All right. Right on time. We'll get going here. Good morning, everybody. Thank you for joining us here today. My name's Jack Cassel. I'm with Nasdaq. I'm a Senior Vice President and Head of our L.istings for Western and Central US. Fortunate to have a great conversation forthcoming. Maybe we'll start, just so I don't butcher it, with both of you, Shuky and Matt, introducing yourselves for the group.
Hi. Good morning, everyone. Shuky Sheffer. I'm the, the CEO of Amdocs. And Matt.
Good morning. Yeah. Matthew Smith, Head of Investor Relations for Amdocs.
Perfect. Thank you both for coming here. Maybe we'll just level set for the group, for the investors that are unfamiliar with Amdocs and your incredible story. Let's start with just a brief history on the company and really the mission-critical role you play within the global communications industry.
As you rightly said, Amdocs operates mainly in what we call the communication and the service provider industry. I think probably in this domain, it's probably in the last 30 years. We actually were fortunate to build our position through all the wireless buildup that started in the 1990s. Just to explain a little bit what Amdocs is doing is, everyone is using, you know, broadband at home, consume content. It's about connectivity. Any type of broadband connectivity is through 5G, through your broadband at home, fixed wireless, everything. In the service provider domain, there are two, I would say, main pillars. The first one is, okay, you need to build, you know, fiber networks. You need to build, to roll out, radio network for the user of 5G.
There is all the system that actually supports all this, this operation. It does, so if you think where is Amdocs' role, we operate in an end-to-end environment of what we call the IT, the information technology of our customers. We are not in HR or ERP, but everything rests, all the monetization, all the fulfillment, provisioning, insurance, everything, everything is going through Amdocs' system. If you connect to your service providers through a mobile app or web application or whatever, and you want to come with new offers, all the order management, everything you order from the service to the device, and then all the way from all the billing system, account receivable, invoicing, everything, including charging, rating of all the services.
It's the end-to-end support for our customer to actually monetize the services. This is a very, very highly mission-critical system. Sometimes I wonder how I can sleep at night, given our position that the vast majority of the service providers in the world are using Amdocs' system. We say that roughly three billion people are touching Amdocs.
Mm-hmm.
Every day. We are here in the U.K., so here our customer is, obviously Everything Everywhere, Three, and Vodafone. If you go to the U.S., it's obviously AT&T, T-Mobile, to some degree Verizon, Charter, Comcast, and in Canada, if you guys are aware, the Canada Telus, Rogers, in Latin America, all the big groups between the, the Carlos Slim, the América Móvil , and the Telefónica. Definitely across Europe is Vodafone and others. We are by far the market leader in APAC. If you need to think, all the services that you consume from a service provider, which could be connectivity or content, all of them are monetizing through the Amdocs' systems.
Okay. That's very helpful, and especially in the global nature of the business. Amdocs often highlights its unique business model. Maybe can you share a bit more about the various elements of this model, the importance to Amdocs' market success, and the way in which it supports high levels of recurring revenue, financial stability, and really that visibility?
Mm-hmm. There are two, I would say, main things which differentiate Amdocs from the rest of the competition that I'm sure we'll talk about. The first one is usually, if you were to split the world in a simple way, there is the product companies of the world, like Salesforce and others. There is the system integrators of the world, like Accenture, Infosys, and others. What is unique about Amdocs is what we call we are a product-led services company, meaning that we develop the product. We invest a lot of money to develop. We have by far, if you go to Gartner, anyone, we have by far the best product. We develop the product, which is built—no, it's not like a multi-vertical product. It's a product which was built for Telco.
We develop the product, we implement the product, and then we operate the product in a minute or the services in a minute services. This creates a very unique accountability model. Why? Because, if you look, probably 10, 15 years ago, there was some type of a fight between our model, which you say, "Okay, this is like a fully accountability model," and the best of breed.
Mm-hmm.
In Amdocs' case, we are bringing the whole suite, the whole portfolio. We are responsible for implementing it and to operate it. You have a fully accountability model. The other model of operation, which still obviously is there, is what we call best of breed. You bring a system integrator that's trying to stitch together different products.
Mm-hmm.
To get to the same outcome. In many cases, like we know, this is very complex. I mean, this is a very complex environment. One of the toughest, complex environments, mainly in the same level of financial services or banking. I mean, the data is huge. I mean, it's mission-critical. You still work all the time. How much patience do you have if your bundle will be down for two seconds? I mean, or your mobile service will not work because there is some problem in the backend. People have zero tolerance. I mean, this is like, you know, if you ask my kids, "What is the most important utility at home?
