Good afternoon, everyone. I'm Samik Chatterjee, and I cover the hardware and networking companies at JP Morgan. For the next session, I have the pleasure of hosting Amdocs. From Amdocs, I have Shuky Sheffer, who's the President and CEO, as well as Matt Smith from Finance and Investor Relations. Thank you both for coming to the conference, and thank you to the audience as well. I'll start you off both with sort of a starter question here in terms of investors that are new to Amdocs, and maybe for us, can you start with a brief introduction of Amdocs and what the company does, what is the industry that it participates in? Thank you.
Sure. Hi, everyone. We, as you mentioned, we are serving the telco industry, all the service providers. Amdocs is doing mainly in the IT infrastructure domain, and we support what we call BSS or SS system, all the support system of the customer, or the billing and other. We will talk in more details. I think there is something very fundamental different in Amdocs that is important because I think this is part of our differentiation. There are many product companies like the Salesforce of the world. There are system integrators like Accenture, Infosys, and others. Amdocs is what we call product-led services, meaning we create the products. By the way, our products are the number one leading products in the market.
We do all the implementation services around the product, and we operate the product, which creates a very unique accountability model because usually these are very complex projects. When things go wrong, the product guy will say the system integrator does not know how to implement. The system integrator will say the product is not working. It creates a very unique accountability model that we do. If you look at the, we do almost everything in the IT domain.
We don't do HR, we don't do ERP, but if you look at the IT domain from the channels, from the website, the mobile application, catalog, all the ordering capture, all the handling system, all the billing-related type of system from billing, account receivable, invoicing, AR, general ledger, and all the systems that actually provision the service of the network, like all the fulfillment system, provisioning system, rating, charging, policy, etc. Pretty much the suite of product is from end to end. By the way, we are very unique. We are the only company that has all the breadth of the product. We touch billions of people in the world. I mean, we are very proud of this customer base.
I mean, obviously in the U.S., everyone's familiar with T-Mobile, AT&T, large customer, Comcast, Charter, Verizon, US Cellular, Consumer Cellular, and pretty much everyone in North America, Canada, Bell, Rogers, TELUS. Everyone is using Latin America, all the large groups of Telefónica, América Móvil in Brazil. In Europe, we work with the largest group, Vodafone, Three, and all the large groups in Europe. We are by far the market leader in APAC between Singapore, Optus, Telkomsel Indonesia, XL Axiata Indonesia, Maxis Malaysia. I think we are by far the market leader in our domain. We do what we call mission-critical system for our customer. Everything about monetization, the ability of our customer to monetize their services, is running throughout Amdocs platform.
In many places of the world, if you land and open the phone, very good chance that Amdocs is doing the monetization behind this service provider. As I mentioned, it's a very mission-critical type of system. Even if you take some stress points like 2008, 2009, the financial crisis, or COVID, this has to work. I mean, this is the backbone of every service provider. We are doing it for many years. If you look at the fundamentals of the company, 66% of our revenue, two-thirds, is what we call managed services. This is a long-term agreement of operation that we are doing for our customers. We do a lot of transformation projects to our customers. 75% of our revenue is recurring. If you look at our 12-month backlog visibility, it is about roughly 90% visibility we have throughout.
Very good earning-to-cash conversion since it's not simple to stop Amdocs. We do good service, and we expect that our customer will respect it. Very disciplined capital allocation. I said very good earning-to-cash conversion and very disciplined capital allocation. We retain the vast majority of the free cash flow to our shareholders with our buyback and our dividend. That's it in short.
Good. Good. Thank you. Maybe talk about the competitive landscape here a bit. When you sort of went through the kind of customers you work with, automatically a question comes up: how much of the software stack is, or do the customers potentially want to insource and have their own development programs around versus come to an Amdocs versus leverage another external? I know you classified it as you do the mission-critical applications, but do you run into a lot of competitors that probably are not only involved in mission-critical but are doing some other applications as well for the service provider customer?
If you look at our revenue, we try to give, I would say, our suite of product and services. We calculate roughly $60 billion of service addressable market for Amdocs. There is no, given what I said before, that there are product companies and there is no real other Amdocs. I mean, we have different competitors. We have system integrators like Accenture of the world. We have Salesforce and other. No one has this bringing this very unique value proposition. Overall, I think that we have a good win ratio against competition. I think that one of another key differentiator giving what we do, all our customers will tell you that Amdocs always deliver. This is a very, very difficult, yes, it's a complex project. There are ups and downs, but eventually, I think we deliver to our customers.
