal 2021. Is pretty much in line with what you guys said was the annual revenue for OpenNet for the last couple of years when you announced the acquisition.
So just curious, what should we be expecting in terms of growth either acceleration, what are the levers of growth? And with 5 gs deployments picking up, why wouldn't OpenNet maybe see a growth acceleration?
So when we look on the financial model that OpenNet had as a standalone company, it was very typical of a separate product company, where the majority of revenue is coming from license, maintenance support and to some extent, later on from some professional services. We believe that in conjunction with the Amdocs portfolio of products, we can obviously take it to be something more robust and bigger over time. But the type of sales cycles that we see ourselves and same goes for OpenNet, as such, it usually take a bit more time. Consideration and the fact that obviously together we want to accelerate the build up of the pipeline and see that acceleration coming later on in the form of closing deals with OpenNet under the wings of Amdocs, we think that should accelerate, of course, over time.
Okay. Great. That makes sense. And then a quick follow-up, actually just sticking with OpenNet. In terms of maybe total opportunity just within the Amdocs customer base, Shuky, you mentioned that the 3rd point, I think, for the strategic rationale was that you can now sell OpenNet to the global customer base of Amdocs.
So how much overlap do you have in current customers now? And what do you think that's total opportunity?
We have some overlap, but we have also a lot of customer that we have and they don't. Probably have much more customer, much more customer that we have and they don't and a little bit of the opposite. I think that the 5 gs charging of OpenNet, which is completely cloud native and recognized probably the best in the market, adding to our obviously our commerce, billing, real time billing portfolio, I think this is a unique combination in the market. As everyone is moving to 5 gs, this cloud native 5 gs charging is pretty much relevant to every service provider, obviously, to all the Anthos customer. So I think it's a great opportunity for us to come with holistic cloud native solution that address all the 5 gs needs of our customers.
Okay. Thank you.
Thank you. Our next question comes from Will Power with Baird.
This is Charlie Erlikh on for Will. I was hoping to stay with OneNet and ask a question specifically on 5 gs. I'm wondering now with OpenNet in the portfolio, how would you compare your product portfolio as it relates to 5 gs compared to some of the other competitors that are also offering similar products? And then related to that, how would you characterize just the 5 gs opportunity in general in terms of the possibility to accelerate the top line and potentially the timing around that?
Obviously, I'm biased, but definitely, I believe that our portfolio in this domain is second to none. The I mean, the all the monetization platform and our D1 and catalog 1 platform that obviously we believe this is the best in the market, our real time billing that we have and now we added the charging for 5 gs, I think it complete the solution end to end. And actually, we are going to integrate the OpenEdge solution to our suite in a way that the same catalog, our catalog 1, which we, for example, we announced last quarter that another big North American service provider chose, by using the same catalog, we can have an end to end suite that support 5 gs. Now to your point, all our customers are moving to 5 gs. If I need to rank the world, probably North America is number 1, Europe is second and APAC is third from adoption of 5 gs.
All of them are looking to build capabilities for monetization and charging for 5 gs. And I think we have the right portfolio to address all these needs.
Great. Thank you very much.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Matt Smith for closing remarks.
Thank you very much for joining our call today and for your interest in Amdocs. We look forward to hearing from you in the coming days. And if you do have any additional questions, please call the Investor Relations group. Have a great evening. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.