Is it running water or internet? I mean, it will be they will say, "We can, we let's have internet first." This is why I said this is a very unique accountability model. Because in this project, if something goes wrong in the other model, not Amdocs, then the system integrator will say the product is not working. The product guys will say the system integrator doesn't know how to operate the product, and there's no real accountability.
Mm-hmm.
and the other thing is that, since we are focused on the telco industry, on the communication industry, we build the whole portfolio.
Mm-hmm.
If you look at the Amdocs portfolio, it's end-to-end from the, as I said, from the channels to the catalog to ordering, billing, invoicing, AR, general ledger, charging, rating, provisioning, fulfillment, assurance. It's end-to-end, suite, which is completely, I would say, pre-integrated.
Mm-hmm.
If you try to, the competition, probably no one has the whole breadth of products. You will have to bring like two, three products. You have to bring Salesforce and maybe NetCracker and MATRIXX, like three or four companies together to have the same portfolio that Amdocs is having. Now, we need to assume, so you are, you are getting more and more complexity because then you need to integrate three different products, and we know it is complex. You have a system integrator that is not an expert, really. He is trying to stitch together all these products. The success rate of this type of project is very low. We in Amdocs enjoy very, very high success rate. You know, people will say about Amdocs, they are a great company. Their products are the best. Maybe they are too opinionated.
They are maybe expensive, but they always deliver.
Mm-hmm.
This is our claim for fame. This is a very complex project, and huge operation. You think about this that, while most of the world throughout the, obviously, December holiday season is taking a nap, this is the most critical time for us. I mean, talking about Black Friday and such. I mean, this is like huge operation that has to work flawlessly, at any given point. I think, as I said, it's a very unique business model for accountability, doing both the product and the services. It brings us some additional value. We'll talk about this later. Comparing to the other model now, it's not that we, you know, we have 100% market share. We have a very big market share.
If you'll see, if you check, you'll see that our success rate is significantly higher than the competition.
Yeah. Sticking with the competition and maybe taking it a step further, can you talk about Internal IT as a key competitor and really the case for why customers will continue the gradual shift toward industry specialists like Amdocs?
As I said, we have a lot of competition. By the way, competition is growing, because we are all the time expanding the portfolio.
Mm-hmm.
You used to do, 20 years ago, we do, we used to do only billing. Now we do the whole portfolio. Obviously, whenever we expand our portfolio, we are getting a new competition. I think that, as I said, the competition is there. Still, half of the spend, we have roughly close to $60 billion addressable market. By the way, we do not operate in China, so we do not have any exposure to China. So far, we do not see any major exposure to all the tariff war, etc., for what it was. If you look at this [SEM], which is roughly $60 billion, half of it is spent by Internal IT.
Mm-hmm.
The rest is split between companies like Amdocs. We are $4.5 billion and others. You can say that the Internal IT is our main competitor. By the way, it is also our main partner.
Mm-hmm.
Because we said we are always as good as our customer. Amdocs cannot, if you do not have a very strong IT team as good as we are, I mean, it has to be a very collaborative environment to be successful together. Definitely, the Internal IT is, in a way, our largest competitor. Now, I think over the years, what our customer took some decision to say, "Okay, what is strategic for us?" and where we buy the services from someone like Amdocs.
Mm-hmm.
You can see that they are more focused on the network domain. This is where, you know, they believe this is their differentiating from the network domain expertise. In the IT domain, they rely more on Amdocs. I think the value proposition is, beyond what I said, that we sit in a place that we see when we build our product. Today, no disrespect to anyone, most of the innovation is in APAC.
Mm-hmm.
They are the first one to deploy 5G or standalone 5G standalone network. I mean, Singapore, I mean, it's a city. I mean, it's 1/3 of London. I mean, so, they were able to develop 5G faster than anyone else. We are working with Singapore Telecom. We, you know, got a lot of experience about what will be the best way to monetize 5G, or in Korea, for example, that we are operating with Korea Telecom. Where we see it, it's not just, "Okay, we are not just bringing a product. We are not throwing the product over the fence and tell the customer, 'Okay.'" We also come with what we believe is best-in-class business processes and practices. We see what's happening in APAC and in North America and in Europe.