I think that, as I said, there is no, if you talk about competitive landscape, there is no like another Amdocs with this unique. In many cases, in the RFP situation, we see Amdocs, and the other side we see two or three products because no one has the breadth of product that we have with some system integrator that is trying to stitch it all together. I think that if you do not ask me, go to Gartner, they will tell you that Amdocs is by far the market leader. They have the best delivery capabilities, and they have the best product in the market.
Got it. Got it. You did reference the geographies in which you're strong, including the US and outside, particularly APAC. Can you put some numbers around them? What do you believe your market share is in the US versus maybe some of the other geographies? Where do you see opportunity in terms of market share?
I started that back to your previous question. You can argue that half of the spend today is internal IT of the $60 billion that I was talking about. We need to assume that all the internal customer spending is, so you can say that they are the largest customer comparing to other companies that I mentioned. I think that in many customers, when I think we work with our customer to make sure there is a good demarcation, what they would like to acquire from Amdocs, and what are the services they think the value that Amdocs can bring comparing to what they do internally. Geography-wise, obviously, we are very strong in North America. Actually, if you look at it, when Amdocs started, we were pretty much no name in APAC. We have a very strong position in North America.
Over the years, I think we developed a lot of business both in Europe and Latin America and APAC to become the market leader over there. We started from North America, and we obviously are roughly 60% of our revenue is coming from North America.
Got it. Okay. Got it. Maybe talk about the opportunity that you have with the service providers' customers in terms of the way you think about growth being supported by the underlying industry growth. Maybe the question is more, what do you see service provider customers being willing to spend on a long-term basis in the product areas that you're offering? You referenced a TAM, but what have you seen that TAM grow at over a long-term period?
We have exchanges. We have roughly four or five, I would say, large growth engines. The number one by far is the journey to the cloud. Roughly 25% of today, we have a little bit more than $4.5 billion revenue. Roughly 25% of our revenue is cloud-related or cloud activity-related, and this is going double-digit. We are engaging pretty much every Amdocs customer in the world and trying to tailor the right journey to the cloud. As I said, we have many engagements. Although there is a lot of activity, I know in the U.S., it's very common to talk in baseball terms. Everyone asks me, are you in the sixth inning or in the—we are in the second inning in cloud. By the way, in GenAI, I believe we are still in the warm-up.
Definitely, taking the industry to the cloud, engagement for everyone, these are long-term. Some of them are complex projects. It will take time, not simple projects. This is something that is going very well, and the cloud is leading from all the growth engines. The other growth engine is today, everything is about consumer experience and the best monetization capabilities. We are helping our customer to improve their catalog, their ordering, how they engage with their consumer or the businesses to make sure that they are doing it in the most effective way. The third domain that we see as a growth engine is network automation. Since everything in the network is completely virtualized today, we are doing a lot of activity.
We are not competing with Ericsson or Nokia that are doing actually the core network and the radio, but doing a lot of services of network optimization and fiber rollout. We are not digging, but we are doing all the planning. Everything that requires software and IP, in the network domain, this is where we are definitely active. The fourth growth engine, Amdocs was doing a good job to automate all the consumer experience. If you look at the typical environment when Amdocs is working with our large customer or medium-sized customer, you will see that most of the consumer domain is highly automated. It does not matter what type of offering you will buy. The enterprise is something much more complex.
If you want to buy from anyone, from Verizon or from AT&T or from Comcast, a nationwide connectivity offering, this is very complex. Most of them do not have a nationwide coverage. It will be you need to buy from Comcast. Some adding from Comcast will have to bring some other states that are not operated. Addressing the B2B domain is done almost in Excel today. Very slow, very inefficient. This is a growth engine for our customers. We work hard to automate this. The last and not least is obviously everything about GenAI and what we do in this domain, which is now obviously going to be a new growth engine for us.
Got it. Got it. Okay. Maybe then you can talk a bit about the Amaze platform and how do you think it's differentiated from what your competitors offer?
Okay. When I talk about what we try to do, like always we do in generative AI, is trying to verticalize this. We took, for, I will give you some use cases that what is our platform. Our platform knows the data within the telco domain. By the way, even in Amdocs, collapse all our activities around data and all our activity around GenAI to be one unit because in order for GenAI to be effective, you have to rearrange your data. The current data lakes and other does not exist, does not support it. The most, I would say, we took 50,000 calls to the call center, ran them to speech-to-text, got the top 10 questions to the call center. Not surprisingly, number one is, why am I billed this month? It's higher than last month. I mean, this is the most.