When we come to customer beyond the regular value, it's not just a product. You say, "This is a product." By the way, this is the best business process to deploy converged offering of content, broadband through fiber and mobile. It's beyond. I think this is a, and customer give it a lot of value. I mean, they understand that it's not just not specifically what is going on in their market, but from Amdocs, they get a little breath of what is happening globally. For the most part, now, even within the IT domain, for example, customer wants all the backend system to be Amdocs. They want all the, obviously, all the ordering system catalog, all this heavy-duty system to be Amdocs.
They say, "We want to own the, let's say, the mobile application because we feel that we have, we know we touch in the consumer." There is a demarcation there, but yes, the internal ITs are our largest competitor in a way, giving the spend.
Okay. So with that, and you, you touched upon the addressable market. Can you describe Amdocs' growth strategy going forward?
Obviously, the growth strategy, you know, is evolving. Many years ago, we used to do strategy session every three years. Now, then it become one year, then it become every three months because things are, you know, changing so fast. But there are some clear growth engine that are supporting our growth in the last four or five years. The first one is the move to the cloud.
Mm-hmm.
The industry is still behind, moving slowly. By the way, Amdocs is the leader in moving all our customers are moving to the cloud with Amdocs. Moving to the cloud is, it's not just, it's not about TCO reduction. By the way, if you'll compare, you will see that actually, cloud environment is not that cheap, even comparing to the, you know, the traditional, you know, on-premise environment.
Mm-hmm.
Moving to the cloud is about, you know, elasticity. Our customer used to have the hardware to support Black Friday volume, which is maybe two and a half times the regular volume because of two days a year.
Mm-hmm.
In the cloud, you know, you can do this. It's so, it's about elasticity. It's a much more secure environment.
Mm-hmm.
Talking about, you know, cyber threat, etc., time to market and the ability to deploy new services is much faster. This is the first time that you really have a disaster recovery. You know, it's usually to, to fact that you save some data center somewhere else. I mean, it's, it's really, it's not really, so there are many, many, many aspects. Moving to the cloud is a big thing. I'm not sure it's very, you know, in the U.S., you know, everything is in baseball terms, you know.
Mm-hmm.
They ask us if we are in the third inning or the eighth inning. We are in the second inning from this perspective.
Mm-hmm.
I mean, this is our, because then we have many projects, you know, 20% of Amdocs' revenue is cloud-related. It's going double- digits, but still the industry is behind. Moving to the cloud, then obviously about 5G monetization. 5G, all the standard change. There is much more capacity, capabilities in 5G. Not everything is yet to be deployed. In today's environment, you can, you don't get, what we call quality of service.
Mm-hmm.
It's like best effort. They do not tell you you are going to get this, this, that speed and that, that latency regardless where you are, where you are in London. In 5G, you can get to situations, network slicing and others. The whole monetization of 5G, this is another growth engine for us in the last several years. The other one is, we talk about B2B.
Mm-hmm.
Customers obviously have what they call B2C, the consumer domain, and then they have the enterprise domain. Amdocs have done a lot and invested for many years in the consumer domain. We got it to the level of automation in the high 90s of the whole thing. B2B was left behind. Now we are investing in this in the last two, three years. It's much more complex. You're coming from the U.S. Think about if you want to, if you're a large business and you want to do a connectivity deal with Comcast or Charter or whatever one, and this is like a nationwide 50 states, you might have the infrastructure only in 20. You need to, if you are Comcast, for example.
Mm-hmm.
You have infrastructure in 20. You need to buy from Verizon and from Lumen and from AT&T. It's a very complex business. This is a growth engine to our customer. This is another domain. Everything around network automation in general, network was very bespoke, you know, proprietary environment. Now that network virtualization, everything has become, obviously network optimization and around deployment, many, many things we can do in the network domain. Obviously, the last one I'm sure we'll talk about is that emerged lately is all everything around the generative AI and data, which is definitely evolving right now.
Yeah. You, you good preface to the next question because there wouldn't be a discussion in 2025 without hitting the topic of Gen AI. Maybe you can expand on that a little bit just around your strategy and then perhaps also on the partnership with NVIDIA.
We look, obviously when we talk about Generative AI, we believe it's going to change Amdocs in the years to come.
Mm-hmm.