By the way, this is the average handling time of this call could be 10 minutes because it's a very complex question. You can take a very, I would say, simple approach, not using Amdocs, and you can take the PDF of December and the PDF of January, send both of them to OpenAI. Accuracy will be very low, less than 50%. We love OpenAI, but it will be extremely expensive because they're charging you by tokens, and it's going to be huge files. The latency will be terrible because you need to compare. In Amdocs, in our platform, given your question, we are looking at it in a different way because we are familiar with the data. We are familiar with all the logic, how you calculate, et cetera. It can happen probably because of 10 different reasons.
Your rent or promotion, your kids subscribe to Disney+ and some other, you did not even know about this. The months before, you called the call center, and you were upset. They gave you $20 discount on the sport. It is not repetitive. What we do is we are trying, giving our understanding of the data and the functionality, how we are using it in our platform in a way to get the maximum results. We have done, it was even published with, we joined PR with NVIDIA. By the way, NVIDIA is our largest partner in this domain. We got to over 98% accuracy, zero latency with friction of the cost, giving when we are using our capabilities with the NVIDIA GPUs and infrastructure. There are many examples like this. The same, if you want to upsell.
You want to check what is the best offer for this customer. It's a package of mobile, broadband, Disney+, AT&T, sorry, Netflix, and others. We are also developing agents to support it. The way we look at it is rather than building a bespoke use case for a certain functionality, we are coming to our customer and we're offering, and we have a couple of good success, what we call AI Factory. We are laying down infrastructure that from some of it NVIDIA, our infrastructure, and you can build use cases in the standardized way using the data in the most efficient way using this environment. Then it's easy. All the heavy lifting is in the first one when you build this factory infrastructure, but then add more and more use cases on top of it is easier.
Okay. Got it. Just to think about it in sort of how the benefit accrues to a customer, there is cost reduction as a part of the tangible benefit here. What are you getting in terms of feedback from customers in terms of revenue synergies or more customer retention? What does that revenue aspect look like in terms of tangible benefit for the customer?
I think our relationship, our business model with customer is a bit different. We don't have what we call rate card relationship. People are not buying from Amdocs, "I want 100 people in this rate, in this location." We are paid and are agreeing with our outcome base. It means if we have a large managed service agreement, we need to meet billing accuracy in order follow-up and many, many parameters. It's not like a rate card type of relationship. Obviously, our customer knows that we do have efficiencies in the business, and we show them TCO reduction over time. At the same time, since we are doing a good job, we are expanding within our customer domain. We can expand in different ways. We do a lot of activities in our customer today of moving application to the cloud, which are not Amdocs.
They saw that we have a very good competency to do, obviously, definitely for the Amdocs system. We are doing it also for the non-Amdocs system. We added additional capability lately that we have capacity to move mainframe application to the cloud. The mobile guys, like T-Mobile, do not have so much mainframe. All the other ones that have carry-on, like all legacy, copper network, fixed line network, they have a lot of. We actually acquired the company a couple of years ago and come with technology how we automate the moving application to the cloud from mainframe. I think what we try to do with our customer is to find a win-win while we share with them some of the efficiency that we gain in GenAI. GenAI is going significantly to change our software development lifecycle and operation. We share with them.
On the other hand, they see that we are doing a good job and they gave us more scope. I think in many cases, when we renew agreements, et cetera, we try to find a win-win while we can expand the scope and increase our revenue. At the same time, the customer can enjoy some of the benefits of the automation that we are introducing through GenAI to our operation.
Got it. Got it. Okay. You guided to double-digit growth for cloud in fiscal 2025. Just help us understand the overall TAM that you see relative to just cloud specifically and your share in that category. When you think about sort of growth in terms of the sort of capabilities there, how would you think about growth in GenAI versus network automation versus digital modernization?
General answer, it's not that easy to color revenue that we get per growth engine. In many cases, it ticks the boxes on some. If we do a new monetization project or transformation project, and this is definitely on the cloud, how do you color it? Is it under monetization? Because many of the things that we do tick the box on more than one growth engine. Move to the cloud is probably the leading one because we see it. Also, by the way, Amdocs is not a typical B2B company because I would call it probably B270 because there are 70. If you took also groups in the world, like I count Vodafone as one customer also. We are running different opcos in Vodafone. There are probably 70 large service providers in the world that spend 90% of the money. This is our target.
We are not going to very small. I think that overall, when you think about cloud, right now, definitely kicking. If you ask me how many Amdocs customers completed the move to the cloud, it is less than a handful. Our vast majority are still in the, as I said, it's a large, complex program. It takes time to get there. It will take years to. This growth engine is here to stay double-digit going forward. GenAI is picking up. It's picking up actually more in the data domain even compared to the use cases because, as I said, in order to be able to leverage GenAI, you need completely to redesign your data. And now you access the data. We are working with our partner from Microsoft and AWS to move the data to the next generation platform. GenAI has an impact.
Obviously, it will become an important growth engine in the future. It will become also an important element of our internal activity in GenAI, which impacts every part of the company. Corporate-wise, I mean, we do not buy creative anymore. Obviously, it changed the way we do legal. I mean, this is more like a corporate stuff. The vast majority of the employees of Amdocs are software developers and in operation. We are starting to introduce many tools to the software development lifecycle and also to operation that over time will get a lot of benefit and help us to continue to automate what we do.
Okay. Got it. Got it. I'll ask you a few questions that are more macro-driven, but we've been asking most of our companies just given the insights you and your seat have with customers. You're talking to customers daily. How concerned are you that we are going into a more significant slowdown in the macro in the back half? Are your customers showing any caution or concerns about that?
I can tell you, as Trump said, "Never say never." When he told the Prime Minister of Canada that, "Never say never." When we look at the macro environment that existed in 2024, it's relatively the same right now. I mean, still high interest rate, all the things that happened before that did impact some spending behaviors, things are a bit slower. This is no change for 2024. On the other hand, we did not see any erosion that connected to the saga of the last two or three months. Tariff in general, so far, we are not directly impacted. Software and services are not part of it. I think also our customers are not too much impacted because they said that if iPhone will cost more, they will roll this additional cost to the consumer.
I guess they have long-term agreement with the network providers, so they're not exposed to any. Yes, if suddenly there are going to be something and AWS or Azure or anyone will start to increase their pricing, it will impact everyone. Right now, we did not see any change in the spending behavior, which is connected to what happened in the last two or three months in our customer. Actually, we enjoy a very nice F1. We grew revenue 4% quarter over quarter. Our 12 months backlog, which is, as I said, represents 90% visibility, grew a little bit over 3.5%. We did not see any impact. Obviously, we are cautious like everyone else, checking the environment all the time, but we did not see any change in our spending behavior. Our customers are focused on growth. They're focused on improving the consumer and business experiences.
They're focused on monetizing 5G. They've done a major, major investment in 5G. They've done nicely. They were able to increase a little bit the pricing for 5G services. The next generation of services in 5G is yet to be offered, like quality of service. Today, in Boston, it doesn't matter who will be your service provider. No one can give you guaranteed latency and speed. You're paying, and it's like best effort. When you implement a 5G standalone, you can start to offer this type. I'm sure people will pay premium for this. If you're going to be in a sporting event and during the event, you want to triple your speed, you can buy boost for five hours. All these models and 5G monetization, I'm sure, will happen.
Everyone is going to invest in GenAI to be able to get better, address the consumer in a better way, and to develop a lot of internal sophisticated tools. This thing will continue to happen, and everyone must move to the cloud. I mean, moving to the cloud is not about TCO. By the way, in many cases, it's even more expensive. If you want to be able to have the agility, elasticity, scalability, highly secured environment, better time to market, the only way to do it is to move to the cloud. This is why I'm sure this will continue to go forward.
Got it. Maybe just so maybe one more before we move to some of your earnings commentary. In a slower macro, I know your customers will continue to spend because these are essential billing systems that they need to continue to spend, and they need to support what they are doing on the cloud. At the same time, no business is completely immune to a macro. What have you seen in the past in terms of where are these sort of leverages?
Look, I mean, we suffer like everyone else. I mean, look at Salesforce gross rated from 20 to whatever said. We enjoy, like everyone else, the post-COVID, and we grew the company in three years, 25% compounded, I mean, between 2021, 2022, 2023. Then, like everyone, we started to face, by the way, similar to what you see, that the Accenture of the world is, by the way, we are not exposed to any government dodge type of spending. We saw some pressure in 2023, 2024. The way our customers have done it, remember, we are doing for them two activities at the same time in many cases. We are running and operating the legacy platform, while at the same time, we help them to build the next generation. They put the brakes on legacy. We said they put most of the investment in the future.