It's from what we offer our customers and how it's going to change us internally. Now, I'm sure there are some basic, not basic, simple, you know, low-hanging fruit, incorporate. I mean, in marketing, we don't buy anymore with creative. I mean, this is, but we can optimize our legal and finance and everything. This is more. Obviously, most of the activity that we do is in the software development lifecycle.
Mm-hmm.
In operation in general, our many service, operation. This is internally and then externally what we offer our customers. Let me start with what we offer our customers. We embed, like many others, Generative AI capabilities in our products. For a good example is, if you look at the product catalog, which is the heart of the offering. Offering is extremely complex in the telco environment. You, it, it's a nice tool. [Marketeer] can, you know, can play and plug and play and create a new offering. We created obviously Generative AI. Now rather than starting to build the offer, you can write, "I want to create, for the iPhone launch in September, a new offering for millennials, under 25 in London that are likely to outbid the phone and are students.
Mm-hmm.
Rather than you will start, it will give you, [big] demographic information, etc., and try to help you. It's like a co-pilot for the marketeer to, so this is, for example, in the product domain. We mentioned about, the B2B.
Mm-hmm.
Today, in order to create a large B2B order, it takes weeks and weeks and weeks. Now we can get like, if you talk about serviceability and offering, we can expedite this, we can create an offer probably which is 90% there. Used to take weeks to build before.
Mm-hmm.
This is an example. This is how we implement in our products. In another area is, we talk about how we embed, because we understand the data.
Mm-hmm.
AI, Gen AI and data comes together.
Mm-hmm.
We took a 50,000 call from a call center of one of our customer, ran them from speech to text, and the most common question in the call center, not surprising, is, "Why my bill this month is higher than last month?" This is a very complex question for the call center representative to answer because it can happen for many, many reasons.
Mm-hmm.
It can come from, your promotion ran out. You do not know your kid subscribed to Disney, Amazon. You do not even know about it. Suddenly it is added to you. You were pissed off. You called the call center the month before. They gave you $20 just because they wanted to give you something to make you happy. This is not repeatable. The way we are looking at it, we combine data, the understanding of the system, and Gen AI together rather than so you can take two PDFs of the January bill and the December bill and send them to someone, OpenAI, whatever. The latency will be terrible because this is huge files.
Mm-hmm.
The accuracy will be less than 50%, and it was going to be extremely expensive because, you know, we, for example, OpenAI, they charge by. What we show with NVIDIA, leveraging their technology, open source, LLM, obviously some OpenAI, our, so we can bring in real time the data which is relevant to the question. And we got to like high 90% accuracy with a fraction of the cost, with zero -latency. This is an example of what, so it's between, I wanted to call it copilot, agent, and definitely also from the app side. When you call to the call center, immediately we look what is your pattern. I mean, how much you subscribe, what is your connectivity, how much you use on the network, what type of OTTs. We buy Netflix.
We can create a much better, so the service rep or even the chatbot, we can tell you this is the best package for you because this is what we see that you do. This is, from the externally how we work with our customer. Internally, it's going to completely change the way we develop software, the way we operate. I don't, we don't have time to get the details, but it's going to completely change what we do. Obviously, in the future, it will help us to be much more efficient.
Very much so. Switching gears a bit, you had delivered strong Q2 results with a 12-month backlog up 3.5% year- over- year and revenue up 4% year- over- year and a pro forma constant currency. I had to read that one. Can you share a little bit about how you're thinking about the full revenue or full year revenue growth, outlook?
So we guided to close to 2.7%, roughly close to it.
Mm-hmm.
We are very happy with the business momentum. We see backlog is going nicely. At the same time, I think like everyone else, we reiterate our numbers last quarter. At the same time, you know, yes, it depends on which day in current environment. Every day there is new news, but we remain a bit cautious. I mean, given the macro- environment, interest rate environment that is still, you know, our customers are highly leveraged because, so this is why interest rate is significant for them. Geopolitical, macroeconomics, all of this together. While we reiterate the numbers, we see good growth. I mean, a nice momentum in our backlog. Overall, if we talk about what is the investment thesis in Amdocs, I mean, because of, so we are not a 20% growth company.
At the same time, if you look at our business model, I mean, roughly 65% of our business is what we call managed services. What does it mean? It is a long-term agreement that we run all the operation for our customer in the managed services. Meaning it is a full end-to-end accountability that, by the way, which is outcome-based. We are committed to service level, and this is, so roughly 65% of our revenue is this type of nature. This is more like, the most strategic, I would say, relationship you can get with a customer. Seven years deal, five years deal that we run everything for them. 75% of our revenue is recurring.