This is what caused us some headwind, definitely in 2024. Right now, we saw this stabilizing, so we do not think now the question is when it will start to creep up. As I said, the macro did not change so much from this perspective from last year.
Got it. Got it. Okay. Going to your backlog, which you referenced, I think the 12-month backlog grew three point five percent on a reported basis at the end of F2Q. Your revenue growth outlook, though, for fiscal 2025 is 1.7%-3.7%, if I got it right.
I mean, the main point is roughly three percent. We reiterated the number for this quarter, all numbers. By the way, if you look at the same for EPS and the total shareholder return, we were pretty consistent in the last five years with double-digit total shareholder return. So EPS is hovering around 8-9% and dividend of 2%. Together, it's over 10%, double digits. We are hovering around 3%. For what it was, we saw some momentum in the first half. We are an October to September company, so we actually finished our Q2 right now. As you mentioned, I mean, Q1 was, Q2 was four percent over year growth. We enjoyed good momentum in the backlog.
I think what is as important is that we see a lot of mature pipeline in our backlog right now to close in half two, which can support our growth for next year.
Got it. Got it. You highlighted a target for 300 basis points of margin expansion in the fiscal year, maybe just.
This is not happening every year. This is because we exit some low-margin business. You're right. Over the years, we're seeing we are trying to improve our margin. We do see margin expansion. I think that we are equipped to do it because we are doing both the product and the services. We invest a lot in internal automation and how we are making sure that we do things better in operation, in many services, in the software development. We have nice pickup every year. I believe that what will help us to continue with this trend is definitely GenAI in the future, that we are already using these tools to do things much more efficiently.
Yeah. I know you called out there's some one-off factors helping the margin expansion this year, but when you think about the long-term drivers, how would you quantify that? What should we expect in terms of more long-term margin expansion for the business?
It's a tough question, but I think that we will see continuous improvement. Like we've seen in the last five, six, seven years that you see every year, we are doing a nice job in increasing the margin. This is not because of necessarily labor arbitrage, or this is really because if you look at our business model, we have long-term agreements. We can invest in automation, and then over the years of the agreement, enjoy this automation. Since we are doing many, many like 50-minute services agreement across the company, we can take automation that we build in our own IP and deploy it, develop once, deploy many times. We have the ability to do it. I think that we have a good discipline on doing this. Remember, in Amdocs, always deliver, and this is mission critical system.
When everyone is going to vacation in December, this is like the toughest between the Apple launch, Black Friday. This is the most complex time to us. What we do is also to make sure that we deliver a great service to our customers.
Got it. Last one, I know you mentioned some acquisitions you've done in the past, but what's the focus for capital allocation now? How much is it going to be about M&A versus, as you said, like?
We have a little bit depth, but the company was almost very, very little depth. We are doing M&A for three reasons. Everything is to support the strategy. The first reason, sometimes we consult competitors. I can give you an example. There is a lot of fiber rollout right now in the US. We have fiber rollout capabilities about design, deployment, monetization. We acquired a couple of boutique companies to get more scale. This is about when we, but sometimes we consult bigger competitors, but competition, how to consult the competition, this is one. The second one is a typical buy versus build decision. We are developing the majority of our product ourselves. I think last year, we spent over close to $400 million of R&D.
Sometimes when we want to extend our portfolio, if there is already a product out there which is good, supporting what we need with customers, sometimes we prefer to buy. The vast majority, we develop ourselves, but sometimes we buy some technology. The last reason is when we want to accelerate in a domain that we do not believe that we have enough capabilities. In 2021, you could not recruit a cloud expert. We bought a couple of boutique companies, and we got like 300 cloud expert injection into the company. Now, as we mentioned, that data is critical for GenAI. We bought a company in Europe that we got a couple of hundred data scientists. We do acquisition to support strategy in domain that we believe. This is mid-size or small acquisition.
We have enough capacity to continue with, as you mentioned, a very disciplined capital allocation of returning all the free cash flow to the shareholders via the buyback or the dividend, and at the same time, do M&A. I think that this is what we continue to intend to do.
I'll wrap it up there, but thank you. Thank you for coming to the conference. Thank you to the audience as well. Thank you.