Mm-hmm.
It's meaning it's recurring revenue that is going on. If you look about our, since this is mission-critical systems, and you can say for the most part, it's not that easy, you know, to shut it down. I mean, if you look, stress cases of 2008, 2009 financial crisis or COVID, for example, most of the project were not stopped. I mean, this is, I mean, if God forbid we are not working, the organization cannot work. We have, we say we have roughly 90% visibility throughout 12 months backlog.
Mm-hmm.
Which is relatively high.
Yeah.
I think at the end of the day, I think that we deliver good services to our customer, and we're very connected to the strategy. This is from this perspective. We have a very disciplined capital allocation.
Mm-hmm.
Between our dividend yield, which is roughly 2%.
Two and a bit percent.
Two and a bit percent. We are very disciplined, buyback.
Mm-hmm.
I mean, we roughly return the vast majority of the free cash flow to our shareholders through the buyback or the dividend.
Mm-hmm.
If you go back to what is unique about Amdocs, because we do both the product and the services, we have much more opportunity to automate what we do. In a typical environment, which is not Amdocs, you will have a product and you have a system integrator, Accenture or Infosys, wherever. Let's say there is some order fallout. The system integrator will say, "We have this order fallout. Let's run these scripts or patches and put a team that will deal in the ongoing on the order fallout." This will be probably the model. In the Amdocs case, because we do both, the operational guys will receive this order fallout. They will call, it's the same company. The product guys say, "Guys, we are seeing this order fallout.
Let's check the problem, fix it to prevent this.
Mm-hmm.
This order fallout from the root cause rather than put some patch at the end and fix it. We try to automate most of the thing that we do, both in the service development, in the software development lifecycle and the operation. We have rough economy of scale. We have more than 50 large managed services agreements that we run. Every efficiency automation that we are doing, we can deploy across many accounts. We were very successful in the last years to gradually increase our profitability.
Mm-hmm.
To where we are today. I think the guidance were like 21.
21.4 at the.
Like at the midpoint.
Yep.
We are growing it nicely over here. Most of the things, or the vast majority of the things that we are able to do so far will build on the old automation that we built in the Simple AI and Self-Healing and all these tools, that the Gen AI is the next, is the future. This is the next wave. Given the very, I would say, stable business environment and the fact that this is a high mission-critical system, I think we can plan ahead. I think that we perfected the, remember, at the end of the day, we have 28,000 employees separate from R&D, centers, nearshore, offshore, onshore. I mean, you know, this is today when you plan the resource management, it's not, it's skills, it's language, it's tax. I mean, there are so many.
By the way, Gen AI is a major thing. How you deploy the right people on the right time to the right project.
Mm-hmm.
They need to have skills. Sometimes, you know, you need Portuguese speaking, some Spanish speaking. They need to, you know, you want to up tax. You want to optimize knowledge. I mean, you don't want to spread them too much across our 10 centers around the world. I think that, between the fact that a lot of the business is recurring, you can plan ahead. You can invest in a lot of automation to do things much efficient. This is what I think helped us, over time, to be very consistent in, you know, increasing our margin over time because of this capability.
Yeah. We are at time, so, but that said, I do wanna open it up to the audience if anyone has any questions. Okay. I think this has been an incredible story. Is there anything else that you wanna leave us with? I thought that was a good wrap there.
Yeah. I mean, as I, I mean, obviously we believe that Amdocs will continue to be the market leader in this domain. You know, communication in general, I mean, this has become like the backbone of society. I mean, all of us felt this definitely in COVID. Suddenly, I mean, the most important thing was, and I think that we invest a lot in the future through R&D and Gen AI. I think we have very strong partnership. NVIDIA is our largest partner in the Gen AI domain. Obviously AWS, Microsoft are large in the cloud. In general, these are very strong partners to Amdocs. We have an amazing team, amazing management team, and also great employees, a lot of innovation. We are very proud of what we do, and we will continue to push forward.
Yeah. Wow. Incredible customers, visibility going forward, and resilient offering. Thank you.
Thank you.
Because trust me, until I get, you don't know there's a problem until there's a problem. You're the security that's keeping us all sleeping well at night. Thank you both for.
Thank you guys.
Your time today.
Thank you all.